<ul><li>Rising fixed costs</li><li>Deregulation</li><li>Biases in forecasting</li><li>Assessing incumbent responses to change</li><li>Attractor states, the future evolution of an industry based on the drive for overall efficiency</li></ul>

Mental Guideposts for Predicting Future Changes

<ul><li>They either deliver lower cost or greater perceived value</li><li>Advantages are often particular to a context, such as a location or a buyer persona</li><li>Sustained advantages have to be hard to duplicate; as with a network effect or a brand</li></ul>

The Nature Of Advantages

Focus is attacking a segment of the market with a system supplying more value to that part of the market than anyone else can.To find a company’s focus, look at its distinctive policies and ask what all of those policies are aimed at.Many large companies have no strategy and no focus.Example: Crown Cork & Seal has fast response times and great technical assistance so they can do small production runs on short notice. This raises their costs but means that they’re the only bidder for companies that need a fast, small production run.

Focus

Pivot points magnify the effects of focused energy; a small adjustment can unleash pent up energy.In Japan, customers want variety, so they have hundreds of food varieties that constantly change.In China, customers want service, so their stores are spotless.

Sources of Strategic Leverage: Pivot Points

Consider the habits, preferences, and policies of others together with inertias and constraints on changeFocus on the predictable downstream effects of changes that have taken placeExample: Toyota built hybrid engines because they foresaw that higher oil prices would create demand for greater fuel economy.

Sources of Strategic Leverage: Anticipation

<ul><li>Opting for all the options on the table or a consensus with something for everyone means that nobody sharpens their arguments or analysis.</li><li>Major choices involve reshaping the firm. You can only reshape in one way.</li><li>Scarcity creates a need to focus, focus is the core of the strategy.</li><li>Any strategy involving focus will disappoint some constituencies inside the company; often this is hard to do unless the company is under threat.</li></ul>

Inability to Choose

<ul><li>Focus on the intersection between the important and the actionable.</li><li>Rise above myopic focus on immediate needs.</li><li>Make a list of the ten most important things you can do and start at the top. Not a to-do list, a priority list.</li><li>Priority lists are helpful because we don’t naturally choose the things that are most important, we often forget our key priorities in the press of the day today.</li></ul>

Using Your Head

A bad strategy isn’t miscalculation, it’s avoiding the hard work of crafting a good strategy. Good strategy means making priority choices.Sources of bad strategy:<ul><li>Avoiding choices</li><li>Vision templates</li><li>New Thought: The Power of Positive Thinking</li></ul>

Why so Much Bad Strategy

To generate a strategy, one must put aside the comfort and security of pure deduction and launch into the murkier waters of induction, analogy, judgment, and insight.Thinking it through can be done by using one or more of the following approaches:<ul><li>Engage a panel of experts. </li><li>Write it down.</li><li>Practice.</li></ul>

Think like a Strategist

<ul><li>Fluff: Unnecessarily long words</li><li>Failure to face or define the challenge</li><li>Mistaking goals for strategy. You can’t just state your desires, you need to plan to overcome obstacles.</li><li>Bad strategic objectives. Good ones are means to an end, bad ones fail to address key issues or are impracticable.</li></ul>

The Four Hallmarks Of Bad Strategy

<ul><li>Growth by acquisition usually results in paying too much</li><li>Healthy growth is a response to demand for special capabilities</li><li>It should be accompanied by superior profits</li></ul>

Growth

A good strategy works by harnessing power and applying it where it will have the greatest effect.
The fundamental sources of power:
<ul>
<li>Leverage</li>
<li>Proximate objectives</li>
<li>Chain-link systems</li>
<li>Design</li>
<li>Focus</li>
<li>Growth</li>
<li>Advantage</li>
<li>Dynamics</li>
<li>Inertia</li>
<li>Entropy.</li>
</ul>

Sources of Power

<ul>
<li>Strategy is the application of strength against weakness.</li>
<li>Strategy creates new strengths through subtle shifts in viewpoint.</li>
<li>Most organizations have multiple conflicting objectives that amount to little more than spending more and try harder.</li>
<li>They spread resources to placate internal interests rather than concentrate resources to focus on pivot points.</li>
<li>Creating a good strategy means saying no to a variety of interests.</li>
</ul>

Good and Bad Strategy

<ul>
<li>Problem-solution: force yourself to tie your action to a diagnosis by framing strategic analysis in the form of problem-solution</li>
<li>Create-Destroy: Force yourself to question prior judgments by actively trying to destroy your initial intuitions</li>
<li>Commit to a judgment: Force yourself to decide what is most important and write it down.</li>
</ul>

The Kernel of Good Strategy

A proximate objective names a target that the organization can hit or even overwhelm
Example: Engineers can’t work without a specification, so set something determinate as a goal even if you’re not exactly sure what you need.
The US decided that the space race was about the moon, which was the objective we were better placed to achieve.
Proximate objectives are simple and defined. Leaders construct them this way even if the organization’s true challenges are complex and ambiguous

Proximate Objectives

<ul><li>Exploit a wave of change by seeing its effects before others do</li><li>Waves of change are exogenous: They occur because of reasons outside your company</li><li>Most industries are stable most of the time; without change, there may be few strategic opportunities</li><li>Look for a present effect, understand the forces underlying the effect and the second-order changes that these forces will create</li></ul>

Using Dynamics

<ul><li>Good strategies focus on one or two objectives, bad ones sweep together 143 items on a to-do list that encompasses the wish list of every department or constituency in your company</li><li>A simple statement of the goal with no attention to how it will be achieved or the difficulties of achieving it</li><li>Underperformance is not a challenge; the challenges are the reasons for the underperformance</li></ul>

Strategy Objectives

<ul><li>Returns to concentration happen when focusing on fewer things generates large payoffs.</li><li>Threshold effects are in evidence when you need to hit a certain critical mass to see a return.</li><li>In advertising, companies often “pulse” ads so they overcome thresholds any one moment.</li><li>Dominating a very small market can be better than having some presence in many.</li><li>Most organizations can only focus on a few critical problems at a time.</li></ul>

Sources of Strategic Leverage: Concentration

<ul><li>Good strategies are hypotheses about what will work.</li><li>Strategy is inductive, not deductive. You don’t already know all the basic principles you need in order to solve the problem.</li><li>Hypotheses may arise from intuition. The best can be tested without excessive investment.</li><li>If the strategy requires tight coordination among many different elements, it may be necessary to own each element rather than contract it out.</li></ul>

 The Science of Strategy

Systems have a chain-link logic when performance is limited by the weakest subunit or link.Improving a single link does not improve the results of the system as a whole unless the weakest link is improvedMerely creating more pressure for higher profits wouldn’t solve the problem because multiple areas under the control of different teams each need to be improved before the results show up in increased profitsA sequential strategy works best in which leaders take responsibility for the final results and focus on one link at a time.

Chain-Link Systems

Success isn’t just about what your organization does, it’s also about blocked or failed competitionFor example, in setting cold war strategy, it made little sense to match Soviet capabilities. The best method was to build on our strengths in ways that were aimed at their weaknesses.Act so as to impose exorbitant costs on the competition using your relative advantages

Discovering Power

<ul><li>Many good strategies today are more designs than decisions, in other words, you’re building something not making a choice.</li><li>In design problems, getting the right combination of elements that complement each other produces massive gains, being slightly off imposes massive costs.</li><li>Tightly integrated designs are very effective but are harder to create, narrower in focus, and less flexible in the face of change.</li><li>Strategic resources are long-lasting and cannot be duplicated without creating a net economic loss.</li><li>Many upstart companies have a tightly integrated strategy that unseats an incumbent.</li></ul>

Using Design

<ul>
<li>These are a company vision that inspires people to change and empowers people to accomplish that vision</li>
<li>All this inspiration isn’t the same as making choices to focus on the right objectives; therefore it shouldn’t be confused with strategy</li>
</ul>

Sources of Bad Strategy: Vision Templates

Airline deregulation: Even after deregulation ended, airlines used the same rules of thumb they’d used during the period of regulation<ul><li>Assumptions like “we’ll always make 12% return on capital” may be baked into decision processes but no longer apply in the new environment.</li><li>Fix these by changing the perceptions of top management.</li></ul>

Inertia and Energy: Routine

<ul><li>The kernel of a good strategy has three components:</li><li>The diagnosis that explains the challenge and highlights its most important aspects</li><li>Guiding policy that forms the overall approach to overcome the obstacle</li><li>Coherent actions that reinforce each other to accomplish the guiding policy</li></ul>

Even after AT&T lost its position as a regulated monopoly, its old non-competitive routines stayed in place even after management wanted to shift the company to a competitive footingFix this by simplifying the organizational structure. This will illuminate the inefficiencies hidden in the system. It may be necessary to fragment the group structure into smaller pieces.To change group norms, you may need to change the alpha member of the group.

Inertia and Energy: Old Habits Die Hard

<ul>
<li>Dividing customers into three tiers based on importance and setting specific objectives for each tier, like maximizing prime shelf space with the top tier and getting some shelf space with the bottom tier</li>
<li>Linking small stores together to maximize their purchasing power and fight back against a large chain</li>
</ul>

Good Objectives

<ul>
<li>Advantages are rooted in differences with opponents</li>
<li>Identify which differences are most important and maximize their impact</li>
<li>Press where you have the advantage, avoid situations where you don’t</li>
</ul>
Interesting advantages are ones that you can increase with strategic skill, like growing a fruit that you can market more effectively using your special marketing skills. Boring advantages are just a given that cannot be optimized, like a machine that simply produces silver.

Advantages

This is the idea that positive thoughts help you achieve outcomes. Examples include The Power of Positive Thinking, Tony Robbins, Christian Science.Success doesn’t come from New Thought. Ford didn’t have a unique vision of building a car for the masses nor was his vision particularly shared with the assembly line workers; what he had was the engineering skill to make it happen.

Sources of Bad Strategy: New Thought

Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished

Argues that a manager's central responsibility is to create and implement strategies, challenges popular motivational practices, and shares anecdotes discussing how to enable action-oriented plans for real-world results.

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Strategy

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Problem Solving

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Books

Good Strategy/Bad Strategy clarifies the muddled thinking underlying too many strategies and provides a clear way to create and implement a powerful action-oriented strategy for the real world.   Developing and implementing a strategy is the central task of a leader. A good strategy is a specific and coherent response to—and approach for—overcoming the obstacles to progress. A good strategy works by harnessing and applying power where it will have the greatest effect. Yet, Rumelt shows that there has been a growing and unfortunate tendency to equate Mom-and-apple-pie values, fluffy packages of buzzwords, motivational slogans, and financial goals with “strategy.” In Good Strategy/Bad Strategy, he debunks these elements of “bad strategy” and awakens an understanding of the power of a “good strategy.” He introduces nine sources of power—ranging from using leverage to effectively focusing on growth—that are eye-opening yet pragmatic tools that can easily be put to work on Monday morning, and uses fascinating examples from business, nonprofit, and military affairs to bring its original and pragmatic ideas to life. The detailed examples range from Apple to General Motors, from the two Iraq wars to Afghanistan, from a small local market to Wal-Mart, from Nvidia to Silicon Graphics, from the Getty Trust to the Los Angeles Unified School District, from Cisco Systems to Paccar, and from Global Crossing to the 2007–08 financial crisis. Reflecting an astonishing grasp and integration of economics, finance, technology, history, and the brilliance and foibles of the human character, Good Strategy/Bad Strategy stems from Rumelt’s decades of digging beyond the superficial to address hard questions with honesty and integrity.

Richard Rumelt is an accomplished writer whose work has resonated with readers around the world. Richard Rumelt has published several books that explore a range of topics, from fiction to nonfiction, and has received critical acclaim for the ability to weave compelling narratives. Richard Rumelt's writing style is known for its depth and authenticity, and has earned quite a loyal following of readers.

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