Crux
business strategy book by Richard Rumelt, on need to focus on key addressable strategic challenge (cf bottleneck)
Me:
- Part V is the meat here
- but, despite the various "case study" stories (see esp Ch 4 and 8), none of them are deep enough to help improve the quality of your thinking/process. I fear it will usually end up with note-and-vote mediocrity.
- at the very least, a diagram of effects showing the interaction of the multiple challenges seems like a crucial tool/step
Excerpts (partial?)
Introduction: The Roof of the Dog’s Ass
Introduction The Roof of the Dog’s Ass
rock outcroppings that attract the best boulder climbers from all over the world.
On my walks I would sometimes pass the boulder route known as Le Toit du Cul de Chien (The Roof of the Dog’s Ass).
Climbers call such boulders “problems” and describe the toughest part as “the crux.”
The first climber said that he chooses the climb having the greatest expected reward and whose crux he believes he can solve. In a flash of insight, I realize this describes the approaches of many of the more effective people I have known and observed
The “art of strategy” is not decision making—that discipline assumes that you have been handed a list of possible actions from among which to choose
To be a strategist you will need to embrace the full complex and confusing force of the challenges and opportunities you face. To be a strategist you will have to develop a sense for the crux of the problem
I EXPLORE FOUR themes in the pages that follow
First, the best way to deal with strategic issues is by squarely facing the challenge
In that diagnosis, find the crux.
Second, understand the sources of power and leverage that are relevant to your situation
Third, avoid the bright, shiny distractions that abound
Fourth, there are multiple pitfalls when executives work in a group, or workshop, to formulate strategy. By starting with the challenge, and avoiding a too rapid convergence on action, a group can define the crux and design coherent actions to overcome it.
Part I: Challenge-Based Strategy and the Crux
PART I Challenge-Based Strategy and the Crux
1. Carolyn’s Dilemma: How Do I Create a Strategy?
1 Carolyn’s Dilemma How Do I Create a Strategy?
My 10:00 a.m. appointment is with a student in the UCLA Anderson Fully-Employed MBA program. About thirty-five, she has responsibility for business planning at a health-products company
“We have a new CEO,” Carolyn begins, explaining that the chief executive officer has asked her to rethink her division’s business strategy
The only problem is that process doesn’t produce strategy—it produces plans. The dirty little secret of the strategy industry is that it doesn’t have any theory of strategy creation
A STRATEGY WALKTHROUGH FOR NETFLIX
In 2011 Netflix faced a significant upset. It had been paying $30 million per year to Starz for access to its shows. At contract renewal, Starz asked for an increase to $300 million per year. Netflix had to raise subscription fees by 60 percent, and its stock price took a nosedive
The Snare of Long-Term Goals
THE IDEA THAT a person or organization has one or two primary driving goals is simply not true. It is a fantasy invented by economists and certain management thinkers. The reality is that most people and organizations have “a bundle of ambitions.”
By confronting the situation actually being faced, a talented leader creates a strategy to further some elements out of the whole bundle of ambitions
Diagnosing the Challenges
Gnarly Challenges
I think of strategic challenges as arising in three basic forms: choice, engineering design, and gnarly. Most that I see are gnarly, perhaps because companies don’t ask for help with easier ones.
A choice challenge
An engineering-design challenge
A more difficult situation is the gnarly-design challenge. Here there are no given alternatives, and there are no good engineering-type models to test your designs against. There is no guarantee of a solution of any kind. There are not clear causal connections between actions and outcomes.
A Diagnosis of Netflix
the overall challenge seems to have these elements
In order to show the value of the crux, of getting to the heart of the matter of the strategic challenge, let me quickly describe some of the alternative policies and actions Netflix could take that easily come to mind
Netflix’s overall challenge is that it can no longer count on contracting for existing good TV and studio films at reasonable prices
In competition it is useful to look for asymmetries—ways in which competitors differ
In the case of Netflix, my attention is drawn to its stronger position in the international arena, an interesting imbalance
In my view, the crux of Netflix’s situation is the opportunity to use its current international advantage to create sufficient material to feed both its domestic and its growing international markets.
For Netflix, the crux analysis leads one to seek a mechanism for stimulating the international creation of good content while, at the same time, making Netflix the favored distribution channel
THIS PROCESS OF diagnosing the challenge and then creating a response is the best theory we have for strategy creation
2. Untangling the Challenge: Finding and Using the Crux
2 Untangling the Challenge Finding and Using the Crux
Skilled strategists are happy to look at analysis and data, but they are also able to identify and focus on a critical challenge or opportunity and then create a way to address it. They had a “nose” for what was vital and an ability to concentrate energy on such issues
The result is a design rather than a choice. It is a creation embodying purpose. I call it a “creation” because it is nonobvious to most others
searching for the central paradox, asking themselves what it is that makes the problem so hard to solve
THE TRAP OF TRYING TO DEDUCE A STRATEGY
You cannot deduce a strategy from some set of always relevant preset principles. An example of a group of executives making this mistake was ‘Paradigm Corp.’
The top management team had turned to Michael Porter’s book Competitive Advantage
Carl Lang’s strategy team had chosen the broad-differentiation strategy for Paradigm because the company had a history of competing based on having the broadest variety of specialized shapes and sizes
Carl’s team had chosen “new-product time to market” because the other operational “strategies” seemed impractical to them
Carl’s strategy had nothing to do with the challenges Paradigm faced.
Paradigm’s basic problems were that it had no effective control over manufacturing and that its largest customers were slowly growing firms.
DEDUCTION VERSUS DESIGN
Herbert Simon was fascinated by the difference between deduction and design. He explained that normal science is about understanding the natural world. “Design,” he argued, “on the other hand, is concerned with how things ought to be” in order to carry out human purposes
My own life experience supports Simon’s comment about the replacement of design with deduction in professional schools
Much of design is a combination of imagination and knowing about many other designs, copying some elements of each
GNARLY SITUATIONS
gnarly problems have these characteristics
There may be no clear definition of the problem itself (cf wicked)
Most of the time you do not have a single goal but a bundle of ambitions
Alternatives may not be given but must be searched for or imagined.
The connections between potential actions and actual outcomes are unclear. Opinions will differ sharply
So, we work to isolate the crux of the overall mix of challenges and opportunities
in 1999 Marvel had just come out of bankruptcy with a comic-book and toy business and with a huge debt burden. The company had an avid following among comic-book readers, but no general audience. Much of the debt was paid off by licensing out characters just for toys and games. The next opportunity lay in making Marvel characters into feature films
Marvel president Kevin Feige identified the crux of the problem as making the rest of the Marvel characters worth something. To attack that crux, he devised a plan to create value for a large group of Marvel characters by having them all inhabit the same fictional “universe.”
Locating the crux is the first maneuver in dealing with gnarly challenges. Discovering, or articulating, that solvable problem within the complexity of a gnarly challenge is not easy
use the practical tools of collecting, clustering, and filtering to help untangle gnarly situations
Collecting—making a list of problems, issues, and opportunities—ensures that you are looking at all the issues, not just the first to come to mind.
Clustering places problems and opportunities into groups
Often, these “challenges” are each really more than one challenge, so we break them apart. As things get broken down, we normally wind up with about twenty challenges and opportunities. We then try to cluster them into somehow related groups.
The purpose is not to establish scientifically solid sets but to explore the ways in which challenges differ
Following collecting and clustering, you realize that there are too many issues
They need to be filtered
The first step is sequencing: bringing to the forefront those that seem to be immediate, while deferring attention on many where action can be deferred
Once these challenges have been winnowed down, the next step in filtering is rating their importance and addressability. Importance is the degree to which the challenge either threatens the core values or existence of the enterprise or represents a major opportunity.
The judgment about addressability is the more contentious. Some challenges are clearly addressable. Some are very important yet fairly hard to address—that is where the crux will usually lie.
A critical challenge that does not seem easily addressable deserves great attention. Can it be divided into subproblems?
What is the single keystone constraint, which if broken, would make it addressable (the crux of the crux !) ?
The crux of a challenge is a point of tension where a constraint or conflict between resources and issues, or among policies, seems to chafe
When Amazon first opened its Marketplace service, it allowed outside firms to sell their products through the Amazon website. The conundrum was that some of these firms might gain scale and scope to challenge Amazon
Like so many insights, the solution seems simple in retrospect. Amazon began to greatly improve its logistics system and offered the Marketplace sellers use of its warehouse and shipping services
Another case of seeing the crux was Apple management realizing that Steve Jobs’s devotion to doing everything in-house was in stark conflict with the concept of an app store
You will have a much harder time dealing with a gnarly challenge if you have not distilled it down to a crux
DESIGNING ALTERNATIVES
Formulating a hypothesis about what will work follows from filtering the set of issues and breaking gnarly challenges into components. The design of action alternatives is the second maneuver in dealing with gnarly challenges.
Elon Musk, as we noted earlier, saw the crux of the challenge of cheaper cost to orbit as reusability.
Here are some more examples of audacious leaps to action based on a recognition of a crux:
Deng Xiaoping saw that China’s crux economic problem was dulled incentives to be efficient
Deng’s most important new bold action was to allow local communist collectives selling products and services to keep most of their profit
In Singapore the 1960 gnarly challenge was horrendous unemployment
Lee Kuan Yew believed that the crux of the challenge was that Singapore was a terrible place to do business
His actions were intensely coherent and, by developed Western standards, draconian. There would be no homeless squatters, no labor unions, no unrest
In 2003 Jason Fried was struggling to use email to handle the growing collection of contractors, consultants, and designers connected to his Web-design company’s expanding client base
Fried’s team boldly decided to invest in creating their own tool, now called Basecamp
Michael Eisner was named chairman and CEO in 1984, backed by the oil-rich Bass group. He began to see the crux of the challenge at Disney in its much-admired classic animated films such as Cinderella. These almost defined Disney to each generation when they were rereleased, but they could not be replicated
One key was breaking Disney’s culture of handcrafting its films by investing in computer-based animation. The other was expanding the company’s profit and growth beyond animated films to also center on creating new animated characters.
THE MECHANICS OF INSIGHT
The flash of insight is the experience of creation, and we share it when we recognize a good strategy
People who study or write about insight usually imply that it is instantly gratifying
Insight is not always “aha”; it may instead be “uh-oh.”
Insight does not automatically awaken at our call. It cannot be guaranteed, but it can be aided. If you have not grasped the thorns of the problem, you cannot expect insight into a solution
I start my own search for insight in the yet-to-be-questioned assumptions about how things work, in the asymmetries among interests and resources, and in the habits and inertia of others.
John Dewey’s original argument remains sound. He wrote that the most reliable source of new design ideas is “reflection” on a “felt difficulty.”
The key source of design insight is a clearheaded diagnosis of the structure of the challenge, especially its crux, by employing a tool kit of persistence, analogy, point of view, making explicit assumptions, asking why, and recognizing your unconscious constraints
When you get lost, there are rising feelings of helplessness and anxiety. It is frustrating not knowing which way to go, with the temptation to grasp onto the first hint of a way
The strong temptation is to adopt the first solution offered
The most direct source of insights are analogies
Direct examples from direct competitors are the clearest, but also risk a head-on competitive shoot-out
many of the most useful analogies are taken from other industries, other countries, or other times. Or they can come from other situations entirely
Marc Benioff started Salesforce.com as a direct analogy to Amazon. Howard Schultz started Starbucks after observing a coffee shop in Milan, Italy. Bill Gross started GoTo as an analogy to the yellow pages
We may also seek analogies that are closer to metaphor. If I draw a picture of this challenge, is it a spiral or a box? As Pepsi are we a grazing animal or a predator or a scavenger? In the United States, are we Rome in 50 BC, rising to world dominance, or Rome in AD 400, with barbarians using the empire’s own roads to invade?
FOCUSING IN ON the problem—looking only at a part, but in more explicit detail—can make parts of it clearer and easier to deal with. If you have a problem with the “customer experience,” looking just at the returns process, for example, may stimulate insights that can be used more broadly
Focusing out is the converse, where one sees the challenge as part of a larger landscape
MAKING ASSUMPTIONS EXPLICIT can sometimes indicate how a point of view can be usefully changed
For example, a large US automaker assumed that, by standardizing its parts-shipping containers, it achieved economies of scale and reduced the costs of their acquisition. This was true, but the additional, unstated, assumption that no other costs were imposed by this policy turned out to be false. Moving many parts in too large containers made for more damaged parts and costly rework
Asking “why” about the assumptions or about the way things are done is a way to break the existing frame
A MAJOR IMPEDIMENT to insight is unconscious constraint, an unrecognized assumption or belief about the world, or about the problem situation
SOLUTIONS
I. M. Pei’s design for a new entrance to the Louvre is a wonderful example of someone finding the crux of a problem and then having insight into a solution
Pei quickly concluded that the great empty courtyard had to be the center of the renewal. At that time, it was a dusty parking lot. The courtyard would be dug up, and new offices and storerooms would be built under it. But what about an entrance? Pei didn’t like the idea of an empty courtyard but, at the same time, didn’t want to erect a structure that would block views of the classic buildings surrounding it.
Pei’s design insight was a transparent glass structure in the center of the courtyard
There was great furor over this design when it was announced, and there are people today who still hate it
A SECOND FASCINATING example of identifying a crux and then a solution are the stories of GoTo and AdWords
Gross’s insight into the crux came from looking at the telephone yellow pages. Almost every company had a listing, with those paying more having larger ads. Could he build a search engine where companies paid for their positions in the results?
Yet GoTo worked well only as a form of advertising. If you were looking for information on how to fix a car, you would have to wade through pages of sponsored links
there was further innovation on the way
Google... invented a clever algorithm (PageRank) that became best in the industry.
they also struggled with the how-to-make-money problem. They saw Gross’s GoTo but were dead set against ruining their PageRank search results with paid-for links
Sometime in early 1999, Sal Kamangar, Google’s ninth employee, managed a team that defined and built Google’s AdWords system. The AdWords design idea was to put text advertisements on the side of the search-results page. Instead of contaminating the search-results list, this design kept results and paid ads separate
3. Strategy Is a Journey
3 Strategy Is a Journey
There was a time when I was a mountain climber, spending all my summers in the Tetons or the Wind River Mountains or the Alps. When you try a new route on a mountain, you do not have a clear map of exactly how you will get to the top. Your plan is normally more like “Let’s go up that gully and exit on the ledge to the left. Then we will see if that crack above goes.”
Real-life business strategy is a bit like that route up a mountain. You may have an ambition to get to the top of a particular peak, but the route requires overcoming a series of difficulties
Some challenges are long-term and broad in scope. Others are more immediate blockages, or sudden opportunities, encountered on the way forward
I emphasize this because there is a widespread misconception that a business strategy is some sort of long-range sketch of a desired destination. I encourage you to think of strategy as a journey through, over, and around a sequence of challenges.
An organization doesn’t face a single “battle” or even a single “war.” If it is to persist over time, it will face an ongoing series of challenges, each of which should be dealt with
While at Oracle, Benioff became familiar with Oracle’s OASIS system for customer- relationship management.
CRM software traditionally ran on a company’s computers, managed by the internal IT (information technology) department. In the late 1990s the leading suppliers were Oracle (OASIS system), Siebel, and SAP.
Marc Benioff recalled how in 1996 he dreamed how to build a cloud-based CRM: “I came up with the idea about how to build Salesforce.com in my sleep. Literally. I had a weird dream
He had been thinking about CRM systems for years and was deeply involved in looking for ways to reduce the large start-up costs customers had to bear
Benioff left Oracle in 1999 with the blessing of CEO Larry Ellison plus some $2 million in seed capital
The initial critical challenge he faced was attracting very good developers and more capital to feed them
Benioff’s approach was to build publicity
The first important product was SFA (Sales Force Automation). The next big challenge, not surprisingly, was getting companies to actually buy the product. The crux of this challenge was that such decisions were largely made by the IT department
The initial attack was to bypass corporate purchasing and have individual users directly purchase access for a low charge. That did not go well. So Benioff changed the policy to allow up to five users at a company to sign up for free. There would be a $50 per month fee for each user over five
The initial hypothesis was that the free sign-ups would generate inside influencers who would lead large companies to sign up. But sales analysis showed that smaller firms were actually the fastest-growing source of new customers. The company changed its policy to target small businesses
With the Internet crash in 2000, Salesforce.com faced financial difficulties. Many of its small business customers disappeared.
An internal debate arose
Benioff chose to raise the rate for monthly customers and press his best customers for longer-term deals
As the technology began to mature, Benioff sought to add new solutions, some broad and some industry specific. This was a new competitive idea—taking advantage of the installed base to offer “apps” and, eventually, bundles of apps.
The key to making this work was AppExchange, which was essentially an app store for business software
as each challenge was met, the ambition shifted and escalated
It is common to say that strategy is about choice. The word choice implies a set of given alternatives from among which to choose
The approaches Benioff took were designs, not choices
He knew that Aer Lingus costs were bloated, as were sole competitor British Airways’, on that route. Ryan calculated that Ryanair could emulate the cost structure of American Airlines
The company’s original strategy didn’t work out. Good service and low prices were themselves inconsistent. And aiming at the London–Dublin route against two state-subsidized carriers was inconsistent with being a small start-up. British Airways could afford to lose money on one of its routes. That is exactly what happened.
During the company’s restructuring, CEO Michael O’Leary visited the United States to look closely at low-cost carrier Southwest Airlines. There he saw a cost structure much lower than American Airlines and a clever strategy of not competing head-on
With new capital, Ryanair resumed business with a bare-bones cost structure, flying Dublin to Luton rather than London’s Gatwick Airport
at Ryan, the paid ticket was for air travel for the person only. Baggage was extra, having your boarding pass reprinted was extra, food was extra
Ryanair’s cost of carrying most passengers was about equal to its fares. Its profit came from its fees
As it gained confidence, Ryanair began to expand to the European continent, again aiming its routes away from the major airports and carriers
Ryanair grew rapidly over the ensuing twenty-five years, becoming the largest budget carrier in Europe and carrying more international passengers than any other airline in the world
Today, Ryanair faces a new gnarly challenge brought on by COVID-19 and the delays in Boeing’s production schedule
O’Leary also took particular exception to the way several European governments were subsidizing the major carriers and ignoring the low-cost start-ups
This new set of gnarly challenges put the company’s low-cost structure at risk
4. Where You Can Win: The ASC
the essential idea of focusing where you can “win” is neither trivial nor always followed
People and organizations can spend enormous resources and effort on what, based on history, they think they “are good at,” or what others say they are good at, or doubling down on a losing position, instead of on what promises the greatest gain
Designing or choosing often means leaving aside multiple issues and desires and focusing, instead, on what will make the most difference
PLAN DOG
Diagnosis will always reveal multiple challenges. To focus, some challenges must be put aside or deferred
Choose the crux that strikes at critical issues and can be surmounted, a logic exemplified in Plan Dog.
1940
Admiral Harold Stark, chief of naval operations, wrote a memo outlining the challenge: “If Britain wins decisively against Germany we could win everywhere
As a naval officer, he thought in terms of the two different hemispheres, or oceans. For him, the crux was that the United States could not really fight two world wars at once
he listed four strategic options, lettered A through D, summarized below:
President Roosevelt chose Admiral Stark’s option D, which became known by its letter as “Plan Dog.”
The two critical judgments behind Plan Dog were that the United States could not decisively prevail in both Europe and Asia at the same time and that defending Britain was more important than defending territories in the Pacific
Not everyone agreed. Many, like General Douglas MacArthur, saw America’s future with Asia, with Europe being the tired past
XRSystems
Stacy explained that she was facing a number of complex issues
One problem we face is new competition from an Israeli company with a sensor that combines pressure, vibration, and temperature readings, cutting the costs of having both
He wants to outsource our development work to contractors and brings this up at every meeting
Much of our product line requires encapsulation in quartz bulbs. We were experiencing quality and cost issues at our Ohio manufacturing facility, so three years ago the board decided to buy a small facility near Beijing and move quartz-bulb production there
After the move to a new building, production rates fell dramatically
Sales growth has been slow.
there is nothing new happening in nuclear power, jet engines, industrial furnaces, the chemical industry, or super-cold environments
the senior management team, more information was forthcoming
Stacy Diaz assembled a small team of herself and four other senior executives. This group worked to flesh out a diagnosis and examine alternative actions. Their summary diagnosis was that there was a saturated low-growth market for their sensor products; the company had a complacent internal culture, with marketing and sales adapted to the low-growth markets; and there was a lack of new technical ideas.
they knew the challenge of market saturation was the crux. It was important, but defining it that way made it seem unsolvable. The critical comment, one that pointed at the crux, was by the engineer who defended his idea about vehicle sensors by saying, “If our market is saturated, we have to find a market that isn’t.
THE CLASH OF AMBITION
When there are multiple values and desires, they together act to reduce the space of possible action as each creates new limits on action
Strategies are usually what I call “corner solutions.” The phrase comes from linear programming, where the solution to a problem is normally a set of actions defined by the intersection of various constraints—
When the constraints are so strong that no solution is possible, I call the strategy a “null set.” There is no solution without relaxing at least one of the constraints.
The standard human response to a null set is to behave myopically, giving obeisance to whichever value is most salient at the moment
When there are many conflicting desires, and conflicting theories about how they can be met, the consequences are indecision and myopic vacillation among various half measures
The crux in such cases is the strongest conflicting policies or values. To move out of the null, some constraints must be relaxed or removed. Some values held dear must be foregone
Competing ambitions and political constraints were also the issue at Microsoft in the years right after Apple’s iPhone appeared
needed to modernize its Windows-based mobile phone software. And, also facing the search-engine challenge from Google, it needed to break into the exploding Web-search marketplace. Instead of directly meeting these challenges, it put its best engineers on a complete redesign of Windows, trying to realize chairman Bill Gates’s dream of having a database-oriented file system
It is tempting to say that Microsoft would have done better had it concentrated on just one of these challenges
But, as many Microsoft employees have reported, there was a deeper challenge: a politicized internal culture combined with low skill at integrating newly acquired talent. Key creative talent abandoned the company
THE ASC
I call what passes the joint filters of critical importance and addressability an ASC (addressable strategic challenge).
The idea that some issues are more important than others is almost self-evident
But what is really meant by “important,” and how can one assess “importance”?
What is “important” depends on the situation and the interests of those asking the question.
An opportunity is important because it is large and risky and because it requires an adjustment in the company’s strategy.
the second test is addressability—the degree to which the challenge can be surmounted. Addressability depends on the skills and resources of the organization and the time span being considered
Mark remarked that “these are difficult judgments on two dimensions: there will be big differences in opinion. Whose should prevail ?” His was a deep question about how people should pool their opinions and information. The simple answer is that one purpose of hierarchy is to resolve such disagreements. The more complex answer is that intense discussion over why such judgments differ can lead to valuable insights.
CHUNKING THE CHALLENGE
stop thinking of “creating real differentiation” and “developing new capabilities” as being strategies. “They are,” I said, “more accurately described as being ambitions, intentions, or aspirations
You need to take each and break off a smaller ‘chunk’ that can be tackled and overcome, now.”
Paul was a very smart person. Yet, like many executives and political leaders, he had adopted the modern notion that “strategy” should describe a broad long-term path into the future. This certainly makes the job of writing down your strategy easier, but it dances around the hard part—distilling broad intent into actions that can be taken now.
The discipline of addressability does not pass over complex long-term challenges. It encourages breaking such challenges into smaller chunks, one of which can be tackled today
THE INTEL EXERCISE
articles and a short summary on issues facing Intel
The purpose was to help develop skills at identifying challenges and evaluating their importance and addressability
After reading the materials, some in the group voiced the view that the company seemed to face an almost bewildering range of challenges. Others countered that most large companies face this range of issues but rarely recognize them all
A spirited discussion produced a list of eleven key challenges facing Intel.
After several hours of discussion, each of the five participants was asked to score the challenges on importance and their addressability
Each challenge was scored on a 1–10 scale, and the scores were averaged over the group members
The graph clearly showed the group’s view that the two addressable critical challenges were manufacturing (10nm) and culture
Not shown in the chart are the ranges of scores
The most significant spread was around the AI challenge. Some thought it subsidiary, and others thought it was the wave of the future, an opportunity outweighing the other troubles clamoring for attention.
To truly identify the crux at Intel, we would have to know more about its internal culture and about the sources of its recent difficulties in manufacturing
5. The Challenge of Growth
5 The Challenge of Growth
Part II: Diagnosis
PART II Diagnosis
8. What Is the Problem? Diagnosing Through Reframing and Analogy
8 What Is the Problem? Diagnosing Through Reframing and Analogy
A CHANGED POINT OF VIEW
A key step in diagnosis is testing, adjusting, and changing the frame, or point of view.
QuestKo
A common obstacle to a clearheaded diagnosis of the situation is that some managers believe that leadership means emphasizing the positive and hiding the negative
QuestKo’s past leaders had assembled the company from five acquisitions, and that era was held up as one of great accomplishment
But why was the CEO spending time on these apparently standard and innocuous issues? There was nothing really strategic about the plan
“What about all this is difficult?”
There was a sense of decline
A recent survey showed that the “customer experience” rating for QuestKo was poor—actually dead last compared to competitors.
The market was growing, so sales revenue kept inching up as it slowly gave up some market share.
the turning point came around the idea of a critical winnable challenge. Instead of looking at the difficulties as a morass, we began to zero in on which ones could be surmounted. Not at some distant horizon but fixed or dealt with in the near future—say, eighteen to thirty-six months. Given this reorientation, the group began to focus on customer satisfaction.
The customer happiness issue didn’t seem to have a single cause
The insight was to reorient the new computer system around customer satisfaction
This time, the strategy group created an action plan
Over two years the change in orientation not only built better software but also changed the behavior of frontline managers. The company’s customer experience evaluations rose to the best in its business. Market share and profits increased accordingly
Jobs returned to Apple in 1997 and saved it from bankruptcy
in the summer of 1998, I asked Jobs a question. I said, “Everything we know about the PC business says that Apple cannot really push beyond a small niche position. The network effects are just too strong to upset the Wintel standard. So, what are you trying to do in the longer term? What is the strategy?” In response, he just smiled and said, “I am going to wait for the next big thing.”
the next big things for Jobs were iTunes and the iPod, released in 2001
Having the iPod in hand, one development project at Apple was to couple it with a phone. Another was work on Jobs’s long-wished-for portable “book” computer. Jobs was more interested in the pad-like (tablet) device than in phones
when I saw the rubber band, inertial scrolling, and a few of the other things, I thought, ‘My God, we can build a phone out of this.’”2 With that, Apple switched its development focus from the pad to the phone
Steve Jobs’s diagnosis of the situation was that the technology was close to being capable of providing a phone that could also be a real portable Web-surfing device (and an iPod too). No market research. He simply “knew” that this was something people would want and pay for. The crux of the challenge was to create one now, while it was still hard, before technological progress made it easy.
The first stage of the rocket powering the new iPhone was how it put the Web in your pocket
The first iPhone included a few apps like Visual Voicemail, the Safari web browser, the iPod music and video player, and Maps (powered by Google)
When the Apple app store opened in 2008, it had five hundred apps. A year later, Apple’s app store had fifty thousand apps.
Also, in 2008, Google announced its “free” Android operating system
In the smartphone world the third stage of the rocket was mobile social media, something no one had seen before.
THE WRONG CAUSAL MODEL
One of the most common tools of diagnosis is analogy
Analogy played a huge role in the success of Apple’s iPhone because a bad analogy drove key competitors in the wrong directions. When Apple introduced the iPhone in 2007, a number of industry experts predicted that it would not be a success
This conviction rested on making an analogy between the smartphone business and the older PC business.
But the analogy to the PC industry did not apply
PCs became clones because IBM made mistakes in design and in intellectual property protection
business demand in the phone market was already sated by BlackBerry. It was the consumer demand for Web-enabled smartphones that would explode. And Apple had not made serious blunders in design or the protection of intellectual property
AIRLAND BATTLE
The October 1973 Arab-Israeli War started with simultaneous surprise attacks by Egypt and Syria
in the late 1960s, spies finally got their hands on the Soviet Union’s war plans for invading Western Europe
The CIA was surprised by this plan for defeating NATO. They had long opined that the Soviet Union, like the United States, was mainly interested in deterring attacks, not in attacking
After a bit of serious war gaming, some US planners believed that the new weapons revealed in the Arab-Israeli War, together with the “double echelon,” would defeat NATO’s fallback defense. They came to the uncomfortable conclusion that the NATO war strategy for defending Europe was doomed to fail.
National planning is especially hard because every agency has reasons it needs more resources. And, military planning is especially hard. As one colonel told me in 2000
We have a reasonable handle on the evolution of weapon systems, but not on politics or even tactics. We have no idea where or when the president will ask us to go or what we will have to do.
As happens in some organizations, some managers below the very top ranks begin to work independently on solutions to the challenge.
General William DePuy, then commander of the new US Army Training and Doctrine Command (TRADOC), believed that the competitive gap could be closed with revised battle tactics and much-improved training
he diagnosed the crux of the challenge as being tactical—called “doctrine” in the military
At TRADOC, DePuy developed a concept called “Active Defense.”
The most important action taken to implement these new ideas was establishing the Fort Irwin National Training Center in the California desert. Fort Irwin became a “Top Gun” center for the hands-on training
Committing the Active Defense concept to training manuals invited a vigorous debate within the military that expanded from tactics to strategy. Many voices felt that the concept was insufficiently aggressive
Under the leadership of Lieutenant General Donn Starry, who had served with DePuy, a new doctrine was devised. First named “deep battle,” it reached its full expression in the 1986 edition of the field manual of operations (FM 100-5). Renamed “AirLand Battle,”
War gaming showed the new doctrine would work (with perhaps a 30 percent loss in NATO forces). Luckily, these scenarios never had to be put to the test.
9. Diagnose via Comparison and Frameworks
9 Diagnose via Comparison and Frameworks
Reaching further afield for comparisons can strain the analogy but can sometimes lend unexpected insight
In a reportorial coup, Brian Rosenthal, a New York Times reporter, published an article in 2017 titled “The Most Expensive Mile of Subway Track on Earth.” The project he studied was the East Side Access tunnel
Across the Atlantic Ocean, Paris is working on a project that brings the inefficiency of New York into stark relief. . . . while the Second Avenue Subway cost $2.5 billion a mile, the [Paris] Line 14 extension is on track to cost $450 million a mile
If you want to fix this, you have to know the contours of the problem. And, of course, you have to have enough executive power to do something about it.
The next time you hear a politician calling for massive “infrastructure spending,” remember Figure 12. Injecting more money into an inefficient system is just feeding the bloat. Fix it before you grow it.
REANALYSIS
Looking at existing data in new ways can reveal problems or opportunities
DelPiro,’ a Brazilian window manufacturer—
DelPiro’s surface issue was declining profit margins. The deeper problems were that management did not have a clear view of the differences in profitability across its product line.
Costs are tricky things. There is no such thing as “the” cost of making a casement window
To better understand the situation, we concentrated on understanding the costs of a batch
The results were eye-opening. The largest size windows had very high setup costs but were still much more profitable than management had thought. Seeing the high cost of setting up to make a batch of the larger windows, the company began to offer discounts for larger orders of the biggest windows. Moreover, the medium-size shutters were quite profitable. Given this new insight from the study, DelPiro began to push the marketing of these shutters
‘Courtney’ was the general manager of ‘SoPretty,’ a retail chain of thirty-eight stores that was a division of a larger corporation with activities in apparel, cosmetics, and accessori
One significant problem she faced in planning the chain’s expansion was choosing store sizes
It turned out that the number of competing women’s apparel shops within a one-kilometer radius was by far the most important determinant of PBT. Surprisingly, the poorest-performing SoPretty shops had only zero or one competitor nearby.
We divided the stores into three groups corresponding to low-, medium-, and high-traffic locations. Courtney’s analysts took as evidence that the larger shops were more profitable, but this original diagnosis that shop size was a key driver of profit was incorrect. Re-analysis of the company’s data showed that the amount of traffic was a key driver
within high-traffic areas, being larger hurt rather than helped
The MultiPlant Company
operated sixty-three production facilities around the world, each making a variety of consumer food products
senior management was united in their belief that costs were much too high in some of the plants
company had invested in an expensive SAP software
Bringing the price and cost data together, the result was surprising. There was no relationship between facility unit cost and gross margin per unit. The spread of profit rates among high-cost plants was just the same as for low-cost plants.
Gradually, an explanation emerged. The low-cost facilities tended to be in regions where retail prices were also lower. The high-profit facilities were located in areas with less competition from similar products
MAERSK LINE
Despite its size and market share, Maersk’s profits were low compared to the enormous amount of capital invested in ships and offices. Looking at competitors, most also seemed to be in the same position
with too much capacity, vicious price cutting ensued.
The international airline industry had also faced profitless conditions. One step toward a solution was to have the United States and the EU agree to code-sharing alliances.
Working on the analogy to the airline industry, Maersk led an industry movement to form shipping alliances
By 2017 there were three large shipping alliances, with Maersk Line and Swiss-Italian MSC belonging to the biggest, “2M.”
not working. The container shippers were not breaking even.
The analogy between container shipping and the airlines was weak
old hub-and-spokes model
industry has moved to point-to-point traffic using medium-size single-aisle jets
In container shipping, by contrast, there remain sharp cost economies in ever-larger ships that constantly tempt companies into commissioning ever-larger vessels
In 2019, group CEO Soren Skou announced that Maersk’s way forward was to use global scale and digital technology to integrate shipping with land-based operations like freight forwarding
the new analogy was FedEx
My own view is that the crux of the shipping-cost issue is land transport.
Companies like Amazon have made strides in optimizing these systems. Can Maersk carve out a position by integrating sea-based transport with land systems? Perhaps
INDUSTRY ANALYSIS
The case of Maersk fits nicely into one of the most popular tools for business analysis—Michael Porter’s “Five Forces” industry-analysis framework
But remember that the underlying model is about industry performance, not individual company performance
One issue with the framework is that most real industries contain firms with markedly different profit rates
10. Use Sharp Analytical Tools with Care
10 Use Sharp Analytical Tools with Care
The tools elaborated by top consulting firms are primarily focused on the diagnosis of competitive situations
In this chapter I will treat a few common frameworks or tools used in analysis or diagnosis. In each case I will provide a heads-up about what can go wrong.
It seems sensible, at first glance, to evaluate a proposed project or action by weighing its benefits against its costs.
The puzzling thing about this lovely theory is that only a few companies do it this way
in the real world, the largest risk in long-term investments is that the people proposing the investment are incompetent or lying.
The keystone of Project T had been a complex public test, enrolling hundreds of households in a trial rollout of the new technology. As I learned more and more of the details, I began to doubt
in the test market, the estimate of participants’ willingness to pay for the service was negative.
None of the ideas being deployed in Project T were proprietary, and most had actually come from outside firms. The financial projections were based on capturing most of the market and experiencing only price pressure from substitute products, not direct competitors.
As we sat there at ten in the evening, Bradley took a pair of scissors and cut the payback line out of the page. He worked with scissors and some transparent tape and pasted a revised payback curve back on the page. The chart now showed a payback in five years
“Professor Rumelt,” Bradley said, “you do not understand strategic planning. Strategic planning is a battle for corporate resources. It is a battle I intend to win.”
Despite Bradley’s resolve, Project T never went forward. The board decided that the project was too risky, and, as Bradley had worried, they wanted an even faster kick. The next year, the company sold off two divisions
Once you have to ask someone else how to allocate your resources, there is a potential problem
the best strategy work is rarely delegated but is done by the senior executive, or a small group of very senior executives, in discussion with highly trusted advisers. In this case, the company was so large that the very senior executives would not comprehend the various strategies and projects that vied for favor and funding
Although the board committee members were not knowledgeable about the technology involved, they were not stupid. They were aware of the existence of behavior like Bradley’s, and they knew that misrepresentations are most likely to be about the more distant future. They would, consequently, discount promises about more distant profits, forcing the company to behave myopically
This kind of situation is called an “agency” problem (Principal-Agent Problem), and a great deal of (mostly wasted) intellectual energy has been expended in trying to figure out how to produce good decisions in such messy situations
TRANSCENDING ANALYSIS
One method to cope with Bradley-type executives has been to transcend technical analysis by changing the language and rules of the game. An example of this was the development of the BCG growth-share matrix
The BCG matrix was largely the brainchild of BCG consultant Alan Zakon and arose out of a consulting project with Mead Corporation
In the mid-1980s I had a chance to talk with William Wommack, who had initiated the project with BCG. He was just stepping down from the board of Mead Corporation.
the company had used a very sophisticated capital budgeting system
“But,” he complained, “these businesses never made any money! We just kept pouring in capital.” Wommack indicated that he wanted a way to shift investment to newer, less capital-hungry, growing businesses. So they changed the language. The forest-based business “became a cash source whose role was to generate cash. Period.” The cash would be invested elsewhere.2
Jack Welch used the same method when he became CEO of General Electric in 1980. Looking across GE’s more than four hundred business units, he announced that each business should be “No. 1 or No. 2 in your industry.” Otherwise, “Fix it, sell it, or close it.”
A two-edged blade, the BCG matrix and Welch’s number 1 or 2 system have been used by companies without acknowledging the underlying rationale—transcending capital budgeting systems. Being clearheaded means understanding the analogy or framework you employ
DISRUPTION (disruptive innovation)
Like the old BCG matrix, its careless use can create more fog than clarity
Why weren’t previously successful companies responding effectively to these threats? Clayton Christensen and Bower’s explanation was that leading companies were too focused on their existing customers, especially their largest and most demanding customers. Following these customers’ desires for ever-larger, more powerful, or faster versions of products, companies lost sight of less effective but cheaper technologies
The Christensen theory had disruption coming from a low-price, less capable product. But there were glaring examples of the opposite
The iPhone was high priced, yet was clearly disruptive to RIM’s BlackBerry and Nokia’s phones
Consultants urged BlackBerry to continue concentrating on the enterprise market where it had a lock rather than the hypercompetitive consumer phone business
What directly destroyed BlackBerry was that during 2010, companies quickly, and surprisingly, began to adopt the “bring-your-own-phone” approach. Email was getting cheap, and people were bringing their own personal smartphones to work anyway. With iPhones and Androids appearing everywhere, security was lost.
A number of people have studied whether there really is a significant amount of disruption “from below.”
In sum, follow-on research has not supported the Christensen story of companies being too focused on main customers and missing the rise of low-performance
The decline of Kodak is often used as a warning about the fate of those who ignore the warning signals of disruptive forces. But there was no low-cost, low-performance “product” disrupting it.
Kodak was disrupted, but not by a competitor. It was disrupted by an entire ecosystem.
Kodak’s demise is also mirrored in the downfall of the Encyclopedia Britannica, done in by computers and the Web
It wasn’t Wikipedia, or Encarta, or Scholarpedia, or Digital Universe, or tablets, or phones that “disrupted” Britannica. It was the entire ecosystem of personal computers, phones, the Web, Google, bloggers, Google Books, and more
How to Deal with Disruption? The real challenge of “disruption” is not that you don’t see it coming. The real challenges are:
If you do not face any of these three sharp challenges, then you do not really have a disruption problem
there are many more—value-chain analysis, willingness-to-pay modeling, multinomial logit models of competition, McKinsey’s 7S framework, the Blue Ocean Strategy Canvas, scenario development, benchmarking, product life cycle, root-cause analysis, and more. Each narrows attention to just a few factors or issue, or even just one. And each tool is built on assumptions. Ignore those assumptions at your peril
Part III: Through the Crux
PART III Through the Crux
11. Seek an Edge
11 Seek an Edge
13. The Challenge of Organization Dysfunction
13 The Challenge of Organization Dysfunction
Part IV: Bright, Shiny Distractions
PART IV Bright, Shiny Distractions
14. Don’t Start with Goals
14 Don’t Start with Goals
15. Don’t Confuse Strategy with Management
15 Don’t Confuse Strategy with Management
16. Don’t Confuse Current Financial Results with Strategy
16 Don’t Confuse Current Financial Results with Strategy
17. Strategic Planning: Hits and Misses, Uses and Misuses
17 Strategic Planning Hits and Misses, Uses and Misuses
Part V: The Strategy Foundry
PART V The Strategy Foundry
The Strategy Foundry is a process by which a small group of executives can do challenge-based strategy, discover the crux, and create a set of coherent actions for punching through those issues
18. Rumsfeld’s Question
18 Rumsfeld’s Question
I tried to be a mini consulting firm
There were a good number of satisfying engagements
On the other hand, there were less successful efforts
Strategic analysis of the situation and recommendations for action were the warm-up routine—interesting but quickly forgotten. The starring show was the mainline annual “strategic plan.”
One example of the latter was ‘OKCo.’ In 2002 OKCo was a significant manufacturer of home and business-office climate-control systems
What I saw was that the company’s product line was stale and not up-to-date.
To compensate for the decline in the product’s performance, management had been lowering prices and increasing sales commissions
the company’s organization was sleepy and self-satisfied despite the slowly declining financial performance. Outsourcing the manufacturing of parts and assemblies to China had helped keep costs down.
The VP of strategy and I came up with a strategy to help build a better future for the company. The key was to invest in developing a microprocessor-based control system
In the early fall, the CEO and CFO presented the company’s “strategic plan.” Despite the study work, the “strategic plan” did not address issues we had raised, nor did it even glance at the recommendations
The problem at OKCo and many other companies was that the key challenge, already apparent to many, was not owned by the major policy makers
EXPERIENCES WITH OKCo and other organizations began to convince me that many organizations were sidestepping serious work on gnarly challenges
Delegating it to the VP of strategy turned it into a sideshow
It is natural to think that issues of great consequence should be considered by a small group of informed senior executives
Still, over the years, I have observed groups trying to do this and suffering more than a little confusion and dysfunction
One popular theory about this malaise was inaugurated by Irving Janis with his well-known concept of groupthink
Janis’s classic example of groupthink was President Kennedy’s 1961 Bay of Pigs fiasco invasion of Cuba. It is clear that the advisory group did not examine very many alternatives. But another main element, not spotlighted in Janis’s account, was the Central Intelligence Agency’s double game. The CIA, led by World War II spy Allen Dulles, wanted to displace Cuba’s Fidel Castro and also firmly believed that the invasion would not work unless US troops were involved. Kennedy did not want the political backlash that using US troops would produce. So there was actually a null set of feasible actions
The CIA nevertheless continued to go forward because Dulles believed that “when the invasion actually occurred, the president would end up authorizing whatever was required for success
But most such groups faced gnarly challenges: there were competing ambitions, no given action alternatives, and the links between proposed actions and results were very tenuous
In my experience, it is not group process per se that causes too early convergence on action. It is the habits of viewing strategy as setting overall goals or as decision making among predetermined alternative actions.
An uncomfortable example is the Second Iraq War. Its roots lie in an attempt to forge a new foreign policy. In 1997 twenty-five prominent conservatives signed on to the Project for the New American Century
For this group, the war in Afghanistan was a diversion. Early on in the Bush administration, attention focused on regime change in Iraq
The neoconservative group, led by Paul Wolfowitz and Dick Cheney, was convinced that the Middle East could be transformed.
I had the opportunity to interview then US secretary of defense Donald Rumsfeld in 2004. At that moment, he was trying to deal with a rising insurgency in Iraq
Almost as an afterthought, I asked him about his view on strategy or policy creation. His reply remains fascinating
The real problem,” he said, was pulling all of this expertise together into a coherent strategy. Rumsfeld said that “each morsel of expertise came with an agenda attached
Basically, you put a small group of smart people in a room and see what they come up with
The concept of decision making assumes that the issue is selecting the best action alternative
This is fine if you are trying to decide whether to buy or rent a forklift truck, but it is useless if you face the gnarly challenge of homelessness in San Francisco
Research on problem solving is even less helpful
Work on groups is even muddier.
As Dawn Farrell, CEO of energy company TransAlta, told me:
I had to work to build an effective leadership team
Starting with a small cadre, we now have a group of forty at the top who can and do work together to identify what needs to be done and then help each other to get it done
WHAT CAN BE DONE?
I began to apply my own framework to what I saw. What was my diagnosis?
What I began to see as the crux was the general belief that strategy is in the service of preset goals or policy objectives
19. A Foundry Walkthrough
19 A Foundry Walkthrough
‘Joanna Walker’ first contacted me by email. The CEO of ‘FarmKor,’ she was interested in a speaker for her annual strategy off-site
the Strategy Foundry should be a group of fewer than ten, preferably less than eight, senior leaders. It had to include the leader of the company or business division. And the group had to make a commitment to work with a challenge-based approach to strategy. The foundry worked best off-site and would usually take three consecutive days. There had been shorter sessions for smaller companies
I explained that the preparations were three steps
Paul, the CFO, asked about scheduling. The annual strategy off-site was normally held a month before the budgeting event. This is a key issue, and I worked to explain that the purpose of a foundry is to address the strategic issues. It will produce a set of critical challenges, guiding policy and action steps. However, the foundry is not a financial or accounting exercise.
THE INTERVIEWS AND QUESTIONS
The interviews resulted in these facts:
FarmKor products tracked the weather and ground chemistry and tried to provide crops with just the right amount of water and nutrients
FarmKor’s systems were used for growing tree and vine fruits, nuts, soy, herbs, beans, and a variety of vegetables
I interviewed the eight executives selected to constitute the Strategy Foundry and about five other key managers.
rest-of-world, or ROW). The company’s fastest growth was happening abroad, she explained, but it was thus far unprofitable. She needed someone to treat the ROW as a day-to-day responsibility rather than a monthly report-and-review exercise
THE WRITTEN QUESTIONS AND RESPONSES
After the interviews, I emailed each Strategy Foundry participant a list of questions to be answered in confidence directly back to me
DAY ONE
In general, competitive pressures had gotten stronger over the past five years. Automating agricultural processes had gained currency, and it had become easier to develop the required software.
After a coffee break, I handed out a list of strategic priorities. I had constructed this list from presentations to the board and all of their responses to question 5 on priorities. The list had twenty items
“The list is too long,” offered one participant. “These ‘priorities’ are too vague,” said another.
what are the key difficulties or challenges or obstacles that prevent you from just going ahead and doing some of these things?”
The afternoon was focused on identifying challenges facing FarmKor. As they surfaced, I wrote a short description of each “challenge” on a five-by-eight-inch card and pinned it to a board
By the end of the day, there were ten five-by-eight cards
Diminished Advantage:
Big Players’ R&D
the basic super-high-volume crops that feed the world: rice, wheat, and corn
Founders
their interests seem to be more and more slanted toward a steady, predictable payout of dividends
Falling Revenue/Acre
Too Many Parts
Precision Farming
use robotics and AI to make fleets of lightweight machines and aerial drones that can give individual attention to plants.
Regional Baronies
handful of entrepreneurial characters
Each of these people has made a lasting imprint on the region or district they developed. This has made harmonization difficult
Less Talent/Acre
Nutrient Substitutes
High-Tech Start-Ups
DAY TWO
why had the company’s responses been, thus far, so weak?
I then showed eight PowerPoint slides of quotes from my interviews
Of the ten issues we raised yesterday and today, are any of them impossible to confront if the company really focused on it?”
which one of ten is the most important?
I took the three cards representing those challenges and put them in the center of the board and collected all the others. “Let’s put aside all the challenges other than these three.
Which one would you pick, and what would be the action plan?”
I broke the participants into two groups
The three main action ideas
No group chose to work directly on the issue of regional baronies.
The crux of the challenge was their expansion into lower-value crops combined with diminished differentiation from large global competitors.
DAY THREE
The key policy adopted by the Strategy Foundry group was a shift toward serving high-value crops.
In addition to the new guiding policy and specific actions, I tasked the group with making their key assumptions explicit
When you meet as a foundry group again, whether in five or eleven months, you need to look at whether these assumptions were correct
The final step in the Strategy Foundry was a “swearing in.”
20. Strategy Foundry Concepts and Tools
20 Strategy Foundry Concepts and Tools
FOUNDRY PRECONDITIONS FOR SUCCESS
be committed to using a challenge-based approach to strategy
The Strategy Foundry is best held off-site.
In simpler situations, two days may be sufficient
Occasionally, a foundry is split between two sessions some weeks apart
You can conduct a Strategy Foundry with an internal facilitator if there is enough insulation from some of the politics and kickback associated with real strategy debate. My experience, however, is that people will talk more frankly to a trusted outsider. Other gains arise from an outsider’s willingness to say things that others will not or cannot express
A third crucial role becomes important in the second half of the foundry—maintaining a pressure to focus on the critical, yet addressable, challenges
WHAT MAKES A FOUNDRY FAIL?
For challenges to be identified and strategies created, there must be knowledge in the room about product, markets, competition, and technology
KEY FOUNDRY TOOLS
Deferred Judgment
Exposed Beliefs, Observations, and Judgments
Written Questions and Answers
The standard questions I always ask are those shown for FarmKor in the previous chapter
Attention to History
highlight the actions and projects that have worked well in the past. Critically, the group should try to articulate what conditions or actions led to success in these cases. Then, equally important is a review of projects and endeavors that have not worked out. Again, the group must try to articulate what led to these failures.
Start with the Challenge
Think Again
The Time Viewer
looked ahead seven years
image of Fortune magazine’s cover
Company of the Year
The cover-story process can also be applied to envision failure
imagine that we have a way to send a message to the company CEO’s laptop seven years ago. There is only one message. It has to be short and cannot contain any specific information about the future
As the group discovers how hard this is, they gain a new appreciation for what they are trying to do in the foundry
Instant Strategy
There are times when a group gets a little too “deep into the weeds” and has trouble narrowing focus to a few critical actions.
I ask each participant to write down in one sentence their recommendation for action, not a vague strategy or a performance goal, but a focused action that has a good chance of being accomplished. They have two minutes to commit this to paper
I used this with XRSystems, whose story I described in Chapter 4.
Forced Inward Analysis
The natural tendency when executives discuss strategy is to define challenges in terms of financial outcomes or competitive position. It may take an outside facilitator to lead the conversation to the challenges created by how the organization actually functions.
the reasons for declining profits
discussion shifted from complaints about competition toward how the company was actually competing
in one-third of the cases, the true strategic challenge lay with the organization’s structure or processes
Why Is That Hard ?
Chapter 8 described the case of QuestKo and my question to the CEO: “What about all this is difficult?”
Many times, management has been encouraging a direct assault on metrics rather than obstacles
Red Team
assigning talented people to the red team and having them devise tactics and strategies for winning against the opposing blue team
Sometimes a red-team exercise is as simple as having a particular member of the group role play a competitor or other outside party. How would the company’s plans look from that point of view? Would moves be misinterpreted?
When creating a strategy, a red-team exercise forces the group to evaluate “frame risk”—the chance that the way they think about the world and competition is wrong or critically incomplete
Find the ASCs
One of the most powerful foundry tools is boiling the situation down to a few addressable strategic challenges, or ASCs.
One approach, detailed in the Intel exercise described in Chapter 4, is to formally evaluate both the importance and the addressability of each of a number of challenges
A second approach is to “take things off the table.”
One important result of this focusing is going more deeply into each challenge. As that happens, people realize how complex it is and the many subproblems it exposes.
Focus on One or Two Proximate Objectives
The task, or objective, is proximate in that it can be done and can be done fairly soon. There is nothing that motivates an army or company better than winning. By tackling an important objective and overcoming it, leadership sets the stage for the next battle
Time Horizon
emphasis on action
eighteen-month horizon
A shorter time horizon also helps with achieving agreement. Groups are hesitant to “take things off the table” because each challenge is often connected to favorite projects and initiatives
Reference Classes
A reference class is a group of comparable situations or companies or challenges
Strategic Navigation
Swearing In
Public Face
For too many executives, “strategy” is all about the public face. That is, it is about the shape and substance of a public statement of purpose and priorities.
demand, it is important for the foundry to spend time and effort on the public face of the chosen policies and actions. In constructing a public face of the strategy, it is best to avoid goals and objectives and instead speak to a few key priorities. (Having more than three priorities stretches the meaning of the word!)
Acknowledgments
*ACKNOWLEDGMENTS *
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