leader’s most important responsibility is identifying the biggest challenges to forward progress and devising a coherent approach to overcoming them. In contexts ranging from corporate direction to national security, strategy matters. (Page 18)
A good strategy recognizes the nature of the challenge and offers a way of surmounting it. Simply being ambitious is not a strategy. (Page 19)
Unfortunately, good strategy is the exception, not the rule. And the problem is growing. More and more organizational leaders say they have a strategy, but they do not. Instead, they espouse what I call bad strategy. Bad strategy tends to skip over pesky details such as problems. It ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Like a quarterback whose only advice to teammates is “Let’s win,” bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values. (Page 21)
A good strategy includes a set of coherent actions. They are not “implementation” details; they are the punch in the strategy. A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component. (Page 23)
The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action. The guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis. It is like a signpost, marking the direction forward but not defining the details of the trip. Coherent actions are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy. (Page 24)
The creeping spread of bad strategy affects us all. Heavy with goals and slogans, the national government has become less and less able to solve problems. Corporate boards sign off on strategic plans that are little more than wishful thinking. Our education system is rich with targets and standards, but poor in comprehending and countering the sources of underperformance. (Page 25)
A good strategy doesn’t just draw on existing strength; it creates strength through the coherence of its design. Most organizations of any size don’t do this. Rather, they pursue multiple objectives that are unconnected with one another or, worse, that conflict with one another. (Page 26)
A good strategy has coherence, coordinating actions, policies, and resources so as to accomplish an important end. Many organizations, most of the time, don’t have this. Instead, they have multiple goals and initiatives that symbolize progress, but no coherent approach to accomplishing that progress other than “spend more and try harder.” (Page 28)
Wired magazine carried an article titled “101 Ways to Save Apple.” It included suggestions such as “Sell yourself to IBM or Motorola,” “Invest heavily in Newton technology,” and “Exploit your advantage in the K–12 education market.” Wall Street analysts hoped for and urged a deal with Sony or Hewlett-Packard. (Page 28)
Within a year, things changed radically at Apple. Although many observers had expected Jobs to rev up the development of advanced products, or engineer a deal with Sun, he did neither. What he did was both obvious and, at the same time, unexpected. He shrunk Apple to a scale and scope suitable to the reality of its being a niche producer in the highly competitive personal computer business. He cut Apple back to a core that could survive. Steve Jobs talked Microsoft into investing $150 million in Apple, exploiting Bill Gates’s concerns about what a failed Apple would mean to Microsoft’s struggle with the Department of Justice. Jobs cut all of the desktop models—there were fifteen—back to one. He cut all portable and handheld models back to one laptop. He completely cut out all the printers and other peripherals. He cut development engineers. He cut software development. He cut distributors and cut out five of the company’s six national retailers. He cut out virtually all manufacturing, moving it offshore to Taiwan. With a simpler product line manufactured in Asia, he cut inventory by more than 80 percent. A new Web store sold Apple’s products directly to consumers, cutting out distributors and dealers. (Page 29)
He did not attack my argument. He didn’t agree with it, either. He just smiled and said, “I am going to wait for the next big thing.” Jobs did not enunciate some simple-minded growth or market share goal. He did not pretend that pushing on various levers would somehow magically restore Apple to market leadership in personal computers. Instead, he was actually focused on the sources of and barriers to success in his industry—recognizing the next window of opportunity, the next set of forces he could harness to his advantage, and then having the quickness and cleverness to pounce on it quickly like a perfect predator. (Page 32)
Despite this, most organizations will not create focused strategies. Instead, they will generate laundry lists of desirable outcomes and, at the same time, ignore the need for genuine competence in coordinating and focusing their resources. Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organization does not do as it is about what it does. (Page 39)
Whenever an organization succeeds greatly, there is also, at the same time, either blocked or failed competition. Sometimes competition is blocked because an innovator holds a patent or some other legal claim to a temporary monopoly. But there may also be a natural reason imitation is difficult or very costly. Wal-Mart’s advantage must stem from something that competitors cannot easily copy, or do not copy because of inertia and incompetence. In the case of Wal-Mart, the principal competitive failure was Kmart. (Page 44)
Copying elements of its strategy piecemeal, there will be little benefit. A competitor would have to adopt the whole design, not just a part of it. (Page 45)
the doctrine of decentralization, that each kettle should sit on its own bottom. Kmart had long adhered to this doctrine, giving each store manager authority to choose product lines, pick vendors, and set prices. After all, we are told that decentralization is a good thing. But the oft-forgotten cost of decentralization is lost coordination across units. Stores that do not choose the same vendors or negotiate the same terms cannot benefit from an integrated network of data and transport. Stores that do not share detailed information about what works and what does not cannot benefit from one another’s learning. If your competitors also operate this kind of decentralized system, little may be lost. But once Walton’s insights made the decentralized structure a disadvantage, Kmart had a severe problem. A large organization may balk at adopting a new technique, but such change is manageable. But breaking with doctrine—with one’s basic philosophy—is rare absent a near-death experience. (Page 47)
Tradition saw discounting as tied to urban densities, whereas Sam Walton saw a way to build efficiency by embedding each store in a network of computing and logistics. Today we call this supply-chain management, but in 1984 it was as an unexpected shift in viewpoint. (Page 48)
“in dealing effectively with the other side, a nation seeks opportunities to use one or more distinctive competences in such a way as to develop competitive advantage—both in specific areas and overall.” It then went on to explain that the crucial area of competition was technology because the United States had more resources and better capabilities in that area. And, most important, it argued that having a true competitive strategy meant engaging in actions that imposed exorbitant costs on the other side. In particular, it recommended investing in technologies that were expensive to counter and where the counters did not add to Soviet offensive capabilities. For instance, increasing the accuracy of missiles or the quietness of submarines forced the Soviet Union to spend scarce resources on counters without increasing the threat to the United States. Investments in systems that made Soviet systems obsolete would also force them to spend, as would selectively advertising dramatic new technologies. (Page 49)
But in 1990, when we discussed policy processes, before revisionists of all stripes started to rewrite history, it was clear that the Soviet Union was faltering because it was overextended. It was going broke economically, politically, and militarily. The United States’ more accurate missiles, the rise of integrated circuits and the yawning technology gap, forward missile placements in Europe, Ronald Reagan’s Strategic Defense Initiative, and investments in underwater surveillance had all put an unbearable pressure on the USSR to invest. (Page 50)
use your relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you. (Page 51)
Their insight was framed in the language of business strategy: identify your strengths and weaknesses, assess the opportunities and risks (your opponent’s strengths and weaknesses), and build on your strengths. But the power of that strategy derived from their discovery of a different way of viewing competitive advantage—a shift from thinking about pure military capability to one of looking for ways to impose asymmetric costs on an opponent. (Page 51)
To detect a bad strategy, look for one or more of its four major hallmarks: • Fluff. Fluff is a form of gibberish masquerading as strategic concepts or arguments. It uses “Sunday” words (words that are inflated and unnecessarily abstruse) and apparently esoteric concepts to create the illusion of high-level thinking. • Failure to face the challenge. Bad strategy fails to recognize or define the challenge. When you cannot define the challenge, you cannot evaluate a strategy or improve it. • Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles. • Bad strategic objectives. A strategic objective is set by a leader as a means to an end. Strategic objectives are “bad” when they fail to address critical issues or when they are impracticable. (Page 53)
Bad strategy, I explained, is not the same thing as no strategy or strategy that fails rather than succeeds. Rather, it is an identifiable way of thinking and writing about strategy that has, unfortunately, been gaining ground. Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impracticable. It uses high-sounding words and phrases to hide these failings. (Page 58)
Fluff is superficial restatement of the obvious combined with a generous sprinkling of buzzwords. Fluff masquerades as expertise, thought, and analysis. (Page 59)
A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity—a flurry of fluff masking an absence of substance. (Page 63)
If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen. (Page 66)
Today, Harvester’s 1979-style strategic planning is out of fashion. Instead of long tables of numbers and bubble charts, we have a different type of ritualized formalism for producing “strategic plans.” The current fill-in-the-blanks template starts with a statement of “vision,” then a “mission statement” or a list of “core values,” then a list of “strategic goals,” then for each goal a list of “strategies,” and then, finally, a list of “initiatives.” (Page 66)
DARPA focuses on projects the military services see as too risky or too removed from their current missions. It tries to imagine what commanders will want in the future rather than what they are calling for today, but it restricts its work to that conducted by very talented people with very good ideas. Some of DARPA’s successes include ballistic missile defense, stealth technology, GPS, speech recognition, the Internet, unmanned land and air vehicles, and nanotechnology. (Page 67)
DARPA’s strategy is more than a general direction. It includes specific policies that guide its everyday actions. For example, it retains program managers for only four to six years to limit empire building and to bring in fresh talent. The expectation is that a new program manager will be willing to challenge the ideas and work of predecessors. (Page 68)
strategy is like a lever that magnifies force. Yes, you might be able to drag a giant block of rock across the ground with muscles, ropes, and motivation. But it is wiser to build levers and wheels and then move the rock. I tried again: (Page 70)
At the Some and Passchendaele, Haig led an entire generation of British and Dominion youth to their deaths—as Joseph Joffre did for the French at the Some, and Erich von Falkenhayn did for the Germans at Verdun. In Europe, motivational speakers are not the staple on the management lecture circuit that they are in the United States, where the doctrine of leadership as motivation is alive and well. Here, for example, is H. Ross Perot: “Most people give up just when they’re about to achieve success. They quit on the one-yard line. They give up at the last minute of the game, one foot from a winning touchdown.” Hearing this, many Americans nod in agreement. Many Europeans, by contrast, hear the echo of the “one last push” at Passchendaele. There, the slaughtered troops did not suffer from a lack of motivation. They suffered from a lack of competent strategic leadership. (Page 73)
Effective senior leaders don’t chase arbitrary goals. Rather, they decide which general goals should be pursued. And they design the subgoals that various pieces of the organization work toward. Indeed, the cutting edge of any strategy is the set of strategic objectives (subgoals) it lays out. One of the challenges of being a leader is mastering this shift from having others define your goals to being the architect of the organization’s purposes and objectives. (Page 76)
a blue-sky objective is usually a simple restatement of the desired state of affairs or of the challenge. It skips over the annoying fact that no one has a clue as to how to get there. (Page 79)
When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance. Unless leadership offers a theory of why things haven’t worked in the past, or why the challenge is difficult, it is hard to generate good strategy. (Page 81)
An interesting aspect of this language is the idea that leadership teams must share common beliefs and values. This is now a frequent demand in education circles. One would hope that the experience of North Korea would have cured people of the idea that forcing everyone to believe in and value the same things is the road to high performance. Yet, within politically correct edu-speak, this impossible state of affairs is continually sought as the path to “transformational change.” (Page 82)
Bad strategy flourishes because it floats above analysis, logic, and choice, held aloft by the hot hope that one can avoid dealing with these tricky fundamentals and the difficulties of mastering them. Not miscalculation, bad strategy is the active avoidance of the hard work of crafting a good strategy. One common reason for choosing avoidance is the pain or difficulty of choice. When leaders are unwilling or unable to make choices among competing values and parties, bad strategy is the consequence. A second pathway to bad strategy is the siren song of template-style strategy—filling in the blanks with vision, mission, values, and strategies. This path offers a one-size-fits-all substitute for the hard work of analysis and coordinated action. A third pathway to bad strategy is New Thought—the belief that all you need to succeed is a positive mental attitude. (Page 84)
However, the effect of the Condorcet paradox was felt in the group’s inability to form a stable majority coalition. Staying with the simplification of three people, when any two tried to agree on an outcome, forming a majority, one of them was then tempted to defect and join forces with the third, forming a different majority that was closer to their desire. (Page 87)
It was a political outcome reached by individuals who, forced to reach a consensus, could not agree on which interests and concepts to forgo. So they avoided the hard work of choice, set nothing aside, hurt no interest groups or individual egos, but crippled the whole. (Page 88)
President Eisenhower’s campaign promises made during the presidential election of 1952 was to roll back the Soviet Union from Eastern Europe. He won the election in a landslide. But after the election he initiated a study (Project Solarium) of national policy with regard to the Soviet Union, a project that remains the gold standard for how security strategy should be made. Having studied the problem and the alternatives he then made the hard choice—he put aside his campaign promises and chose not to challenge the USSR’s conquests in Eastern Europe. (Page 89)
Strategies focus resources, energy, and attention on some objectives rather than others. Unless collective ruin is imminent, a change in strategy will make some people worse off. Hence, there will be powerful forces opposed to almost any change in strategy. This is the fate of many strategy initiatives in large organizations. There may be talk about focusing on this or pushing on that, but at the end of the day no one wants to change what they are doing very much. When organizations are unable to make new strategies—when people evade the work of choosing among different paths into the future—then you get vague mom-and-apple-pie goals that everyone can agree on. Such goals are direct evidence of leadership’s insufficient will or political power to make or enforce hard choices. Put differently, universal buy-in usually signals the absence of choice. (Page 91)
“Effective leadership doesn’t depend on charisma. Dwight Eisenhower, George Marshall, and Harry Truman were singularly effective leaders, yet none possessed any more charisma than a dead mackerel.… Charisma does not by itself guarantee effectiveness as a leader.” (Page 93)
The kernel of a strategy contains three elements: 1. A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical. 2. A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis. 3. A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy. (Page 107)
When a diagnosis classifies the situation as a certain type, it opens access to knowledge about how analogous situations were handled in the past. (Page 110)
Decentralized schools, he argues, perform better. Now, whether the organization of a school system explains most of the variations in school performance is not actually critical. What is critical, and what makes his diagnosis useful to policy makers, is that organization explains some part of school performance and that, unlike culture or social class, organization is something that can be addressed with policy. (Page 112)
Good guiding policies are not goals or visions or images of desirable end states. Rather, they define a method of grappling with the situation and ruling out a vast array of possible actions. (Page 115)
Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it. A good guiding policy tackles the obstacles identified in the diagnosis by creating or drawing upon sources of advantage. Indeed, the heart of the matter in strategy is usually advantage. (Page 116)
A guiding policy creates advantage by anticipating the actions and reactions of others, by reducing the complexity and ambiguity in the situation, by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, and by creating policies and actions that are coherent, each building on the other rather than canceling one another out. (Page 117)
An economist would tell her that she should take actions that maximize profit, a technically correct but useless piece of advice. In the economics textbook it is simple: choose the rate of output Q that provides the biggest gap between revenue and cost. In the real world, however, “maximize profit” is not a helpful prescription, because the challenge of making, or maximizing, profit is an ill-structured problem. Even in a corner grocery store, there are hundreds or thousands of possible adjustments one can make, and millions in a business of any size—the complexity of the situation can be overwhelming. (Page 118)
The kernel of a strategy must contain action. It does not need to point to all the actions that will be taken as events unfold, but there must be enough clarity about action to bring concepts down to earth. To have punch, actions should coordinate and build upon one another, focusing organizational energy. (Page 119)
The idea of centralized direction may set off warning bells in a modern educated person. Why does it make sense to exercise centralized power when we know that many decisions are efficiently made on a decentralized basis? One of the great lessons of the twentieth century—the most dramatic controlled experiment in human history—was that centrally controlled economies are grossly inefficient. More people starved to death in Stalin’s and Mao Tse-tung’s centrally planned regimes than were killed in World War II. People continue to starve to death in North Korea today. In modern economies, trillions of decentralized choices are made each year, and this process can do a pretty good job of allocating certain kinds of scarce resources. (Page 126)
we should seek coordinated policies only when the gains are very large. There will be costs to demanding coordination, because it will ride roughshod over economies of specialization and more nuanced local responses. The brilliance of good organization is not in making sure that everything is connected to everything else. Down that road lies a frozen maladaptive stasis. Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination. (Page 127)
In very general terms, a good strategy works by harnessing power and applying it where it will have the greatest effect. In the short term, this may mean attacking a problem or rival with adroit combinations of policy, actions, and resources. In the longer term, it may involve cleverly using policies and resource commitments to develop capabilities that will be of value in future contests. (Page 128)
Finding such crucial pivot points and concentrating force on them is the secret of strategic leverage. Knock loose a keystone, and a giant arch will fall. Seize the moment, as James Madison did in 1787, turning colleague Edmund Randolph’s ideas about three branches of government with a bicameral legislature into the first draft of the Constitution, and you just might found a great nation. When the largest computer company in the world comes knocking at your door in 1980, asking if you can provide an operating system for a new personal computer, say, “Yes, we can!” And be sure to insist, as Bill Gates did in 1980, that, after they pay you for the software, the contract still permits you to sell it to third parties. You just might become the richest person in the world. (Page 130)
strategic leverage arises from a mixture of anticipation, insight into what is most pivotal or critical in a situation, and making a concentrated application of effort. (Page 131)
In competitive strategy, the key anticipations are often of buyer demand and competitive reactions. (Page 131)
Most strategic anticipation draws on the predictable “downstream” results of events that have already happened, from trends already at work, from predictable economic or social dynamics, or from the routines other agents follow that make aspects of their behavior predictable. (Page 132)
If you do standard “scenario” forecasting, you wind up with a graph with three lines labeled “high,” “medium,” and “low.” Everyone looks at it and believes that they have paid attention to the uncertainty. Then, of course, they plan on “medium”! But they are missing the risk. The risk is not that the price of oil may be high or may be low. The risk is that it will go high, suckering you into a major investment, and then turn and dive to low, leaving you with useless assets. (Page 133)
there seems to be a threshold effect in advertising. That is, a very small amount of advertising will produce no result at all. One has to get over this hump, or threshold, to start getting a response to advertising efforts.5 This means it may pay companies to pulse their advertising, concentrating it into relatively short periods of time, rather than spreading it evenly. It may also make sense for a company to roll out a new product region by region, concentrating its advertising where the product is new so as to spur adoption. (Page 136)
business strategists will often prefer to dominate a small market segment over having an equal number of customers who represent only a sliver of a larger market. Politicians will often prefer a plan that delivers a clear benefit to a recognizable group over one that provides larger benefits spread more thinly across the population. (Page 137)
One of a leader’s most powerful tools is the creation of a good proximate objective—one that is close enough at hand to be feasible. A proximate objective names a target that the organization can reasonably be expected to hit, even overwhelm. (Page 140)
Whereas the Soviet Union’s large launch vehicles put the United States at a disadvantage in achieving a number of near-term space spectaculars, the moon landing would require much larger rockets than either nation possessed, giving the United States an advantage because of its larger base of resources. Thus, von Braun recommended a preemptive announcement of the more ambitious objective because the United States had a good chance of beating the Russians to its accomplishment. Kennedy’s speech was delivered one month after von Braun’s memorandum arrived. (Page 142)
every organization faces a situation where the full complexity and ambiguity of the situation is daunting. An important duty of any leader is to absorb a large part of that complexity and ambiguity, passing on to the organization a simpler problem—one that is solvable. (Page 145)
As an investor, one wants to find limiting factors that can be fixed, such as paint, rather than factors that cannot be fixed, such as highway noise. If you have a special skill or insight at removing limiting factors, then you can be very successful. (Page 153)
In any organization there is always a managed tension between the need for decentralized autonomous action and the need for centralized direction and coordination. To produce a turnaround of a chain-link system, Marco Tinelli tipped the balance, at least for a while, strongly toward central direction and coordination. (Page 157)
Because IKEA’s many policies are different from the norm and because they fit together in a coherent design, IKEA’s system has a chain-link logic. That means that adopting only one of these policies does no good—it adds expense to the competitor’s business without providing any real competition to IKEA. Minor adjustments just won’t do—to compete effectively with IKEA, an existing rival would have to virtually start fresh and, in effect, compete with its own existing business. No one did. Today, more than fifty years after IKEA pioneered its new strategy in the furniture industry, no one has really replicated it. (Page 159)
The chain-linked activities should form an unusual grouping such that expertise in one does not easily carry over to expertise at the others. Thus, a traditional furniture retailer that did add a catalog would still have to master design and logistics and build vastly larger stores to begin to compete with IKEA. (Page 160)
However, what we do see in the story of Cannae are three aspects of strategy in bold relief, presented in their purest and most essential forms—premeditation, the anticipation of others’ behavior, and the purposeful design of coordinated actions. (Page 166)
A strategic resource is a kind of property that is fairly long lasting that has been constructed, developed over time, designed, or discovered by a company and that competitors cannot duplicate without suffering a net economic loss. (Page 174)
A very powerful resource position produces profit without great effort, and it is human nature that the easy life breeds laxity. It is also human nature to associate current profit with recent actions, even though it should be evident that current plenty is the harvest of planting seasons long past. (Page 177)
The problem with engineering growth by acquisition is that when you buy a company, especially a public company, you usually pay too much. You pay a premium over its ordinary market value—usually about 25 percent—plus fees. If you have friendly investment bankers and lenders, you can grow as fast as you like by acquisition. But unless you can buy companies for less than they are worth, or unless you are specially positioned to add more value to the target than anyone else can, no value is created by such expansion. (Page 200)
Healthy growth is not engineered. It is the outcome of growing demand for special capabilities or of expanded or extended capabilities. It is the outcome of a firm having superior products and skills. It is the reward for successful innovation, cleverness, efficiency, and creativity. (Page 204)
advantage is rooted in differences—in the asymmetries among rivals. In real rivalry, there are an uncountable number of asymmetries. It is the leader’s job to identify which asymmetries are critical—which can be turned into important advantages. (Page 205)
No one has an advantage at everything. Teams, organizations, and even nations have advantages in certain kinds of rivalry under particular conditions. The secret to using advantage is understanding this particularity. You must press where you have advantages and side-step situations in which you do not. You must exploit your rivals’ weaknesses and avoid leading with your own. (Page 206)
Gilbreth’s lesson, still fresh today, is that incentives alone are not enough. One must reexamine each aspect of product and process, casting aside the comfortable assumption that everyone knows what they are doing. (Page 217)
Andy Grove published his insightful book Only the Paranoid Survive. Grove drew on his expertise in both business and technology to forcefully describe how “inflection points” can disrupt whole industries. In particular, he described the “inflection” that had transformed the computer industry from a “vertical” to a “horizontal” structure. (Page 237)
It is hard to show your skill as a sailor when there is no wind. Similarly, it is in moments of industry transition that skills at strategy are most valuable. (Page 243)
Guidepost 1—Rising Fixed Costs The simplest form of transition is triggered by substantial increases in fixed costs, especially product development costs. This increase may force the industry to consolidate because only the largest competitors can cover these fixed charges. For example, in the photographic film industry, the movement from black-and-white to color film in the 1960s strengthened the industry leaders. (Page 245)
A similar dynamic was IBM’s rise to dominance in computing in the late 1960s, driven by the surging costs of developing computers and operating systems. Still another was the transition from piston to more sophisticated jet aircraft engines, cutting the field of players down to three: GE, Pratt & Whitney, and Rolls-Royce. (Page 245)
A third common bias is that, in a time of transition, the standard advice offered by consultants and other analysts will be to adopt the strategies of those competitors that are currently the largest, the most profitable, or showing the largest rates of stock price appreciation. Or, more simply, they predict that the future winners will be, or will look like, the current apparent winners. (Page 248)
In 1999, the Web start-up advice was to create a “portal” such as Yahoo! or AOL—a website that acted as a guide to the Internet and provided a protected “playground” of specialized Web pages that users were herded toward. But although these companies were the stars of the moment, their initial strategies of capturing and channeling Web traffic were soon made obsolete by the sheer scale of the expanding Internet. (Page 249)
In general, we expect incumbent firms to resist a transition that threatens to undermine the complex skills and valuable positions they have accumulated over time. (Page 249)
An attractor state provides a sense of direction for the future evolution of an industry. There is no guarantee that this state will come to be, but it does represent a gravitylike pull. (Page 250)
weakly managed organizations tend to become less organized and focused. Entropy makes it necessary for leaders to constantly work on maintaining an organization’s purpose, form, and methods even if there are no changes in strategy or competition. (Page 254)
For example, Netflix pushed past the now-bankrupt Blockbuster because the latter could not, or would not, abandon its focus on retail stores. Despite having a large early lead in mobile phone operating systems, Microsoft’s slowness in improving this software provided a huge opening for competitors, an opening through which Apple and Google quickly moved. (Page 254)
Organizational inertia generally falls into one of three categories: the inertia of routine, cultural inertia, and inertia by proxy. (Page 255)
Just as in a large university, the breakthroughs of a tiny number of very talented individuals had been used to justify a contemplative life for thousands of others. Through the many decades during which AT&T had been a regulated monopoly, this culture grew and flourished. Now, with deregulation, competition, and the soaring opportunities in mass-market computing and data communications, this way of doing things was a huge impediment to action. (Page 263)
The first step in breaking organizational culture inertia is simplification. This helps to eliminate the complex routines, processes, and hidden bargains among units that mask waste and inefficiency. Strip out excess layers of administration and halt nonessential operations—sell them off, close them down, spin them off, or outsource the services. Coordinating committees and a myriad of complex initiatives need to be disbanded. The simpler structure will begin to illuminate obsolete units, inefficiency, and simple bad behavior that was hidden from sight by complex overlays of administration and self-interest. (Page 264)
Such fragmentation breaks political coalitions, cuts the comfort of cross-subsidies, and exposes a larger number of smaller units to leadership’s scrutiny of their operations and performance. (Page 265)
Many of the fundamental components of modern 3-D graphics technology were developed at the University of Utah as part of a stream of research initiated by Professors Ivan Sutherland and David Evans in the late 1960s. While other computer science programs were teaching high theory, the Utah program was focused on the practical challenge of rendering 3-D images and building flight simulators. The program produced an astounding number of computer graphics superstars, including John Warnock, founder of Adobe Systems; Nolan Bushnell, founder of Atari; Edwin Catmull, cofounder of Pixar; and Jim Clark, founder of both Silicon Graphics and Netscape. (Page 281)
Doom was the brainchild of John Carmack and John Romero, who had formed id Software in 1991. Their hit creations, especially Doom and Quake, redefined action games, introduced clever new technologies for displaying 3-D scenes on PCs, and moved the center of gravity of computer gaming innovation from the console industry to the PC platform. (Page 283)
The benefit of a faster cycle is that the product will be best in class more often. Compared to a competitor working on an eighteen-month cycle, Nvidia’s six-month cycle would mean that its chip would be the better product about 83 percent of the time. Plus, there is the constant buzz surrounding new product introductions, a substitute for expensive advertising. As a further plus, the faster company’s engineers will get more experience and, perhaps, learn more about the tricks of turning the technology into product. (Page 289)
Yet companies do not slide quietly into the darkness. Diamond should have made the deal with Nvidia, but it elected to try to maintain its high margins (about 25 percent). (Page 291)
A surface reading of history makes it look like 3dfx did itself in with too many changes of direction. The deeper reality was that Nvidia’s carefully crafted fast-release cycle induced 3dfx’s less coordinated responses. (Page 292)
The intellectual trigger for the Enlightenment was Galileo Galilei’s heresy trial. (Page 302)
A strategy is, like a scientific hypothesis, an educated prediction of how the world works. The ultimate worth of a strategy is determined by its success, not its acceptability to a council of philosophers or a board of editors. (Page 305)
However, when the core of a business strategy requires the mutual adjustment of multiple elements, and especially when there is important learning to be captured about interactions across business elements, then it may be vital to own and control these elements of the business mix. (Page 315)
Like a swimmer dropped into very choppy waters, it is hard to get your bearings. Under pressure to develop a way out of the difficulty, that first idea is a welcome relief. (Page 328)
The problem is that there might be better ideas out there, just beyond the edge of our vision. But we accept early closure because letting go of a judgment is painful and disconcerting. To search for a new insight, one would have to put aside the comfort of being oriented and once again cast around in choppy waters for a new source of stability. (Page 328)
The kernel is a list reminding us that a good strategy has, at a minimum, three essential components: a diagnosis of the situation, the choice of an overall guiding policy, and the design of coherent action. (Page 330)
What the kernel does, however, is remind us that a strategy is more than a localized insight. It is an internally consistent argument that leads from facts on the ground to diagnosis, thence to an overall directive, thence to action. (Page 331)
The same principle applies to any meeting you attend. What issues do you expect to arise in the meeting? Who will take which position? Privately commit yourself in advance to some judgments about these issues, and you will have daily opportunities to learn, improve, and recalibrate your judgment. (Page 338)
A quick summary is that a terrible industry looks like this: the product is an undifferentiated commodity; everyone has the same costs and access to the same technology; and buyers are price sensitive, knowledgeable, and willing to switch suppliers at a moment’s notice to get a better deal. (Page 344)
The new financial instruments created in the decade leading up to the 2008 crisis had failure modes no one understood or predicted. (Page 354)
There is social herding. When we don’t know about something, it may be sensible to look at the behavior of others, assuming that at least some of them know things that we do not. But if everyone else is doing the same, then this process of mutual calibration can result in all the members of a group undertaking uninformed actions or believing that the “other guy” is paying attention to fundamentals. (Page 355)
The original Jeffersonian ideal was a nation of citizen farmers, each owning the means of his or her own support. Today, this vision has morphed into one of a nation of homeowners, each working 100 days a year to pay their taxes and another 125 days a year to pay their mortgages. (Page 360)