Good Strategy Bad Strategy

Here I'd like to share my my key takeaways.

I read the English version, and I do recommend it!

You can click here to order this great book!

In the dynamic realm of business, the foundation of a successful strategy lies in its core elements: a diagnosis, a guiding policy, and coherent action. In this comprehensive book, we explored the intricacies of strategy development, discerning between bad and good strategies, the significance of sustainable competitive advantage, and the essential skills for effective strategic thinking.

My key takeaways

A strategy is a culmination of three integral components:

1. Diagnosis: This involves defining or explaining the nature of the challenge, simplifying the complexity of reality by identifying critical aspects of the situation.

2. Guiding Policy: It specifies the approach to dealing with obstacles identified in the diagnosis, akin to a sign-post marking the direction forward.

3. Coherent Actions: These are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.
   

But lets start with what is Bad Strategy

Bad Strategy:
Simply being ambitious is not a strategy. Strategy can not be a useful concept if it is a synonym for success. Nor can it be a useful tool if it is confused with ambition, determination, inspirational leadership, and innovation.

Leaders may create bad strategy by mistakenly treating strategy work as an exercise in goal setting rather than problem solving.

The basic problem is confusion between strategy and strategic goals.
Bad strategy is long on goals and short on policy or action.

to detect a bad strategy look for:

• fluff

• failure to face the challenge

• mistaking goals for strategy

• bad strategic objectives

Good Strategy:

A good strategy has coherence, coordinating actions, policies, and resources so as to accomplish an important end. Many organizations most of the time do not have this. Instead the have multiple goals and initiatives that symbolize progress, but no coherent approach to accomplishing that progress other than '' spend more and try harder.''

The core strategy work is always the same: Discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.
or in another saying
A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them

Good Strategy is built on functional knowledge about what works, what doesn't, and why.

A new strategy is in the language of science, a hypothesis, and its implementation is an experiment.

Being strategic is being less myopic -- less shortsighted -- than others.

In a strategy work, knowledge is necessary but not sufficient. There are many people with deep knowledge or experience who are poor at strategy. To guide your own thinking in strategy work, you must cultivate three essential skills or habits.

1. You must have a variety of tools for fighting your own myopia and for guiding your own attention.

2. You must develop the ability to question your own judgement. If your reasoning cannot withstand a vigorous attack, your strategy cannot be expected to stand in the face of real competition.

3. You must cultivate the habit of making and recording judgements so that you can improve.
   

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.

Warren Buffet has said that he evaluates a company by looking for 'sustainable' competitive advantage.

The basic definition of competitive advantage:

• If your business can produce at a lower cost than competitors, or

• if you can deliver more perceived value than your competitors can, or

• a mix of the two above.
  

Defining sustainability is trickier. For an advantage to be sustained, your competitors must not be able to duplicate it. Or, more precisely, they must not be able to duplicate the resources underlying it. For that you must possess what I term an ''isolating mechanism'' such as a patent giving its hodler the legally enforceable right to monopolize the use of a technology for a time.

• reputations

• network effects

• economies of scale

• tacit knowledge

• skill gained through experience

Deepening advantage:

Start by defining advantage in terms of surplus - the gap between buyer value and cost. Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both.

When looking at costs, include the buyer's cost of searching for the product, evaluating it, traveling to buy it or waiting for it to arrive, switching to it, installing it, and learning how to consume it.

A network effect increases the value of a product as the number of buyers or users gets larger. It is like an economy of scale, but instead of reducing the producer's cost, it increases the buyer's willingness to pay.

Chain link systems: A system has a chain-link logic when its performance is limited by its weakest subunit, or ''link''.

Chain link systems:

• Adds extra effectiveness to the strategy

• makes competitive information difficult

• getting stuck vs unstuck is an issue.

• the excellence achieved by a well managed chain link system is difficult to replicate. (IKEA example)

Understanding the inertia of your rivals may be just as vital as understanding your own strengths.

Inertia and Entropy

Even with its engines on hard reverse, a supertanker can take one mile to come to a stop. This property of mass -- resistance to a change in motion -- is inertia.

Entropy measures a physical system's degree of disorder, and law of thermodynamics states that entropy always increases in an isolated physical system.

Similarly weakly managed teams 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.

The path to building a strategy

First to discover the very most promising opportunities for the business. Those opportunities may be internal, fixing bottlenecks and constraints in the way people work, or external.

To do this, you should probably

• pull together a small team of people

• and take a month to do a review of who your buyers are, who you compete with,

• and what opportunities exist. It is normally a good idea to look very closely at what is changing your business, where you might get a jump on the competition.

The end result will be a strategy that is aimed at channeling energy into what seem to be one or two of the most attractive opportunities, where it looks like you can make major inroads or breakthroughs.

Strategic objectives should adress a specific process or accomplishment.

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.

or in another saying

A leader may successfully identify the key challenge and propose an overall approach to dealing with the challenge.

Leaders role:

Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests.

A leader's most important responsibility is identifying the biggest challenges to forward progress and devising a coherent approach to overcoming them. Doing strategy is figuring out HOW to advance the organization's interests.

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.

A leader, does not need to get it totally right - the organization's strategy merely has to be more right than those of its rivals. If you can peer into the fog of change and see 10 percent more clearly than others see, then you may gain an edge.

Important:
Scarce resources in a startup depends its life to its strategy.

Just as an individual cannot solve five problems at once, most organizations concentrate on a few critical issues at any one time.

Additional Notes:

Strategy work in an already successful organization may not take place until the wolf is at the door. Because good strategy is very hard work!

Company Acquisition: 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.

a company's stock price is not the reflection of good strategy or do not promise a good feature.

Steve Job's operating principles:

1. Imagine a product that is ''insanely great''

2. Assemble a small team of the very best engineers and designers in the world

3. Make the product visually stunning and easy to use, pouring innovation into the user interface

4. Tell the world how cool and trendy the product is with innovative advertising.