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6 Principles of Strategy

2012 February 12
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by Greg Satell

When Mike Tyson said, “everybody’s got plans… until they get hit,” everyone knew intuitively what he meant. Simply having a strategy is no guarantee of success.
 
Napoleon had a strategy till the Russian winter exposed its flaws.  Pompey had a strategy until Caesar outfoxed him.  The best laid plans are often laid asunder by the quirks of an uncertain and uncaring universe.
 
Winning, after all, isn’t a simple matter of merit, but one that is subject to the idiosyncrasies of chance and circumstance.  So what to do?  How can we pursue a purpose with vigor and meaning when we can never be certain about what fate has in store for us?  Here are six principles that will help guide you on your way.

1. Parsimony

When Steve Jobs came up with the idea for the iPod, it was “1000 songs in your pocket.” Herb Kelleher’s vision for Southwest was to be “THE low cost airline.”  The iPod became the most successful consumer product of all time and Southwest has had 38 profitable years in an industry strewn with bankrupcies.

Both are simple, elegant ideas. However, what really made the difference wasn’t the initial conception, but what happened (or didn’t happen afterwards).  Jobs and Kelleher understood that subtraction is more powerful than addition.

Jobs didn’t push for a launch date, but waited until a hard drive that could perform the task became available (it took about a year).  Kelleher didn’t adopt the tactics of his competitors, even when they were successful, if they would undermine his cost advantage.

In other words, they followed Occam’s Razor, also known as the principle of parsimony, which states that “entities must not be multiplied beyond necessity.”  In other words, don’t add stuff unless you really need to.  When in doubt, leave it out!

2. Rigor

The bugbear of strategy is confirmation bias.  Once we get an idea in our heads, it tends to stay there.  Worse, we’ll tune into information that tends to support it and tune out data that contradicts it.  As Solomon Asch showed with his conformity experiments, the problem only gets worse when a group of people believe the same thing.

What’s really essential is to ask, what do I think I know and why do I think I know it.  As Richard Feynman once said, “The most important thing is to not fool yourself, because you are the easiest one to fool.”  Don’t believe everything you think.

That’s why it’s always better to do strategy in Excel, rather than PowerPoint.  Headlines and snazzy charts might be easier to digest, but they represent opinions, not facts.  You can’t test assumptions or apply statistical filters.  If you are merely following the zeitgeist, you are really just operating in the dark.

3. Small and Scalable

Great strategies, like great innovations, start out small.  They take advantage of one specific phenomenon.  Like the fact that data storage efficiency doubles every year (i.e. Dropbox) or that links to a web page imply authority (i.e. Google).  True insights are elegant, they tease the greatest possible truth out of the fewest possible statements.

Yet they are not small minded, they have the power to grow.  Google’s PageRank wasn’t unique or extraordinary, in fact, many believe Jon Kleinberg’s HITS algorithm, conceived at about the same time, was superior.  What made Google great wasn’t the sudden flash of insight, but how they built on it.

So an obscure algorithm eventually became a quest to “organize the world’s information.” A small idea, in fact one that very few people understood at the time, became immeasurably big.  Moreover, it did so without losing the kernel out of which it sprung.

4. Disruptive or Sustaining

In his groundbreaking book, The Innovator’s Dilemma, Harvard professor Clayton Christensen identified two types of innovations, disruptive and sustaining.  A disruptive innovation creates a new business model while a sustaining innovation makes an existing model work better.

While every company needs to do a bit both, it’s crucial to identify which type of innovation is primary for a particular business strategy.

Disruptive technologies don’t work as well by conventional standards, but change the basis of competition. A strategy based on disruptive innovation needs to find a new market among light or non consumers who value different things than existing customers. Research means very little for disruptive strategies.

Sustaining innovations improve performance by conventional standards, but can be vulnerable to changes in the basis of competition. They respond to the needs of existing customers and are therefore heavily dependent on a well researched marketplace.

If you can’t identify what kind of strategy your business is based in, you won’t know which tactics will help you achieve your goals.

5. Adaptation

No industry is static.  Every business eventually gets disrupted and successful disruptive technologies become market standards which need to be optimized through sustaining innovations.  As the business environment changes, business strategy needs to adapt.

Tim Kastelle makes the point vividly in this post about Kodak.  While their industry was being slowly disrupted, they continued to improve their existing products.  It wasn’t because they didn’t understand digital photography.  In fact, they were pioneers in the technology.  Their problem was that they were so focused on their existing customers they failed to recognize a nascent opportunity.

Apple, on the other hand, has become the world’s most valuable company by recognizing when disruptive technologies are ripe for improvement.  They didn’t invent the first digital music player, the first smart phone or the first tablet computer, but they came in and made those products a whole lot better.

6. Organizational Viability

In every industry there are highly successful companies with widely divergent strategies. Coke and Pepsi, Microsoft and Apple, Fox and CNN.  While a company’s history doesn’t determine its future, it does determine how a strategy can be introduced.

When IBM decided to make the PC, they understood that it would die in their organization.  A business based on manufacturing and selling large ticket items to major corporations just isn’t set up to build consumer products.  

Understanding the dilemma, IBM’s management moved development of the PC to a new design unit in Boca Raton, Florida. There, they did things that would have been an anathema to the old organization.  

They used “off the shelf” components rather than designing everything themselves and developed an open architecture that let third parties add to and improve the product.  The result: they launched one of the most successful products in history within a year.

So those are my 6 principles of strategy.  If you have one I missed, I’d love to hear about it in the comments below.

– Greg

24 Responses
  1. Ajoy Vakil permalink
    February 12, 2012

    Wow Greg! Great thinking – wonderful insights! Thanks for a wonderful post!

    Greg Reply:

    Thx Ajoy. Nice to see you again.

    – Greg

  2. February 12, 2012

    Perhaps it is an aspect of adaptation, Greg, but I think that good strategy is not “long term thinking” based almost supernatural vision, but setting a direction that will get you to the next decision point as soon as possible for the smallest amount of money.

    The grand plan to cross the continent is inevitably wrong because it is full of unknowns, but you can set a direction, march 20 miles, and work out what to do next.

    Greg Reply:

    Graeme,

    I see your point, but I think you need to do both. You must plan to the next decision point (and create some clarity about what that point is, which is more difficult than it sounds) and also have a vision for what you expect the future to look like.

    The important thing is to keep an open mind and a Bayesian perspective. Good strategy is always somewhat iterative.

    – Greg

    Edward C D Ingram Reply:

    Good point Graeme, and good reply Greg. Business is like playing chess: ask what is the best use I can make of my day, my budget, my current resources. After a setback the question to ask remains exactly the same.

  3. February 12, 2012

    Great strategy checklist, Greg. A 7th principle might be: Know When You Need a Partner. In the radio business where I tend my garden, I see lots of great strategies fail because people think they can do it on their own. Or maybe that’s just radio… as the one medium where one person can write, voice, produce and sell a piece of content, it tends to draw lots of very independent folks who think they have all the answers and all the tools to get things done.

    Greg Reply:

    That’s a good one! Knowing when to partner and when to go it alone is one of the most important decisions a company can make.

    Thanks Jeff!

    – Greg

  4. February 13, 2012

    Greg, This is very timely for my new company, IngramSure (UK) Ltd, just created to move into the mortgage and savings market.

    I will circulate this to my colleagues / staff. It make help to steer us to success: –

    Item 1. Parsimony. Keep it simple. Do not add stuff to it unless you have to in a changing environment. We can add to it. We will leave that out and watch how things go.

    2. Rigor. The theory has been rigorously tested on Exel and the mathematical model is impressive and elegant.

    Item 3. Small and Scalable. True insights are elegant, they tease the greatest possible truth out of the fewest possible statements…Yet they are not small minded, they have the power to grow.

    We have this one idea that makes all the difference. By franchising the product it becomes scalable. But we cannot patent so we are vulnerable if we do not grow fast. if we grow too fast or try to we run out of resources and collapse – a well known error.

    Item 4. Disruptive or sustaining. We can either improve existing mortgage products or launch my new one. It comes to the same thing in the end but the pathway forward may be different. Will we lose focus if we try both at the same time? Something to think about.

    In fact I have plans to incrementally improve the product. This is more possible if we start with just the improvement. But the improvement does not become marketable right away. It may take a crisis to market it. That may be a few years away . We are ready to go now. So we must do both or be ready to try both.

    Item 5. Adaptation. Nothing competitive to be seen on the horizon here. This innovation simply takes out (by competition) a mortgage system that is fragile, costly, and fraught with danger with one that is robust and follows text book principles that are well understood, principles that are ignored by the present system. Item 3.

    Item 6. Organisational Viability. The Franchising option leaves us less exposed to being over-run by other more powerful individual institutions. We tap into the ideas and innovations of the group – making that a condition of the franchise that all can share an innovation that is related to the product – what one innovates, all can build on… How will that work? Over to the lawyers and the think tank.

    Very helpful guidelines Greg. Your work is my Bible for success. Thanks. Edward

    Greg Reply:

    Thanks Edward. Looks good.

    One thing about disruptive innovation. They are usually inferior by conventional standards and are therefore not attractive to existing consumers. It would be interesting to see how one would do that in the mortgage business.

    Good luck!

    – Greg

  5. February 13, 2012

    By all means feel free to delete the comment and replace with just the last line.

    Greg Reply:

    No. I liked it!

    – Greg

  6. February 13, 2012

    Brilliant article Greg.

  7. February 13, 2012

    nice.

    the eclectic harmonizing of 2 and 4… spot on.
    creates the most beautiful, ie: silent and invisible, resonance.

    Greg Reply:

    Thx Monika:-)

    – Greg

  8. February 13, 2012

    Wasn’t it Lew Tolstoy who observed that, “Everyone thinks of changing the world, but no one thinks of changing himself.” A good strategy might require constant evaluation and re-evaluation of its initial assumptions and goals.

    It sounds a bit contradictory — after all principles should be in stone — but as you said Greg, “we can never be certain about what fate has in store for us,” so it is better to include a doze of uncertain in your plans and be prepped to re-group if necessary.

    Greg Reply:

    Very good point. It actually is a principle (Bayes).

    – Greg

  9. February 14, 2012

    Great and fantastic post. Don’t add other thougts – the principle of parsimony is the greatest. Small steps, small improvements – and you find the way to enlarge your success and minimize the risks. If the idea is greate enough it reveals itself…

    Greg Reply:

    Spasibo Sergei!

    Grisha

  10. February 16, 2012

    This is fantastic!! Shared it to my social media groups.

    Greg Reply:

    Thanks Penny. Much appreciated!

    – Greg

  11. February 18, 2012

    Hi Greg,
    This was a well thought out post and should hopefully serve as a foundation for strategy setting going forward for business owners. I do have one that I recommend to be added: Adoption.
    An essential part of any strategy is convincing consumers to adopt your product. Great – you have disruptive or sustaining innovation, but how are you going to make it sustainable? Or, you might have high potential for growth, but if you aren’t convincing consumers to adopt your product or service, you can also forget about the growth.
    I wrote an article a few months back on adoption…this expands on what I’m talking about. Here is the link: http://emarketingfreak.com/how-do-i-market-a-new-product-to-increase-business-sales/.
    Let me know your thoughts,
    -JG, founder, http://www.emarketingfreak.com

    Greg Reply:

    Thx John! Nice post, btw.

    -Greg

  12. March 10, 2012

    One of my favorite posts Greg, shared it around the office and got some discussion going. 2 ideas / principles that came to mind after reading this are:

    1. You don’t know what you don’t know – in my experience, having a strong vision is powerful, but trying force implementation without allowing for some organic evolution along the way is the wrong way to go about executing. So it is with strategy – you will learn things along the way that will help you fill in the details and shape the path to the end result, so be prepared to be flexible and surprised by the way things fall into place.

    2. People are key – I think you’ve written about this before, but you have to have the right people in the right place for culture, and strategy, to really work.

    – James

    Greg Reply:

    Very nice James:-)

    Although, I don’t think that people are a part of strategy. They are more of a constraint. You either do or you don’t have the people to make a strategy work.

    If you have people problems (which btw are very rare, usually a people problem is, in fact, a leadership problem), it doesn’t really matter what your strategy is.

    Thanks!

    – Greg

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