The key insight from this book is that we can all learn how to become good strategists. By understanding what makes a solid strategy and by finding the hidden power of a given situation, be it leveraging, maximizing your resources, or anticipating change, you too can become an effective strategist.
Don't confuse strategy with ambitious goal-setting, visions, or slogans. So, what is strategy exactly? Consider this. The 2005 key strategy of a major graphic arts company was a 20% revenue increase and a 20% profit margin.
Does this sound like a good strategy to you? The short answer? No. In fact, these are simply goals, far removed from a working strategy. A vision or a goal is simply a standalone idea. A strategy, however, is a set of different ideas that includes a plan to achieve these goals.
Often, a goal or a vision can be a perfectly fine starting point for a strategy. However, the strategy itself must include precise information on how these goals will actually be achieved. For example, if your football coach advises your team to win the next game, he isn't providing you with any useful information unless he tells you how to win. In other words, he must provide a plan of action, a strategy. It's not only our goals that are often mistaken for strategies. Motivational slogans and buzzwords sometimes get passed off as strategies, too.
This is usually made obvious by an absence of clear, simple words. In these cases, fluff, superficially restating the obvious while applying a heaping portion of buzzwords, takes on the appearance of high-level thinking. The fundamental strategy of one major retail bank is a perfect example. In their own words, they offered customer-centric intermediation. Let's unpack this, shall we? Intermediation means simply that they take deposits and lend them to others, and customer-centric means that they focus on the customer.
By taking the fluff and unraveling it into simple, meaningful language for the layman, we quickly discover that their fundamental strategy for banking would simply be a bank. What's missing in both these business examples is a plan of action. Essentially, if you have no plan of action, then you don't have strategy.
Every good strategy has the same foundation, a diagnosis, a guiding policy, and a set of coherent actions. It's natural for each strategy to look different since each is tailored to meet one specific need. However, there is one essential component to every successful strategy, the kernel.
The kernel is composed of three parts. The first two are the diagnosis and the guiding policy. The diagnosis is a simple analysis of an often complex set of circumstances, and the guiding policy lays out the approach that will be used to tackle this diagnosis. One example of these components at work can be found with IBM in 1993. During that year, IBM was on the decline. Their previously successful strategy of offering complete computers no longer worked in a fractured industry where many computer companies had started offering individual parts.
While many believed that they should adapt to this fragmentation, CEO Lou Gerstner developed a different diagnosis. Instead of fragmenting IBM's different departments, they would instead integrate and centralize them to become new market leaders in IT consulting. In order to enact this diagnosis, they then created a new guiding policy that focused company resources on customer solutions. The final component of the kernel is a set of coherent actions that ensures that the guiding policy is effective. In other words, the actions needed to achieve the goals of the guiding policy can't contradict one another. One example of a failure to establish coherent actions can be found in the Ford Motor Company.
When they acquired Volvo, Jaguar, Land Rover, and Aston Martin, their new guiding policy was to exploit these brands and simultaneously take advantage of economies of scale. This led them to consolidate the design and manufacturing processes between the brands. However, this approach lacked coherence since the value of these brands lay in their unique qualities. Volvo buyers don't want a safer version of a Jaguar just as a Jaguar buyer doesn't want a sportier version of a Volvo, and Ford's strategy suffered for it.
A good strategy demands that you make a choice to move in one specific direction. Most people don't like to choose between two things. They'd rather just have both.