Good Strategy Bad Strategy
Find out how you can turn into a strong tactician.
What’s the difference between a successful strategy and an unsuccessful one? They both begin with thoughts of achieving their desired goals, however the way they end is very different.
In most cases, this happens because we don’t put enough thought into what a strategy really is. Unsuccessful strategies shouldn’t even be considered strategies in the first place.
This article will give you inside information about creating strategies through the experiences of both successful and unsuccessful instances. With proper analysis of the examples placed here, you will be able to learn all the details behind a winning strategy, how to use them in your personal life and how to develop into a constructive strategic thinker.
Among other things you will learn:
- Why you should always avoid sexy-sounding trivialities
- How a simple epiphany resulted with a chain of more than 4,500 coffee shops
- How to look through the trees in order to see the forest and use what you find to your advantage
- How a small amount of geometry was enough to defeat 50,000 Roman soldiers
- And last but not least, you will be able to understand what all successful strategies have in common - and what the unsuccessful ones are missing
Don’t confuse strategy with ambitious goal setting, visions or slogans.
What does strategy mean?
Imagine this: a large graphic arts company has created their main strategy for 2006. It states that the company expects both their revenue and profit margin to rise by 20 percent. Do you think this is a proper strategy?
The right answer would be no. What they set up are mere goals, something that is completely different to an actual strategy.
Every goal is a sole idea. To create a strategy you need to put together several different ideas as well as a specific plan on how to accomplish those goals.
Most of the time a single goal is a good starting point for your strategy. Nevertheless, the strategy needs to contain actual steps and action plans on how those goals will be turned into reality.
For instance, if your football coach just tells the team that they should win the next game, he is not helping the team, unless he shows them a way to win the game. He needs to set up an actual strategy.
Goals are not the only thing that gets passed by as strategies. In some cases, buzzwords and motivational slogans are wrongfully considered to be strategies.
This happens because the slogans don’t contain any simple words. So they become “fluff’ pieces, trivial statements that use buzzwords to create a deep, meaningful thought.
Here is a good example, a successful retail bank ran this statement as their strategy: we offer “customer-centric intermediation.”
How about we look into this statement with more detail? The word “intermediation” means that they serve as a mediator between two parties. “Customer-centric” on the other hand, means that customers are their number one priority.
If we spend the time to analyze the fluff and simplify it, we would immediately see that this bank’s strategy was to actually “be a bank!”
So we have two business examples and they are both missing a plan of action. Without the plan, you don’t have a strategy.
Every good strategy has the same foundation: a diagnosis, a guiding policy and a set of coherent actions.
It’s quite normal for all strategies to be different, because they are specifically made to fit certain needs. There is only one thing that every strategy must have: the kernel.
The kernel is divided into three parts: the initial two parts are the diagnosis and the guiding policy.
The diagnosis is standard analysis of circumstances that can be very elaborate, and the guiding policy is the road that leads to confronting the diagnosis.
A clear example can be shown by IBM back in 1993. IBM was on a downfall that year- their strategy of selling complete computer setups was not working anymore. The industry was divided and most computer companies started selling individual parts.
Many of IBM’s employees believed they should start selling as everyone else, however, CEO Lou Gerstner wasn’t so sure about that. He created a different diagnosis: instead of fragmenting all departments to accommodate the divided market, IBM was supposed to centralize them and turn the company into leaders of the IT consulting sector.
To reach this diagnosis, a guiding policy that concentrated all resources towards customer solutions was set up.
The last part of the kernel is a number of logical actions which will ensure that the guiding policy is successful. This means that all the actions needed to accomplish the goals of the guiding policy must be cohesive.
The Ford Motor company is a prime example of the failures that incoherent actions can bring.
At one point they bought Land Rover, Aston Martin, Volvo and Jaguar. The guiding policy was to take advantage of these labels while also exploiting the economies of scale. This helped them stabilize the different manufacturing and design processes these brands had.
However, this guiding policy wasn’t coherent enough. It’s clear that the value of each brand are their distinctive features. Buyers who were interested in buying a Volvo didn’t want their car to have the features of a Jaguar and vice versa. Because of this, the strategy Ford planned suffered immensely.
A good strategy demands that you make a choice to move in one specific direction.
Making a choice between two things is something everyone wants to avoid. Having both things is better however, most of the time it’s not possible. When building a strategy you will have to prioritize one thing over another.
A successful strategy focuses on the most important thing and transfers all the resources there.
For instance, back in 1988, the company Digital Equipment Corporation (DEC) who were computer manufactures, couldn’t keep up with a new type of PC. The executives weren’t sure on how to tackle that situation: should they focus on ready-to-use systems, microchip technology or customer solutions?
They couldn’t make a compromise so they failed to pick a certain direction and work on it.
In 1992 their CEO made a final decision that they should turn towards microchips, however, by that time it was too late. Competitors were ahead of them, which eventually resulted in a takeover from a rival company.
Tough choices will always damage certain business areas, and because of that someone will be opposed to them. However, you must stand firm and make the decision regardless of the opposition.
Intel is a good example of a company that had to make many tough calls. The reason was very strong competition from Japanese manufacturers. CEO, Andy Grove, had to make a decision that would switch the company’s resources towards manufacturing microprocessors.
The opposition was strong in many areas, especially from the researchers and sales people who didn’t want to abandon their old habits.
It would have been easier to just back down, however Grove was persistent with his decision, which turned up to be a very positive thing. By 1992 Intel became the largest manufacturer of semiconductors.
Now that you know how a good strategy looks, let’s go into detail on what’s the best way to apply these strategies, to get the maximum effect.
In order to profit from your strategy, you need to ensure that it gives you leverage over your rivals.
You have created a strategy. Now, how do you use it to go a step further than your competition?
Your strategy needs to give you an advantage over your competitors. This means that you will always be able to predict opportunities before the competition can do anything about it.
This doesn’t mean that you will be able to see the future. It means that your insight on the present is so advanced that it allows you to notice a certain possibility earlier than anyone else.
Toyota can give us an example of what an advantage looks like.
Their SUV sales were really high, however they still put over $1 billion towards developing hybrid electric-gasoline technologies. Why is that?
They were able to see that the supply of fossil fuels is going down, so eventually people would need some kind of hybrid cars. If they could be the first ones to develop this technology, other companies would then use their system, instead of building their own.
This way, they would gain the advantage.
To be able to gain an advantage, it’s very important to find out what’s the best way to succeed in your market.
7-Eleven did exactly this in Japan, as soon as they found out that Japanese customers get bored by the offered selection of soft drinks. This allowed them to find the best way to success in that market - variety.
A strategy covering this point was then created.
Most 7-Eleven stores have about 50 varieties of soft drinks. In Japan this number is over 200. The company invented a system that increased their soda variety in Japan massively. They researched the local tastes and created additional soft drinks based on that.
By locating the way to success in the Japanese market, 7-Eleven gained an advantage over their competitors, who simply couldn’t satisfy their Japanese customers with what they had to offer.
Find the right balance of resources and actions to fit your specific situation.
We have reached the point where you would think that your planed business strategy is excellent. Don’t rush ahead, there are still things that need to be covered. Before implementing your strategy think about this: do you have the necessary resources, and will it reflect on your current situation?
The perfect strategy contains actions that are based on your current situation and they are intended to create the advantage for you.
For instance, an immaculate strategy can be located in ancient history, with the Carthaginian general Hannibal and his military maneuvers. Hannibal had some trouble as soon as he invaded the Roman Empire, back in 216 BC. At the battle of Cannae his enemy outnumbered his troops by 85,000 to 55,000.
He was forced to create a strategy based on the situation he was in.
His plan was for his troops to form an arc. The middle of the arc was pulled backwards to make it look like they are retreating. The Romans noticed that and charged after the retreating soldiers. They ran right into the middle of the arc until the space got so small they couldn’t even swing their weapons. Hannibal’s troops then circled behind the Romans and attacked them.
Hannibal won the battle by losing about 5,000 soldiers, compared to the 50,000 Romans that died on the field.
However, this gruesome story can teach us something. Hannibal planned every action in his strategy perfectly, as they were coming one after another. Thus victory was his, even though the odds were stacked against him.
All successful strategies, like Hannibal’s, have few things in common. They understand the resources trade off, consider all possible actions, and how to optimize both. Make sure that your strategy exploits your restricted resources in the best possible way.
You can use the dynamics of changing business circumstances to gain the high ground in a market.
The business world is in constant fluctuation. Your goal should be to come up with a strategy that exploits these shifts, but how is that possible?
In most cases, changes are quite obvious, so the chances of getting a strong advantage are very small. However, if you try to notice not so obvious effects, you might find your opportunity there.
For instance, when television appeared, everyone could foresee that free television will surely be a huge competition for movie theaters.
However, other there were other less noticeable effects that brought opportunities, like the way Hollywood studios organized.
These studios had a captive audience all the time in the past. With the introduction of television the audience went away so studios had to find a way to bring back the lost revenue. They did it by financing independent films that had the purpose of bringing the audience back to the cinema.
Besides the studios, many indie writers and directors also earned money from the movie funding. Actually, they were the ones who benefited most from the second-hand effects that were brought by the introduction of television.
Nevertheless, some markets don’t allow a lot of changes because the cost of improving the present technologies is high. The only way to make some changes in these markets is through innovation.
To give an instance, back in 1960’s all black and white photographic films reached maximum development and further investments was not worth it. Because of this, newcomers couldn’t oppose the large enterprises in the industry, like Ilford from UK and Ansco from the USA.
However, there were examples of smaller companies like Kodak and Fuji who did manage to challenge these large enterprises. They did it by developing color film, because that market had far more opportunities. Truth is, their involvement into additional development of this new technology encouraged a change in the market, which made these companies market leaders.
A good strategy maximizes your competitive advantage by limiting your rivals’ opportunities and maximizing your resources.
By now, you surely understand all the details that surround the term strategy. So, it’s the perfect time to ask how strategy can make all your goals reality.
Like we said before, putting that advantage to use is the way to do it. Being able to gain more value by spending less is your trump card over competitors.
How can you come up with a strategy that does exactly this?
A good way is trying isolation mechanisms, which means that you get and advantage over your competition by limiting their opportunities.
For instance, the Apple has put in place a lot of isolation mechanisms to protect the iPhone. Things like, Apple’s reputation, the brand name, their iTunes service and others.
All of the above mentioned factors create a limit for your competitors, making them unable to produce rival products; they have to compete with the product, as well as its marketing, operating system and its image.
This is called cornering the market and Apple has done a marvelous job at it. The only way a competitor can step into their market is if they sell a similar product at a lower price, which is extremely hard to accomplish.
Creating a huge demand for a certain resource that you possess is another great way to gain competitive advantage.
Creating a huge demand for a certain resource that you possess is another great way to gain competitive advantage.
The POM Wonderful pomegranate juice company used interesting marketing methods which are a great example. When they began their business pomegranates were taking just a small spot in their orchards. However, the owners realized that those pomegranates made more money per acre for them than any other crop.
Then they began investing in pomegranate research, finding the various health benefits of this fruit. After their research they bought 6,000 acres of land which was used to cultivate pomegranates. This increased the production of pomegranates in the US six fold.
Additionally, they began selling pomegranate juice and started drawing attention towards all the health benefits surrounding it. At that time they were the biggest pomegranate producer and because of that they enjoyed all the rewards of the high demand which they generated.
Now you finally know all the tricks to successfully execute any strategy and it’s time to find out how to become an excellent strategist.
Approach strategy like a science: form a strategic hypothesis to test and then refine your ideas.
Knowing all the elements of a great strategy and putting them to use in real-life scenarios is one thing, however becoming a successful strategist is a whole other thing.
To give an example, reflect on this thesis, which was developed by Howard Shultz after he visited Italy back in 1983: “The Italian espresso experience could be re-created in America and the public would embrace it.”
Shultz was amazed by Italian coffee bars because they served expensive coffee in places that had a relaxed social setting. This was quite different to the coffee culture that was present in America, where coffee markets were full of cheap and bland coffee.
Later, he decided to test his hypothesis by persuading the employers at a roasting company in Seattle to allow him to use some space for a small espresso bar.
The company he set up was Starbucks.
Testing your hypothesis is always the best way to gather additional information and you should always do it.
Shultz began by replicating the Italian method, however it came to his attention that Americans enjoy sitting in chairs a lot more than standing at the bar, so he decided to bring in tables and chairs.
Another thing he noticed was that a lot of customers in the US want coffee to go, which motivated him to bring paper cups.
What does his success show us?
He put his thesis to the test, but he still had introduce several changes to accommodate American customers, so they can enjoy the coffee experience.
After that, in 1987, his company bought Starbucks’ retail and trademark, managing to bring in $2.6 billion in revenue by 2001.
It’s perfectly fine to compare strategy to science: we need to think of a possible explanation, or a working hypothesis and work on it at all times.
Avoid fatal mistakes by looking at your situation from an outside perspective and learning from others’ past failures.
If you look at statistics, the chances of you having a car accident get increased 5 fold if you talk on your phone while you are driving - the same stands for driving drunk. Nevertheless, even though people know this, the first thing in their thoughts is: “It won’t happen to me, I am a good driver.”
Everyone does this and it’s called the inside view - an inclination to dismiss lessons other people have learned the hard way, while thinking that what we are doing is different in some way.
Most people go after the inside view which often leads to fatal results.
A great example for this is the 2008 financial crisis. Several years before it happened, majority of people firmly believed that the economic history of other countries meant nothing for what was happenings in America. Even more people were sure that the Federal Reserve’s had enough experience to prevent any more economic busts.
The best way of avoiding this is by getting an outside opinion, and analyzing the situation from a different angle.
A good strategy would ask this question: Why other people who were in an almost identical situation to mine succeeded or failed? A great strategy will also identify that in most cases, our situation is not unique at all.
The financial crisis of 2008 could have been avoided if only analysts looked at economical history from a different angle and identified the fact that crises will continue to happen. An outside opinion could prevent a lot of accidents as well.
Every great strategy benefits from watching and analyzing other people’s experiences and the type of lessons they have learned by living those experiences.
Positively enough, everyone can become a great strategist. By knowing all the details that make a strong strategy and by learning how to gain an advantage over competitors, recognizing change or maximizing your company’s resource, becoming an effective strategist won’t be a very hard task.
Know what your priorities are.
Don’t try to achieve all your goals at the same time. Make a list that will contain your priorities and start by doing them first. This list will help you unify all the different objectives, which means you can avoid any unnecessary issues.
Learn from history.
In case you find yourself in a situation that other people have experienced in the past, make sure you see what exactly happened to them. Always be objective towards your situation and don’t assume that your situation is different.
Have a scientific mind.
If you are unable to decide which factors are crucial for a certain situation, create a hypothesis and test it. The test will give you the needed insight into what needs to be changed, so it becomes easier for you to grasp your situation. Then, you can use what you have learned and turn it into an effective strategy.