Review

I keep coming back to the core concepts of this book. Before reading it I thought the concept of strategy seemed vague - I appreciate the clarity and structure the author brings to the subject. The examples bring the concepts to life. Personally I feel like I’m more able to assess the quality of a strategy now. Thanks to this book I know to look for: a clear plan of action - that focuses effort - against a key point of leverage - that gives you the greatest chance of solving the core challenge.

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The Innovator’s Dilemma

This book is a product management classic. A great framework for how disruptive technologies change market dynamics. It’s full of great insight for challengers and incumbents. The book is clearly well researched. The conclusions are both surprising and straight forward. A must for anyone trying to innovate and break into a market. Well worth the time.

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This book covers a lot of ground, for an inexperienced entrepreneur about to build a company it would be life changing. It's a book of common sense, and there's an incredible amount of wisdom in here. That said, if you've been around the block a few times there isn't much ground breaking or new insight in here.

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Key Takeaways

The 20% that gave me 80% of the value.

The Kernel

Strategy is defining a way to overcome a challenge. The kernel of a good strategy has three elements: a diagnosis, a guiding policy and coherent action.

• A diagnosis identifies the nature of the biggest challenge to forward progress. The critical factors.
• A guiding policy is a cohesive response that focuses and coordinates actions to overcome the challenge. To achieve a powerful competitive punch or problem-solving effect. It signposts the way forward (but not too detailed).
• A coherent action plan is a feasible coordinated set of policies, resource commitments and actions designed to carry out the guiding policy.

Together the three elements describe the why (diagnosis), the what (the guiding policy) and the how (the coherent action plan.

Strategy shouldn’t be confused with blind ambition or determination. It’s also distinct from leadership, which is more about inspiring and motivating self sacrifice. Strategy is about figuring out what is worth pursuing, and what is capable of being accomplished

Good Vs Bad Strategy

Good strategy is often so powerful because it’s rare that your opponent has a good strategy. It can often look simple and obvious in retrospect.

Spotting bad strategy is the first step to learning to create good strategy. So much bad strategy exists for two reasons. It’s hard to craft good strategy. Leaders don’t like saying no and focusing.

Common Tactics

• Take advantage of windows of opportunity
• Apply strength against weakness and towards the biggest opportunity
• Leverage deception to make your competitor think you’re doing something they expect
• Create advantage by anticipating the actions and reactions of others
• Exploit the leverage of focused effort
• Create or draw on a source of advantage

How to create a good strategy

• The diagnosis must simplify the overwhelming complexity of reality by identifying certain aspects of the situation as critical. It must identify the key challenge. Doing so can transform one’s view of the situation, bringing a radically different perspective. Once the challenge is clear, you can evaluate the effectiveness of the rest of the strategy. In business the challenge is often in dealing with change or competition.
• The guiding policy must address the challenge. It must define the approach to overcoming the challenge. It guides action and sets direction without dictating what exactly should be done. Good guiding policies are not goals, visions or end states. They are methods. They reduce the complexity and ambiguity in the situation. The guiding policy creates policies and actions that are coherent - so that each builds on the other. Good policies exploit the leverage of focused effort and draw on a source of advantage.
• The coherent actions are designed to carry out the guiding policy. To have punch, the actions should coordinate and build upon one another, focusing organisational energy. Coordination of action is the most basic source of leverage or advantage available in strategy. Proximate objectives do wonders for energy and focus.

Aspects of strategy

• The power of leverage is focusing energy and action at the right moment onto the pivotal objective. Doing so can cause a cascade of favourable outcomes. Mastering leverage requires anticipation, focus and identifying the pivotal objective.
• Anticipation is predicting the behaviours of others, forecasting downstream results of events and spotting routines or patterns of behaviour.
• Focusing efforts on fewer objectives generates larger payoffs. Concentration is powerful because resources are limited, your attention is limited, your rivals will find it hard to match. Focus can help you overcome threshold effects, where a minimum force is required to affect the system.
• Identifying the pivot points that magnify the effect of effort is key. Look for a spot where a relatively small adjustment can unleash much larger pent-up forces
• To discover power notice asymmetry. See what others don’t have. Use your advantages to impose disproportional costs on your competitor
• Proximate objectives are close enough to be actionable. Naming targets you can reasonably expect to hit and even overwhelm. Does wonders for energy and focus. The more dynamic and uncertain the situation the more proximate a strategic objective must be.
• Objectives can cascade down through hierarchies. High level proximate objectives create goals for lower level units, which in turn, create their own proximate objectives. They can cascade down hierarchies of problem solving at finer and finer levels of detail.
• Skills come in hierarchies too. You may have to acquire one skill before moving onto something else. Layer skills like rungs on a ladder and you’ll be able to do some things others can’t. Concentrating on one thing, assumes many others will be taken care of.
• Chain link systems are when performance is limited by the weakest link. For example the reliability of a system is only as good as the weakest component, an assembly line is only as fast as the slowest process. On chain link systems incremental change won’t work unless you’re focusing on the right place. You have to sequence change carefully, and may only see delayed results. E.g. Solve for Quality → Sales → Costs in that order. Ikea has many differentiating policies that combine in a chain link system to achieve something truly differentiated.
• Strategy should be designed (not chosen) as problems are unstructured and systems complex. Premeditated strategy requires anticipating the thoughts and behaviours of others. Designing also requires the coordination of action.
• If you don’t have many resources, you need to tightly coordinate them and make the most of them. Resources and tight coordination are partial substitutes. The greater the challenge, the greater the need for a good, coherent, design-type strategy that makes the most of your resources. The best strategies often come form those with little resources.
• Press where you have an advantage. Nobody has an advantage at everything, most only extend so far and apply only in certain conditions.
• Sustaining an advantage requires an isolating mechanism (patents, reputation, relationships, network effects, economies of scale, knowledge gained through experience)
• The 4 ways to increase an advantage in business
• Deepen your advantage (increase value or reduce costs)
• Broaden the extent of the advantage (bring into new areas of competition)
• Create higher demand for the products or services (growing the number of buyers)
• Strengthen the isolating mechanisms that block easy replication or imitation
• Exploit dynamic situations. Consider exploiting a wave of change (most industries are stable most of the time). In moments of industry transition strategy skills are most valuable. You strategy doesn’t have to be perfect, just better than your rivals. Industries are often in transition when fixed costs are rising, or regulation is changing.

How to improve your strategy and decision making

• Think of strategy as a hypotheses and its implementation as an experiment. Update your strategy once results come in. Good strategy is an educated judgment, there are no sure things.
• In a world of change and flux “more of the same” is rarely the right answer, even if it worked before.
• Treat anomalies as a chance to learn something
• Privileged information is valuable resource
• Don’t commit to your first idea. There are better ones.
• Spend more time questioning your strategy than justifying it
• Defining a problem and a potential solution is at the heart of strategy.
• You can create better strategies by destroying your own. Convene a virtual panel of experts to question your strategy - encourages you to create a better one
• Improve your judgement by committing strategy to writing. Pre-committing to a position allows you to evaluate your own judgement later
• Keep your head and don’t follow the crowd. Make an independent assessment of the situation

Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

⚠️ Caution: These are particularly ugly and unstructured notes ⚠️

What strategy is not: ambition, determination, inspirational leadership or innovation.

• Strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge.
• The core content of a strategy is a diagnosis of the situation at hand, the creation or identification of a guiding policy for dealing with the critical difficulties, and a set of coherent actions. I will explore the three elements of the kernel one by one. (Location 1401)

The Core of Good Strategy is the Kernel

Good Strategy ...

• Often looks simple and obvious
• Often involves the application of strength against a weakness
• Often strength applied to the most promising opportunity
• Is often more powerful than traditional advantages (first mover: scale, scope, network effects, reputation, patents, brands etc)
• Is powerful, because opponents often don’t have a good strategy themselves
• Takes advantage of windows of opportunity (Steve Jobs waited out the ‘Wintel’ years, looking for the ‘next big thing’ that could propel apple forward)
• can leverage deception to make your competitor think you’re doing something they expect
• requires a leader who is willing to say no to a wide variety of actions and interests
• is as much about what you don’t do
• transforms vague gaols into a coherent set of actionable incentives
• builds a bridge between the challenge and the action
• defines a critical challenge and builds a bridge between that challenge and action, between desire and immediate objectives that lie within grasp. Has a good chance of being accomplished, given existing resources and competence
• is scarcity’s child - it is to choose one path and eschew others
• the craft of figuring out which purposes are both worth pursuing and capable of being accomplished
• a significant meaningful insight about how to win

Bad Strategy ...

• Once you learn to spot bad strategy, you’ll get better at creating good strategy
• Has 4 major hallmarks
• Fluff: restatement of the obvious with a sprinkling of buzzwords
• Failure to face the problem: if the challenge is not defined, you can’t assess the strategy
• Setting goals not strategy - there’s no plan for overcoming obstacles
• Bad objectives - fail to address critical issues or are impractical
• Lacks focus
• trying to do too much
• dedicating resources to unconnected targets
• accommodating incompatible interests / conflicting goals
• Too Blue-Sky → lofty desire is set, without a practical chance of being implemented
• Often comes from rank or HIPPO
• Crowds out good strategy

Examples of Bad Strategy:

• Grow at 20% a year, and maintain a 20% profit margin (this is just a goal)
• Spend more, try harder (no focus)
• Sending WW1 troops over the top again and again expecting a different result (failure to create an advantage)
• Stope the use of illegal drugs (it’s not proximate, not feasible)

How to generate good strategy

How to think about your own thinking

• Strategy is a hypothesis. It’s implementation is an experiment.
• Good leaders update their strategies as results appear
• Asking for a strategy that’s guaranteed to work is like asking for a hypothesis that is guaranteed to be true - it is a dumb request.
• Good strategy is educated judgment
• in a world of change and flux, “more of the same” is rarely the right answer
• The presumption that we know everything important, or we can know it through consultation with others deadens innovation
• anomaly marks an opportunity to learn something, perhaps something very valuable
• One of the most important resources a business can have is valuable privileged information—that is, knowing something that others do not
• Make a list - prioritise it
• Don’t commit to your first idea, there might be a better one. Spend more time questioning your strategy than justifying it
• Knowledge about the specifics. Associations between situations. What works, or what can happen.
• Problem - solution is the heart of strategy.
• Create better strategies, by destroying your own. Find out where they are weak as you look for better ones. Invoke a virtual panel of experts to question your strategy. C
• Improve your judgement by committing them to writing. Pre-commit to a position - then you can subsequently evaluate your own judgement
• Keep your head - don’t follow the crowd. Make an independent assessment
• Terrible industry
• product is commodity
• everyone has the came costs and technology
• buyers are price sensitive, knowledgable and willing to swap
• 2008 - Financial Crisis
• Smooth sailing fallacy - assumed the end of boom and bust
• Risk seeking incentives - high upside, no downside to risk
• Social hearding - presses us to think everything is OK or not OK because everyone else is saying so
• Inside view - this case is different - data ignored - couldn’t happen to us

Problems

• Executives who complain about execution problems have usually confused strategy with goal setting
• Leaders don’t identify underperformance as the challenge. Underperformance is likely the result of the true challenges
• Bad strategy is active avoidance of the hard work it takes to craft a good strategy
• A guiding policy on it’s own doesn’t make a good strategy - Common mistake
• Without a diagnosis - it’s hard to evaluate alternatives
• Without coherent actions - you can’t be sure your guiding policy can be implemented
• Good strategy isn’t just “what” you are trying to do. It is also “why” and “how” you are doing