February 28, 2019

Strategy: 6 Guiding Principles

Having a Strategy is No Guarantee of Success

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.

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'sHITS 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 professorClayton 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 of 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.