Review

I’m predicting this book will become a business classic. It is one of the best books on business strategy that I’ve come across. Good Strategy/Bad Strategy (it’s predecessor) had me agreeing with the theory, but I was left wondering how to put it into action. This book addresses that and gives you a framework to follow to create your strategy. This book can stand alone, so I’ll be recommending this ahead of Good Strategy/Bad Strategy from now on.

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Key Takeaways

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

• Strategy is a mix of policy and action designed to overcome a significant high stakes challenge. It’s about focusing attention and resources narrowly on the critical issue.
• The art of strategy is defining a crux that can be mastered and to see a way through it
• The crux of the problem is the place where commitment to actions will have the best chance of surmounting the most critical obstacles
• Policies and actions need to be coherent with each other → so not nullify efforts
• Don’t start with goals, start by understanding the challenge and finding its crux

• Challenge-based strategy begins with a description of the challenges, problems and opportunities facing the organisation
• Seek the crux. The challenge that’s most important but still addressable.
• Focus is the cornerstone of strategy, the concentration of resources is where the power comes from.
• Key Steps:
• A diagnosis of the situation/challenge/opportunity
• A comprehension of ‘what’s going on here’
• Finding the crux
• Creating reasonable action responses
• A challenge doesn’t have to be a problem, it can be a big opportunity.
• Strategy creation = Diagnosing the challenge → create a response

• A coherent response includes:
• Diagnosing the structure of challenges
• Framing, reframing, chunking down the scope of attention
• Reference to analogies and insight
• The result is a design rather than a choice
• You can’t deduce a strategy from a set of always relevant principles. Generic strategy frameworks might draw your attention to what’s important but they can’t guide you to specific actions

• How to discover or articulate a solvable problem from within a gnarly challenge:
1. Collect a list of all the problems, issues and opportunities
2. Cluster them into groups: expose relations, fuzzy boundaries are OK
3. Filter by immediacy. Drop those that can be deferred or sequenced later
4. Rate by importance and addressability

• Design action alternatives. Check they make sense based on your existing knowledge.
• The most reliable source of new design ideas is reflection on a felt difficulty

• A strategy shouldn’t be a long-range sketch of a desired destination. Think of it as a journey through, over, and around a sequence of challenges
• Thinking of strategy abroad long-term path into the future is easy but ineffective. The hard part is distilling broad intent into actions that can be taken now
• The key to strategy is playing games you can win. Choose the crux that strikes at critical issues and that can be surmounted.
• The ASC (Addressable Strategic Challenge) must pass the joint filters of critical importance and addressability
• The number of ASCs that can be worked on at once depends on resources
• Challenges → Addressable Strategic Challenges → Crux identification → Action plan

• Focus on the wrong thing, not much will happen.

• Sometimes your personal strategy has to include a path toward gaining enough executive power to actually enact the strategy you need to

• Coherence means that actions and policies do not contradict each other. Ideally they complement each other and create additional power.
• The cost of coherence is saying no to many interests with reasonable values and arguments

• Use analogy, reframing, comparison, and analysis to diagnose the problem
• Be aware of the concepts, analogies, frameworks, models, and other assumptions being used to simplify and structure the situation.
• Shift attention from unsupported goals to recognising obstacles and difficulties since that is the beginning of strategy
• What about all this is difficult?
• Why is this difficult?
• Reanalysis: looking at existing data in new ways can reveal problems or opportunities
• Be careful if you plan to use Porter’s Five Forces. It’s about industry performance, if the profit rate of firms varies it’s not appropriate
• The assumptions that give the tool its power may or may not be valid in a particular case.
• On disruption: the real challenge of “disruption” is not that you don’t see it coming:
1. it costs more profit to respond than it seems to be worth
2. your organisation lacks the technical ability, finances, or organisational skills to respond
3. that it is the destruction of the whole ecosystem in which you live

• Seek an edge: In competition, we seek advantage, and it can come only from some asymmetry. Look for an important asymmetry, that can be turned to an advantage (source of power/leverage) to help you tackle the crux
• Know your frameworks:
• Coupling, uncoupling, integration, de-integration, scale, experience, network effects, platforms, complementary assets

• Watch out for ‘idolisation of ephemeral technique’ and slow moving organisations
• Simplify organisations before transforming them.

• Don’t start with goals. Unsupported goal: one set arbitrarily, without an analysis or understanding of a critical challenge or opportunity
• Instead form an objective: (a good goal) must be the result of analysis work that targets certain actions that will move the organisation forward
• They are the outcome of strategy, not its input
• Strategy a judgment about what to do. It cannot serve all of our desires at once.
• Strategy should be based on judgments gained by examining changes, problems, skills, resources, and opportunities.
• Strategy decides a way forward → once you have a strategy → you can then fashion the specific goals that will guide its implementation
• A good objective defines a problem that is simpler to solve than the original overall challenge

• Don’t confuse management with strategy, “Driving results” in the absence of a clear strategy is putting the cart before the horse

How to execute on a strategy workshop

• Beforehand:
‣
Preconditions for success / Tactics
• get commitment to using a challenge-based approach to strategy
• get the exec with the final say to attend
• hold it separately from any budgeting process
• keep it to a smaller group (10 or less) else hierarchy takes over
• hold off site
• use a facilitator
‣
Do 90 minute face-to-face interviews with each attendee and others if needed
• hold this information in confidence
• use it to guide and shape the discussion
• surface opinions that individuals may be hesitant to state openly
1. Get up to speed on the company (competition situation, past plans and performance)
‣
Get attendees to respond to written questions
‣
Use the standard questions
1. With regard to your industry, and taking a {insert company name} perspective, and looking back over the past five years, what have been the important changes in technology, competition, and customer behaviour? What has been the impact of these changes on {insert company name}?
2. With regard to your industry, and taking a {insert company name} perspective, and looking ahead over the coming three to five years, what do you expect to be the key changes in technology, regulation, competition, and buyer behaviour? Which of these present problems for {insert company name} ? Which present opportunities?
3. What programs or projects undertaken by {insert company name} in the past five years were, in your view, successful and worthy of pride? What were the difficulties faced in accomplishing these programs or projects? What, in your view, allowed {insert company name} to successfully overcome these difficulties?
4. What programs or projects undertaken by {insert company name} in the past five years were, in your view, unsuccessful? What were the difficulties that prevented success? What, in your view, might have been done differently?
5. In your view, what are the priority issues currently being addressed by {insert company name} ? What projects and programs currently underway at {insert company name} are aimed at these priority issues?
6. A key to building a successful strategy is diagnosing the problems and difficulties that stand in the way of improvement. What, in your view, are the two critical challenges facing {insert company name}? Note that a critical challenge is not a financial or other shortfall in itself, but is the underlying difficulty that makes improvement difficult. In addition to identifying these two challenges, please comment on the main difficulties blocking their resolution
7. Can you identify issues and difficulties that arise from the structure or key policies of the company that deserve attention? Are any of these issues of sufficient magnitude to potentially block progress in resolving the key challenges you have identified in answer to question 6?
• And ask tailored questions based on the industry, business or situation
• When responses are too short, reply asking for more. When they lack detail, respond with a request for clarification
• Day 1
• What has happened over the past half decade, and what may happen in the future?
• What had worked and what had not worked in the past?
• Break
• Hand out a list of priorities from their responses. Include all of them, don’t rank them. Trigger a response. Are we done?
• Lunch
‣
Focus on identifying challenges facing {insert company name}
• Write a short description of each “challenge” on a five-by-eight-inch card and pinned it to a board
• Some will be taken down, or split
• Probe for detail and always ask:
• What makes this important?
• What makes this difficult?
• Avoid discussion of how these challenges could or should be met.
• By the end of the day - expect to have about 10 cards representing 10 challenges
• Day 2
• Summarise what you did yesterday and summarise the 10 challenges
‣
Show up to 10 PowerPoint slides of quotes from interviews or responses. Focus on things are hard or not working at the moment.
• One per slide
• Discuss as you go
• Keep the source confidential
• It can be uncomfortable (internal disagreement, action disconnects)
• Break
• Of the 10 challenges are any of them impossible to confront if the company really focused on them?
• Which one of ten is the most important? Which one is critically important?
• Get down to a few, put them at the centre of the board and remove the others
‣
Suppose we absolutely have to make good progress in dealing with at least one of them over the next eighteen months. It is simply essential, or we all lose our jobs and options…. Which one would you pick, and what would be the action plan?
• Break into two groups.
• Each group was to come back with an action plan for dealing with at least one of these three most important challenges.
• Give them 90 minutes and let them report back after the coffee break.
• Break
• Discussion shifts between difficulties and actions
• By the end of the second day you should have a sensible explanation of why things weren’t working and what to do about it
• You should have identified the crux of the challenge
• Day 3
• Lay out the specific actions to implement your new policy
• Task the group with making their key assumptions explicit.
• Write down the assumptions. When you meet as a group again look at whether these assumptions were correct.
• Swear in
• Tools
‣
Why Is That Hard ?
• What about all this is difficult? … is a very helpful question when evaluating and analysing challenges.
• It is easy to identifying challenges. But addressability is more complicated. Th
• Why is this hard? That is, what are the obstacles to dealing with this challenge?
• Most obstacles can be overcome if they’re focused on
‣
Find the ASCs (addressable strategic challenges)
• Find those that are important and focus
• It’s not that you can’t do everything at once, but each initiative draws attention and cognitive space, multiple initiatives are each blunted to accommodate one another
• Boiling the situation down to a few addressable strategic challenges is key.The crux of the situation will normally reside there
• Searching for the few limited challenges that are both very important and that can be overcome is the core of the strategy / workshop
• There are two ways to do this:
1. formally evaluate both the importance and the addressability of each of a number of challenges.
2. Take things off the table. If nobody volunteers get the most senior person to pick the 5 most important
‣
Focus on One or Two Proximate Objectives
• Absent a crisis or very competent strategic leadership, most organisations gradually defocus.
• Focus energy and resources on skillfully resolving the most important challenges.
• The proximate objective helps do this:
• A task, not a performance goal, that has a reasonable chance of being successfully accomplished within a short period of time.
• The task, or objective, is proximate in that it can be done and can be done fairly soon
• Tackling an important objective and overcoming it is incredibly motivating. Think of strategy as a series of proximate objectives rather than a long-term vision.
• Proximate objectives help create ab emphasis on action. An eighteen-month horizon is sensible, it can be longer for issues where current actions take much longer to reach fruition
• A shorter time horizon also helps with achieving agreement. It makes it easier to say no to other things
1. Deferred Judgment stops the group converging on an answer too early→ focusing instead on the identification of challenges and diagnosis of their inner logics.
2. Exposed beliefs, observations, and judgments through confidential interviews help avoid group think
3. Written questions and answers:
4. The single most important element of the workshop is a focus on identifying and diagnosing the challenges facing the organisation.
5. The Time Viewer (pre-mortem (well, not well), retrospective)
6. Do a round of instant strategy if folks get stuck in the weeds can break through the fog…
• Ask each participant to write down in one sentence their recommendation for a focused action that has a good chance of being accomplished
7. Forced Inward Analysis: Lead the conversation to the challenges created by how the organisation actually functions.
8. Red Team: Get some of the team to play the competition. They know the broad outline of our ways of doing business and tries to outwit them, even turning our strengths against us.
9. Reference class: a group of comparable situations or companies or challenges.
10. Make sure the data you’re using to make decisions has predictive power
11. Strategic Navigation: making assumptions explicit and then checking them as events unfold.
12. Swearing in: get everyone to commit to the strategy, and helping each other achieve it

Deep Summary

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

Introduction

• The ‘Crux’ is what climbers call the hardest obstacle on a climb. If you can solve that, you can probably do the climb. So the key to progression is picking the hardest climb with a crux that you have a good chance of overcoming.
• There’s an analogy to strategy discussed later in the book…
• Identifying the crux includes a judgement about what is the most important challenge
• There’s also a judgment about how hard or addressable that challenge is
• The ability to focus, narrow attention to a critical issue and avoid splitting resources
• A strategy is a mix of policy and action designed to overcome a significant challenge.
• The art of strategy is defining a crux that can be mastered and in seeing or designing a way through it
• Companies can get through a crux with intense focus, and by bringing elements of power, knowledge and skill to bear. When power is focused on the right area, breakthroughs can occur
• Musk focused SpaceX around lowering the cost of getting mass to orbit. Through the reusability of rockets and many other innovations.
• Effective people gain insight by through finding and concentrating attention on the crux of the a challenge (issues that are both very important and addressable)
• To act effectively you must fully examine the mix of problems and opportunities, identify the crux and take actions aimed at overcoming it.
• What strategy isn’t:
• decision making
• finding your one true goal
• its not setting higher and higher performance targets
• You need to develop a sense for identifying the crux of the problem - the place where commitment to actions will have the best chance of surmounting the most critical obstacles
• You also need: persistence, to take responsibility
• You need to keep your policies and actions coherent with each other, and not nullify your efforts by having too many different initiatives or conflicting purposes.
• To meet a challenge you should first work to comprehend its nature.
• Don’t start with goals → Start by understanding the challenge and finding its crux
• To have folks believe in it, there has to be logic and argument, and some evidence as to how you’re dealing with the challenges you face
• Strategy steps:
1. Start with the challenge. Diagnose its structure, the forces at work. Identify the crux.
2. Identify sources of power and leverage relevant to your situation.
3. Avoid distractions.
4. There are multiple pitfalls when executives work in a group or workshop to formulate a strategy.

Part 1: Challenge-Based Strategy and the Crux

• A strategy is a mixture of policy and action designed to surmount a high-stakes challenge
• Challenge-based strategy begins with a description of the challenges, problems and opportunities facing the organisation
• As you learn more, seek the crux. The one challenge that is both critical and that appears to be solvable.
• Focus is the cornerstone of strategy, its where the power comes from

1: How do I create a strategy?

• Think about what makes your business different, or special compared to its competitors.
• Think about the specific challenges your business faces
• A desired rate of growth and profit is not a strategy. There’s no crux. There’s no focus.
• Gary Hamel on Strategy:
• Everyone knows a strategy once they see one. Anyone can recognise a great strategy after the fact.
• Process doesn’t produce strategy → it produces plans. The dirty little secret of the strategy industry is that it doesn’t have any theory of strategy creation
• Key steps in dealing with a strategic challenge:
• A diagnosis of the situation
• A comprehension of ‘what’s going on here’
• Finding the crux
• Creating reasonable action responses
• Don’t start with long-term goals. The advice is often to start the strategy process by defining goals. But where do you get them from?
• Start with analysis your business, competitors, dynamics of competition and more. Else your just making vague baseless statements that won’t help your organisation move forward
• Organisations don’t have one or two primary goals. They have a bundle of ambitions that often them conflict with each other. The ambitions are a pre-cursor to strategy, but they can’t all be accomplished
• Effective strategy emerges out of an exploration of challenges, ambitions, resources and competition.
• Confront the situation actually being faced. Strategy is about progressing some elements from the bundle of ambitions.
• Diagnosing the challenge is the starting point in strategy creation. Prices, costs, competitors, buyer behaviour, changing tastes, case studies / prior examples.
• You can’t use utility maximisation decision making, as there’s too much ambiguity, you still have to generate the alternatives and there’s unlikely to be a well-structured causal connection between actions and results.
• Strategy creation is much less structured and much more complex than other problems
• A challenge doesn’t have to be a problem, it can be a big opportunity.
• Three types of strategic challenges:
1. A choice challenge → we know the alternatives, but uncertainties and non-quantifiable aspects that make choosing among them difficult. Usually arise when committing long-term capital
2. An engineering/design challenge → when you have to create something new, there are no clear alternatives. But you have methods for evaluating your creation before implementing. You can test your ideas with well understood models.
3. Gnarly challenge → there are no given alternatives, no good engineering-type models to test your designs. There’s no guarantee of a solution of any kind. No clear causal connections between actions and outcomes.
• A diagnosis of Netflix:
• Grown by renting content from others. Might not work in future.
• New streaming services all with original content, what happens when people hit financial and content fatigue
• Most Netflix original content is produced by studios that have conflicted interests
• If Netflix tries to make high-quality movies it would be in direct competition with suppliers
• International margins outside Europe are low
• Competition for original content will drive up prices
• The cost of gaining new subscribers is raising
• Cashflow is strongly negative
• It can only grow its way to cash profit if its cost of production and content can be spread over a larger subscriber base.
• The Crux of Netflix:
• IT can no longer count on contracting for existing food TB and studio fils at reasonable prices
• For streaming access to content and subscriber scale is key (more subscribers can pay for more material, and the ratio of shows needed falls).
• But subscribers will gravitate to good material.
• Can Netflix gain advantage by leveraging foreign production to a global audience? The crux is the opportunity to use its international advantage to create sufficient material to feed both its domestic and growing international markets.
• Moving from diagnosis to alternatives requires audacity
• Alternatives are not given, the must be imagined
• You then need to choose among alternatives
• Translate the idea into specific and coherent actions
• The process of diagnosing the challenge and then creating a response is the best theory we have for strategy creation
• There are tools for analysing the challenge
• There are tools for stimulating and thinking of a response
• But they are only stimuli → You don’t pick a strategy you create it.

2: Finding and using the Crux

• You need to be able to identify and focus on a critical challenge or opportunity AND create a way to address it
• Gnarly challenges aren’t solved by analysis or preset frameworks
• A coherent response includes:
• Diagnosing the structure of challenges
• Framing, reframing, chunking down the scope of attention
• Reference to analogies and insight
• The result is a design rather than a choice
• The crux acts like a constraint or blockage to progress. It hints at leverage.
• You can’t deduce a strategy from a set of always relevant principles
• Porter’s generic strategies from Competitive Advantage:

	Price Competition	Attribute Competition
Broad-market scope	Cost leadership	Broad differentiation
Narrow-market scope	Cost focus	Differentiation focus

• Off the shelf operational strategies:
• continuous improvement
• capacity utilisation
• just-in-time
• outsourcing
• new-product time to market
• Generic strategy frameworks might draw your attention to what’s important but they can’t guide you to specific actions
• Performance goal strategies (grow at 20% for 5 years) don’t work either → they have no action implications
• You can’t deduce a good strategy from theory. So don’t focus too much on deductive logic. Much of design is imagination and knowing about many other designs, copying some elements of each.
• Gnarly problems have these characteristics:
• There may be no clear definition of the problem itself
• Most of the time you do not have a single goal but a bundle of ambitions
• Alternatives may not be given but must be searched for or imagined
• The connections between potential actions and actual outcomes are unclear
• Neither individuals nor organisations can attend to everything at once.
• So, we isolate the crux of the overall mix of challenges and opportunities.
• It’s important the crux is (almost) surely be surmounted if we focus resources and efforts on it.
• Discovering, or articulating, the solvable problem within the complexity of a gnarly challenge is not easy. Often it seems like there are a multitude of interconnected problems.
• Andy Marshall and Dawn Farrell use the practical tools of collecting, clustering, and filtering to help untangle gnarly situations.
• Collecting: making a list of all the problems, issues, and opportunities
• Look across all the issues, not just what’s top of mind
• The list is always larger than anticipated (the same will be true of you alternative actions)
• Thinking of outsiders and competitors can help
• Get them all on a board
• Break them down if needed
• Expect to get about 20
• Clustering is placing problems and opportunities into groups
• Cluster them into somehow related groups.
• Expect groups to have fuzzy boundaries.
• You could group on many things (probability, internal issues, competition, industry wide, relevant now or later?)
• Following collecting and clustering, you realise that there are too many issues, too many problems, and too many different interests at work. They need to be filtered.
• Step 1: filter by immediacy. Can any be deferred or sequenced later? Drop those
• Step 2: rate their importance, and rate their addressability
• Definitions for this purpose:
• Importance: the degree to which the challenge either threatens the core values or existence of the enterprise or represents a major opportunity.
• Addressability: the degree to which the challenge appears to be solvable
• Often the crux is very important and is hard to address.
• A critical challenge that doesn’t seem addressable deserves great attention
• Can you break it into sub problems?
• Is it like a similar problem you or others have made?
• Can an expert help?
• What is changing that might alter the addressability?
• What is the single keystone constraint, if broken, that would make it addressable?
• If you need to → can you break this into many challenges and start the exercise again?
• The crux is a point of tension, this is where you start to feel the conflict between resources, issues and policies
• A gnarly challenge that hasn’t been distilled down to a crux is doing to be much harder to deal with. It’s impossible to solve a problem you can’t comprehend in your mind
• Designing Alternatives
• The second major part of the process is designing action alternatives
• Check proposed action against existing knowledge (can you rule out some with strong evidence?)
• SpaceX example:
• Challenge: make cost to orbit cheaper
• Crux: solve rocket reusability
• Insight: fuel is cheaper than hardware. Take a little more fuel to orbit and the rocket can return and land → which is cheaper than building a new one
• An insight feels right. Its truth is self-evident. We don’t know where insights come from.
• Famous insights: Moore’s Law, Bezos spotting internet growth and starting with books, Benioff literally dreaming up a cloud CRM, Walton seeing stores as nodes in a logistic system
• Flashes of insight can remake parts of the world
• John Dewey: the most reliable source of new design ideas is reflection on a felt difficulty. Therefore identifying the crux is key.
• How to generate new ideas and insights? Plenty has been written on that
• brainstorming, meditation, visualisation, collecting many before evaluating, hypnagogia, adopting another’s point of view, what if?, imaginary mentor, persistence, analogy, point of view, make explicit assumptions, asking why, recognising your unconscious constraints
• Be persistent, think about it from new angles
• The most direct insights come from analogies, the examples and lessons of others
• Focus on the problem, sometimes only at a part but in more detail, can make it easier to deal with
• Or zoom out → to see the challenge as part of the larger landscape
• Making assumptions explicit can sometimes indicate how a point of view can be usefully changed.
• Unconscious constraints are impediments to insight

3: Strategy is a journey

• Strategy is an ongoing process of dealing with critical challenges and deciding what consequential actions to take
• It’s a misconception that its a long-range sketch of a desired destination
• Think of it as a journey through, over, and around a sequence of challenges
• It is an ongoing process of problem solving - not a re-stating of a vague statement of intent or purpose
• It’s entrepreneurial, grabbing opportunities as they come
• Ryanair:
• Good service low prices didn’t work
• Copied Southwest airlines. Lower cost structure, don’t compete head on. Serve smaller airports on at least one side of the trip
• Unbundle parts of the service to lower the core price (everything becomes extra)
• People don’t like it but they use it and its growing

4: Where you can win

• The key to strategy is playing games you can win
• Focusing where you can win is neither trivial nor always followed
• Choose which challenges to confront
• Choose the crux that strikes at critical issues and that can be surmounted
• If your market is saturated → find one that isn’t
• Conflicting ambitions may be irreconcilable (especially in personal or political situations)
• The ASC (Addressable Strategic Challenge)
• Must pass the joint filters of critical importance and addressability
• The number of ASCs that can be worked on at once depends on the size and resource depth of the organisation… and also the graveness of the most serious
• What is important depends on the situation and the interests of those asking the question
• Addressability depends on the skills and resources of the organisation and the time span being considered
• If there’s disagreement on addressability and importance → one purpose of hierarchy is to resolve such disagreements
• ‘Creating real differentiation’ and ‘developing new capabilities’ are classed as ambitions, intentions or aspirations. You need to take each and break off a smaller chunk, that can be tackled in the now
• The modern notion or misconception is that strategy should describe the broad long-term path into the future. This makes strategy really easy, but really ineffective too. BUT it dances around the hard part: distilling broad intent into actions that can be taken now
• Addressability encourages breaking down long-term challenges into smaller chunks, one of which can be tackled today.
• Challenges → Addressable Strategic Challenges → Crux identification → Action plan

5: The challenge of growth

• Growth being too slow is one of the most common challenges
• Often due to competitive pressures, organisational agility and entrepreneurial insight.
• Finding the crux will require analysis of all three, and finding logic and mechanisms for value-creating growth
• Growth numbers are pretty random → a company’s growth record over three years does not predict their growth rate over the next three
• In a slow-growing company, managements job is to surprise the market with an uptick in performance.
• Ingredients to growth:
1. Deliver exceptional value to an expanding market.
• Growth needs to be unexpected to increase a companies value. It doesn’t work if it’s been bought and paid for through acquisition or other tricks for raising accounting results.
• Your stock price will move with market averages if Wall Street doesn’t expect you to do anything new and value creating. You have to surprise them.
• Three important concepts for value creation:
• Strategic effectiveness: the unique value you are able to create and how strongly that position resists competitive erosion and imitation
• Unique value: the amount by which your value gap exceeds those of your competitors (e.g. less costs or more value than your competitors)
• Strategic extension: taking your unique value system and extending it to cover more buyers or similar products or both. Or entering new territories or adjacent markets. Or entering new product markets with a novel unique value proposition
2. Simplify to grow
• Omit needless activities
• Weed the garden of stale activities and business units
• Concentrate and simplify managerial tasks at the top creates focus
• Its hard to grow a conglomerate. Grow a part and the performance can be t lost in he mix. You don’t benefit from focus. If you focus on the wrong thing, not much will happen. If you focus on the right thing, you’ll see profitable growth.
3. Be quick
• Reaction time is critical in competitive situations → when a new opportunity or challenge arrives on the scene. The first capable response often wins: not the first mover but the first one to provide a competent reaction
• Going round the OODA loop as fast as possible is key.
• Boyd’s OODA loop: Observation, Orientation, Decision, Action
4. Use Mergers and acquisitions to speed and complement a strategy
• Analysis on M&A is split. The biggest deals are the worst so from a total value perspective they destroy value.
• BUT keep it focused and small → acquisitions can speed up or deepen your basic competitive strategy
• Don’t buy complex multi-product heavily staffed companies. They take years to untangle
• Execs have bad incentives, at the top the only real excitement apart from a crisis is a deal.
• Executives seek and execute acquisitions that have little to do with shareholder value because they help boost metrics such as sales, EPS [earnings per share], or EBITDA that determine their bonuses. In addition, a big acquisition will put the company in a peer group with larger competitors, which also tends to boost executive pay.”
• Restrict acquisitions to skills, technologies and platforms that are complementary to your existing strategy and that would be hard to create internally and to provide broader and stronger market access for the target’s products
5. Don’t Overpay
• Public companies demand a premium of about 30%. Focus on private companies and try to avoid bidding wars
• Paying with stock is also a premium, try and use cash. Paying with stock is equivalent to issuing stock, and there will be a hit on your stock price.
6. Don’t grow the blob
• The blob is the complex interconnected structure at the hear of many older organisations. If you’re not going to weed the garden, at least don’t grow the blob.
• A bureaucratic structure is going to make growing harder
• Don’t restrict choices by introducing conflicts of interest and power games
7. Don’t Fake it
• Don’t smooth earnings to please Wall Street. Don’t engage in smoothing, manipulating to compensate for fluctuations
• Executives prefer smooth earnings, but the market doesn’t care

6: The challenge of power

• Attacking a crux requires action, and making some activities, people and departments more important than others. There is no escaping that strategy is an exercise in power.
• The concept of power seems to make people uncomfortable today. A strategy demands the exercise power to make parts of the system do things they wouldn’t otherwise
• Important changes always mean shifts in power and resources.
• You need to ask or make people do things that break with routine and focus collective effort and resources on new purposes
• Be wary of following templates for ‘Strategy statements’. They aren’t really strategy, they are part of pop-culture. Often not inspirational and not specific enough.
• You may have to gain new executive power to do what you need. To do that demonstrate your ability by operating where you can, doing so will win favour and you’ll get permission to operate where you need to.
• Sometimes your personal strategy has to include a path toward gaining enough executive power to actually enact the strategy you need to

7: Creating Coherent action

• Coherent actions support one another. Coherence means that actions and policies do not contradict each other. Ideally coherence will mean that actions will complement each other and create additional power.
• When done well, coherence doesn’t jump out and smack you on the head. It just looks sensible.
• It’s easy to set goals or objectives that are incoherent. The UN set 17 sustainable development goals. Many are in conflict. Having 17 inconsistent goals is an indulgence. If you wanted to make progress, you’d select a few and push the rest aside.
• The cost of coherence is saying no to many interests with reasonable values and arguments
• The test of minimum coherence is that actions should not directly conflict with one another.
• Examples:
• Don’t base your competitive edge on continuing development but then cut R&D to make your numbers.
• Don’t claim that your Web platform is about free speech and then shut down sites based on their political positions

Part 2: Diagnosis

• You cannot solve a problem you have not understood.
• Diagnosis is deepening your understanding of the challenges being faced
• Seeks to understand why certain challenges have become important, what forces are at work, and why the challenge seems difficult.
• To understand what is happening and what is critical we use the following tools: analogy, reframing, comparison, and analysis

8: What is the problem? Diagnosing through reframing and analogy

• Two powerful tools are reframing and analogy:
• Building a mapping between your challenge and similar situations faced by others at different times and places
• You don’t have to have a perfectly accurate understanding of reality yo make a clearheaded diagnosis:
• The world is complex, to structure and understand a situation we need to simplify
• To be clearheaded is to be aware of the concepts, analogies, frameworks, models, and other assumptions being used to simplify and structure the situation.
• The outsider’s advantage: being able to ask dumb questions without looking too stupid.
• Diagnosis: Focus on the challenges and ask “what” and “why” over and over again.
• Speed things up by introducing alternative analogies and frames that highlight different issues and different patterns of causation.
• The most powerful tool for diagnosis is reframing the situation. The frame used by senior leaders focuses their attention on some issues and measurements rather than others. A key step in diagnosis is testing, adjusting, and changing the frame, or point of view.
• A common obstacle to a clearheaded diagnosis is emphasising the positive and hiding the negative.
• Shift attention from unsupported goals to recognising obstacles and difficulties since that is the beginning of strategy
• What about all this is difficult?
• Why is this difficult?
• Looking at difficulties is initially uncomfortable.
• Steve Jobs didn’t do market research on the iPhone, he knew it was something people would want and pay for. The crux of the challenge was to create one now, while it was still hard, before technological progress made it easy.
• A common tool of diagnosis is analogy: making connections to similar situations. To use it well you need access to more than one or two additional situations, to understand the logic in these other situations, and to check on how that logic maps to the current situation.
• A clear diagnosis of the challenge can be a strong lever for creating a new and better way to compete.

9: Diagnose via Comparison and Frameworks

• Measurement is always a comparison
• Businesses rarely have a shortfall of accounting statements, so that’s often where a diagnosis starts
• Reanalysis: looking at existing data in new ways can reveal problems or opportunities
• It can turn an existing diagnosis on its head
• Look for what is the most important determinant of your most important metric
• Find the key driver
• Be careful if you plan to use Porter’s Five Forces:
• The five forces as described:
• Strength of competition
• Ease of new entrants
• Bargaining power of suppliers
• Bargaining power of customers
• Threat of substitute products
• The model is about industry performance, not individual company performance. If the profit rate of firms within an industry are spread out over a wide spectrum, with some high and others low, then the 5 forces framework is inappropriate
• Most real industries contain firms with different profit rates → so the concept of industry profitability may have no meaning
• Of all the variation in business-line profitability, only 4% could be attributed to stable industry effects

10. Use Sharp Analytical Tools with care

• The assumptions that give the tool its power may or may not be valid in a particular case.
• A tool/framework could help, or it could lead you astray to a misdiagnosis of the crux. Use with care.
• Capital Budgeting is a common tool recommended for making decisions on whether a large investment is worthwhile. The biggest risk is hidden, the biggest risk is that the people proposing the investment are incompetent or lying.
• Competition for resources in a company becomes a political battle
• the quality of strategy work is limited by the amount of honesty and integrity in the system
• Managers will also blur the connections between outcomes and the original decision.
• Because of this firms tend to operate by looking for rapid payback to close the accountability gap

‣

BCG growth-share matrix. Quadrants of Dogs, Cows, Stars, and Question Marks, the tool had an oversize influence on corporate strategy in the 1970s

• Created an idea of portfolio balance—the role of some businesses is to generate cash, and others get to absorb cash
• Jack Welch GE CEO had a number 1 or 2 system. You business unit should be “No. 1 or No. 2 in your industry.” otherwise “Fix it, sell it, or close it.”
• Both these frameworks have been used by companies without acknowledging the underlying rationale—transcending capital budgeting systems. Being clearheaded means understanding the analogy or framework you employ.

• Disruption theory
• ‘Disruption’ is a term that has been overused, and has come to mean almost anything that upsets an existing business or state of affairs.
• Clayton Christian and Joseph Bower began originally had a tighter definition → focusing on why many leading companies failing to “stay on top” when competitors employed new technologies.
• Why weren’t previously successful companies responding effectively to these threats?
• Their explanation was that leading companies were too focused on their existing customers, especially their largest and most demanding customers. Following these customers’ desires for ever-larger, more powerful, or faster versions of products, companies lost sight of less effective but cheaper technologies.
• After the theory became popular executives began to worry they were too focused on their successful products and their best customers.
• Should they respond to every competitive product that was not as good as theirs?
• How helpful is this framework in understanding the dynamics of competition?
• The Christensen theory had disruption coming from a low-price, less capable product. But there were glaring examples of the opposite. The iPhone was high priced, yet was clearly disruptive to RIM’s BlackBerry and Nokia’s phones.
• Follow-on research has not supported the Christensen story of companies being too focused on main customers and missing the rise of low-performance, low-price disruptors.
• So how do you deal with disruption?
• The real challenge of “disruption” is not that you don’t see it coming.
• The real challenges are:
1. it costs more profit to respond than it seems to be worth
2. your organisation lacks the technical ability, financial strength, or organisational skills to respond
3. that it is the destruction of the whole ecosystem in which you live
• How should you respond?
• In case (a) the cost and benefits of waiting should be assessed. It just might be that letting the existing business slowly decay is best. To do this gracefully, it is wise to make it part of a more diversified firm’s portfolio.
• In case (b), if you lack the technical skill to respond, the usual path is to acquire a company that does have the skill.
• In case (c), where the entire ecosystem collapses, there is not much you can do unless you have a crystal ball and can get out before the deluge. There is no denying that major changes in technology, tastes, and regulation can disrupt and kill off a business. There is no managerial trick to make a business immortal.

Part 3: Through the Crux

11: Seek an edge

• In competition, we seek advantage, and it can come only from some asymmetry.
• Find and target the asymmetries which can be turned to advantage
• The fundamentals of advantage
• The four elements of advantage:
• Information: knowing something that others do not
• Know-how: having a skill, or patent, that others do not have
• In position: having a reputation, brand, or existing market system (for example, distribution, supply chains) that others cannot readily imitate or push aside
• In efficiency: from scale, technology, experience, or other factor that others cannot easily attain; and in the management of systems, whether bridging complexity or moving with speed and precision, that others do not have.
• Look for an important asymmetry, that can be turned to an advantage (source of power/leverage) to help you tackle the crux
• In competition, you need an advantage in knowledge or resources or both.
• Bertrand competition occurs when the market responds quickly and decisively to price cuts. Competitors have plenty of capacity, prices are easily communicated to buyers, and products are standardised so that quality differences are minimal. In Bertrand competition, prices are driven all the way down to cash costs.
• The solution is almost never more price competition or more investment in Bertrand markets.
• Most strategies are built on:
• supplying better quality or performance than competitors
• or simply being perceived as offering better
• by specialising in segment where your skills match buyers’ needs
• Close Coupling: of activities (especially a new inventive coupling) can be subtle but effective
• Segment the market or create a new one by appealing to a somewhat different set of customers
• Create a new offering by coupling your existing technology with something else, something the competitor will not immediately imitate.
• Bringing together and coupling skills and ideas that haven’t previously been combined.
• Bring together activities that have different knowledge or experience bases.
• E.g. beekeeping with modern data (crop locations, crop genetics, and weather)
• The Wright brothers crux was moving from gliders to powered flight. They developed a light-weight engine that could be combined with a glider
• Uncoupling: occurs when previously combined or integrated activities are taken on by specialised firms. The strategy is often to take one of the newly specialised positions early, leapfrogging those trying to preserve the old integrated system.
• Integration and Deintegration.
• Integration concerns activities where an “upstream” stage supplies inputs to a “downstream” stage, like trees to mills and then mills to lumber, notebooks, and paper towels.
• Deintegration is the force behind the huge wave of outsourcing to “supply chains,” with both manufacturing and knowledge-based skills such as coding moving offshore to lower-cost locations.
• E.g: the deintegration of most semiconductor production to specialised chip makers.
• Scale
• There are clear economies of scale in many activities. The strategic issue is the scale or size required to be efficient. If those efficiencies can be achieved at a scale of one-tenth of the whole market, then there is room for ten efficient firms. That means that scale will not be a source of advantage or edge.
• Forces that counter scale are the costs of shipping/distribution and the desire of customers for differentiation
• It doesn’t make sense to build a thousand-seat restaurant
• Production economies of scale are clean, but larger organisations require more layers of middle managers and committees to coordinate (which is why many mergers don’t deliver economies of scale)
• The best way to attack a larger competitor is by focusing on a part of the business from which they’ll retreat
• Experience
• You get better at something after doing it a number of times. BCG relabelled ‘learning by doing’ as the ‘experience curve’
• The log-log plot showed unit costs falling as cumulative production rose; cost per unit dropped about 20 percent for each doubling of cumulative output. Once a firm got into the lead, it could stay there. It seemed to explain sustained success under competition.
• Most of the cost reductions on the curve are industry wide (not proprietary) and could not be the source of sustained performance differences.
• Experience does matter. The more stable the activity, the more complex the process, the more continued operation can lead to increases in efficiency.
• The strategic issue with experience is the degree to which it can drive an advantage over competitors. Just as is the case for simple scale economies, beyond a certain point, factors other than accumulated experience become decisive.
• Network effects
• Economies of scale drive down unit costs over time, network effects drive up value of the product. For a network effect to happen, the value of a product or service has to rise as more and more people use it.
• Create a new product with network effects and it may grow quickly
• Platforms
• Platform business can have two-sided network effect - which creates a moderate lock-in of both buyers and sellers.
• The early crux issue is deciding which side to build first, later adding the other side.
• The big unknown is whether the company had been “investing in growth” or whether its pricing structure is basically unsustainable.
• When thinking about advantage, look at search costs, stickiness, or switching costs.

12: Innovating

• Technologies advance in waves, layer upon layer, each building upon the infrastructure and knowledge laid down in previous layers
• When thinking about innovation, you have to have a picture of the long wave (sometimes a century or more) and the shorter waves (cost reductions or new benefits)
• Harnessing of electricity is an example of a long wave
• Within a long wave of change, technology progresses in shorter steps as new capabilities become commercialised. Typically through a small amount of early adopters and then by breaking into the mainstream.
• Invention is rarely out of the blue. It typically comes as new insights and findings are ‘in the air’ and being talked about and developed.
• We think of innovation as being down to great individuals, but incremental improvements are generally made by a number of different inventors at roughly the same time
• The further into the future you looks, the more unpredictable technology becomes. Beyond 5 years out, it’s hard to predict so you have to take a portfolio point of view, making bets on a variety of possibilities, some of which will conflict or compete with one another.
• Successful innovations typically enjoy a time in the sun when competition is somewhat muted and growth is rapid. That success often whets the appetites of larger and older firms, each looking to maintain their vitality by ingesting younger upstarts. The crux problem for the younger innovator is to use its agility and lack of bureaucracy to outmanoeuvre the competition
• Complementaries
• Complementary assets are skills or resources that are necessary to bring the new invention or product to market and to provide whatever ancillary services it needs.
• E.g. if you invent a better blood-pressure metering device, existing systems of distribution into hospitals and doctors’ offices are complementary to your invention. If you don’t control them, you will have to share much of the benefits your invention creates with existing powerful complementors
• But if you invent the iPhone, and every network operator wants to carry it, the shoe is on the other foot.
• If you are truly first, establish strong intellectual protection. Be aware that others’ ideas are also developing and improving. The success of a new product or idea depends on complementary assets.

13: The Challenge of Organisation Dysfunction

• Sometimes the problem is us an organisations ability to respond quickly. Usually due to how leaders have designed the organisation or how they manage it.
• Typically large firms became successful by specialising and scaling
• There becomes ‘a way things are done around here’.
• Toynbee called this ‘idolisation of ephemeral technique’ and saw it as a powerful force that could breakdown civilisations.
• Manifests in how offices are designed, in the structure of reports, in how people think and act
• The warning sign: when you have a lot of talented people, but it feels as if their energy is dedicated inward, dealing with each other → rather than outward dealing with the market

The employees were not prodded to be more efficient or more innovative. The structure of the company and the corporate culture which valued conformity more than creativity prevented that from happening. The reward system functioned on automatic pilot. Put in the years, support the party line, and you’ll be protected from harm.” Maryann Keller’s Rude Awakening

• The greater the mass, the more force will be needed to change its speed or direction.
• Organisational inertia is normally the problem of large organisations
• Size insulates and buffers the organisation from local or short term challenges, thus making responsiveness more difficult. Size increases the span of activity beyond
• Organisational issues using: diagnosis, reduction to a crux, performance concepts, and coherent action.
• Digital companies can change faster as they lack the factories, fixed assets, unions, and huge managerial structures of more traditional companies.
• Proper transformation takes 5 years in traditional firms and often requires changing senior leadership. Those who cannot commit cannot be part of the team.
• Simplify organisations before trying to transform them.
• Weed out unnecessary activities
• Remove superfluous layers that filter information
• Break large units into smaller ones
• Reduce diversification and trim the number of products / market niches served
• It can be a multi-year process to change culture. Provide a reason as to why people need to behave differently, connect it to the strategy and their own personal benefits.
• Success leads to plenty, which leads to laxity. That diminished alertness allows old structures and practices to persist long after their sell-by date.

Part 4: Bright, Shiny Distractions

14: Don’t start with goals

• Don’t start with a goal, start with analysis
• Define: Unsupported goal: one set arbitrarily, without an analysis or understanding of a critical challenge or opportunity
• e.g. hitting a specific profit target in the next 12 months
• Dilbert-style corporate management
• disconnected from the reality of the situation
• don’t guide action
• An objective (a good goal) must be the result of analysis work that targets certain actions that will move the organisation forward
• Best to distinguish them from unsupported goals by calling them objectives
• Answers ‘What shall we do?
• They are decisions about what to do and what not to do
• They are the outcome of strategy, not its input
• They need to be concrete and specific
• A strategy is a decision about how and where and with whom it will compete
• Ambitions, desires and values don’t tell you what to do
• it’s OK to remind yourself of them when working on a strategy
• Strategy can act in the service of desires, but its shape is determined by insights
• Strategy a judgment about what to do. It cannot serve all of our desires at once.
• it defines interests can be advanced and which cannot in the current situation
• You can’t work backwards from goals to strategy
• Narrow goals are strategy in disguise minus any supporting analysis.
• Strategy should be based on judgments gained by examining changes, problems, skills, resources, and opportunities.
• Strategy decides a way forward → once you have a strategy → you can then fashion the specific goals that will guide its implementation
• Goals are decisions
• It’s easy to get agreement on desires, aspirations and values
• But express one as a specific goal, especially a metric, it implies a stream of actions.
• Setting a specific metric is deciding what is important.
• a good objective flows out of a process of problem solving
• a good objective has the form of a task
• a good objective is the outcome of working the gnarly problem of strategy
• Goals are a management tool for guiding action.
• A good objective
• resolves ambiguity
• defines a problem that is simpler to solve than the original overall challenge
• is one the organisation knows how to achieve or can be expected to work out how to achieve
• represents a clear set of choices, narrowing focus, resolving conflicts, and helping define what shall be done and what shall not be done
• is not always something on which everyone agrees
• Two types of bad goals:
• Unsupported goals → set without an analysis or even recognition of the underlying problems
• Misapplied goals → addresses the wrong problem when diagnosis is lacking or restricted by politics or myopia.
• There’s a problem statement, and a set of policies and actions, and goal setting, BUT the goals focus energy onto the wrong activities, missing the real problems.

15: Don’t confuse strategy with management

• Managing by measuring progress didn’t work. The progress led into a trap—a war of attrition and combat of wills.
• Management work and strategy work are two different things
• Management work → accomplishing given objectives → is often called execution.
• “Driving results” in the absence of a clear strategy is putting the cart before the horse.
• Goals and metrics don’t make a strategy. A strategy is a reasoned argument about the forces at work in a situation and how to deal with them. Don’t let the metrics drown out thought.
• Drucker’s management by objectives soon became a system adopted by most firms
• Goal set → negotiate → top-down purpose → targets
• The Balanced Scorecard (by Robert Kaplan and David P. Norton) divides goals into four categories: financial, customer, internal process, and learning innovation.
• It is not much help when the challenge is not a failure of efficiency in current operations.
• Good strategy work is not management work. You need both, but don’t confuse one with the other

16: Don’t confuse current financial results with strategy

• The 90-Day Derby is the quarterly earnings cycle and the associated wall street attention
• Miss by a penny and you must be in trouble (you can’t find a penny?)
• You’re better off missing by more and saving those earnings for the next quarter
• CEOs who get caught up in quarterly 90-Day Derbies spend a great deal of time and energy preparing guidance and then trying to live up to it.
• Remember current earnings are the harvest of investments and actions taken in the past
• Current earnings do not determine the value of a corporation. Value is about the future.
• Some CEOs to make wasteful decisions.
• Agency theory’s incentive program does not solve the strategy problem
• The basic problem with the shareholder-value goal is that senior executives don’t know how to achieve it.
• Every business case has the same solution:
• increase sales, cut costs, and make the bastards work harder.
• three main strategies for driving profitability: revenue growth, operating margin, and capital efficiency
• Success came to Apple by having successful products and strategies, not by chasing metrics.

17: Strategic planning hits and misses, uses and misuses

• Long-range planning started with utilities forecasting demand. Forecast demand, forecast share, and plan the facilities needed to meet demand.
• Long-range planning can be useful when the key flows and events can be forecast
• Mission Statements and Turtles
• Typically you draft a vision statement, mission statement, statement of values and strategy statement and work out its statement of goals and objectives
• Working with a cascade of “statements” about vision, mission, value, and strategy is a feckless activity, lacking a logical backbone, and having no evidence of being enduring.
• They can’t guide strategy
• Values are illuminated by actions, not statements on the wall.
• It’s just statements all the way down, standing on each other
• If strategy is a form of problem solving, a journey, and that it is a response to challenges, then mission statements are not helpful in strategy work.
• They are a waste of time and effort.
• You don’t need a vision or mission statement to lead a business.
• You decide and create your actual mission as you design and implement your strategic response to change and opportunity.
• Keep it to a motto. E.g. Think Different
• The essential problem for most businesses is that their so-called strategic-planning exercises do not produce strategies.
• They do not address critical challenges. Often focus on financial goals and budget allocations

Part 5: The Strategy Foundry

• ‘The Strategy Foundry’ is a workshop/process by which a small group of executives can do challenge-based strategy, discover the crux, and create a set of coherent actions for punching through those issues.

18: Rumsfeld’s question

• The key challenge needs to be owned before it can be surmounted. Good strategy can only flow from senior executives who own the critical challenge.
• Don’t sidestep serious work on gnarly challenges because you have no method or system for doing it.
• Don’t fall back on positive-thinking “success theater” put on by Jeffrey Immelt at General Electric
• Irving Janis’s concept of groupthink:
• choices were made without systematic data gathering or analysis
• group members work to preserve optimism and minimise controversy
• important information was not examined
• alternative courses of action were pushed aside against the momentum of the group’s consensus
• cohesiveness and camaraderie were key factors
• members softened their criticisms, even in their own thinking
• Rumsfeld noted the real problem was pulling all of this expertise together into a coherent strategy
• each morsel of expertise came with an agenda attached
• Little was actually known about how a group should actually combine information to create a strategy
• The important biases for executives to know:
• Optimism bias: people tend to overestimate benefits and underestimate the costs of a plan or set of actions.
• Confirmation bias: we favour information, news, and statements that confirm already-held beliefs and opinions.
• Inside-view bias: the tendency to focus on our own experience.
• Social psychologists have long believed that groups should outperform individuals. Decades of research, mostly on students, shows that skilled individuals frequently outperform groups in solving a commonly understood problem.
• To build an effective leadership team there needs to be less ego and more humility. Don’t fool around with the data or the facts.

19: A foundry walkthrough

• As a strategy consultant, the author stopped promising deliverables. The problem is rarely lack of powerpoint, it was that most were not doing strategy in the first place
• Strategy Foundry is challenge based. It is centred on identifying the key challenge facing the organisation. Unlike literature on decision making and goal setting it starts with the challenge.
• By starting with the challenge, the group becomes responsible for designing a response → rather than selecting among plans already advanced or just filling in the blanks for a longer-term budget.
• Tactics
• Select 10 or less senior leaders.
• Get them to commit to the challenge-based approach ahead of time
• Do it off-site over three days (shorter for smaller companies)
• Separate the strategy off-site from budgeting cycle and meetings
• Preparation
1. Get up to speed on the company (competition situation, past plans and performance)
2. Do 90 minute face-to-face interviews with each attendee and others if needed
3. Prepare written questions for each participant, and solicit confidential written responses.
• Portions of these responses, without attribution, will be used in the workshop.
• The 7 Questions given to
1. With regard to your industry, and taking a {insert company name} perspective, and looking back over the past five years, what have been the important changes in technology, competition, and customer behaviour? What has been the impact of these changes on {insert company name}?
2. With regard to your industry, and taking a {insert company name} perspective, and looking ahead over the coming three to five years, what do you expect to be the key changes in technology, regulation, competition, and buyer behaviour? Which of these present problems for {insert company name} ? Which present opportunities?
3. What programs or projects undertaken by {insert company name} in the past five years were, in your view, successful and worthy of pride? What were the difficulties faced in accomplishing these programs or projects? What, in your view, allowed {insert company name} to successfully overcome these difficulties?
4. What programs or projects undertaken by {insert company name} in the past five years were, in your view, unsuccessful? What were the difficulties that prevented success? What, in your view, might have been done differently?
5. In your view, what are the priority issues currently being addressed by {insert company name} ? What projects and programs currently underway at {insert company name} are aimed at these priority issues?
6. A key to building a successful strategy is diagnosing the problems and difficulties that stand in the way of improvement. What, in your view, are the two critical challenges facing {insert company name}? Note that a critical challenge is not a financial or other shortfall in itself, but is the underlying difficulty that makes improvement difficult. In addition to identifying these two challenges, please comment on the main difficulties blocking their resolution
7. Can you identify issues and difficulties that arise from the structure or key policies of the company that deserve attention? Are any of these issues of sufficient magnitude to potentially block progress in resolving the key challenges you have identified in answer to question 6?
• Day one
• Start with change to lo0sen up the group.
• What has happened over the past half decade, and what may happen in the future?
• Everyone will contribute as they all know the past, and they have opinions about the future.
• What had worked and what had not worked in the past.
• Participants recall goals achieved and solid wins
• Break
• Hand out a list of strategic priorities from their responses to question 5 on priorities or any other proposals that have been put forward (would be 20 items). Not ranked or ordered.
• Ask “Does this list mean we are done? Can we just send this to the printer?
• Expect people to say there are too many, too vague, they aren’t prioritised
• When you assign too many priorities, the concept loses its meaning.
• Say after lunch we’ll work on identifying what are the key difficulties or challenges or obstacles that prevent you from just going ahead and doing some of these things?”
• Make sure the group understands the value of strategy as a response to challenges and the importance of starting with challenges rather than goals
• Afternoon: focus on identifying challenges facing {insert company name}
• Write a short description of each “challenge” on a five-by-eight-inch card and pinned it to a board
• Some will be taken down, or split
• Probe for detail and always ask:
• What makes this important?
• What makes this difficult?
• Avoid discussion of how these challenges could or should be met.
• By the end of the day - expect to have about 10 cards representing 10 challenges
• Day Two:
• Briefly summarise what you did yesterday and summarise the 10 challenges
• Show up to 10 PowerPoint slides of quotes from interviews or responses
• Focus on why things are hard or not working
• One per slide
• Discuss as you go
• Keep the source confidential
• It can be uncomfortable (internal disagreement, action disconnects)
• Break
• Of the 10 challenges are any of them impossible to confront if the company really focused on them?
• Which one of ten is the most important? Which one is critically important?
• Get down to a few, put them at the centre of the board and remove the others
• Suppose we absolutely have to make good progress in dealing with at least one of them over the next eighteen months. It is simply essential, or we all lose our jobs and options…. Which one would you pick, and what would be the action plan?”
• Break into two groups.
• Each group was to come back with an action plan for dealing with at least one of these three most important challenges.
• Give them 90 minutes and let them report back after the coffee break.
• Focusing only the most important challenges seems to clarify minds. Allows the leap from the gnarly problem to a potential action
• Discussion shifts between difficulties and actions
• By the end of the second day you should have a sensible explanation of why things weren’t working and what to do about it
• Day Three:
• Task the group with making their key assumptions explicit.
• In devising this new direction, this strategy, you have made some key assumptions.
• Write down the assumptions. When you meet as a group again look at whether these assumptions were correct.
• This strategic navigation is vital to be able to revise your actions when assumptions are not being borne out
• The final step was a swearing in →
• some managers will be less supportive of the new direction
• but the leadership group must have the discipline to act as a coherent whole, until the next session (in 6 months time)
• gather in a rough circle in the middle of the room:
• Together we’ve agreed on a specific guiding policy and several specific actions
• For this to work each of you will support and act to implement these policies and decisions
• Ask the others for aid when it is necessary, and that aid will be given
• This group recognises these choices are not forever (things may change) but for the next 12 months it will support and hold this course. Agreed?

20: Strategy foundry concepts and tools

• What it’s designed to do:
• to help a leadership team break away from treating strategy as goal setting
• to identify the key challenges facing the organisation
• diagnose their structures
• identify the crux
• work out how it can be addressed
• The result is clarity on what is critical and an outline of the action steps for dealing with it.
• Final attention is paid to the public face of the actions chosen
• Preconditions for success
• get commitment to using a challenge-based approach to strategy
• get the exec with the final say to attend
• hold it separately from any budgeting process
• keep it to a smaller group (10 or less) else hierarchy takes over
• best held off-site
• conduct interviews beforehand with each participant
• hold this information in confidence
• use it to guide and shape the discussion
• surface opinions that individuals may be hesitant to state openly
• have it facilitated by an outsider… people can talk more frankly and they can say things insiders can’t.
• Facilitators role:
• guide the group through the process of challenge identification, diagnosis, the generation of alternatives, and the creation of action steps
• maintain a pressure to focus on the critical, yet addressable, challenges and pushing through to action steps
• What makes a foundry fail?
• a senior executive cannot help dominating the discussion
• when people can’t disconnect for the time needed
• the participants need a good understanding of the basic functioning of the business
• there must be knowledge in the room about product, markets, competition, and technology)
• Key tools
• Deferred Judgment stops the group converging on an answer too early→ focusing instead on the identification of challenges and diagnosis of their inner logics.
• Exposed beliefs, observations, and judgments through confidential interviews.
• helps facilitator get up to speed on the history of the org and issues it faces
• reveal ideas about what has worked well and what hasn’t worked well in the past
• provide insights on challenges and their potential resolution (that are less likely to be surfaced in a group)
• presenting without attribution can be a powerful tool for opening new avenues of discussion as well as fuelling debate. Strong yet depersonalised opinions help avoid group think and following the exec
• Written questions and answers:
‣
The standard questions
1. With regard to your industry, and taking a {insert company name} perspective, and looking back over the past five years, what have been the important changes in technology, competition, and customer behaviour? What has been the impact of these changes on {insert company name}?
2. With regard to your industry, and taking a {insert company name} perspective, and looking ahead over the coming three to five years, what do you expect to be the key changes in technology, regulation, competition, and buyer behaviour? Which of these present problems for {insert company name} ? Which present opportunities?
3. What programs or projects undertaken by {insert company name} in the past five years were, in your view, successful and worthy of pride? What were the difficulties faced in accomplishing these programs or projects? What, in your view, allowed {insert company name} to successfully overcome these difficulties?
4. What programs or projects undertaken by {insert company name} in the past five years were, in your view, unsuccessful? What were the difficulties that prevented success? What, in your view, might have been done differently?
5. In your view, what are the priority issues currently being addressed by {insert company name} ? What projects and programs currently underway at {insert company name} are aimed at these priority issues?
6. A key to building a successful strategy is diagnosing the problems and difficulties that stand in the way of improvement. What, in your view, are the two critical challenges facing {insert company name}? Note that a critical challenge is not a financial or other shortfall in itself, but is the underlying difficulty that makes improvement difficult. In addition to identifying these two challenges, please comment on the main difficulties blocking their resolution
7. Can you identify issues and difficulties that arise from the structure or key policies of the company that deserve attention? Are any of these issues of sufficient magnitude to potentially block progress in resolving the key challenges you have identified in answer to question 6?
1. Also tailor questions based on the industry, business or situation
• Ask about the impact of new technologies, and competitors
2. When responses are too short, reply asking for more. When they lack detail, respond with a request for clarification
• Attention to History:
• History is a great teacher if you remember it and draw conclusions from it
• When asking about what worked and what didn’t articulate what conditions or actions led to success in these cases
• Common themes:
• lack of support from the top
• having too broad a collection of initiatives
• having an impossible goal
• opposition from some powerful internal interests
• insufficient resources
• too little understanding of the on-the-ground mechanics of action
• The single most important element of the workshop is a focus on identifying and diagnosing the challenges facing the organisation.S
• it stops folks talking about their favourite projects
• it opens up minds to problem solving
• Thinking again … can be a powerful too
• restate the challenge in different terms (shift the point of view)
• look at the actions and ask if there are other more effective ways to act
• The Time Viewer
• Show a fake magazine company about them being the company of the year:
• Ask what could have happened to generate that cover story?
• Break into two groups
• Come up with a narrative about how such a cover story might come to pass
• Or the alternative can be true. Headline: ‘What the hell happened at {insert company name}?
• Do a pre-mortem exercise
• Another use of the time-viewer concept is retrospective.
• If you could send a company back in time what would you say?
• You can’t have knowledge of the future. Base it on what data was available at the time in question.
• Instant Strategy
• If a group gets too “deep into the weeds” and has trouble narrowing focus to a few critical actions. A round of “instant strategy” can break through the fog…
• Ask each participant to write down in one sentence their recommendation for action, not a vague strategy or a performance goal, but a focused action that has a good chance of being accomplished.
• Give them 2 minutes to commit this to paper, fold it over, and dump it into a box (or a hat if you are being traditional)
• Forced Inward Analysis
• Executives tend to discuss strategy in terms of financial outcomes or competitive position
• Lead the conversation to the challenges created by how the organisation actually functions.
• Why Is That Hard ?
• What about all this is difficult? … is a very helpful question when evaluating and analysing challenges.
• It is easy to identifying challenges. But addressability is more complicated. Th
• Why is this hard? That is, what are the obstacles to dealing with this challenge?
• Most obstacles can be overcome if they’re focused on
• Red Team
• Role play a competitor or other outside party. How would the company’s plans look from that point of view? Would moves be misinterpreted?
• There’s a risk the way they think about the world and competition is wrong or critically incomplete
• It tries to uncover “black swans,” unanticipated weaknesses, or failure modes.
• The red team knows the broad outline of our ways of doing business and tries to outwit them, even turning our strengths against us.
• Find the ASCs (addressable strategic challenges)
• Find those that are important and focus
• It’s not that you can’t do everything at once, but each initiative draws attention and cognitive space, multiple initiatives are each blunted to accommodate one another
• Boiling the situation down to a few addressable strategic challenges is key
• The crux of the situation will normally reside there
• Searching for the few limited challenges that are both very important and that can be overcome is the core of the strategy / workshop
• There are two ways to do this:
1. formally evaluate both the importance and the addressability of each of a number of challenges.
2. Take things off the table. If nobody will volunteer to take something off the table, turn to the most senior and say… ‘This is where you earn your pay. It is up to you to pick the five most important’
• Focus on One or Two Proximate Objectives
• Absent a crisis or very competent strategic leadership, most organisations gradually defocus.
• Focus energy and resources on skillfully resolving the most important challenges.
• The proximate objective helps do this:
• A task, not a performance goal, that has a reasonable chance of being successfully accomplished within a short period of time.
• The task, or objective, is proximate in that it can be done and can be done fairly soon
• Tackling an important objective and overcoming it is incredibly motivating. Think of strategy as a series of proximate objectives rather than a long-term vision.
• Proximate objectives help create ab emphasis on action. An eighteen-month horizon is sensible, it can be longer for issues where current actions take much longer to reach fruition
• A shorter time horizon also helps with achieving agreement. It makes it easier to say no to other things
• Reference class: a group of comparable situations or companies or challenges.
• A common bias is thinking that one’s case or situation is special.
• Bradley, Hirt, and Smit’s book Strategy Beyond the Hockey Stick does a nice job of describing the issues
• Make sure the data you’re using to make decisions has predictive power
• Strategic Navigation: making assumptions explicit and then checking them as events unfold.
• Swearing In:
• Gather in the centre of the room
• As a group you’ve looked at the challenges
• You’ve agreed on tasks to overcome the most important challenges
• You have knowingly put aside many other concerns to focus on these tasks.
• I ask you to affirm, to yourselves and to each other, that these choices are binding until the next session
• You won’t disparage these decisions to others, you won’t seek to undermine them, and that you will provide aid and support to one another in accomplishing them.
• They should each acknowledge agreement, by word or gesture. In some cases, they have pressed fists together in the centre of the circle.