Good Strategy Bad Strategy
Good Strategy Bad Strategy

Good Strategy Bad Strategy

The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis. (Location 1463)

Like the guardrails on a highway, the guiding policy directs and constrains action without fully defining its content. (Location 1465)

Good guiding policies are not goals or visions or images of desirable end states. Rather, they define a method of grappling with the situation and ruling out a vast array of possible actions. (Location 1466)

there is no information about how this ambition will be accomplished. (Location 1471)

This guiding policy, in contrast to Wells Fargo’s vision, calls out a way of competing—a way of trying to use the company’s large scale to advantage. (Location 1475)

A good guiding policy tackles the obstacles identified in the diagnosis by creating or drawing upon sources of advantage. (Location 1480)

In most modern treatments of competitive strategy, it is now common to launch immediately into detailed descriptions of specific sources of competitive advantage. (Location 1484)

A guiding policy creates advantage by anticipating the actions and reactions of others, by reducing the complexity and ambiguity in the situation, by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, (Location 1487)

More of her customers were students, but the professionals who stopped in made much larger purchases. (Location 1512)

The kernel of a strategy must contain action. (Location 1524)

And, interestingly, there is no greater tool for sharpening strategic ideas than the necessity to act. (Location 1531)

“Well, each country manager has spent years understanding the special conditions in a country, tailoring products and marketing programs to that country’s local conditions. They don’t trust the Pan-European idea. (Location 1555)

Yet the kernel of strategy—a diagnosis, a guiding policy, and coherent action—applies to any complex setting. (Location 1574)

The actions within the kernel of strategy should be coherent. That is, the resource deployments, policies, and maneuvers that are undertaken should be consistent and coordinated. (Location 1579)

knowledge gleaned by sales and marketing specialists to affect capacity expansion or product design decisions—coordination across functions and knowledge bases. (Location 1583)

A senior Ford executive told me in 2000: “You cannot be competitive in the automobile industry unless you produce at least one million units per year on a platform.” (Location 1592)

Putting Jaguar and Volvo on the same platform dilutes the brand equity of both marques and annoys the most passionate customers, dealers, and service shops. (Location 1594)

Now these actions may all have been good ideas, but they did not complement one another. They are “strategic” only in the sense that each probably requires the approval of top management. (Location 1599)

A strategy coordinates action to address a specific challenge. It is not defined by the pay grade of the person authorizing the action. (Location 1601)

Strategy is visible as coordinated action imposed on a system. When I say strategy is “imposed,” I mean just that. (Location 1609)

This coordination is unnatural in the sense that it would not occur without the hand of strategy. (Location 1611)

One of the great lessons of the twentieth century—the most dramatic controlled experiment in human history—was that centrally controlled economies are grossly inefficient. (Location 1613)

In modern economies, trillions of decentralized choices are made each year, and this process can do a pretty good job of allocating certain kinds of scarce resources. (Location 1616)

In particular, it may fail when either the costs or benefits of actions are not borne by the decentralized actors. (Location 1619)

As a simple example, salespeople love to please customers with rush orders, and manufacturing people prefer long uninterrupted production runs. But you cannot have long production runs and handle unexpected rush orders all at the same time. It takes policies devised to benefit the whole to sort out this conflict. (Location 1622)

Note: Centralization is critical when needing to coordinate individuals, groups or systems that have different incentives or ideal operating environments/conditions or methods of optimization.

Coordination is costly, because it fights against the gains to specialization, the most basic economies in organized activity. (Location 1631)

Thus, we should seek coordinated policies only when the gains are very large. There will be costs to demanding coordination, because it will ride roughshod over economies of specialization and more nuanced local responses. (Location 1634)

a good strategy works by harnessing power and applying it where it will have the greatest effect. (Location 1640)

combinations of policy, actions, and resources. (Location 1641)

leverage, proximate objectives, chain-link systems, design, focus, growth, advantage, dynamics, inertia, and entropy. (Location 1644)

A good strategy draws power from focusing minds, energy, and action. (Location 1654)

Finding such crucial pivot points and concentrating force on them is the secret of strategic leverage. (Location 1661)

In general, strategic leverage arises from a mixture of anticipation, insight into what is most pivotal or critical in a situation, and making a concentrated application of effort. (Location 1667)

The strategist may have insight into predictable aspects of others’ behavior that can be turned to advantage. (Location 1669)

In competitive strategy, the key anticipations are often of buyer demand and competitive reactions. (Location 1671)

At the same time, the Iraqi insurgency was, at least in part, initiated by Iraqi ex-military officers who anticipated that media coverage of U.S. casualties would tilt U.S. public opinion in favor of withdrawal, (Location 1682)

He told me that “certain aspects of future events are predetermined: If there is a storm in the Himalayas, you can confidently predict that tomorrow, or the next day, there will be flooding in the Ganges plain.” (Location 1690)

If you do standard “scenario” forecasting, you wind up with a graph with three lines labeled “high,” “medium,” and “low.” (Location 1698)

The risk is not that the price of oil may be high or may be low. (Location 1700)

The sucker bet Pierre Wack was worried about in 1981 would play out over the next decade as the price of oil stopped its upward trend at about thirty-six dollars per barrel, then turned and sank to twenty dollars a barrel. (Location 1702)

In many circumstances, anticipation simply means considering the habits, preferences, and policies of others, as well as various inertias and constraints on change. (Location 1707)

state. I expect another serious terrorist attack on the United States, but I do not anticipate that the stultifying iron curtain between the CIA and the FBI will be removed short of all-out war. (Location 1709)

To achieve leverage, the strategist must have insight into a pivot point that will magnify the effects of focused energy and resources. (Location 1715)

sensitive to variations in local tastes and fond of both newness and variety. “In Japan,” he told me, “consumers are easily bored. In soft drinks, for example, there are more than two hundred soft-drink brands and lots of new ones each week! (Location 1719)

To create leverage around this pattern, 7-Eleven Japan has developed a method of collecting information from store managers and employees about local tastes and forming quick-response merchandising teams to develop new product offerings. (Location 1722)

their outstanding advantage was cleanliness and service. (Location 1726)

Murata’s strategy focused organizational energy on decisive aspects of the situation. (Location 1729)

A pivot point magnifies the effect of effort. It is a natural or created imbalance in a situation, a place where a relatively small adjustment can unleash much larger pent-up forces. (Location 1731)

Returns to concentration arise when focusing efforts on fewer, or more limited, objectives generates larger payoffs. (Location 1743)

A “threshold effect” exists when there is a critical level of effort necessary to affect the system. (Location 1747)

It may also make sense for a company to roll out a new product region by region, concentrating its advertising where the product is new so as to spur adoption. (Location 1752)

business strategists will often prefer to dominate a small market segment over having an equal number of customers who represent only a sliver of a larger market. (Location 1754)

In turn, peoples’ perceptions of efficacy affect their willingness to support and take part in further actions. (Location 1762)

We could have simply built a great collection—that would have been the obvious thing to (Location 1771)

Instead of spending our income on buying art, we could transform the subject. The Getty would begin to build a complete digital catalog of all art, including dance, song, and textiles. It would develop programs to educate art teachers and host advanced research on art and society. The Getty would host the best conservation talent in the world and develop new methods of conserving and restoration. In this way, I decided, we would have an impact far beyond simply putting art on display. (Location 1776)

Put simply, he invested where his resources would make a large and more visible difference. (Location 1782)

One of a leader’s most powerful tools is the creation of a good proximate objective—one that is close enough at hand to be feasible. (Location 1792)

Another example is the continuing call for energy independence, an objective that remains infeasible absent the political courage to raise gasoline prices and commit to the development of nuclear power. (Location 1827)

it was that you couldn’t defend any one design against someone else’s story about the possible horrors of the lunar surface. (Location 1838)

This lunar surface specification absorbed much of the ambiguity in the situation, passing on to the designers a simpler problem. Not a problem easily solved, or to which a solution already existed, but a problem that was solvable. It would take time and effort, but we knew that we could build a machine to land on Phyllis’s moon. (Location 1858)

Phyllis’s insight that “the engineers can’t work without a specification” applies to most organized human effort. (Location 1864)

important duty of any leader is to absorb a large part of that complexity and ambiguity, passing on to the organization a simpler problem—one that is solvable. (Location 1866)

without resolving a good chunk of ambiguity about the specific obstacles to be overcome. (Location 1868)

The more dynamic the situation, the poorer your foresight will be. (Location 1871)

proximate a strategic objective must be. (Location 1872)

The proximate objective is guided by forecasts of the future, but the more uncertain the future, the more its essential logic is that of “taking a strong position and creating options,” not of looking far ahead. (Location 1873)

likely to be making moves that have no immediate end other than to “improve my position.” (Location 1876)

that are directly aimed at trying to mate the opponent or even at trying to win a particular piece. (Location 1878)

(a) increase their mobility, that is, increase the options open to them and decrease the freedom of operation of the opponent’s pieces; (Location 1879)

(b) impose certain relatively stable patterns on the board that induce enduring strength for oneself and enduring weakness for the opponent. (Location 1880)

I met with this group and explained the concepts of pivotal issues and the proximate objective. (Location 1890)

And the objective had to be feasible. (Location 1892)

They believed that focusing on getting more coverage of the school in business magazines and newspapers would raise its profile, yielding a number of favorable results. (Location 1898)

In organizations of any size, high-level proximate objectives create goals for lower-level units, which, in turn, create their own proximate objectives, and so on, in a cascade of problem solving at finer and finer levels of detail. (Location 1907)

time. For instance, when Nestlé purchased British chocolate company Rowntree, top management made a judgment that Nestlé’s transnational food-marketing skills would be able to take Rowntree’s Britain-centered brands and move them into many other countries. (Location 1910)

Anytime a company enters a new business or market, there is necessarily this cascade of adjusting and elaborating proximate objectives. (Location 1913)

“To fly a helicopter you’ve got to constantly coordinate the controls: the collective, the cyclic, and the pedals, not to mention the throttle. It is not easy to learn, but you’ve got to get on top of it. You’ve got to make it automatic if you’re going to do more than just take off and land. (Location 1927)

For example, when I work with a small start-up company, their problems often revolve around coordinating engineering, marketing, and distribution. (Location 1941)

Once the firm stands firmly on that rung, it can move abroad and develop international operations. But, in turn, asking that newly international firm to move knowledge and skills around the world, as does a global veteran such as Procter & Gamble, may also be pointless. (Location 1943)

If a chain must not fail, there is no point in strengthening only some of the links. (Location 1953)

Quality matters when quantity is an inadequate substitute. (Location 1957)

On the other hand, if a three-star chef is ill, no number of short-order cooks is an adequate replacement. (Location 1958)

I learned that in assessing a property’s potential, one should identify the limiting factors. (Location 1962)

The problem arises because of quality matching.1 (Location 1969)

That is, if you are in charge of one link of the chain, there is no point in investing resources in making your link better if other link managers are not. (Location 1970)

Increasing the quality of an automobile transmission does little good if the knobs fall off the dashboard and door panels continue to rattle. (Location 1975)

Government bureaucracy can be a terrible burden, but improvement in its effectiveness can be won only if there is an efficient private sector. (Location 1980)

United States, dysfunctional inner cities, decayed schools, and prison systems that institutionalize race-based gangs, violence, and sexual assault can each be subjected to a chain-link analysis. (Location 1985)

Any payoff from better-quality machines was diluted because the sales force could not accurately represent their qualities and performance. A better sales force, by itself, would have added little value without better machines. And improvements in quality and sales would not save the firm unless costs were reduced. (Location 2002)

The first logical problem in chain-link situations is to identify the bottlenecks, and Marco did that—quality, sales’ technical competence, and cost. (Location 2013)

The second, and greatest, problem is that incremental change may not pay off and may even make things worse. That is why systems get stuck. (Location 2014)

There are little or no payoffs to incremental improvements in chain-link systems, but Marco avoided this problem by shutting down the normal system of local measurement and reward, refocusing on change itself as the objective. (Location 2018)

In any organization there is always a managed tension between the need for decentralized autonomous action and the need for centralized direction and coordination. (Location 2023)

I left cost cutting to the last because I wanted the cost-reduction campaign to work with, but not define, the type of machines we build. (Location 2028)

To reduce costs, we reviewed each component and each step in the manufacturing process. The big improvements came from cutting two products out of the line and bringing in-house some tools and dies we had been buying from other companies. (Location 2029)

design. Conversely, the excellence achieved by a well-managed chain-link system is difficult to replicate. (Location 2039)

an existing rival would have to virtually start fresh and, in effect, compete with its own existing business. (Location 2052)

IKEA must perform each of its core activities with outstanding efficiency and effectiveness. (Location 2055)

These core activities must be sufficiently chain-linked that a rival cannot grab business away from IKEA by adopting only one of them and performing it well. That is, a traditional furniture manufacturer that adds a ready-to-assemble line is no real threat to IKEA, nor is a traditional retailer that adds a catalog. (Location 2056)

IKEA teaches us that in building sustained strategic advantage, talented leaders seek to create constellations of activities that are chain-linked. (Location 2062)

Much of this knowledge has very little to tell us about strategy in nonmilitary situations. (Location 2073)

And the impact of size is radically different. (Location 2076)

Other things being equal, the larger army has the advantage whereas the winning business tends to be the one whose offerings are most preferred by customers, its size being more the consequence than the cause of its success. (Location 2077)

Just as humans discovered that organized agriculture paid great dividends, they also found that organizing and coordinating the actions of fighters greatly magnified their effect. (Location 2082)

The concept of strategy has many faces, and there are some we do not see in the story of Cannae. The history of this battle tells us little about longer-range considerations and little about how the strategy was created. (Location 2123)

premeditation, the anticipation of others’ behavior, and the purposeful design of coordinated actions. (Location 2129)

it was designed and planned in advance. (Location 2131)

Rome. There are furious debates over the best balance, in a strategy, between prior guidance and on-the-spot adaptation and improvisation, but there is always some form of prior guidance. By definition, winging it is not a strategy. (Location 2132)

A fundamental ingredient in a strategy is a judgment or anticipation concerning the thoughts and/or behavior of others. (Location 2135)

In game theory one presumes that the opponent is as rational as oneself. It is clear that Hannibal did not make that presumption. (Location 2140)

Therefore, when a Roman saw the enemy retreat, it looked like victory. (Location 2150)

In the case at hand, Hannibal was certainly not briefed by a staff presenting four options arranged on a PowerPoint slide. Rather, he faced a challenge and he designed a novel response. (Location 2160)

many effective strategies are more designs than decisions—are more constructed than chosen. (Location 2161)

“Managers are decision makers,” they are not talking about master strategists, for a master strategist is a designer. (Location 2163)

Business and corporate strategy deal with large-scale design-type problems. (Location 2165)

But you can probably, with effort, produce a good configuration. (Location 2178)

You should also consider her buying experience and the car’s expected reliability and resale value. (Location 2180)

design. But in seeking the best smile per dollar, we took a monopoly view. (Location 2182)

Yes, we went beyond product to include manufacturing and distribution in the design, but our strategy was tuned to please the customer, not to deal with competition. (Location 2183)

You have to adjust the design—the strategy—to put more smile per dollar on a driver’s face than she can get from competing products.6 (Location 2185)

The new interactions are the offerings and strategies of rivals. Very quickly, you are going to focus on what you, or your company, can do more effectively than others. (Location 2189)

I was in the systems division, where the job of a systems engineer was the overall architecture of the spacecraft and working out the coordination among the specifications of all the different subsystems. (Location 2199)

Most of the work in systems design is figuring out the interactions, or trade-offs, as they were called. (Location 2205)

For example, if a single device could perform multiple duties, acting as a shield from both sunlight and micrometeorites, and serve as a container for propellant, weight could be saved. Similarly, we sought ways to mitigate competition among subsystems for electrical power through the clever timing of operations. (Location 2213)

problem. There, I had learned how to mathematically model systems and then minimize something, such as cost or least-squared error. (Location 2216)

and hold it all in my mind, in order to imagine a configuration that might be effective. This was difficult, to say the least. I didn’t know it at the time, but I was beginning to learn strategy. (Location 2217)

is the joint outcome of capability and clever design. (Location 2225)

In particular, given existing capabilities, such as rocket throw weight or power supply efficiency, to get more performance out of a system you have integrate its components and subsystems more cleverly and more tightly. (Location 2225)

A design-type strategy is an adroit configuration of resources and actions that yields an advantage… (Location 2230)

Given a set bundle of resources, the greater the competitive challenge, the greater the need for the clever, tight… (Location 2231)

Given a set level of challenge, higher-quality resources lessen the need for the tight integration… (Location 2232)

If the organization has few resources, the challenge can be met only by… (Location 2234)

Put differently, the greater the challenge, the greater the need for a good, coherent… (Location 2235)

Implicit in these principles is the notion that tight integration… (Location 2236)

A more tightly integrated design is harder to create, narrower in focus, more fragile in use, and less… (Location 2238)

but the less tightly integrated Forester is useful for a much wider… (Location 2239)

With less challenge, it is normally better to have a bit less specialization and integration so that a… (Location 2241)

None of these inputs are normally… (Location 2244)

These kinds of assets and services cannot, in general, confer a competitive advantage, because competitors have access to virtually identical… (Location 2245)

A strategic resource is a kind of property that is fairly long lasting that has been constructed, developed over time, designed, or discovered by a company and that competitors cannot… (Location 2246)

Consider Xerox’s patents on plain paper copying. By the mid-1950s these patents were rock solid, and it became clear that buyers would be willing to pay three thousand dollars or more for a Xerox machine—a device… (Location 2249)

Xerox built factories, produced Xerox plain-paper photocopiers, and built sales… (Location 2251)

It produced documents called “strategic plans,” but they were merely… (Location 2253)

because its resource position—its patent—insulated it from competition and because the product’s value to buyers was so much… (Location 2254)

but the dam’s services may then be available, for a time,… (Location 2256)

copying—was the accumulated result of years of clever, focused, coordinated,… (Location 2258)

If, instead, there is only a moderate resource position—perhaps a new product idea or a customer relationship—the challenge is to build a sensible and… (Location 2262)

begin with very few strategic resources, obtaining their results through the adroit coordination of actions… (Location 2264)

Own the original patent on the plain-paper photocopier, or own the Hershey’s brand name, or the Windows operating system franchise, or the patent on Lipitor, and there will be many years during which profits will roll in… (Location 2265)

Existing resources can be the lever for the creation of new resources, but they can also be an impediment to innovation. (Location 2269)

Yet strategic resources are embedded deeply within the human fabric of the enterprise, and most firms find this a difficult maneuver. Xerox, for example, built a world-class fast-response repair and maintenance service to take care of its installed base of copying machines. (Location 2270)

And its complement was a profitable business in “special” Xerox-brand plain paper, which jammed the copiers less frequently. (Location 2273)

Resting on its laurels, Xerox let Canon, Kodak, and IBM develop superior paper handling technology, while it struck off in the futile search for a way to enter the computer business with a resource base specialized around maintaining failure-prone mechanical devices. (Location 2276)

It is also human nature to associate current profit with recent actions, even though it should be evident that current plenty is the harvest of planting seasons long past. (Location 2279)

Were there such simple, direct connections between current actions and current results, strategy would be a lot easier. (Location 2283)

It would also be a lot less interesting, for it is the disconnect between current results and current action that makes the analysis of the sources of success so hard and, ultimately, so rewarding. (Location 2283)

Yet it is this fairly predictable trajectory that opens the door to strategic upstarts. To see effective design-type strategy, you must usually look away from the long-successful incumbent toward the company that effectively invades its market space. (Location 2286)

In each case you will find the upstart wielding a tightly coordinated competitive strategy. (Location 2292)

we ask that these strategic upstarts extend their success forever—the aging businessperson’s quixotic search for sustained competitive advantage. (Location 2293)

In time, most will loosen their tight integration and begin to rely more on accumulated resources and less on clever business design. (Location 2295)

they will lose the discipline of tight integration, allowing independent fiefdoms to flourish and adding so many products and projects that integration becomes impossible. (Location 2296)

One example of good strategy in which you can see the coordinated elements of design is the U.S. heavy-truck business. (Location 2304)

Its return on equity over the past twenty years has averaged 16 percent, compared with an average return of 12 percent earned by its competitors. (Location 2307)

In theory it is simple—your trucks have to run better and last longer so that the owner’s cost to operate the truck is lower. (Location 2313)

Because of this, Kenworth pioneered low-drag aerodynamic truck cabs thirty years ago as a way to cut fuel costs. (Location 2317)

First, no one will believe you have the longest-lasting trucks until they have already lasted a long time on the road. (Location 2318)

Third, it is usually quite difficult to convince buyers to pay an up-front premium for future savings, even if the numbers are clear. (Location 2321)

Paccar’s strategy—its design—is its way of dealing with these three obstacles to being a quality leader. (Location 2323)

Instead, Paccar views quality through the eyes of the owner-driver. Owner-drivers increase their wages by pushing themselves harder, driving sixteen hours a day or more. Owner-drivers care about efficiency but also look beyond cost per mile, because the truck is their home, office, lounge, and TV room on the road. (Location 2324)

That means one of the drivers is sleeping or resting in the sleeper compartment a good part of the time, raising the same concerns about comfort the owner-driver has. (Location 2332)

Paccar’s strategy is based on doing something well and consistently over a long period of time. (Location 2336)

A flexible approach to manufacturing makes Paccar’s variable costs higher than competitors’ but provides stability for its designers and engineers. (Location 2339)

All of this works, in part, because it is not in a high-growth industry that would attract large new investments from outside. (Location 2341)

The various elements of Paccar’s strategy are not general purpose—they are designed to fit together to make a specialized whole. (Location 2348)

Good strategy is design, and design is about fitting various pieces together so they work as a coherent whole. (Location 2351)

It is classic “hold the high ground” positioning. This defensive structure can probably be maintained as long as there are no significant structural changes in the industry’s economics or buyer behavior. (Location 2352)

From that perspective, the threats to the company are not specific new products or competitive moves, but changes that undermine the logic of its design. (Location 2356)

Buffett has said that he evaluates a company by looking for “sustainable competitive advantage.” (Location 2675)

For instance, Whole Foods has an advantage over Albertsons supermarkets only for certain products and only among grocery shoppers with good incomes who place a high value on organic and natural foods. (Location 2679)

More complex forms of isolating mechanisms include reputations, commercial and social relationships, network effects,* dramatic economies of scale, and tacit knowledge and skill gained through experience. (Location 2684)

“How can I explain?” After a pause, he says, “By providing more value you avoid being a commodity. (Location 2717)

Water that fell to earth before the industrial age, before pollution and chemicals. It is a unique proposition that the original owners had not exploited.” (Location 2719)

The breakthrough came when he realized that these businesses were actually quite “interesting.” (Location 2723)

“To me, a business is ‘interesting’ when I can see ways to increase its value. The typical nut farmer can’t control his own destiny. He simply accepts what the trees yield and the market’s prices. (Location 2725)

capacity. The scale economies in processing make it hard for smaller farmers to build their own processing facilities. And unless you can do processing, packaging, marketing, branding, and distribution, it may not pay to buy more land and plant new trees.” (Location 2735)

It must have taken iron nerve to wait years for the strategy to work. “You are still looking five to ten years ahead?” I query. (Location 2741)

The silver machine’s advantage gives it value, but the advantage isn’t interesting because there is no way for an owner to engineer an increase in its value. (Location 2763)

You can no more increase the value of the silver machine than you can, by yourself, engineer an increase in the value of a Treasury bond. Therefore, owning this advantage is no more interesting than owning a bond. (Location 2766)

value. That means there must be things you can do, on your own, to increase its value. (Location 2768)

By operating, eBay definitely provides a service whose cost of provision is well below the value placed on it by customers, and does this so efficiently that others can not horn in on its core business. (Location 2776)

eBay’s value has been static, indicating that its competitive advantage has been static. (Location 2778)

That is, wealth increases when competitive advantage increases or when the demand for the resources underlying it increases. (Location 2787)

deepening advantages, broadening the extent of advantages, creating higher demand for advantaged products or services, or strengthening the isolating mechanisms that block easy replication and imitation by competitors. (Location 2789)

Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both. (Location 2793)

First, management may mistakenly believe that improvement is a “natural” process or that it can be accomplished by pressure or incentives alone. (Location 2796)

Gilbreth’s lesson, still fresh today, is that incentives alone are not enough. One must reexamine each aspect of product and process, casting aside the comfortable assumption that everyone knows what they are doing. (Location 2803)

Whatever it is called, the underlying principle is that improvements come from reexamining the details of how work is done, not just from cost controls or incentives. (Location 2805)

The second reason firms may fail to engage in a process of improvement occurs when isolating mechanisms surrounding important methods are weak. (Location 2810)

To benefit from investments in improvement, the improvements must either be protected or embedded in a business that is sufficiently special that its methods are of little use to rivals. (Location 2811)

Extending an existing competitive advantage brings it into new fields and new competitions. (Location 2814)

Extending a competitive advantage requires looking away from products, buyers, and competitors and looking instead at the special skills and resources that underlie a competitive advantage. In other words, “Build on your strengths.” (Location 2817)

The basis for productive extensions often resides within complex pools of knowledge and know-how. (Location 2823)

Extensions based on proprietary know-how benefit from the fact that knowledge is not (Location 2827)

“used up” when it is applied; (Location 2828)

Although great value can sometimes be created by extending these resources, a failure in the new arena can rebound to damage the core. (Location 2829)

A brand’s value comes from guaranteeing certain characteristics of the product. But those characteristics are not easy to define. (Location 2836)

A competitive advantage becomes more valuable when the number of buyers grows and/or when the quantity demanded by each buyer increases. (Location 2852)

Note that higher demand will increase long-term profits only if a business already possesses scarce resources that create a stable competitive advantage. (Location 2855)

they have largely ignored the process of engineering increases in demand. Engineering higher demand for the services of scarce resources is actually the most basic of business stratagems. (Location 2857)

An isolating mechanism inhibits competitors from duplicating your product or the resources underlying your competitive advantage. If you can create new isolating mechanisms, or strengthen existing ones, you can increase the value of the business. This increased value will flow from lessened imitative competition and a consequent slower erosion of your resource values. (Location 2882)

Important waves of change are like an earthquake, creating new high ground and leveling what had been high ground. Such changes can upset the existing structures of competitive positions, erasing old advantages and enabling new ones. (Location 2932)

A leader’s job is to provide the insight, skill, and inventiveness that can harness that power to a purpose. You exploit a wave of change by understanding the likely evolution of the landscape and then channeling resources and innovation toward positions that will become high ground—become valuable and defensible—as the dynamics play out. (Location 2936)

Most industries, most of the time, are fairly stable. Of course, there is always change, but believing that today’s changes are huge, dwarfing those in the past, reflects an ignorance of history. (Location 2940)

Therefore, seek to perceive and deal with a wave of change in its early stages of development. The challenge is not forecasting but understanding the past and present. Out of the myriad shifts and adjustments that occur each year, some are clues to the presence of a substantial wave of change and, once assembled into a pattern, point to the fundamental forces at work. The evidence lies in plain sight, waiting for you to read its deeper meanings. (Location 2960)

“I am trying to understand the forces that are changing the structure of the industry. For instance, look at the amazing success of Cisco Systems. It sits right on the interface between telecommunications and computing—a position that everyone thought would be the big battleground between AT&T and IBM. And yet, instead of a battle of titans we have this upstart grabbing the business. (Location 2993)

Jean-Bernard Lévy shakes his head. He has a different slant on the issue. “We have had Matra engineers working on inter-networking equipment. The basic principles are well understood. Yet we cannot seem to replicate the performance of Cisco’s multi-protocol network routers.” (Location 3000)

In the computing and telecommunications equipment sectors, economic success had traditionally been based on capabilities at coordinating hordes of engineers in vast billion-dollar development projects and in managing large workforces in the manufacture of complex electronic equipment. (Location 3013)

To make good bets on how a wave of change will play out you must acquire enough expertise to question the experts. (Location 3024)

For many years, telecommunications had been one of the most stable industries. But in 1996, when Jean-Bernard Lévy and I were discussing Cisco Systems, the structure of the computing and communications industry had suddenly become fluid and turbulent. (Location 3028)

It is hard to show your skill as a sailor when there is no wind. Similarly, it is in moments of industry transition that skills at strategy are most valuable. During the relatively stable periods between episodic transitions, it is difficult for followers to catch the leader, just as it is difficult for one of the two or three (Location 3171)

leaders to pull far ahead of the others. But in moments of transition, the old pecking order of competitors may be upset and a new order becomes possible. (Location 3173)

Working with industry-wide or economy-wide change is even more advanced than particle physics—understanding and predicting patterns of these dynamics is difficult and chancy. Fortunately, a leader does not need to get (Location 3177)

The first guidepost demarks an industry transition induced by escalating fixed costs. The second calls out a transition created by deregulation. The third highlights predictable biases in forecasting. A fourth marks the need to properly assess incumbent response to change. And the fifth guidepost is the concept of an attractor state. (Location 3184)

“visions” is that the attractor state is based on overall efficiency rather than a single company’s desire to capture most of the pie. The “IP everywhere” vision was an attractor state (Location 3270)

Successful strategies often owe a great deal to the inertia and inefficiency of rivals. (Location 3322)

Understanding the inertia of rivals may be (Location 3326)

To create strategy in any arena requires a great deal of knowledge about the specifics. There is no substitute for on-the-ground experience. This experience accumulates in the form of associations between situations and “what works” or “what can happen” in those situations. (Location 4343)

What follows are a few techniques that I have found useful in jogging minds loose from their ruts, for helping to check that strategies have some coherence, and for improving your ability to make judgments as well as critique them. (Location 4352)

a diagnosis of the situation, the choice of an overall guiding policy, and the (Location 4357)

design of coherent action. (Location 4358)

What the kernel does, however, is remind us that a strategy is more than a localized insight. It is an internally consistent argument that leads from facts on the ground to diagnosis, thence to an overall directive, thence to action. (Location 4367)

My own insights, however, normally don’t start with action. I tend to use a problem-first structure. I am better at starting with a frame or diagnosis of the situation and then working through the guiding policy and action elements of the kernel. (Location 4370)

Hence, it is useful to have mental tools for working backward from a guiding policy to the realm of diagnosis and fact. (Location 4375)

People normally think of strategy in terms of action—a strategy is what an organization does. But strategy also embodies an approach to overcoming some difficulty. (Location 4377)

Even more important, you will gain access to how changes in some factors may radically alter the mix of efficacious strategies. (Location 4379)

shift your attention from what is being done to why it is being done, from the directions chosen to the problems that these choices address. (Location 4380)

obstacles it is attempting to overcome. (Location 4382)

For a TiVo box to be an economical solution for the average consumer, it must access regular and premium channels as well as download scheduling information over the cable or satellite link.4 (Location 4388)

This perspective suggests that TiVo spend less on marketing and more on a legal attack on the industry’s structure. In such an attack, it would have many important, and larger, allies. (Location 4394)

Listening to Teece’s and Jobs’s imaginary counsel, I am reminded that good strategies are usually “corner solutions.” (Location 4441)

They focus on one aspect of the situation, not trying to be all things to all people. As (Location 4442)

When you build your own panel of experts you go one step farther, trying to shape your understanding of their teachings into a virtual personality. (Location 4446)

In business and politics, and in many aspects of military strategy, most of the important judgments are about people, especially anticipating their actions and reactions. (Location 4450)

Finally, there is judgment about large groups of people and markets—the domain of marketing and advertising experts, corporate management, and political leadership. (Location 4453)

Certainly some part of good judgment seems to be innate, connected with having a balanced character and an understanding of other people. (Location 4454)

Good strategy grows out of an independent and careful assessment of the situation, harnessing individual insight to carefully crafted purpose. Bad strategy follows the crowd, substituting popular slogans for insights. (Location 4473)

As large numbers of people try to unwind at the same time, the selling pressure makes asset prices fall even more sharply. Bankers, suddenly regaining their sanity, also start deleveraging, which reduces the amount of credit available in the economy. (Location 4656)

Easy credit quickens the boom, and its consequences accelerate the bust. (Location 4660)