Good Strategy Bad Strategy (Book Summary)

Good Strategy Bad Strategy: The Difference and Why It Matters by Richard Rumelt

INTRODUCTION OVERWHELMING OBSTACLES

• The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.
• Simply being ambitious is not a strategy.
• A good strategy does more than urge us forward toward a goal or vision. A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them. And the greater the challenge, the more a good strategy focuses and coordinates efforts to achieve a powerful competitive punch or problem-solving effect.
• Bad strategy tends to skip over pesky details such as problems. It ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests.
• Further confusion is created by equating strategy with success or with ambition.
• Strategy, responsive to innovation and ambition, selects the path, identifying how, why, and where leadership and determination are to be applied.
• “Strategy” should mean a cohesive response to an important challenge.
• A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.
• Strategy is about how an organization will move forward.
• A good strategy has an essential logical structure that I call the kernel. The kernel of a strategy contains three elements:
  • a diagnosis (of the obstacles)
  • a guiding policy: The approach to dealing with the obstacles called out in the diagnosis. It is like a signpost, marking the direction forward but not defining the details of the trip.
  • coherent action. Feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.

PART I GOOD AND BAD STRATEGY

• The most basic idea of strategy is the application of strength against weakness. Or, if you prefer, strength applied to the most promising opportunity.
• A coherent strategy coordinates policies and actions.

CHAPTER ONE GOOD STRATEGY IS UNEXPECTED

• A good strategy has coherence, coordinating actions, policies, and resources so as to accomplish an important end.
• The strategy of the leader in their sectors:  Some change in demand or technology had appeared. The leader will be the first one to leap through that window and take advantage of it. Not necessarily the first mover, but the first to get it right.
• Most complex organizations spread rather than concentrate resources, acting to placate and pay off internal and external interests.
• Having conflicting goals, dedicating resources to unconnected targets, and accommodating incompatible interests are the luxuries of the rich and powerful, but they make for bad strategy.
• Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organization does not do as it is about what it does.

CHAPTER TWO DISCOVERING POWER

• The second natural advantage of many good strategies comes from insight into new sources of strength and weakness.
• Strategy brings relative strength to bear against relative weakness
• Our preconceived ideas of strength and weakness may be unsound.
• CONVENTIONAL WISDOM: A full-line discount store needs a population base of at least 100,000. Sam Walton broke the conventional wisdom.
• Half of what alert participants learn in a strategy exercise is to consider the competition even when no one tells you to do it in advance.
• Whenever an organization succeeds greatly, there is also, at the same time, either blocked or failed competition. Sometimes competition is blocked because an innovator holds a patent or some other legal claim to a temporary monopoly. But there may also be a natural reason imitation is difficult or very costly.
• Wal-Mart’s policies fit together — the bar codes, the integrated logistics, the frequent just-in-time deliveries, the large stores with low inventory — they are complements to one another, forming an integrated design. This whole design — structure, policies, and actions — is coherent. Each part of the design is shaped and specialized to the others. The pieces are not interchangeable parts.
• The network, not the store, became Wal-Mart’s basic unit of management.
• Having a true competitive strategy means engaging in actions that impose exorbitant costs on the other side.
• identify your strengths and weaknesses, assess the opportunities and risks (your opponent’s strengths and weaknesses), and build on your strengths.

CHAPTER THREE BAD STRATEGY

• Four major hallmarks of bad strategy:
  • Fluff.
  • Failure to recognize, define, or face the challenge
  • Mistaking goals for strategy.
  • Bad strategic objectives. A strategic objective is set by a leader as a means to an end. Strategic objectives are “bad “when they fail to address critical issues or when they are impracticable.
• Describing a destination is no substitute for developing a comprehensive roadmap for how the country will achieve its stated goals.
• Bad strategy is long on goals and short on policy or action.
• Fluff is superficial restatement of the obvious combined with a generous sprinkling of buzzwords
• A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity — a flurry of fluff masking an absence of substance.
• A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge.
• If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.
• The current fill-in-the-blanks template starts with a statement of “vision,” then a “mission statement” or a list of “core values,“ then a list of “strategic goals,“ then for each goal a list of “strategies,“ and then, finally, a list of “initiatives”
• A strategy is like a lever that magnifies force.
• Strategic objectives should address a specific process or accomplishment, such as halving the time it takes to respond to a customer, or getting work from several Fortune 500 corporations.
• The job of the leader is also to create the conditions that will make that push effective, to have a strategy worthy of the effort called upon.
• First work to discover the very most promising opportunities for the business. Those opportunities may be internal, fixing bottlenecks and constraints in the way people work, or external. To do this, you should probably pull together a small team of people and take a month to do a review of who your buyers are, who you compete with, and what opportunities exist. It’s normally a good idea to look very closely at what is changing in your business, where you might get a jump on the competition.
• In the end, you should have a very short list of the most important things for the company to do.
• To obtain higher performance, leaders must identify the critical obstacles to forward progress and then develop a coherent approach to overcoming them. This may require product innovation, or new approaches to distribution, or a change in organizational structure. Or it may exploit insights into the implications of changes in the environment — in technology, consumer tastes, laws, resource prices, or competitive behavior.
• Effective senior leaders don’t chase arbitrary goals. Rather, they decide which general goals should be pursued. And they design the subgoals that various pieces of the organization work toward.
• One of the challenges of being a leader is mastering this shift from having others define your goals to being the architect of the organization’s purposes and objectives.
• It is helpful to use the word” goal “to express overall values and desires and to use the word “objective” to denote specific operational targets. Thus, the United States may have “goals” of freedom, justice, peace, security, and happiness.
• A leader’s most important job is creating and constantly adjusting this strategic bridge between goals and objectives
• Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.
• A good strategy defines a critical challenge. What is more, it builds a bridge between that challenge and action, between desire and immediate objectives that lie within grasp.
• The purpose of good strategy is to offer a potentially achievable way of surmounting a key challenge.
• When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance.

CHAPTER FOUR WHY SO MUCH BAD STRATEGY?

• It is not feasible to do two separate deep transformations of a company’s core at once.
• To have a strategy is to choose one path and eschew others.
• Strategies focus resources, energy, and attention on some objectives rather than others.
• Leadership and strategy may be joined in the same person, but they are not the same thing. Leadership inspires and motivates self-sacrifice.
• Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.
• All analysis starts with the consideration of what may happen, including unwelcome events.

CHAPTER FIVE THE KERNEL OF GOOD STRATEGY

• Good strategy is coherent action backed up by an argument, an effective mixture of thought and action with a basic underlying structure I call the kernel.
• The kernel of a strategy contains three elements:
  • A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical.
  • A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.
  • A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy.
• THE DIAGNOSIS
  • A great deal of strategy work is trying to figure out what is going on. Not just deciding what to do, but the more fundamental problem of comprehending the situation.
  • diagnosis is a judgment about the meanings of facts.
  • A diagnosis is generally denoted by metaphor, analogy, or reference to a diagnosis or framework that has already gained acceptance.
• THE GUIDING POLICY
  • The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis. It is “guiding” because it channels action in certain directions without defining exactly what shall be done.
  • 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.
  • Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it.
  • A good guiding policy tackles the obstacles identified in the diagnosis by creating or drawing upon sources of advantage
  • A good guiding policy itself can be a source of advantage.
  • 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, and by creating policies and actions that are coherent, each building on the other rather than canceling one another out.
• COHERENT ACTION
  • 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.
  • The simplest business strategy is to use knowledge gleaned by sales and marketing specialists to affect capacity expansion or product design decisions — coordination across functions and knowledge bases.
  • A strategy coordinates action to address a specific challenge.
  • The idea that coordination, by itself, can be a source of advantage is a very deep principle.
  • Strategic coordination, or coherence, is not ad hoc mutual adjustment. It is coherence imposed on a system by policy and design.
  • This coordination is unnatural in the sense that it would not occur without the hand of strategy.
  • But decentralized decision making cannot do everything. In particular, it may fail when either the costs or benefits of actions are not borne by the decentralized actors.
  • we should seek coordinated policies only when the gains are very large.
  • Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination.

PART II SOURCES OF POWER

• A “good strategy” is an approach that magnifies the effectiveness of actions by finding and using sources of power.

CHAPTER SIX USING LEVERAGE

• 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.
• Most strategic anticipation draws on the predictable “downstream” results of events that have already happened, from trends already at work, from predictable economic or social dynamics, or from the routines other agents follow that make aspects of their behavior predictable.
• In many circumstances, anticipation simply means considering the habits, preferences, and policies of others,
• Returns to concentration arise when focusing efforts on fewer, or more limited, objectives generates larger payoffs.
• There seems to be a threshold effect in advertising. That is, a very small amount of advertising will produce no result at all.
• 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.

CHAPTER SEVEN PROXIMATE OBJECTIVES

• 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.
• Unfortunately, since Kennedy’s time, there has been an increased penchant for defining goals that no one really knows how to achieve and pretending that they are feasible.
• An 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.
• the more uncertain and dynamic the situation, the more proximate a strategic objective must be. 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.
• 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,

CHAPTER EIGHT CHAIN-LINK SYSTEMS

• A system has a chain-link logic when its performance is limited by its weakest subunit, or “link.”
• The first logical problem in chain-link situations is to identify the bottlenecks.
• In any organization there is always a managed tension between the need for decentralized autonomous action and the need for centralized direction and coordination.
• It takes leadership and the willingness to absorb short-term losses in the quest for future gains.
• IKEA’s system has a chain-link logic. That means that adopting only one of these policies does no good — it adds expense to the competitor’s business without providing any real competition to IKEA.
• The chain-linked activities should form an unusual grouping such that expertise in one does not easily carry over to expertise at the others. Thus,
• What is especially fascinating is that both excellence and being stuck are reflections of chain-link logic.

CHAPTER NINE USING DESIGN

• Many effective strategies are more designs than decisions — are more constructed than chosen.
• You cannot search the entire space of possibilities; it is too complex. But you can probably, with effort, produce a good configuration.
• I am describing a strategy as a design rather than as a plan or as a choice because I want to emphasize the issue of mutual adjustment. In design problems, where various elements must be arranged, adjusted, and coordinated, there can be sharply peaked gains to getting combinations right and sharp costs to getting them wrong. A good strategy coordinates policies across activities to focus the competitive punch.
• Most of the work in systems design is figuring out the interactions, or trade-offs, as they were called.
• Performance is the joint outcome of capability and clever design.
• Given a set bundle of resources, the greater the competitive challenge, the greater the need for the clever, tight integration of resources and actions.
• Resources and tight coordination are partial substitutes for each other.
• A more tightly integrated design is harder to create, narrower in focus, more fragile in use, and less flexible in responding to change.
• 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 duplicate without suffering a net economic loss.
• A strong resource position can obviate the need for sophisticated design-type strategy.
• The peril of a potent resource position is that success then arrives without careful ongoing strategy work.
• We should learn design-type strategy from an upstart’s early conquests rather than from the mature company’s posturing.

CHAPTER TEN FOCUS

• To begin identifying a company’s strategy, it is usually most helpful to examine the competitive environment.
• A strategy is not necessarily what the CEO intended or what some executive says it is.
• While Crown specialized in soft drink and aerosol cans, it also has a complex focus around shorter runs. By focusing on short runs, Crown avoids the captive squeeze.
• This particular pattern — attacking a segment of the market with a business system supplying more value to that segment than the other players can — is called focus. Here, the word “focus” has two meanings. First, it denotes the coordination of policies that produces extra power through their interacting and overlapping effects. Second, it denotes the application of that power to the right target.
• At the core, strategy is about focus, and most complex organizations don’t focus their resources.

CHAPTER ELEVEN GROWTH

• Growth based upon substitution has a clear ceiling and, once the conversion to the substitute has taken place, the growth grinds to a sudden halt.
• The deeper meaning of focus — a concentration and coordination of action and resources that creates an advantage.
• Unless you can buy companies for less than they are worth, or unless you are specially positioned to add more value to the target than anyone else can, no value is created by such expansion.
• Healthy growth is not engineered. It is the outcome of growing demand for special capabilities or of expanded or extended capabilities. It is the outcome of a firm having superior products and skills.

CHAPTER TWELVE USING ADVANTAGE

• Advantage is rooted in differences — in the asymmetries among rivals.
• It is the leader’s job to identify which asymmetries are critical — which can be turned into important advantages.
• 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.
• Stewart’s approach to the nut business was a complex coordinated maneuver over a decade of time.
• A competitive advantage is interesting when one has insights into ways to increase its value. That means there must be things you can do, on your own, to increase its value.
• Wealth increases when competitive advantage increases or when the demand for the resources underlying it increases. In particular, increasing value requires a strategy for progress on at least one of four different fronts:
  • deepening advantages
  • broadening the extent of advantages
  • creating higher demand for advantaged products or services
  • strengthening the isolating mechanisms that block easy replication and imitation by competitors.
• One must reexamine each aspect of product and process, casting aside the comfortable assumption that everyone knows what they are doing.
• Improvements come from reexamining the details of how work is done, not just from cost controls or incentives.
• Companies that excel at product development and improvement carefully study the attitudes, decisions, and feelings of buyers.
• The idea that some corporate resources can be put to good use in other products or markets is possibly the most basic in corporate strategy.
• Extensions based on customer beliefs, such as brand names, relationships, and reputation, may be diluted or damaged by careless extension
• Engineering higher demand for the services of scarce resources is actually the most basic of business stratagems.
• The most obvious approach to strengthening isolating mechanisms is working on stronger patents, brand-name protections, and copyrights.
• If you can continually improve, or simply alter, your methods and products, rivals will have a much harder time with imitation.

CHAPTER THIRTEEN USING DYNAMICS

• One way to find fresh undefended high ground is by creating it yourself through pure innovation. Dramatic technical inventions, such as Gore-Tex, or business model innovations, such as FedEx’s overnight delivery system, create new high ground that may last for years before competitors appear at the ramparts.
• The other way to grab the high ground — the way that is my focus here — is to exploit a wave of change. Such waves of change are largely exogenous — they are mostly beyond the control of any one organization.
• 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.
• You must dig beneath this surface reality to understand the forces underlying the main effect and develop a point of view about the second-order and derivative changes that have been set into motion.
• 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.
• Guidepost 1 — Rising Fixed Costs: The simplest form of transition is triggered by substantial increases in fixed costs, especially product development costs.
• Guidepost 2 — Deregulation: Many major transitions are triggered by major changes in government policy, especially deregulation
• Guidepost 3 — Predictable Biases: People rarely predict that a business or economic trend will peak and then decline. If sales of a product are growing rapidly, the forecast will be for continued growth, with the rate of growth gradually declining to “normal “levels.
• Guidepost 4 — Incumbent Response: In general, we expect incumbent firms to resist a transition that threatens to undermine the complex skills and valuable positions they have accumulated over time.
• Guidepost 5 — Attractor States: An industry attractor state describes how the industry “should “work in the light of technological forces and the structure of demand. By saying “should, “I mean to emphasize an evolution in the direction of efficiency — meeting the needs and demands of buyers as efficiently as possible. An attractor state provides a sense of direction for the future evolution of an industry. There is no guarantee that this state will come to be, but it does represent a gravity-like pull. The attractor state is based on overall efficiency rather than a single company’s desire to capture most of the pie.
• News media can be differentiated in three basic dimensions:
  • territory (world, national, regional, local)
  • frequency (hourly, daily, and so on)
  • depth (headline, feature story, in-depth expert analysis)
• I believe that the attractor state for news contains specialists along each of these dimensions rather than generalists trying to be all things to all people.

CHAPTER FOURTEEN INERTIA AND ENTROPY

• In business, inertia is an organization’s unwillingness or inability to adapt to changing circumstances.
• Weakly managed organizations tend to become less organized and focused. Entropy makes it necessary for leaders to constantly work on maintaining an organization’s purpose, form, and methods even if there are no changes in strategy or competition.
• Successful strategies often owe a great deal to the inertia and inefficiency of rivals.
• Leaders must diagnose the causes and effects of entropy and inertia, create a sensible guiding policy for effecting change, and design a set of coherent actions designed to alter routines, culture, and the structure of power and influence.
• The standard instruments are hiring managers from firms using better methods, acquiring a firm with superior methods, using consultants, or simply redesigning the firm’s routines. In any of these cases, it will probably be necessary to replace people who have invested many years developing and using the obsolete methods as well as to reorganize business units around new patterns of information flow.
• A good product-market strategy is useless if important competencies, assumed present, are absent and their development is blocked by long-established culture.
• It is dangerous to think that organizational culture can be changed quickly or easily.
• In general, to change the group’s norms, the alpha member must be replaced by someone who expresses different norms and values.
• Despite all the high-level concepts consultants advertise, the bread and butter of every consultant’s business is undoing entropy — cleaning up the debris and weeds that grow in every organizational garden.
• Each quarter, each year, each decade, corporate leadership must work to maintain the coherence of the design. Without constant attention, the design decays.

CHAPTER FIFTEEN PUTTING IT TOGETHER

• You will clearly see the kernel of a good strategy at work: diagnosis, guiding policy, and coherent action. You will also glimpse almost every building block of good strategy: intelligent anticipation, a guiding policy that reduced complexity, the power of design, focus, using advantage, riding a dynamic wave of change, and the important role played by the inertia and disarray of rivals.
• In general, if you have a “me-too” product, you prefer fragmented retail buyers. On the other hand, if you have a better product, a powerful buyer such as Dell can help it see the light of day.
• Whenever a company succeeds greatly there is a complementary story of impeded competitive response.
• More often it is an unwillingness or inability to replicate the innovator’s policies.
•  “Grow by 50 percent” is classic bad strategy. It is the kind of nonsense that passes for strategy in too many companies.

PART III THINKING LIKE A STRATEGIST

• What is possibly the most useful shift in viewpoint: thinking about your own thinking.

CHAPTER SIXTEEN THE SCIENCE OF STRATEGY

• The most precious functional knowledge is proprietary, available only to your organization. An organization creates pools of proprietary functional knowledge by actively exploring its chosen arena in a process called scientific empiricism
• A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment.
• A good business strategy deals with the edge between the known and the unknown.
• In a changing world, a good strategy must have an entrepreneurial component. That is, it must embody some ideas or insights into new combinations of resources for dealing with new risks and opportunities.
• This is the centerpiece of scientific thinking — the idea of refutation. Unless an idea can possibly be proved false by observable fact, it is not scientific.
• An anomaly marks an opportunity to learn something,
• One of the most important resources a business can have is valuable privileged information — that is, knowing something that others do not.
• This process of learning — hypothesis, data, anomaly, new hypothesis, data, and so on — is called scientific induction and is a critical element of every successful business.
• Starbucks did not vertically integrate to purposefully confuse the competition. It did so in order to be able to mutually adjust multiple elements of its business and to capture the information generated by each element of its business operations. Integration is not always a good idea.
• When the core of a business strategy requires the mutual adjustment of multiple elements, and especially when there is important learning to be captured about interactions across business elements, then it may be vital to own and control these elements of the business mix.

CHAPTER SEVENTEEN USING YOUR HEAD

• People can forget their larger purposes, distracted by the pull of immediate events.
• Making a list is a basic tool for overcoming our own cognitive limitations.
• Being strategic is being less myopic — less shortsighted — than others.
• Just because I had asked for only one recommendation didn’t mean he was constrained to consider only one approach.
• Generate alternative views – our minds dodge the painful work of questioning and letting go of our first early judgments,
• This personal skill is more important than any one so-called strategy concept, tool, matrix, or analytical framework. It is the ability to think about your own thinking, to make judgments about your own judgments.
• In strategy work, knowledge is necessary but not sufficient. There are many people with deep knowledge or experience who are poor at strategy. To guide your own thinking in strategy work, you must cultivate three essential skills or habits.
  • First, you must have a variety of tools for fighting your own myopia and for guiding your own attention.
  • Second, you must develop the ability to question your own judgment. If your reasoning cannot withstand a vigorous attack, your strategy cannot be expected to stand in the face of real competition.
  • Third, you must cultivate the habit of making and recording judgments so that you can improve.
• The kernel is a list reminding us that a good strategy has, at a minimum, three essential components:
  • a diagnosis of the situation
  • the choice of an overall guiding policy
  • the design of coherent action.
• Identifying the difficulties and obstacles will give you a much clearer picture of the pattern of existing and possible strategies.
• 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.
• A new alternative should flow from a reconsideration of the facts of the situation, and it should also address the weaknesses of any already developed alternatives.
• Trying to destroy your own ideas is not easy or pleasant.
• I invoke a virtual panel of experts that I carry around in my mind. This panel of experts is a collection of people whose judgments I value. I use an internal mental dialogue with them to both critique my own ideas and stimulate new ones. I try to do this before putting my ideas before others. When I face a problem, or have generated a first hunch, I turn to this panel and ask, “What is wrong with this approach to the situation? What would you do in this case?”
• Jobs’s basic operating principles have become the stuff of legend:
  • imagine a product that is “insanely great”
  • assemble a small team of the very best engineers and designers in the world
  • make the product visually stunning and easy to use, pouring innovation into the user interface
  • tell the world how cool and trendy the product is with innovative advertising.
• Good strategies are usually “corner solutions.” That is, they emphasize focus over compromise. They focus on one aspect of the situation, not trying to be all things to all people.
• Judgment begins with knowing yourself, your abilities and biases. Then it extends to knowing other individuals.

CHAPTER EIGHTEEN KEEPING YOUR HEAD

• 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.
• Being independent without being eccentric and doubting without being a curmudgeon are some of the most difficult things a person can do.
• Economies of scale have always played a central role in strategy thinking.
• A quick summary is that a terrible industry looks like this: the product is an undifferentiated commodity; everyone has the same costs and access to the same technology; and buyers are price sensitive, knowledgeable, and willing to switch suppliers at a moment’s notice to get a better deal.
• Five intertwined errors in human judgment and behavior.
  • There was engineering overreach, where designers built systems whose failure modes and failure consequences exceeded their ability to comprehend or analyze.
  • There was what I call the smooth-sailing fallacy, where people assume that a lack of recent tremors and storms means that there is no risk.
  • There are many organizations and individuals working under risk-seeking incentives. Whenever you profit greatly if things go well and other people take the loss when things go poorly, you become a risk seeker.
  • There is social herding. When we don’t know about something, it may be sensible to look at the behavior of others, assuming that at least some of them know things that we do not.
  • Finally, there is the inside view, a label given by Nobel laureate Daniel Kahneman and coauthor Dan Lovallo to the tendency to ignore related pertinent data — to believe that “this case is different.”
• An important virtue of a good leader is putting the situation in perspective and having cool-minded judgment.