On Strategy

What is Strategy, Really?

Porter, in his seminal piece, explores the common misunderstanding between operational effectiveness and strategy. He argues that while operational effectiveness (doing things better) is important, it's not a substitute for strategy (doing different things or doing things differently).

Operational Effectiveness vs. Strategy:

• Operational effectiveness is about performing similar tasks better than your rivals. This could be through improving efficiency, reducing defects, or developing better products faster.

• Strategy is about choosing a unique set of activities to deliver a distinct value proposition. It's about being different.

The Problem of Competitive Convergence:

Companies tend to imitate each other when they focus solely on operational effectiveness. This leads to a race where everyone is trying to do the same things better, resulting in diminishing returns and fierce price competition.

The Importance of Trade-offs:

 A sustainable strategy involves making trade-offs. This means choosing what not to do. Trying to be everything to everyone can dilute your unique value proposition and make you vulnerable to competitors who focus on specific areas.

Fit: The Key to Competitive Advantage:

Competitive advantage comes from the way your activities complement and reinforce each other. This fit creates a system that rivals find difficult to imitate.

The Growth Trap:

The pursuit of growth can tempt companies to compromise their strategy by trying to be all things to all people. This can lead to a loss of uniqueness and ultimately weaken their competitive advantage.

Simplified and Actionable Insights:

• Focus on your unique strengths: Don't try to copy everything your competitors do. Figure out what you do best and double down on that.

• Make deliberate choices: Don't be afraid to say no to opportunities that don't align with your strategy.

• Build a cohesive system: Ensure your different activities complement and reinforce each other. This creates a more robust defence against competitors.

• Growth with caution: Don't sacrifice your unique position for the sake of growth. Instead, look for growth opportunities that leverage your existing strengths.

Companies can achieve a sustainable competitive advantage by understanding the difference between operational effectiveness and strategy and focusing on creating a unique and valuable position with clear trade-offs.

Everyone thinks about strategy in a WRONG manner. It is confused with an idea or a tactic.

What does strategy mean?

To effectively determine and communicate a winning strategy, it is essential to address the complexities of dynamic systems. This involves navigating the intricacies of human behaviour, leveraging its strengths and avoiding pitfalls.

The strategy must clearly outline the rationale behind its choices, guiding towards the intended goal.

Effective strategies share the following key features:

⚔ Simplify - Cut through noise to expose the few factors that truly matter. Ruthlessly filter out the trivial many from the vital few.

⚔ Confront - Highlight inconvenient truths no matter how uncomfortable. Admit weaknesses as clearly as strengths.

⚔ Decide - Make tough choices and live with the consequences. Indecision is the death knell of any strategy.

⚔ Leverage - Play to your strengths for sustainable edges. Double down on what you do best better than the rest.

⚔ Risk - Embrace uncertainty by going asymmetric. Structure bets to minimize potential losses while maximizing gains.

⚔ Look Ahead - Take the long view even if it costs in the short term. Plant seeds today for trees that bear fruit tomorrow.

To improve your strategy, you should be able to think through initiatives or ideas in this manner. Otherwise, it will remain just a tactic.

#1 mistake leaders make: think of strategy as a plan you set while the team executes it. Separating strategy and execution doesn't make sense because both involve making decisions in uncertain situations, dealing with competitors, and working within limits. By dividing them - those who carry out the plans become less important, even if they are making important strategic choices. This can lead to unhappy employees.

How to rethink: People make strategic choices at every level of the organisation. Leaders must set the overall direction and goals but let employees at all levels make strategic decisions within that framework. Everyone is a strategy person: only scope is reduced as we go from top to bottom. Strategy vs. execution also creates a situation in which strategists can take credit for success but blame the executors for failures.

This might be scary at first, but it makes their jobs easier and leads to better results for the organization.

How to align our strategy? In a startup, 90% of the time, we obsess about the wrong problems.

- What colour or font should my website be?

- Which accounting software best fits my use case?

Startup work ain't about pretty websites or the perfect business strategy.

We obsess over things like

- Logo A vs Logo B? Nobody cares.

- Instagram follower count? Vanity metric.

Uber didn't win because of their invoicing system. Netflix killed Blockbuster because their product was BETTER. What to obsess over? - Customer pain points. We must serve the customers and provide delight. Everything else is just noise.

Strategy starts with your current choices and their outcomes, not with external data. The most valuable starting point for strategic thinking is the gap between the desired outcomes of your past choices and the actual results you're seeing. Analyzing this gap will reveal the strengths and weaknesses of your current strategy.

Collecting piles of data without a clear purpose or hypothesis is a waste of time and can be misleading. It often leads to outsourcing your strategic thinking to external consultants or staff who may not understand your unique context. Instead of gathering data for the sake of it, identify specific assumptions (What Would Have To Be True) that need to be tested in order to improve your strategy. This targeted approach will help you focus on collecting the most relevant data and make better-informed decisions.

Key takeaways:

• Start with your own logic: Analyze your choices and their outcomes before looking at external data.

• Resist the allure of pre-work: Don't outsource your strategic thinking to consultants or staff.

• Be hypothesis-driven: Collect data to test specific assumptions about how to improve your strategy.

• Remember, less is more: Focus on collecting the most relevant data instead of overwhelming yourself with information.

References

- What is Strategy by Porter: https://lnkd.in/gnbvBXWB
- How to Prepare for Strategy – Talks about fallacies in strategic planning in companies https://lnkd.in/gc-p7jJK