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5 Problems with Strategy (the word)

The word “strategy” is a confusing mess.

Every day I overhear someone asking “Hey, what’s our strategy for dinner tonight?” or “Wow! What an awesome strategy!” referring to some trick to pick up their dog’s 💩 from the sidewalk¹.

At the same time, I also hear people proclaim that strategy doesn’t matter – that execution is the only thing that matters.

And while I agree that execution is essential to winning, discarding strategy altogether usually means that we’re not paying enough attention to why we’re doing what we’re doing and why we’ve prioritized things the way we have.

In this post, I’m going cover 5 problems with the word strategy which explain why there’s so much confusion about the concept. Most importantly, understanding strategy better gives us a huge leg up in our competitive landscape.

Problem 1: The word Strategy has a huge burden to carry

The first problem with the word strategy is that it has a huge burden to carry.

In English, the word strategy is truly unique. There is no other word that means the same thing as the word strategy.

The phrases “plan of action” or “master plan” seem to get closest, but still fall way short since strategy is so much more than just a plan or a todo list.

Strategy is an important concept with so much nuance. Strategy involves:

  • choosing our objectives
  • evaluating the resources at our disposal
  • understanding the competitive landscape
  • attempting to predict what our opponents and allies might do
  • trying to understand the tradeoffs between all of the possible actions we could take in any given moment
  • and finally choosing what to actually do

Only after we figure all of that out does execution really enter the picture. And even then we can’t just myopically focus on execution. Our strategies must also be dynamic as we implement them and receive new information.

And since there’s no other word that encapsulates all of this meaning, the only word we have – strategy – must carry this huge burden.

That’s why it’s so important to properly define strategy. Which brings us to the second problem with the word strategy: There is no clear definition.

Problem 2: There is no clear definition of Strategy

Not only is strategy a unique word with a big burden to carry, there’s also no clear definition. I’ve spent dozens of hours searching for a good off-the-shelf definition and I’ve never found one – not in the dictionary, not online, not in all of the corporate strategy books I’ve read, and not in the academic business literature from reputable sources like Harvard Business Review.

Even in the most cited and famous article on strategy – titled “What is Strategy?” By Michael Porter – the word is never defined. Three times Porter rhetorically asks himself what strategy is and three times he given a different description.

10 years ago I started studying entrepreneurship and strategy at Stanford for my master’s degree. I recently reviewed my notes from my strategy courses and not once did we even attempt to define the word Strategy. Why? Because it’s really hard.

And one of the biggest reasons strategy is a hard word to define is because the word has at least two distinct meanings.

Problem 3: Strategy is both a process and an outcome

Even without defining strategy, you can see that there are two – related but different – meanings of the word strategy. The first meaning represents the concept of strategy. The second meaning represents a particular strategy.

I like to illustrate this point by using both meanings in the same sentence:

Before the weekend retreat, the executives didn’t even understand the difference between strategy and tactics, but afterwards they were ready to present two strategies to the board.”

You can see that the first usage is about the concept of strategy – in contrast to the concept of tactics. The second usage is about the two specific strategies the executives developed.

For the linguist nerds out there: The difference here is between a countable noun and uncountable noun – also called mass noun. In English, a noun is countable if you can slap a number in front of it and it still makes sense. “There are six chairs in the dining room.” vs “There are six furnitures in the dining room.” 🤔. Chair is countable. Furniture is not. Also, countable nouns take the modifier ‘fewer’ and uncountable nouns take ‘less.’ “We need fewer chairs in the dining room!”

Some nouns – like strategy – have both a countable form and an uncountable form… which can be confusing.

Back in January, I developed a slide to illustrate this idea.

Long story short: strategy can mean:

  1. the process of being strategic, of strategizing, or the field of strategy as a whole
  2. the output of that process – a strategy that you can choose to implement or not

The problem here is obvious: there are 2 distinct meanings for the exact same word.

Problem 4: Tactics are often mistaken to be strategy

The fourth problem with the word strategy is that: Tactics are often mistaken as strategy. This confusion is particularly disastrous for inexperienced strategists.

When we understand the difference between strategy and tactics, we can avoid the latest engineering/marketing/sales/investment/etc fads which are almost always tactics, not strategies. Tactics should always serve our broader strategy – not the other way around.

So while Virtual Reality advertising on YouTube may be the hottest new marketing fad, if it’s not aligned with our over-arching marketing strategy, then it’s a distraction and a waste of resources.

Which brings me to the 5th, and final, problem with the word strategy: When we don’t understand what strategy is, others will take advantage of us.

Problem 5: Business gurus and consultants benefit at our expense when we don’t understand strategy

I’m all for hiring experts, for getting coaching or mentorship when we need help achieving a goal or objective. But too often individuals and businesses are counting on some third party to copy-paste a solution that worked for someone else in an attempt to fix their particular problem.

When we understand what strategy is and isn’t – when we’ve developed a strategy tailored to our objectives, our resources, and our competitive landscape – then it’s usually much more obvious what outside help we need to achieve our goal.

When we don’t fully understand one or all of these components of strategy, handing our money over to some guru to solve all of our problems can be really attractive.

Wrapping It Up

Alright, the 5 problems with the word strategy are:

  1. The word Strategy has a huge burden to carry.
  2. There is no clear definition of Strategy.
  3. Strategy is both a process and an outcome.
  4. Tactics are often mistaken to be strategy.
  5. Business gurus and consultants benefit at our expense when we don’t understand strategy.

I’ve addressed many of these problems by defining strategy (both the process and the output) and by distinguishing strategy from tactics.

¹ Invert the bag, wear it like a glove, pick up 💩, re-invert, tie a knot, and throw away (or, if you live in SF, just leave the bag anywhere you like when no one is looking).

The “Just Plane Smart” Strategy & Activity Alignment

A key breakthrough I really grokked during one of my many silent strategy meditation retreats is that strategy is all about alignment – especially once you fully wrap your head around your goal, your resources, and the competitive landscape. Alignment is what gives systems that 1 + 1 = 3 result and misalignment can bring systems to their knees.

A strategy is a set of well-aligned activities with the aim of occupying a valuable position within a competitive landscape.

For example, synchronous rowing has been proven to be 8% faster than non-synchronous rowing. Further, when oars tangle – which can only happen during asynchronous rowing – someone is usually going for a swim. So if your goal is to win a race, then you should row synchronously.

Southwest Airlines

The classic corporate example of great strategic alignment is Southwest Airlines. Growing up in Dallas, Southwest’s headquarters and home-base, I had a front row seat to the company’s incredible growth into its current position as the largest domestic air carrier in the US (by passengers boarded). Over the past 5 decades, Southwest has delivered tens of billions in value to customers, employees, and shareholders. Remarkably, the company has been profitable for 46 consecutive years – which is completely unheard of in the airline industry.

BTW, even if you don’t care for Southwest as a customer, the lessons from this company – especially around alignment – are quintessential for developing your own strategies.

What’s the Goal?

Before digging into the alignment between Southwest’s activities, we need to know their objective. Southwest’s vision is “to become the world’s most loved, most flown, and most profitable airline.” I’m assuming that they have clear internal definitions and KPIs for most loved and most flown.

Southwest Airlines’ Activity Map

Now we can dig into their specific activities. This is obviously an incomplete list fo their activities, but it’s a starting place to illustrate the importance of alignment.

Southwest Airlines' Activity Map and Strategy

As you can see visually, most of their activities reinforce one or several other activities, resulting in very high alignment.

Alignment Isn’t Risk-Free

Southwest’s strategy is not, however, without its risks. For example, Boeing is Southwest’s sole supplier for aircraft and many parts. The March 10 crash of a 737 MAX 8 in Ethiopia (the second crash in 6 months of that model) and the subsequent grounding of the entire MAX 8 fleet worldwide is clear evidence of the risks of overly-tight alignment. Neither crash was a Southwest flight.

Southwest Airlines' fleet of grounded 737 MAX 8s

(Source: CNN)

Fortunately, Southwest only owned 31 MAX 8s as of Jan 1, 2019 (of a total fleet of 750). But grounding 4% of your fleet is a big deal and Southwest is due to buy or acquire another 37 MAX 8s in 2019 and over 200 MAX 8s over the next 8 years. I’m confident that Southwest will survive the 737 MAX 8 issue relatively unscathed, but the unfortunate events are a clear reminder that even brilliant strategies like Southwest’s are neither permanent nor invincible.

Key Take-Aways

  • A good strategy is inherently well-aligned. Good alignment is the best way to deliver disproportionate value and results (1 + 1 = 3). Poor alignment usually means that some parts of a system are destroying value that was created elsewhere.
  • Tradeoffs are inevitable, but should be deliberate. For example, Southwest chooses to invest heavily in its employees and in ways to reduce fuel costs. A myopic focus on cutting costs would be a huge mistake long-term.
  • While there may be many ways to win, just choose one. Southwest ignores the high-end travel market and focuses on a low cost strategy. The company knows exactly what it is and what it isn’t. And, just as important, they’re disciplined about it. Focus and consistency have the additional benefit of carving out a clear brand in customer’s minds over time.
  • Cut activities that don’t fit (49 services Google has killed, some of which they acquired at great cost) and double down on activities that do fit. YouTube, Android, Google Home, Maps, and Chrome may feel like expensive & unprofitable distractions on the surface, but they actually fit very tightly with Google’s/Alphabet’s core strengths: organizing the world’s data, powerful search, and monetizing intent via advertising.
  • Remember: you have to be crystal clear on your objective before you even begin to worry about what activities to perform or not.

Herb Kelleher, Southwest’s Heart

This short podcast with Herb Kelleher, the co-founder and former CEO of Southwest, is a must-listen. Herb was a living legend until he passed away early this year. I was deeply saddened by Herb’s passing but I promise you’ll laugh out loud if you check it out.

Also, Southwest Magazine did a nice job with an extended article about Herb’s life. The opening story is classic Herb.

Concept: Hidden Competition

One last thing.. writing this piece made me think about a cool concept: Hidden Competition.

When Southwest first started flying in 1971, they weren’t really competing with the major interstate airlines, whose customers were mostly businessmen with expense accounts. Southwest’s quick flights between Dallas, Houston, and San Antonio were actually competing with Greyhound and other surface travel options. For Greyhound, Southwest represented hidden competition and was a key reason Greyhound is only a fraction of its former self and filed for bankruptcy in 1990.

Tesla: Mass-Market or Niche? Both.

Should Tesla focus on the high-end of the market now and seek an immediate profit and a potentially sustainable long-term niche?  Or should it go all-out to do nothing less than become the major player in the entire worldwide automotive market, taking advantage of its high valuation to raise billions of capital to fund years of cash burn?  These are super interesting questions that I will not address today.  Tesla’s apparent choice in this question is … neither.  It has clearly gone all in, at least in rhetoric, on dominating the automotive market and Elon Musk has announced (at least on Twitter) future new products in nearly every automotive niche.  But at the same time Tesla has refused to leverage its high stock price to raise capital and actually has been cutting back on capital spending and slow-rolling expansion plans.

(emphasis mine)

Source: Coyote Blog

Like Coyote (Warren Meyer), I suspect that not all is right in the land of Tesla. While I’ve praised Elon for publicly laying out a clear strategy for Tesla in the past, launching a “semi, pickup, new coupe, 10K a week m3 [Model 3] production, china factory, Europe homologation, expanded service network, in house body shops, car carrier production, solar shingle, gen 2 supercharger” is far from focused.. or even aligned.

Too many product? Too many markets? Too many balls in the air? Not enough investment? Only time will tell with this one…

Chick-fil-A Closed Sundays

Withholding: Why You Should Give Your Customers Less of What They Want

Withholding is a useful differentiation strategy for some organizations. Stan Phelps, IBM Futurist and Forbes contributor writes:

Most brands are trying to be strong, and they want to get stronger. They want to be powerful. This seems to make sense. Be the best. Do more. Expand. Grow. Benchmark your competition and then offer more features, more products, more services, and more locations.

Why do less? Why withhold?

Because withholding is zigging when everyone else is zagging.

Chick-fil-A, the chicken-centric fast food chain, is infamous for being closed on Sundays (amongst other things). And while withholding wasn’t an intentional tactic when the company was founded over 70 years ago, it has been an effective one. (Chick-fil-A chooses to remain closed on Sundays in order to give employees and customers a dedicated day to spend with their families and their communities.)

Withholding is doing less of what makes you strong, less of what customers love about you. It’s about limiting customer choices, limiting decision fatigue, and creating some scarcity – whether it’s false scarcity or not.

Withholding gives you or your business a chance to build anticipation.

Withholding involves offering fewer options, fewer locations, fewer features, fewer products, fewer services, fewer hours, fewer perks, and fewer discounts. This is about deliberately and relentlessly shrinking the things that everyone else is expanding.

Oddly enough, withholding is part of a differentiation strategy: Do less of something you’re good at in order to stand out even more. When executed properly, doing less can drive even more demand.

Growing up in Texas I’ve seen this first-hand a hundred times. Someone has the brilliant idea to grab some Chick-fil-A and you race over to the location down the street, your mouth watering. Before you even turn off the road you know something is wrong. The parking lot is empty. It’s Sunday.

While Sonic took our Sunday dollars, Monday was always Chick-fil-A.

Drive-thru Takeaway: How can you withhold to bring about more demand? To differentiate? How can you integrate doing less into your positioning and strategy?

I’ll leave you with a Chick-fil-A love song:

(Image Source)

What is Strategy? – A Presentation

This week I spoke twice at St. Mary’s College in Moraga, CA – 30 minutes east of San Francisco. I whipped together an hour long presentation for the students in a Strategy course in the Business school to answer the question: What is Strategy?

It was great to force myself to present some of my ideas – several of which were only half baked – and to get so much positive feedback and concrete recommendations for changes.

I haven’t had a chance to incorporate feedback into the deck yet so I just decided to publish it for you as-is. I plan to tweak things and give this talk again soon though.


One big note: I designed this deck to be presented by me so it’s not 100% ready for consumption without me. You’ll get the gist though.

I reference my piece last week about Puddles Pity Party and my research on Moneyball (the 2002 Oakland A’s season) – only some of which I’ve published so far. Check out those posts if you haven’t had a chance yet.

The students were excited that I was taking back the word “strategy” – not just using it sloppily like many of their course readings. They expressed a lot of interest in the etymologies that I shared too, which is surprising given how boring that sounds.

And, they really appreciated that I actually defined the word strategy.

What is Strategy?

Strategy is the process of creating a set of well-aligned activities with the aim of occupying a valuable position in a competitive landscape.

I really emphasized that strategy is a process, not a static outcome.


In case you missed some of my posts from the past few days, here they are:

PS: This is just for you.

PPS: If you’re not familiar with the trivium (slide 3), you’re missing out. I might write about it more next week.

Bad Tactics in Baseball

Bad Tactics: Baseball & the Boardroom

“At the opening of the 2002 season, the richest [baseball] team, the New York Yankees, had a payroll of $126 million while the two poorest teams, the Oakland A’s and the Tampa Bay Devil Rays, had payrolls of less than a third of that, about $40 million.”

For the Oakland A’s the exact number was $41,942,665. Oakland won 103 games that regular season, while the Texas Rangers had only won 72 and spent $106,915,180. This phenomena was somewhat common actually. Many of the richest teams in Major League Baseball were not delivering results while the Oakland A’s were… consistently.

Let’s look at this another way. Teams have to spend a minimum of $7 million on payroll and a team that’s spending the minimum payroll is expected to win about 49 games during the 162 game season. So, on a dollar-per(-marginal)-win basis the A’s were spending about $650,000 per win while Texas was spending about $4.3 million for each win. What explains this nearly 7x delta in ROI?

The two word answer is simple: Bad Tactics.

Traditional Tactics

Baseball is a sport steeped in tradition and the decade preceding the 2002 season saw teams payrolls rise by tens of millions of dollars per team, up to a 400% increase. These new costs meant that more people were paying attention to how effectively this money was being spent.

In 2002, the vast majority of MLB scouts were still judging players by whether they had a “good face” and by the 5 Tools – running, throwing, fielding, hitting, and hitting power. These subjective metrics were used in place of the enormous data sets that baseball had been collecting since the invention of the box score in 1845.

The data was clear. In 2002, RBIs (runs batted in), stealing bases, bunts, batting average, slugging, foot speed, high school players (vs college), and old (vs new/fresh) pitching arms were all tremendously over-valued in players – and it showed in their salaries.

The following were underpriced: High pitches per at-bat – which wore down pitchers – walks, and any other activity that got a hitter on base instead of out. So despite the availability of the data, the statistics to make sense of it, and the computing power to crunch the numbers, looks and luck were still being priced over results.

The human mind played tricks on itself when it relied exclusively on what it saw, and every trick it played was a financial opportunity for someone who saw through the illusion to the reality.

Baseball teams simply insisted on using bad tactics – which of course amounts to bad strategy. But reliance on knowably bad tactics happen outside of baseball too.

Insider vs Outsider CEOs

A recent episode of the Freakonomics podcast (How to Become a C.E.O.) illustrates another example of reliance on subjective decision making when good, relevant data is available:

A 2009 academic study, which analyzed established public companies from 1986 to 2005, found that internally promoted C.E.O.’s led to at least a 25 percent better total financial performance than external hires.” A 2010 study by Booz & Company similarly found that, in 7 of the 10 previous years, insider C.E.O.s delivered higher market returns than external hires. And yet: external hiring seems to be on the rise: in 2013, between 20 and 30 percent of boards replaced outgoing C.E.O.’s with external hires; a few decades ago, that number was only 8 to 10 percent. Outside hires also tend to be more expensive: their median pay is $3 million more than for inside hires. So, an external hire will, on average, cost you more and perform worse. And yet that’s the trend.

Overpay & Underdeliver

Why do companies overpay for inferior results? Why do baseball teams?

I think the biggest reasons is fear. The fear of humiliation and failure drove both baseball management and corporate boards into the bad tactics of over-paying for inferior results. When you focus on avoiding failure instead of finding success, you’re less likely to see new opportunities and adapt.

There’s also an issue of misaligned incentives at work too. In baseball, owners and managers care more about not being embarrassed by their performance than about wins. A losing team can still be profitable and have a great return. In the business world, board members and CEOs are often scratching one another’s backs and giving one another high paying jobs instead of focused on increasing shareholder value.

And, of course, it’s not always clear who’s delivering value, who’s slacking, or who’s just getting lucky or unlucky – in both a corporate environment and on the baseball diamond.

Recognizing Bad Tactics

So how do you recognize bad tactics?

1) Define what’s important to you.

For boards, they want CEOs who will deliver returns for a fair price. For baseball teams, regular season wins are the key to having a shot at the world series.

2) Look at the data & try to understand how different actions affect the outcomes you care about.

If there’s no data or bad data, start investing in this area. Try to put a value on different skills or results (on-base percentage, walks, or market-cap). How are different variables connected? What’s currently undervalued and what’s overvalued?

3) Ask hard, even contrarian, questions and seek out different perspectives.

Challenge the norms within your sector, culture, or league. Don’t be different just to be different but understand that the standard approach – or even your entire industry – might be severely under-optimized. Seeing reality through the illusion is incredibly valuable.

4) Be honest with yourself.

Embrace your findings. Act on them. Yes, that probably means risking failure.

Moneyball

I was inspired to write this post after reading Michael Lewis’ Moneyball. While I haven’t been a baseball fan since I was about 9 years old, listening to Bill James (one of the key players in all of this) on Russ Robert’s EconTalk got me really excited about the story of the Oakland A’s 2002 season – which was made into a very popular movie as well. I highly recommend reading Moneyball – which uses baseball as an analogy for the tactical and strategic failings of many organizations.

Strategy: Divide & Conquer

Small Things Grow Great by Concord

We’ve all heard the phrase “divide and conquer” (divide et impera) but when was the last time you heard concordia res parvae crescunt?

Over 250 years ago – when the 13 colonies were on the cusp of the Revolutionary War with Britain – John Dickinson wrote a series of 12 essays called the Letters from a Farmer in Pennsylvania.

In these letters, Dickinson shared his thoughts on how the colonies should respond to the Townshend Acts (1767) – a set of taxes that the British imposed on glass, lead, paints, paper, and tea before the outbreak of the American Revolution.

In addition to these new taxes, the British we’re also explicitly penalizing the New York colony for refusing to house and feed British troops. Dickinson, known as The “Penman of the Revolution,” wrote the following in response to this so-called New York Restraining Act:

I say, of these colonies; for the cause of one is the cause of allIf the [British] parliament may lawfully deprive New York of any of her rights, it may deprive any, or all the other colonies of their rights; and nothing can possibly so much encourage such attempts, as a mutual inattention to the interests of each other. To divide, and thus to destroy, is the first political maxim in attacking those, who are powerful by their union. (emphasis Dickinson’s)

Said another way: If your goal is to destroy those who are powerful because of their union, first seek to divide them. Further, if you can encourage each party to focus on only their own interests, then division is easier.

Unite & Grow Great

Taking the opposite perspective: If your goal is to grow strong or powerful by nature of your union with others, then seek harmony with them, pay attention to their interests, and refuse to cooperate with one another’s enemies.

Remember: Concordia res parvae crescunt. Small things grow great by concord.

Image Source (NPS)

The Relationship Between Secrecy & Competition

In What Is Strategy?, I define a strategy as “a set of well-aligned activities with the aim of occupying a valuable position within a competitive landscape.”

Surprise is an incredibly useful tool during competition since telling our competitors what we’re going to do before we do it gives them a chance to devise a better course of action than they would have made otherwise. And since there’s always a competitive element to strategy, it seems like we would always want to keep our strategies a secret until we execute on them.

For example, it would be foolish for Apple to tell the world that it’s entering the content creation space 12 months before they’re ready. Netflix, Amazon, and the entire Hollywood machine would have time to adapt and make it harder for Apple to successfully enter the space. Having early access to this information would give competitors the chance to form alliances with one another, sign exclusive deals with producers, writers, actors…etc, and even lobby legislative bodies to make it harder for Apple to enter the space.

Secrecy is a requirement for the success of many strategies.

Just Between You and Me

However, there are scenarios when making our strategies well known is actually better than keeping them a secret – particularly when the competition isn’t fierce.

Since fierce competition destroys profits, it’s often wise to try to avoid it anyway. Signaling our high-level strategy is a good way to let nearby competitors know which battlegrounds are important to us and which are not.

Tesla’s Strategy

Tesla’s original master plan, written in 2006, clearly states: “The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model.”

Musk continues:

So, in short, the master plan is:

– Build sports car
– Use that money to build an affordable car
– Use that money to build an even more affordable car
– While doing above, also provide zero emission electric power generation options

In announcing this, Elon Musk put his cards on the table. None of the existing car manufacturers or any of the new upstarts made a serious effort to copy this strategy. And it took years for anyone to try to compete directly with Tesla in the high end market – which Tesla temporarily vacated as they began to move down market.

Even now, 12 years after Musk publicly announced Tesla’s master plan and strategy, no all-electric car has copied Tesla’s models and started a fiercely competitive war.

In fact, Tesla has succeeded and the company has entered a new strategic phase which Musk described in another blog post.

Musk knew that no other car company would copy his strategy and that Tesla would benefit more from announcing their plans than from keeping them secret.

The Competition

While Tesla didn’t broadcast every strategic move they were planning, Musk was very explicit about the company’s overarching strategy. It makes me wonder how the rest of the auto industry thought about Tesla and all-electric cars at the time.

Maybe some direct competition – real or even just announced – would have forced Tesla to play their cards a little differently and given one competitor an edge? Maybe not.