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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.

Boring Company Flamethrower

The Boring Company Not-A-Flamethrower

The Boring Company Not-A-Flamethrower was casually announced by Elon Musk in this Dec 10, 2017 tweet.

The remaining promotional hats sold out quickly.

Seven weeks later:

100 hours later:

The Boring Company – Musk’s underground drilling company – sold 20,000 Flamethrowers in about 100 hours. That’s $10 million in top line revenue and millions more in free press and captured mind space.

Opps.. It’s not called a Flamethrower. It’s a “Not A Flamethrower” – a brilliant regulatory decision, drawing even more attention (and desire) to Musk’s scheme:

Musk drew some heat for this move – many criticizing him for making a flamethrower for his “rich friends” instead of giving a bunch of money to charity or ending world hunger.

What the non-strategic thinker missed was that Elon wasn’t making a toy for his friends. They have plenty of toys. This was a brilliant marketing stunt.

Of course it’s not just a stunt. The flamethrowers were real. And so is the deal the company just signed with the city of Chicago. The Boring Company will build an 18 mile high-speed (150mph) skate-based tunnel transit system between O’Hare International Airport and downtown Chicago.

Bottom Line: If Musk can get people excited about city planning and tunneling, you can get people excited about what you’re doing.

Entertaining review of the Not-A-Flamethrower pickup day in LA.

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.