Strategic powers

Located in: Leadership

Good Strategy Bad Strategy

In Good Strategy Bad Strategy the following powers are defined:

  1. Leverage

Leverage is finding an imbalance in a situation, and exploiting it to produce a disproportionately large payoff. Or, in resource constrained situations (e.g. a startup), it’s using the limited resources at hand to achieve the biggest result (i.e. not trying to do everything at once). Strategic leverage arises from a mixture of anticipating the actions and reactions of competitors and buyers, identifying a pivot point that will magnify the effects of focused effort (e.g. an unmet need of people, an underserved market, your relative strengths/weaknesses, a competence you’ve developed that can be applied to a new context, and so on), and making a concentrated application of effort on only the most critical objectives to get there.

  1. Proximate Objectives

Choose an objective that is close enough at hand to be feasible, i.e. proximate. This doesn’t mean your goal needs to lack ambition, or be easy to reach, or that you’re sandbagging. Rather, you should know enough about the nature of the challenge that the sub-problems to work through are solvable, and it’s a matter of focusing individual minds and energy on the right areas to reach an otherwise unreachable goal. For example, landing a man on the moon by 1969 was a proximate objective because Kennedy knew the technology and science necessary was within reach, and it was a matter of allocating, focusing, and coordinating resources properly.

  1. Chain-link Systems

A system has chain-link logic when its performance is limited by its weakest link. In a business context, this typically means each department is dependent on the other such that if one department underperforms, the performance of the entire system will decline. In a strategic setting, this can cause organizations to become stuck, meaning the chain is not made stronger by strengthening one link – you must strengthen the whole chain (and thus becoming un-stuck is its own strategic challenge to overcome). On the flip side, if you design a chain link system, then you can achieve a level of excellence that’s hard for competitors to replicate. For example, IKEA designs its own furniture, builds its own stores, and manages the entire supply chain, which allows it to have lower costs and a superior customer experience. Their system is chain-linked together such that it’s hard for competitors to replicate it without replicating the entire system. IKEA is susceptible to getting stuck, however, if one link of its chain suffers.

  1. Design

Good strategy is design – fitting various pieces together so they work as a coherent whole. Creating a guiding policy and actions that are coherent is a source of power since so few companies do this well. As stated above, a lot of strategies aren’t “designed” and instead are just a list of independent or conflicting objectives.

  1. Focus

Focus refers to attacking a segment of the market with a product or service that delivers more value to that segment than other players do for the entire market. Doing this requires coordinating policies and objectives across an organization to produce extra power through their interacting and overlapping effects (see design, above), and then applying that power to the right market segment (see leverage, above).

  1. Growth

Growing the size of the business is not a strategy – it is the result of increased demand for your products and services. It is the reward for successful innovation, cleverness, efficiency, and creativity. In business, there is blind faith that growth is good, but that is not the case. Growth itself does not automatically create value.

  1. Using Advantage

An advantage is the result of differences – an asymmetry between rivals. Knowing your relative strengths and weaknesses, as well as the relative strengths and weaknesses of your competitors, can help you find an advantage. Strengths and weaknesses are “relative” because a strength you have in one context, or against one competitor, may be a weakness in another context, or against a different competitor. You must press where you have advantage and side-step situations in which you do not. You must exploit your rivals’ weaknesses and avoid leading with your own.

  1. Dynamics

Dynamics are waves of change that roll through an industry. They are the net result of a myriad of shifts and advances in technology, cost, competition, politics, and buyer perceptions. Such waves of change are largely exogenous – that is, beyond the control of any one organization. If you can see them coming, they are like an earthquake that creates new high ground and levels what had previously been high ground, leaving behind new sources of advantage for you to exploit.

  1. Inertia

Inertia is an organization’s unwillingness or inability to adapt to changing circumstances. As a strategist, you can exploit this by anticipating that it will take many years for large and well-established competitors to alter their basic functioning. For example, Netflix pushed past Blockbuster because the latter could or would not abandon its focus on retail stores.

  1. Entropy

Entropy causes organizations to become less organized and less focused over time. As a strategist, you need to watch out for this in your organization to actively maintain your purpose, form, and methods, even if there are no changes in strategy or competition. You can also use it as a weakness to exploit against your competitors by anticipating that entropy will creep into their business lines. For example, less focused product lines are a sign of entropy. GM’s car lines used to have distinct price points, models, and target buyers, but over time entropy caused each line to creep into each other and overlap, causing declining sales from consumer confusion.

Helmer's 7 Powers

  1. Scale Economies
  2. Network economies
  3. Counter-positioning
  4. Switching costs
  5. Branding
  6. Cornered resource
  7. Process power