20-odd years ago, when I had just started my strategy career, I read an interesting Harvard Business Review article by Kathleen Eisenhardt (a Stanford Professor) and Donald sull (an MIT Professor). The article's title is "Strategy as Simple Rules," and the authors argued that Internet companies could benefit by adopting a set of simple rules as their strategy.
I thought the idea was only applicable to internet companies at that time. After all, the article was published under the "IT Management" category. And the idea of how to win by adopting simple rules seemed irreconcilable with the prevalent strategy theories of that time:
The position-oriented view of Strategy: How to win by establishing a unique, valuable position in the market.
The resource-based view of Strategy: How to win by exploiting unique, valuable, and inimitable resources.
Then, I couldn't see the big picture of Strategy nor the connection between strategy concepts. Therefore, I failed to see that each view is simply a facet of the same challenge. So, I never give the article proper attention.
Fast forward 20-something years later, I can now see the big picture of Strategy after experiencing much sweetness and bitterness in this field of Strategy. I have come to believe that Winning Strategy is simple. As I strive to promote simplicity in Strategy, I have created the GOSPEL approach to Strategy, designed to help people create and implement winning strategies.
Looking back at the old article again, I appreciated that although many of the examples are outdated already, the underlying principles are still enduring (as I always say, the principles of Strategy are timeless). Furthermore, I came to realize that the principles apply to non-Internet companies too.
The underlying principles of Strategy are enduring, regardless of technology or the pace of change. -Michael Porter, the Father of Modern Strategy
Article from Harvard Business Review.
In this post, I would like to distill the underlying principles within the article "Strategy as Simple Rules" and reflect on their relevancy today.
Idea #1: Strategy as Simple Rules is beneficial.
Idea #1.1: In the fast-moving economy of today, people need to be able to adapt while still heading toward the intended goal. The best way to do so is not via elaborate strategies but via a handful of simple rules (as your strategy).
Idea #1.2: People in business have a thousand choices a day. Strategy is deciding which one to do. And simple rules can help people to decide in a single direction, hence concentrating the company's effort and giving it the mass needed.
Idea #1.3: Strategy as simple rules isn't about avoiding hard work. Instead, it is about helping the company's people cut through the chaos and gain clarity on what to do. Therefore, it is a disciplined approach.
Idea #2: Strategy as Simple Rules must be based on the company's Internal and External factors.
Idea #2.1: All effective strategies are unique to the company. You cannot copy other companies' simple rules and expect the same result. Like any effective strategy, simple rules need to be crafted based on analyses of the company's external and internal factors. You cannot escape the GOSPEL Steps.
Idea #2.2: Internally, in every business, there are a small number of strategically significant processes. An effective strategy, therefore, focuses on these processes, as they are where it matters the most. Strategy as simple rules then focuses on creating a handful of unique rules to guide these strategically significant processes. Then, managers can make decisions based on these rules.
Idea #2.3: A company's particular combination of external opportunities and constraints often dictates its chosen processes. Therefore, Strategy as simple Rules is about creating rules to address the company's biggest external challenges.
Idea #3: Strategy as Simple Rules does have significant impacts on companies' performance.
Idea #3.1: Like all effective strategies, Strategy as simple rules is about being different. Focus on creating rules that differentiate you from the competitors in a meaningful way.
Idea #3.2: The company's culture and behavior can change just by introducing a simple, radical rule. For example, Autodesk introduced a new rule that NPD Must be completed within 3 months (vs. previously 24 months). That changed the pace, scale, and logic with which Autodesk tackled technology opportunities.
Idea #3.3: People in business often equate processes with detailed routines. They tend to overcomplicate and miss the notion of simple rules. Yet, Simple rules are essential because they provide both structure and flexibility, allowing the company to capture the best opportunities in the midst of chaos and complexity.
Idea #4: Pay attention to the rules created.
Idea #4.1: Once the high-level rules are created, they automatically create implications / sub-rules, whether implicitly or explicitly defined. Therefore, think through the implications before you create the rules.
Idea #4.2: Simple rules of Strategy fall into five broad categories, i.e.,
How-to rules (How do we execute this process/ what makes us unique?
Do/Don't rules (what we will do and won't do?)
Priority rules (what do we prioritize when constraints hit?)
Threshold rules (will only do it if it meets the time/financial threshold)
Kill rules (when to stop pursuing an opportunity/ exit an initiative).
Idea #4.3.: Simple rules of Strategy cannot be:
Vague /Broad, e.g., "We do things the correct way." What exactly do you mean by correct? Or consider "We encourage innovation," what does that mean? Vague rules aren't helpful. The rules must be specific and tied to a single process, such as all customer complaints must be solved within 24 hours.
Useless, e.g., "We only invest in profitable projects." Who in the right mind will invest in money-losing projects? A better rule is "All projects need to pay back the initial investments within 12 months of investment."
Stupid, e.g., "We will only partner with small and weak companies so that we can control the partnership." What if partnering with a big company can generate significant returns — will we forgo the opportunity? Or consider this rule "Everything must be approved by CEO personally." It may work well for a small company, but certainly not feasible in big companies without wasting time and potential.
Outdated, e.g., "We only work with suppliers offering a 6-month payment term." The rule is useful when a company has a liquidity issue. But once the company solves the issue, the rule becomes an irrelevant constraint that unnecessarily limits the pool of suppliers with which the company could work.
Idea #4.4: Too many rules can be paralyzing. People cannot keep up with the number of rules. Similarly, too few rules also can paralyze. People don't have enough guides to decide. So, strive for 3-7 rules per key process.
Big companies usually have too many rules. They need to throw out massively complex procedures and stare over with a few easy-to-follow rules.
Small companies usually have too few rules. They need more rules to provide more structure.
The ideal number of rules also shifts over time depending on internal and external factors. When the market is fast-changing, have fewer rules to adapt quicker (exploration mode). When the market is stable, have more rules to exploit faster (exploitation mode).
Idea #5: Once created, you must commit to the simple rules – unless there are clear reasons not to.
Idea #5.1: It is important for companies with simple-rule strategies to follow the rules religiously. This is why we call them rules, not optional Suggestions. An effective strategy is a strategy that is followed.
Idea #5.2: It is important to avoid the temptation to change the rules frequently. A consistent strategy help managers to rapidly make choices, deliver the Strategy, and achieve the strategic goals.
Idea #5.3: Although it's unwise to change strategies/churn the rules, strategies do go stale. Sometimes you need to change the rules. Sometimes you even need to change the key processes,
In sum, Strategy as simple rules is powerful because it establishes a strategic frame, not a detailed recipe. As a result, from top to bottom, the people in the company can use the rules in their day-to-day executions. This is especially advantageous in the complicated, fast-moving environment we are living in today. Therefore, when business becomes complicated, Strategy should be simple.
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