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6 Principles of Strategy

When Mike Tyson said, Everybodysgot plans until they get hit, everyone knew intuitively

what he meant. Simply having a strategy is no guarantee of success.

Napoleon had a strategy till the Russian winter exposed its flaws. Pompey had a strategy until

Caesar outfoxed him. The best laid plans are often laid asunder by the quirks of an uncertain and

uncaring universe.

Winning, after all, isnt a simple matter of merit, but one that is subject to the idiosyncrasies of

chance and circumstance. So what to do? How can we pursue a purpose with vigor andmeaning when we can never be certain about what fate has in store for us? Here are six

principles that will help guide you on your way.

1. Parsimony

When Steve Jobs came up with the idea for the iPod, it was 1000 songs in your pocket.Herb

Kellehersvision forSouthwest was to be THE low cost airline. The iPod became the most

successful consumer product of all time and Southwest has had 38 profitable years in an industry

strewn with bankrupcies.

Both are simple, elegant ideas. However, what really made the difference wasnt the initial

conception, but what happened (or didnt happen afterwards). Jobs and Kelleher understood that

subtraction is more powerful than addition.

Jobs didnt push for a launch date, but waited until a hard drive that could perform the task

became available (it took about a year). Kelleher didnt adopt the tactics of his competitors, even

when they were successful, if they would undermine his cost advantage.

http://www.digitaltonto.com/2011/the-artist-and-the-engineer/http://en.wikipedia.org/wiki/Herb_Kelleherhttp://en.wikipedia.org/wiki/Herb_Kelleherhttp://en.wikipedia.org/wiki/Herb_Kelleherhttp://en.wikipedia.org/wiki/Herb_Kelleherhttp://en.wikipedia.org/wiki/Herb_Kelleherhttp://en.wikipedia.org/wiki/Herb_Kelleherhttp://www.digitaltonto.com/2011/the-artist-and-the-engineer/

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In other words, they followedOccams Razor, also known as the principle of parsimony, which

states that entities must not be multiplied beyond necessity. In other words, dont add stuff

unless you really need to. When in doubt, leave it out!

2. Rigor

The bugbear of strategy is confirmation bias. Once we get an idea in our heads, it tends to stay

there. Worse, well tune into information that tends to support it and tune out data that

contradicts it. As Solomon Asch showed with his conformity experiments, the problem only gets

worse when a group of people believe the same thing.

Whats really essential is to ask, what do I think I know and why do I think I know it. As

Richard Feynman once said, The most important thing is to not fool yourself, because you are

the easiest one to fool. Dont believe everything you think.

Thats why its always better to do strategy in Excel, rather than PowerPoint. Headlines and

snazzy charts might be easier to digest, but they represent opinions, not facts. You cant test

assumptions or apply statistical filters. If you are merely following the zeitgeist, you are really

just operating in the dark.

3. Small and Scalable

Great strategies, like great innovations, start out small. They take advantage of one specific

phenomenon. Like the fact that data storage efficiency doubles every year (i.e. Dropbox) or that

links to a web page imply authority (i.e. Google). True insights are elegant, they tease the

greatest possible truth out of the fewest possible statements.

Yet they are not small minded, they have the power to grow. Googles PageRank wasnt unique

or extraordinary, in fact, many believe Jon Kleinbergs HITS algorithm, conceived at about the

same time, was superior. What made Google great wasnt the sudden flash of insight, but how

they built on it.

So an obscure algorithm eventually became a quest to organize the worlds information. A

small idea, in fact one that very few people understood at the time, became immeasurably

big. Moreover, it did so without losing the kernel out of which it sprung.

4. Disruptive or Sustaining

In his groundbreaking book,The Innovators Dilemma, Harvard professorClayton

Christensen identified two types of innovations, disruptive and sustaining. A disruptive

innovation creates a new business model while a sustaining innovation makes an existing model

work better.

While every company needs to do a bit both, its crucial to identify which type of innovation is

primary for a particular business strategy.

http://en.wikipedia.org/wiki/Occam%27s_Razorhttp://en.wikipedia.org/wiki/Occam%27s_Razorhttp://en.wikipedia.org/wiki/Occam%27s_Razorhttp://en.wikipedia.org/wiki/Confirmation_biashttp://en.wikipedia.org/wiki/Solomon_Aschhttp://en.wikipedia.org/wiki/Asch_conformity_experimentshttp://www.digitaltonto.com/2010/what-do-you-think-you-know-and-why-do-you-think-you-know-it/http://en.wikipedia.org/wiki/Feynmanhttp://www.digitaltonto.com/2011/5-principles-of-innovation/http://en.wikipedia.org/wiki/HITS_algorithmhttp://www.amazon.com/gp/product/0060521996/ref=as_li_ss_tl?ie=UTF8&tag=digitont-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0060521996http://www.amazon.com/gp/product/0060521996/ref=as_li_ss_tl?ie=UTF8&tag=digitont-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0060521996http://www.amazon.com/gp/product/0060521996/ref=as_li_ss_tl?ie=UTF8&tag=digitont-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0060521996http://www.claytonchristensen.com/http://www.claytonchristensen.com/http://www.digitaltonto.com/2009/what-is-disruptive-innovation/http://www.digitaltonto.com/2009/what-is-disruptive-innovation/http://www.digitaltonto.com/2009/what-is-disruptive-innovation/http://www.digitaltonto.com/2009/what-is-disruptive-innovation/http://www.claytonchristensen.com/http://www.claytonchristensen.com/http://www.amazon.com/gp/product/0060521996/ref=as_li_ss_tl?ie=UTF8&tag=digitont-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0060521996http://en.wikipedia.org/wiki/HITS_algorithmhttp://www.digitaltonto.com/2011/5-principles-of-innovation/http://en.wikipedia.org/wiki/Feynmanhttp://www.digitaltonto.com/2010/what-do-you-think-you-know-and-why-do-you-think-you-know-it/http://en.wikipedia.org/wiki/Asch_conformity_experimentshttp://en.wikipedia.org/wiki/Solomon_Aschhttp://en.wikipedia.org/wiki/Confirmation_biashttp://en.wikipedia.org/wiki/Occam%27s_Razor

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Disruptive technologies dont work as well by conventional standards, but change the basis of

competition. A strategy based on disruptive innovation needs to find a new market among light

or non consumers who value different things than existing customers. Research means very little

for disruptive strategies.

Sustaining innovations improve performance by conventional standards, but can be vulnerable tochanges in the basis of competition. They respond to the needs of existing customers and are

therefore heavily dependent on a well researched marketplace.

If you cant identify what kind of strategy your business is based in, you wont know which

tactics will help you achieve your goals.

5. Adaptation

No industry is static. Every business eventually gets disrupted and successful disruptive

technologies become market standards which need to be optimized through sustaining

innovations. As the business environment changes, business strategy needs to adapt.

Tim Kastelle makes the point vividly in this post about Kodak. While their industry was being

slowly disrupted, they continued to improve their existing products. It wasnt because they

didnt understand digital photography. In fact, they were pioneers in the technology. Their

problem was that they were so focused on their existing customers they failed to recognize a

nascent opportunity.

Apple, on the other hand, has become the worlds most valuable company by recognizing when

disruptive technologies are ripe for improvement. They didnt invent the first digital music

player, the first smart phone or the first tablet computer, but they came in and made thoseproducts a whole lot better.

6. Organizational Viability

In every industry there are highly successful companies with widely divergent strategies. Coke

and Pepsi, Microsoft and Apple, Fox and CNN. While a companys history doesnt determine its

future, it does determine how a strategy can be introduced.

When IBM decided to make the PC, they understood that it would die in their organization. A

business based on manufacturing and selling large ticket items to major corporations just isnt

set up to build consumer products.

Understanding the dilemma, IBMs management moved development of the PC to a new design

unit in Boca Raton, Florida. There, they did things that would have been an anathema to the old

organization.

http://timkastelle.org/blog/2012/01/lessons-from-kodaks-s-curve-problems/http://timkastelle.org/blog/2012/01/lessons-from-kodaks-s-curve-problems/

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They used off the shelf components rather than designing everything themselves and

developed an open architecture that let third parties add to and improve the product. The

result: they launched one of the most successful products in history within a year.

So those are my 6 principles of strategy. If you have one I missed, Id love to hear about it in

the comments below.