Strategy as simple rules

Strategy as Simple Rules

Ref: Kathleen M Eisenhardt/ Stanford&

Donald N Sull/ Harvard

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•Annual Sales growth >.> 200%

Profits High

Unattractive Industry Structure

Intense rivalryInstant imitatorsFew barriers to entryCustomers refuse to pay anything

•4 Prod Innovation Rules

• Know priority rank of each prod.

•Every engr can work on every proj.

•Maintain Y! look in user interface

•Launch products quietly

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Don’t meet complex markets with complex strategies

Instead, use a few concrete simple rules to grab the hottest opportunities.

Strategy consists of the unique set of strategically significant processes and the handful of simple rules that guide them.

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The Payoff:Simple rules make any

company nimble and flexible enough to capture fleeting but profitable opportunities that others miss

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Picking Your Profit Channel - RxPick your key strategic

processes that place your company where the flow of opportunities is the swiftest and deepest. e.g., branding, partnering, M&A

- then guide those processes with a few concrete, specific rules that define direction without confining it.

Success Stories:Yahoo!Autodesk (software for design)Akamai (internet technologies)CiscoIntelNortel NetworksOticon

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Consider following Business Processes. Which could you use to impose structure on chaotic markets? How would your current operations change?

R & DProduct InnovationProduction & ManufacturingBrandingNew Market EntryCustomer ExperiencePartnering

M & ASpinoutsRisk ManagementHiring & Firing TalentManagement DevelopmentSales & Marketing+++

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Product Innovation Process

No time todev n/wtechnologies

Tech richCash poor Power Brand

Looking formore content& commerceopportunities

Acquisitions Spinouts OrganicGrowth

Partnerships

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Five Kinds of Rules(Judgment heuristics – decision making short-cuts to cope with complexity and uncertainty)

How-to Rules

Boundary Rules

Priority Rules

Timing Rules

Exit Rules

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Example

Autodesk maker of software for design professionals, faced plateauing growth in the mid-1990s.Suspecting that its technologies offered prime growth opportunities, it focused anew on its product innovation process, but with a new simple rule:

product-development time had to radically

decrease from 24 months to 3 months.

-------------------------------- Stock price tripled and

strategic flexibility expanded.

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1. How-to Rulesdefine how to distinctively execute your key processes

Example

Akamai the internet technologies co, has defined 3 rules to guide its customer care process:Staff must consist of tech gurusCustomer service reps must answer questions on first call or emailR&D staff must rotate through customer service

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2. Boundary Ruleshelp you quickly decide which opportunities to pursue

Example

When CISCO chose acquisitions as a key process, its first boundary rule was:

Acquire only companies with no more than 75 employees, 75% of whom are engineers.

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3. Priority Ruleshelp you quickly rank competing opportunities.

Example

Intel allocated manufacturing capacity to products based on products’ gross margins.

(Resource Allocation Process) That rule helped Intel shift into the nascent,

highly profitable microprocessor niche.

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4. Timing Rulessynchronize you with the pace of emerging opportunities, as well as with other parts of your company.

Example

At Nortel Networks rules for Product Development are:

know when a product must be delivered to win leading customers

complete product development in under 18 months.

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5. Exit Rulesdiscipline you to pull the plug on yesterday’s opportunities

Example

Oticon kills projects in development if a key team member leaves for another project within the company.

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The Number of Rules Matters

Too many rules are paralyzing; too few confusing.

Aim for 2 to 7 rules, shifting the number as appropriate.

In predictable markets, use more rules to increase efficiency. In turbulent markets, use fewer rules to increase flexibility.

ExampleCisco added five rules to its 75 people/ 75% engineers rule, when

its market became more focused, including: potential acquisitions must share Cisco’s vision of where the industry is headed and must have a compatible culture.

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3 Approaches to Strategy

Position

Resources

Simple Rules

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Strategic Logic

Position Resources Simple Rules

Establish position Leverage resources

Pursue opportunities

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Strategic Steps


Identify an attractive market

Locate a defensible position

Fortify and defend

Establish a vision Build resources Leverage across

markets

Jump into the confusion

Keep moving Seize opportunities Finish strong

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Strategic Question


Where should we be?

What should we be? How should we proceed?

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Source of Advantage


Unique, valuable position with tightly integrated activity system

Unique, valuable, inimitable resources

Key processes and unique, simple rules

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Works Best In


Slowly changing, well structured markets

Moderately changing, well structured markets

Rapidly changing, ambiguous markets

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Duration of Advantage/ Risk


Sustained----------------------------It will be too difficult to alter position as conditions change

Sustained---------------------------Company will be too slow to build new resources as conditions change

Unpredictable----------------------------Managers will be too tentative in executing on promising opportunities

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Performance Goals


Profitability Long-term dominance

Growth

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Position

Strategic Logic Establish positionStrategic Steps Identify an attractive market. Locate a defensible

position. Fortify & defend.Strategic Question Where should we be ?

Source of Advantage Unique, valuable position with tightly integrated activity system

Works best in Slowly changing well structured marketsDuration of Advantage Sustained

Risk It will be too difficult to alter position as conditions change

Performance goal Profitability

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Resources

Strategic Logic Leverage resourcesStrategic Steps Establish a vision. Build resources. Leverage across

markets.Strategic Question What should we be ?

Source of Advantage Unique valuable inimitable resources

Works best in Moderately changing,well structured markets

Duration of Advantage Sustained

Risk Company will be too slow to build new resources as conditions change.

Performance goal Long term dominance

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Simple Rules

Strategic Logic Pursue opportunitiesStrategic Steps Jump into confusion. Keep moving. Seize

opportunities.Finish strong.Strategic Question How should we proceed ?

Source of Advantage Key processes and unique simple rules

Works best in Rapidly changing ambiguous markets.Duration of Advantage Unpredictable

Risk Managers will be too tentative in executing on promising opportunities

Performance goal Growth

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What Simple Rules are Not

Broad

Vague

Mindless

Stale

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How Rules are Created

Clever thinking

Experiences

Mistakes

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Company Acquisition Process: RulesSame strategic process; same emphasis on seizing fleeting opportunities;same superior wealth creation – but totally different simple rules.

Ispat Buying established,state-

owned companies that have problems.

No geographic restrictions Limited to two technologies:

DRI & Electric Arc Furnaces Costs can be cut from

current operations

Cisco Buying young well run VC

backed companies Close to home New technologies Revenue gains from future

products