The Litmus Test of Good Strategy

Issue 40

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Good morning,

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One Lesson from War around Strategy

What would happen if two armies fighting a war employ the same plan?

It’s a good hypothetical question to start thinking about strategy. One of them will lose, and the war will be the costliest one in terms of lives and resources lost. Costliest because the same plan from both sides ensures the maximum damage on both sides.

The rational decision there is to not wage a war if both have the same plan. If the war is unavoidable, come with a different plan so that you can win fast with minimal damage. As Sun Tzu notes in The Art of War

“Supreme excellence consists of breaking the enemy's resistance without fighting.”

From War to Business

References to strategy in the business world were rare before 1960. The references in business started to take off during the 1970s and by 2000 became more frequent than references to military strategy.

In the context of war, the strategy used to mean the Army General’s knowledge and plan. For example, Napoleon is usually considered a genius of strategy in war.

He continually defeated much larger enemy forces using “La manoeuvre sur les derrières.” The translation for the phrase would be “move onto the rear”.  Napoleon disliked having a full frontal battle. Instead, he divided his men into two armies. The smaller one attacked from the front. He then marched his main army through the quickest safe route to place it on the rear end of the enemy army. Once they reached the rear end, the army occupied a natural barrier (usually a river line or mountain range), and ordered the blocking of all crossings. In those days, the armies were dependent on reinforcements like food supplies and more men from allies present in the rear end. The enemy army would be taken by surprise and will be demoralised by the sudden appearance of the enemy army in its rear. This also cut any communication for reinforcements from the rear.

La manoeuvre sur les derrieres was employed no less than thirty times between 1796 and 1815. It was successful because the other armies didn’t employ this methods.

In the modern business context, companies also have to build a strategy so that it is different and more effective from the competition. Two companies with the same strategy in the same market would lead to suboptimal results for both the companies. That is often a bad strategy in itself.

Is there a simple way to know whether the strategy is good or bad?

The Litmus Test of Strategy

The test to apply is quite simple. It is the one Roger Martin wrote about in his book ‘Playing to Win’.

I look at the core strategy choices and ask myself if I could make the opposite choice without looking stupid.

Let me explain: If the opposite of your core strategy choices looks stupid, then every competitor is going to have more or less the exact same strategy as you. It’s similar to two armies have the same plan for war. Suppose you are opening a finance company whose strategy is to target people with good credit scores and provide them loans. The opposite of this strategy looks stupid — why would someone target people with low credit scores to provide loans?

Let’s pick another example of something we have all seen at one point or another — strong execution. Companies often say that strong execution is their strategy. But the opposite of strong execution is weak execution. No company is going to pick weak execution as their strategy as it’s stupid. Hence it doesn’t pass the litmus test of good strategy.

What’s an example of a good strategy?

In 1998 when Steve Jobs returned back to Apple, Prof Rumelt (author of Good Strategy, Bad Strategy) had a chance to ask Jobs “What is the strategy of Apple?” Jobs responded simply “I am going to wait for the next big thing.”

Rumelt found this a very different answer. Everywhere he went and everyone he talked to just told the same clichés about their strategy — operational efficiency, adopt best practices, solid management, etc.

Rumelt writes about this in his book Good Strategy Bad Strategy:

Jobs did not enunciate some simple-minded growth or market share goal. He did not pretend that pushing on various levers would somehow magically restore Apple to market leadership in personal computers. Instead, he was actually focused on the sources of and barriers to success in his industry—recognizing the next window of opportunity, the next set of forces he could harness to his advantage, and then having the quickness and cleverness to pounce on it quickly like a perfect predator. There was no pretense that such windows opened every year or that one could force them open with incentives or management tricks. He knew how it worked. He had done it before with the Apple II and the Macintosh and then with Pixar. He had tried to force it with NeXT, and that had not gone well. It would be two years before he would make that leap again with the iPod and then online music. And, after that, with the iPhone.

Steve Jobs’s answer that day—“to wait for the next big thing”—is not a general formula for success. But it was a wise approach to Apple’s situation at that moment, in that industry, with so many new technologies seemingly just around the corner.

Another example of good strategy is Google making Android open source in 2008, rather than employing Apple’s method of building their own OS and smartphone. This gave Android the ample reach (85% user share) in smartphone market and today Google makes billions of dollars from play store revenue.

If it’s that easy, why won’t everyone do it?

So why doesn’t everyone make a good strategy? The literature is out there for everyone.

The reason is that good strategies can be wrong. And we don’t want to be wrong. It is safer to follow an approach that is already working for someone and makes sense to everyone. We’re playing not to lose rather than playing to win. We seek consensus as it’s safe.

Consensus, by definition, fails the litmus test because if it’s obviously good to everyone, the opposite of it is often stupid.

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Have a good day,

Deepak