First, spot the similarities. Over time, the strategies of incumbents tend to converge. A useful exercise is to overlay the business models of companies in the same industry and then look for areas of overlap. Wherever you see competitors doing the same thing, ask yourself, “What’s the shared assumption behind this policy or practice?” and then, “What would happen if we challenged that belief?” For centuries, innkeepers assumed you had to own rooms to offer guests a bed for the night. Airbnb inverted this belief and now has more than six million listings across the world.

Second, focus on what hasn’t changed. What aspects of your strategy have remained stagnant for years or decades? Over time, legacy practices, like wallpaper, become invisible. Your job is to question whether those 12 13 taken-for-granted practices still make sense. For example, though it endured a lot of pushback from traditional carmakers, Tesla challenged the long-held practice of selling cars through independent dealers. The company’s sleek stores, often located in luxury shopping venues, offer customers a hassle-free buying process. Tesla understands that the best orthodoxies to challenge are those that degrade the customer experience.

Third, go to extremes. Pick some parameter of performance—price, choice, availability, speed—and ask what would happen if we aimed for a 10X improvement? Fifty years ago, a retired physician, Dr. Govindappa Venkataswamy, launched an epic quest to eradicate unnecessary blindness in India. Millions of his compatriots had cataracts but couldn’t afford corrective surgery. How, Dr. V. wondered, could he reduce the cost of surgery by 90 percent or more? For inspiration, he looked at the fast-food industry. “If McDonald’s can sell millions of burgers,” he thought, “why can’t [we] sell millions of sight-restoring operations?” Today, Dr. V.’s network of specialty hospitals, the Aravind Eye Care System, performs half a million cataract surgeries annually.

During that QBR we discussed to what lengths we should go to in order to remain flexible. I provided some pre-reading that showed how bad we had been at predicting our growth in the past and how the best opportunities often can’t be predicted. We had breakout discussions looking at past cases where we could have paid more for an option that increased future choice or less for an option that reduced flexibility. We debated just how much flexibility we needed in our business and how much we should be ready to pay for it.

Those conversations didn’t lead to a clear conclusion or rule, but through the debates all our leaders became clearly aligned on the idea that preventing errors or saving money with long-term plans is not our primary objective. Our North Star is building a company that is able to adapt quickly as unforeseen opportunities arise and business conditions change.

The Heart of Strategy:

Where to play is about understanding the possible playing fields and choosing between them. It is about selecting regions, customers, products, channels, and stages of production that fit well together—that are mutually reinforcing and that marry well with real consumer needs. Rather than attempt to serve everyone or simply buy a new playing field or accept your current choices as inevitable, find a strong set of where-to-play choices.”

(Lafley and Martin, “Playing to Win”, p.72) “WHERE-TO-PLAY DOS AND DON’TS:

• Do choose where you will play and where you will not play. Explicitly choose and prioritize choices across all relevant where dimensions (i.e., geographies, industry segments, consumers, customers, products, etc.).

• Do think long and hard before dismissing an entire industry as structurally unattractive; look for attractive segments in which you can compete and win.

• Don’t embark on a strategy without specific where choices. If everything is a priority, nothing is. There is no point in trying to capture all segments. You can’t. Don’t try.

• Do look for places to play that will enable you to attack from unexpected directions, along the lines of least resistance. Don’t attack walled cities or take on your strongest competitors head-to-head if you can help it.

• Don’t start wars on multiple fronts at once. Plan for your competitors’ reactions to your initial choices, and think multiple steps ahead. No single choice needs to last forever, but it should last long enough to confer the advantage you seek.

• Do be honest about the allure of white space. It is tempting to be the first mover into unoccupied white space. Unfortunately, there is only one true first mover (as there is only one low-cost player), and all too often, the imagined white space is already occupied by a formidable competitor you just don’t see or understand.

In my book The End of Competitive Advantage, I suggest several early warning signs that an advantage is likely to be on the decline. How many of these do you think your organization’s leaders would be likely to agree with?

• I don’t buy my own company’s products or services. 

• We are investing at the same levels or even more but not getting margins or growth in return. 

• Customers are finding cheaper or simpler solutions that are “good enough.”

• Competition is emerging from places we didn’t expect. 

• Customers are no longer excited about what we have to offer. 

• We are not considered a top place to work by the people we would like to hire. 

• Some of our very best people are leaving. 

• Our stock is perpetually undervalued. 

• Our technical people (scientists and engineers, for instance) are predicting that a new technology will change our business. 

• We are not being targeted by headhunters for talent. 

• The growth trajectory has slowed or reversed. 

• Very few innovations have made it successfully to market in the last two years. 

• The company is cutting back on benefits or pushing more risk to employees.

• Management is denying the importance of potential bad news.

If one has not internalized the concept of quality matching and the problems of change in chain-link systems, then Marco’s explanation of his actions may seem banal—he identified the three problems and worked on them in turn. But if one has these concepts, then Marco’s statement is dense with meaning.

The first logical problem in chain-link situations is to identify the bottlenecks, and Marco did that—quality, sales’ technical competence, and cost. The second, and greatest, problem is that incremental change may not pay off and may even make things worse. That is why systems get stuck. Marco’s solution to this problem was to take personal responsibility for the final result and direct others’ attention to the three bottlenecks, one after another…

… Marco avoided this problem by shutting down the normal system of local measurement and reward, refocusing on change itself as the objective…

Instead, Marco described a turnaround in which he provided the overall definition of what had to be done and in which he anticipated and absorbed the costs of change. In any organization there is always a managed tension between the need for decentralized autonomous action and the need for centralized direction and coordination. To produce a turnaround of a chain-link system, Marco Tinelli tipped the balance, at least for a while, strongly toward central direction and coordination.