Top CEOs make good decisions just over half the time. You can do better.

Posted on July 22, 2021 by harborcapitalgroupinc

Based on research conducted by McKinsey and Company, about 52% of decisions made by senior CEOs end up being good decisions. I would have guessed that number to be much higher. These are some of the most intelligent people in business, yet this is only slightly better than flipping a coin.

We can all remember some of the spectacularly wrong decisions. Remember, “New Coke” lasted 79 days before being taken off the market. Or how about Ford’s Edsel car, which cost them 350 million dollars, was researched by many focus groups and then was shut down after 24 months.

As a business leader, you have to make many decisions under pressure and often without much time to think about them. So, how do you become a decision-maker that makes good decisions?.

You can read many books and articles that offer reasons why people make bad decisions and other books and articles on advice and models of making good decisions. Here are some examples from Jack Zenger in a Harvard Business Review article.

Laziness; failure to gather input or check facts

Not anticipating unexpected results

Indecisiveness (little information or changing information)

Remaining locked in the past and using old data that may not be true today

Having no strategy alignment, meaning not being connected to the problem or strategy

Over-dependence on other people’s decisions

Isolation by not drawing in other’s opinions

Lack of technical depth

Others offer advice on setting up a model for decision-making. For example:

Define the problem (with clarity)

Identify the decision criteria

Develop the alternatives

Evaluate alternatives

Select the best alternatives

Here are a few thoughts from people we know are excellent decision-makers:

Colin Powel said never make a decision with less than 40% of the information you need, and never delay a decision once you have 70 percent of the information you think you need,

Steve Jobs would talk to his employees about a problem or opportunity and make an intuitive decision.

Daniel Kahneman (author and professor) wrote a book on how we use our brains to think. In his excellent book, “Thinking Fast and Slow,” he talks about our fast brain, which gives us an immediate answer (there is a tiger in the bushes), and our slow brain, which provides us with an in-depth explanation based on all the information our brain has stored over time.

But in the past few years, there is another way to think about decision-making based on our perceptions.

Decision Making Based On Preceptions

We can look at decision-making from two perspectives: processing and perceptions.

Processing is like putting all the ingredients together to make a meal. When we have the information, we have developed excellent methods for processing that information, including the following:

Mathematics

Statistics and probabilities

Computers and data processing

The production of the ingredients– for information processing– is the role of perception.

It is a perception that organizes the world into Xs and Ys and then processes it with mathematics.

It is a perception that gives us the observations for propositions that we then handle with logic.

It is a perception that provides us with the words which we use to think about anything.

We have developed great processing systems, but we have done very little about perception because we have not understood perception.

It’s only recently that we have begun to understand the behavior of self–organizing information systems and self-organizing neural networks of our brains. This gave us the model to understand perception, humor, and creativity.

Creativity takes place in the perceptual phase of thinking, where we form perceptions and concepts. According to author Edward De Bono, Most of the mistakes in thinking are inadequacies of perception rather than mistakes of logic. Our emphasis has been on logic or truth rather than perception. With perception, we do not see the world as it is but as we perceive it and process this information over time.

An example of perception vs. processing

A group of young boys decided to pick on Johnny, one of the younger boys. They offered him two coins, a large coin worth two dollars and a smaller coin worth one dollar. Johnny picked the smaller coin, and the boys all laughed and teased him. They repeated this “trick” on Johnny several times.

One day, an older man saw this and asked Johnny why he chose the smaller coin worth a dollar vs. the larger coin worth two dollars. Johnny’s response was. “how often would I have been offered more coins if I had taken the two-dollar coin initially?”

A computer programmed for value would have taken the two-dollar coin the first time. But it was Johnny’s human perception that allowed him to take a broader view and consider the possibility of repeat business.

This example was a complex example of clear perception; Johnny had to assess how often his friends would want to tease him, how many one-dollar coins they would be willing to lose, and how long before they realized what he was up to? There was also the risk factor involved here.

This example shows the difference between a computer and a human. The computer is given its perceptions and then processes the information. The human mind forms its perceptions by choosing to look at the world in a particular way.

However, we end up in our perception bubble — our own bias.

The logic bubble is that personal bubble of perceptions within which each person acts logically. The logic is correct, but if the perceptions are limited or faulty, the resulting action may be inappropriate.

Here is one way to broaden your perspective

Scan the plus points.
Then, the minus points.
And finally, the interesting facts.

Here is another story from Edward DeBono to illustrate this process. A class of 30 boys was offered the option of getting 5 dollars a week to attend school, and 29 of the 30 boys opted in. Then, in step two, the boys asked if the 5 dollars would have to be returned if their school work was unsatisfactory. The answer was yes. So, in step three, they all changed their minds.

The comfort of logic vs. perception

We have always felt uncertain with perception and preferred processing logic. However, to make better decisions, we need to expand our view to see additional options. In the end, however, we have to come back to the world of logic to present ideas that are solid, workable, and of testable value.

But, our perception is also biased because we live in our own bubble. Therefore, we have to broaden our bubble to include, as much as possible, the perceptions of other people in our life, industry, market, and competitors to get the broadest possible perception of “what could be” before we make that decision.

Broadening your worldview is critical to making great decisions. Ask yourself, What other perceptions are out there that we could use to our advantage?

To make impactful, lasting decisions that move your company forward, you have to look at a broader picture than simply accepting information and processing it.

How To Get Significantly Better Results In Less Time

Posted on July 14, 2021 by harborcapitalgroupinc

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Get Better Results In Less Time

No one has enough time, especially business executives.

We always try to do more, learn more, and produce more.

But there are only 1,440 minutes in a day, and no one gets more time, no matter who they are.

But there are ways to get much more done and better if you know how to use your time correctly.

Start by asking yourself these questions.

What do I love doing?

What is my expertise?

What do I hate doing?

What do I do that isn’t a priority?

Here is the first step if your goal is increased productivity and faster results.

Get rid of the jobs you hate to do and those that are not a priority.

If you hate doing them, you are probably not very good at them either.

Plus, they take more time than they should. Time is not a renewable resource.

Maybe someone in the company loves that kind of work and would be happy to do it.

If not, hire someone from the outside to do it. That’s probably less expensive than you doing it.

You have just saved time and used it on higher priority projects like driving revenues and profits.

Wait, there is another way to use your time more effectively.

What if you closed your office door, turned your phone and email off, and told people not to disturb you for three or four hours.

The result would be no interruptions, no time-sucking chit-chat, no distractions from emails that were not critical, and more.

Imagine four hours free of disruption –every day –what you could accomplish with that much extra time.

I’ll bet significantly more than twice as much.

Conclusion

Now, you can focus on the priority jobs where you have the expertise.

That’s how you become an exceptional leader that gets results.

Jim Zitek

Harbor Capital Group

P.S. Check out our website for more information on how to get results

P. P.S.It’s a short week so I made this short to save you time 🙂

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How Much Will People Pay For Your New Product?

Posted on May 27, 2021 by harborcapitalgroupinc

How Much Will People Pay For Your New Product?

Most people believe their new product or service idea is a huge winner. But, to be sure, they tell some friends about the idea and ask what they think. Their friends, of course, have no idea but don’t want to hurt their feelings or be unnecessarily pessimistic. So they generally give a positive response to the idea.

That is the wrong approach.

Based on Rob Fitzpatrick’s experience as an entrepreneur, and several failing startups, he realized there was a better way

and wrote a book titled, “The Mom Test.” that solved his problem.

Here is what he found out. To validate your problem, you have to interview people in your targeted market,

but you can not tell them what your product is.

That will bias their answer. Again, mainly in your favor.

People want to be friendly, and there are no consequences for their response as there is no product yet.

You want to interview people about a subject other than your new product.

Then, during the interview, find a way to casually ask the person if they have the problem you think they do.

if they say yes, ask them how they dealt with the problem.

Let them tell you exactly what the problem is

Let them tell you how serious the problem is and how they dealt with it.

The interviewee is now talking about his/her experience and giving you facts rather than opinions.

You need facts to make a go/no-go decision.

Also, If the problem is serious, ask what it cost them (time, money, operational issues, etc.) to solve.

That will give you an idea of the price range you could charge.

Start with your market representative list

Get started by creating a list of about 30 people you can interview — that number would be statistically significant.

This is the kind of information you and your team will need to diagnose and create the solution.

Want even better product design ideas?

You can now take this information as the basis for your diagnosis of the problem

and use your creative problem-solving skills to design an awesome product.

See our blog post: How you can turn problems into opportunities.

The Next Step In Your Product Validation

After you get your initial product or service designed, revisit people in the targeted market,

This time with your solution to see if they are willing to pay for your problem-solution fit.

Conclusion

Don’t ask how much they would be willing to pay for your solution.

Ask them how they are solving the problem now and what they are paying to solve the problem including time delays, workarounds, performance, etc.

That will give you an idea of what you could look at in terms of the price range.

Jim Zitek l Harbor Capital Group

P.S. You can get more information about validating your new product idea by going to our website

and downloading our free report “ Learn The 4 Secrets That Guarantee Problem-Solution Fit.”

P.P.S. If you know someone who could also use this information, please pass this on to them.

Leverage Strategy Through Inertia and Entropy

Posted on April 26, 2021 by harborcapitalgroupinc

In business, inertia is a company’s unwillingness or inability to adapt to changing circumstances.

Even with change programs in place and running, it can take a long time to change direction, and for large companies, it could take many years to change the way the company functions. If you recognize this inertia early, you can add leverage to your strategy.

Why? Organizational inertia is the reason. A well-adapted corporation can remain healthy and efficient as long as the outside world remains unchanged.

But another force– entropy — is also at work. Entropy measures an organization’s degree of disorder and increases in isolated systems or organizations.

According to Richard Rumelt, Professor and author, companies with inertia and entropy tend to become less focused. Consequently, it is necessary for leaders to constantly maintain their company’s purpose and methods, even if there are no changes in competition. Inertia and entropy can have several important implications for strategy:

Successful strategies often owe a great deal of their success to the inertia and inefficiency of rivals. For example, Netflix pushed past and now bankrupt blockbuster because the latter could not or would not abandon its focus on retail stores.
A company’s most significant challenge may not be external threats or opportunities but the effects of inertia and entropy. In such a situation, organizational renewal becomes a priority.
Transforming a complex organization is an intensely strategic challenge. Leaders must diagnose the cause of effects of entropy and inertia, create a sensible guiding policy for effecting change, and design a set of coherent actions designed to alter routines, culture, and structure of power and influence.

Inertia

Organizational inertia generally falls into three categories: the inertia of routine, cultural inertia, and inertia by proxy. Each has different implications for those who wish to reduce inertia or those who seek to gain by attacking a less responsive rival.

The inertia of routine

The heartbeat of a business is the rhythm and pulse of its standard procedures for buying, processing, and marketing goods. The company may not be consciously aware of these actions but is guided by them nonetheless. As the company grows in size and age, these routines become embedded in layer upon layer of impacted knowledge and experience. It’s the way things are done here.

These familiar routines both filter and shape everyday actions and filter and shape managers’ perceptions of issues. These standard routines and methods also act to preserve the old ways of processing information.

Sudden outside shocks can reveal inertia created by standard routines: a big jump in the price of oil, or a technology invention or, telecommunications deregulation, and so on. The shock changes the basis of competition, creating a significant gap between the old routines and the needs of the new regime.

With a sudden change like deregulation and leadership is convinced change is necessary, routines can change quickly. One way is to hire people with the essential skills, hire consultants, or re-design your routines. You may also have to re-organize business units.

The inertia of culture

The problem may not be the competence of individuals but of culture. The use of the word culture means the elements of social behavior which tend to be stable and strongly resist change. It’s unrealistic to believe you can change a company’s culture quickly or easily.

The first step in breaking cultural inertia is a simplification. Think about complex routines, processes, waste, and inefficiency. Strip out any unnecessary administration or operations or outsource some services. A more straightforward structure will expose inefficiency.

After you have made initial changes, it may be necessary to break down operating units to analyze each unit in-depth and use creative thinking to improve the situation further. You may even need a new structure or business model. You will want to look at both performance and culture. Also, remember that changing units can also change work norms and related values.

Inertia by proxy

The lack of response is not always an indication of sticky routines or a frozen culture. A business may decide not to respond to change or attack because responding might undermine values and profit streams. The streams of profit persist because of customer inertia, a form of inertia by proxy.

For example, in 1980, the prime interest rate was 20%, and banks were free to create money market accounts. With this new freedom, smaller banks jumped at the opportunity to develop these high-interest deposit accounts. However, larger banks with long-established customers id not,

Smaller and newer banks seeking retail growth were happy to offer this new type of high-interest deposit account. But many other banks with long-established customers did not. If their customers had been perfectly agile, quickly searching for and switching to the highest interest accounts, they would’ve had to offer higher interest accounts or disappear. But their customers were not this agile.

However, when an organization decides that adapting to change is more important than hanging onto profit streams, everything can change suddenly.

Entropy

It is not hard to see entropy at work. For example, with the passage of time, great works of art blur and crumble; unless a skilled artisan can restore the artwork. In a business where the firm is not keeping its product line up to date, it can begin to crumble also. The product often becomes less focused and reduces prices, customer response times may have become longer, and eventually, profits decline.

An excellent example of entropy is General Motors. They blurred the designs of their cars, brands, and divisions. They were essentially offering the exact vehicle under several model brand names. In 2001 they closed the Oldsmobile line of cars because Oldsmobile lost any distinction in either style or price.

Remember, product-market fit is not a permeate status. In this Covid environment, think about how digital products are being created and changing how we live and work. Are you keeping up with technology and changing preferences?

What policies are you going to put in place to guard against inertia and entropy?

How To Use Dynamics To Find The Strategic Highground

Posted on April 26, 2021 by harborcapitalgroupinc

How to use dynamics to strengthen your strategy is from Professor Richard Rumelt’s book, “Good Strategy/Bad Strategy.” In classical military strategy, the defender prefers the high ground. It is harder to attack and easier to defend. The high ground constitutes a natural symmetry that can form the basis of an advantage.

One way to find the unfettered high ground is by creating it yourself through pure innovation. Another way is to exploit waves of change. No one person or organization creates these waves of change. They are mostly beyond the control of any one organization.

These changes are the net result of shifts and advances in technology, costs, competition, politics, and buyer perceptions. They can upset existing competitive positions, erase all the advantages, and enable new ones.

You exploit change by understanding its evolution and then directing resources and innovation toward positions that will become high ground, become valuably indefensible, as the dynamics play out.

We are told that stability is a relic of a bygone era. Not true. Most industries, most of the time, are relatively stable. However, after a wave of change has passed, it is too late to take advantage of its surge or to escape its negatives. Therefore, you need to seek out and deal with a wave of change in its early stages of development.

The challenge is not forecasting. The challenge s but understanding the past and present. How did these shifts occur? Were the patterns of change visible to everyone? What do they mean?

When change occurs, most people focus on the main effects, the spurts and growth of new products, and any falling demand. But, you must dig beneath the surface to understand the forces underlying the main effect and develop a point of view about second-order and derivative changes that were set in motion.

Discerning the fundamentals

The work of discerning whether there are important changes involves getting into the gritty details. You must acquire enough expertise to question the experts. You must dig beneath that surface and discover the fundamental forces at work. You need a clear understanding of this wave of change and a feel for its origin and dynamics.

It seems obvious in hindsight. But the rise of software in importance in the computer industries deconstruction had a common cause: the microprocessor. These connections were far from evident in the beginning. Everyone in high-tech could see the microprocessor, but understanding its implications was a much more difficult proposition.

Software‘s advantage

Everything from the PC to thermostats meant that the programming determined the performance of these devices. The software can be produced quickly and shipped, and that software’s advantage comes from the rapid software development cycle. One can move from concept to prototype quickly and, in the process, find and correct any errors. Consequently, software became the preferred medium.

Why computing structure radically changed

Andy Grove published an insightful, book “Only The Paranoid Survive.” He described how inflection points could disrupt all industries. The inflection that had transformed the computer industry from a vertical to a horizontal structure was the microprocessor. Each computer manufacturer made processors, memory, hard drives, keyboards, and monitors on their systems and application software in the old vertical form. The buyer signed up with the computer maker and bought everything from that manufacture.

By contrast, in the new horizontal structure, each activity became an industry in its own right. Some firms made processors, other firms made a memory, and others made hard drives. Microsoft made system software and so on.

Not only did the basis of computing change, but the basis of competition also changed. Computers were assembled by mixing and matching parts from competing manufacturers.

Was the inflection point the microprocessor? Innovative components operating within a de facto standard operating system made the systems integration job almost truly simple.

Today many academic researchers look at the computer industry and see a network of relationships, each channel whereby one firm coordinates with another.

Another great example is how Cisco Systems came into being and how it came to beat the Giants vividly demonstrates the power of using waves of change to advantage. Cisco used the rise of software as a critical skill, the growth of corporate data networking, the shift to IP networks, and the explosion of the public Internet.

Cisco road three simultaneous waves. The first wave was the microprocessor and its crucial implication to software. Cisco outsources the manufacture of its hardware, concentrating on software sales and service. Cisco cleverly sold software that plugged into the wall, had a fan, and got warm.

The second wave lifting Cisco in the early years was the rise of corporate networking. Cisco’s router ability to handle multiple protocols was in growing demand.

The third wave was IP Internet protocol networking in 1990, most network protocols and corporate owners and sponsors. Cisco exploded under the Force of a fourth wave that hit in 1993. The rise of the Internet used by the general public. Inside corporations, computer users suddenly wanted Internet access — not just dial-up access over a modem but also a direct, always-on connection to the IP backbone.

As universities and corporations scrambled to make this happen, IP won the battle for internal Internet networks. The success of Cisco shows that their rise was a mix of forces and not just scale and luck.

Some guideposts

In moments of industry transition, skills and strategies are most valuable. During relatively stable periods between episodic changes, it is difficult to catch the leader, just as it is difficult for one of the two or three leaders to pull far ahead of the others. In moments of transition, the old Pecking order or competitors may be upset, and a new order becomes possible.

There’s no simple theory or framework for analyzing waves of change. Understanding in predicting patterns of these dynamics is complex, and Chancey. Fortunately, the leader does not need to get it right; the organization’s strategy merely has to be more right than its rivals.

In Professor Rumelt’s vision into the fog of change, he uses several mental guideposts. Each guidepost is an observation or wave thinking that seems to warrant attention.

In the first guidepost, the markets and industry transitions are induced by escalating fixed costs. The second gate post calls out a shift created by the regulation—the third highlights predictable biases in forecasting. The fourth guidepost marks the need to assess incumbent response to change. And the fifth guidepost is the concept of staying in the tractor state.

Guidepost one, rising fixed costs.

The simplest form of transition is caused by a substantial increase in fixed costs. Rising fixed costs can force the industry to consolidate because only the largest competitors can cover these fixed charges.

For example, in the photographic film industry, the movement of black and white to color film in the 1960s strengthened the industry leaders. There was also a little incentive to invest because black and white quality was very good.

There were also improvements in quality and the ease of processing color film. As the cost of color film R&D escalated, many firms were forced out of the market. That wave of change left behind a consolidated industry of fewer but more prominent firms, dominated by Kodak and Fuji.

Guidepost two, deregulation.

Many major transitions are triggered by significant changes in government policy, especially deregulation. Over the years, the Government has dramatically changed the rules it imposes on the navigation, finance, banking, cable television, trucking, and telecommunication industries. In each case, the competition shifted dramatically.

You can assume some general observations about this kind of transition. First, regulated prices generally subsidized some buyers at the expense of others. Regulated airline prices helped rural Travelers at the cost of transcontinental travelers; telephone pricing similarly supported suburban customers at the expense of urban business customers. Ordinary bank depositors subsidized savings and loan depositors and mortgage customers.

These subsidies diminished pretty quickly, but the newly regulated players chased what used to be the more profitable segments long after the differential vanished because of corporate inertia and poor cost data. Highly regulated companies may not know their costs because they have to developed complex systems to justify their fees and pricing systems that hide their actual costs even from themselves.

Guidepost three, predictable biases

During a change, it is helpful to understand that predictable biases in forecasting will surround you. For instance, people rarely predict their business or economic trend will peak and then decline. If sales of a product are multiplying, the forecast will be for continued growth, with the rate of change gradually decreasing. Such a prediction may be valid for a frequently purchased product, but it can be far off for a durable good.

There is an initial rapid expansion of sales for durable products such as flatscreen televisions when the product is first offered. But soon, everyone who was interested has acquired one, and sales can suffer a sharp drop. After that, sales track population growth and replacement demand.

Predicting the existence of such peaks is not difficult, although it is difficult to pin down the timing that the growth rate begins to slow. The logic of the situation is counterintuitive to many people. The faster the update of a durable product, the sooner the market will be saturated. Many managers find these kinds of forecasts uncomfortable, even disturbing.

Another bias is the standard forecast that there will be a battle of the major firms. This battle is sometimes correct but often applied to all situations.

The third bias is that the standard advice offered will be to adopt the strategies of those competitors that are currently the largest, most profitable, or showing the largest rates of stock price appreciation. Or more simply, they predict what the future winners will be or look like the current apparent winners.

For example, with regulated aviation, consultants advised airlines to copy Delta’s Atlanta-based hub and spoke strategy. But, unfortunately for the copycats, Delta’s profits from subsidized prices on its short-haul routes to rural towns were disappearing with deregulation.

Guidepost four, incumbent response

It is essential to understand the structure of the incumbent responses to a wave of change. In general, you would expect incumbent firms to resist a transition that threatens to undermine the valuable positions they have accumulated over time. See the discussion on entropy.

Guidepost five, attractor states

An attractor state describes how the industry should work when technology changes and its effects on the direction and efficiency of meeting buyer demands. Having a clear perspective about the industry’s attractor state helps you ride the wave of change more effectively.

During 1995 -2000, the telecommunication industry was in turmoil. Cisco Systems’ strategic vision of IP everywhere was a description of an attractor state. All data would move by IP packets in this possible future, whether it moved over home Internet, wireless networks, telephone company ATM networks, or submarine cables. Also, all information would be coded into IP packets, whether it was a voice, text messaging, pictures files, or video conference.

Other firms envisioned a future in which carriers provided intelligent networks and value-added services like software to support videoconferencing. In contrast, in the IP everywhere attractive state, the device would supply the network’s intelligence at specific points in a standardized pipeline.

The attractive state provides a sense of direction for the future evolution of an industry. The critical distinction between an attractive state in many corporate visions is that the attractor state is based on overall efficiency rather than a single companies desire to capture most of the pie. The IP everywhere vision was an attractive state because it was more efficient and eliminated the margins and inefficiencies of mismatch of proprietary standards.

Conclusion

When a significant change in an industry occurs, our natural bias is to assume the direction of the change will favor the leading company. In classical military strategy, the defender prefers the high ground because It is harder to attack and easier to defend. The high ground constitutes a natural symmetry that can form the basis of an advantage.

But there are signposts you can monitor to help you discern the direction of the long-term change.

You know changes are happening in many industries — technology, telemedicine, newspapers, robotics, communications, and many others. Is your company keeping abreast of changes in your industry? Have you constructed a (changing) vision of the future?

How To Identify And Use Your Competitive Advantage

Posted on April 26, 2021 by harborcapitalgroupinc

Which company has the advantage? Neither one. Because advantage is rooted in differences in the asymmetries among rivals, there is an uncountable number of asymmetries in real rivalry. It is the leader’s job to identify which asymmetries are critical and can turn into important advantages. This discussion is based on Richard Rumelt’s book, “Good Strategy/ Bad Strategy.”

Here is an example. A startup had created a fabric for clothes and was excited about it, even thinking it had the possibility of being an IPO. Their venture capital firm was not so sure. They agreed they had an excellent new product and have proved their technology, But building a textile company or clothing company was a different game. They should look at selling the company.

No one has an advantage in everything. Teams, organizations, and even nations have advantages in certain kinds of rivalry under particular conditions. The secret to using advantage is understanding this characteristic. You must press where you have advantages and sidestep situations in which you do not. You must exploit your rivals’ weaknesses and avoid leading with your own.

Competitive advantage in business

The term competitive advantage became a term of art in business strategy with Michael Porter’s insightful book title. Warren Buffett has said he evaluates a company they are looking for sustainable competitive advantage.

The basic definition of competitive advantage is straightforward. If your business can produce at a lower cost than competitors or deliver more perceived value than competitors, or a mix of the two, you have a competitive advantage. Subtlety arrives when you realize that costs vary with product and application and that buyers differ in their locations, knowledge, tastes, and other characteristics.

Most advantages will extend only so far. For instance, Whole Foods has an advantage over Albertson supermarkets only for particular products. And only among grocery shoppers with good incomes place a high value on organic or natural foods.

Sustaining an advantage is even more difficult. For an advantage to be sustainable, your competitor must not be able to duplicate it. Or, more precisely, they must not be able to reproduce the resources underlying it, such as a patent.

More common isolating mechanisms include reputations, commercial and social relationships, net worth effects, economies of scale, plus knowledge and skill gained through experience.

For example, Apple‘s iPhone business is protected by Apple and iPhone brand names, by the company‘s reputation, by the complementary iTunes service, and by the network effects of its customer group, especially for iPhone applications.

These resources were crafted by Apple and put in place as part of a program for building sustainable competitive advantage. These resources are scarce because competitors find it difficult to create comparable resources at a reasonable cost.

Interesting advantages

How do some serial entrepreneurs create a competitive advantage time after time? The answer, according to Rumelt, was by providing more value than you avoid, and you avoid being a commodity. A serial entrepreneur and friend of Rumelt told him that he only invested in “interesting companies.” And that an interesting company is when you can see ways to increase value.

Some advantages are more interesting than others.

There is a difference between competitive advantage and financial gain. Many people have assumed that they are the same thing, but they are not. For example, if you had a machine that made silver, it would give you value. But, there is no way for the owner to engineer an increase in its overall value.

The machine cannot make pure silver more efficient and can not differentiate the product. One small producer cannot pump up the global demand for silver. You can not increase the value of a silver machine by buying an engineer to design a new device, just like you can not hire an engineer to increase a treasury bond.

Competitive and advantage is interesting when one has insights into ways to increase its value. That means there must be things you can do, on your own, to increase its value. The truth is that the connection between competitive advantage and wealth is dynamic. Wealth increases when competitive advantage increases or when the demand for the resources underlying it increases.

Increasing value requires a strategy on at least one of the following three different fronts.

1. A continuously deepening advantage and strengthening the isolating mechanisms to block replication and imitation by competitors,

2. Broadening the extent of advantages

3. Creating higher demand for advantaged products or services.

Deepening your advantage

Start by defining advantage in terms of surplus, the gap between buyer value and cost. Deepening an advantage means widening this gap by either increasing importance to buyers, reducing costs, or both.

First, management may mistakenly believe an improvement is a natural process or that it can be accomplished by pressure or incentives alone –It can not. For example, a bricklayer can double his capacity by moving the bricks up to chest high to use them directly.

Today’s approach to information flows in business processes is sometimes called reengineering or business process transformation. Whatever it’s called, the underlying principle is that improvements come from re-examining the details of how work is done, not just from cost controls or incentives.

The same issues that arise in improving work processes also occur in enhancing products, except observing buyers is more complicated than examining one’s systems. Companies excel at product development and improvement and carefully study buyers’ attitudes, decisions, and feelings. They develop an extraordinary empathy for customers and anticipate problems before they occur.

The reason firms fail to engage in the process of improvement when isolating mechanisms surrounding important methods are weak. Companies in such situations hope to catch a free ride on the progress of others.

Therefore, to benefit from investments in improvement, improvements must be protected or embedded in a sufficiently unique business that its methods are of little value or use to rivals.

Broadening the extent of the advantage

Extending an existing competitive advantage brings it into new fields and new competition. For example, cell phone banking is a growing phenomenon, especially in foreign countries. eBay holds the necessary skills and payment systems in bedded in its PayPal business. If eBay could build on these to create a competitive advantage in cell phone payment systems, it would be extending a competitive advantage.

Extending a competitive advantage requires looking away from products, buyers, and competitors and looking instead to add unique skills and resources that underlie a competitive edge — in other words, build on your strengths.

The idea that some corporate resources can put to good use in other products or markets is possibly the most fundamental corporate strategy. The truth is undeniable, yet it is also the source of countless errors if it engages in diversifying into products and processes they do not know. The basis for productive extensions often resides within complex pools of knowledge and know-how.

Extensions based on customer beliefs such as brand names, relationships, and reputation may be diluted or damaged by careless extension. Value can sometimes be created by extending these resources, but a failure in the new arena can rebound to damage the core. Disney is an excellent example of this, and they can pull people into the theater just by the company name.

The brand’s value comes from guaranteeing specific characteristics of the product. But those characteristics are not easy to define. What exactly is a Disney film? How far can the brain be stretched without losing value?

Creating higher demand

A competitive advantage becomes more valuable when the number of buyers grows and when the quantity demanded by each buyer increases. Technically it is the excellent resources underlying the advantage that increase in value. The higher demand will increase long-term profit only if a business already possesses scarce resources that create a stable competitive advantage. Engineering higher demand for the services of scarce resources is the most basic of business strategies.

Conclusion

The basic definition of competitive advantage is straightforward. If your business can produce at a lower cost than competitors or deliver more perceived value than competitors, or a mix of the two, you have a competitive advantage. But, It is challenging to have the advantage in everything – team, technology, etc. You want to exploit it where you have it and avoid areas where you don’t have it.

Sustaining a competitive advantage is even more challenging. You need an isolating mechanism like a patent.

There is also a difference between competitive advantage and financial gain. The connection between competitive advantage and wealth is dynamic. Wealth increases when competitive advantage increases or when the demand for the resources underlying it increases.

Increasing value requires a strategy for progress on at least one of three different fronts. One, deepening your advantage by either increasing importance to buyers, reducing costs, or both. Two, broadening the ext

A competitive advantage becomes more valuable when the number of buyers grows and when the quantity demanded by each buyer increases. Two, bringing your advantage into new fields and against new competition. Three, A competitive advantage becomes more valuable when the number of buyers grows and when the quantity demanded by each buyer increases.

What advantages do you have over your competitors? How are you going to maintain that advantage? Use your creativity and problem-solving skills to design new advantages.

The Foundation Of A Strategy Is The Kernel

Posted on April 24, 2021 by harborcapitalgroupinc

According to Richard Rumelt, Professor and author, a good strategy has an underlying structure built on a foundation based on what he calls the kernel.

The kernel contains three parts:

A diagnosis that defines or explains the nature of the challenge, This diagnosis simplifies the complexity of the challenge by identifying certain aspects of the situation as critical,

A guiding policy that deals with the identified challenge. This policy is an overall approach designed to overcome the obstacles in the diagnosis.

A plan of coherent actions according to the guiding policy. These steps are coordinated with one another to work together in accomplishing the guiding policy.

For businesses, the challenge is usually dealing with change and competition.

The first step is diagnosing the specific structure of the challenge rather than simply naming goals.

The second step defines your guiding policy to create leverage or advantage.

The third step creates your action plan to implement the guiding policy.

This kernel is the bare-bones center of a strategy. Note: it leaves out visions, hierarchies of goals and objectives, references time or scope, and ideas about adaptation and change. All of these are necessary to support the strategy.

Diagnosis

At a minimum, the diagnosis names or classifies the situation, linking acts into patterns and suggesting more attention required for some issues and less for other problems. An insightful diagnosis can transform one’s view of the situation and open up radically different perspectives.

When a diagnosis identifies a specific situation, analogous examples can become instructive.

Starbucks coffee, for example, had declining profits in 2008. The problem was:

diagnosis 1, An issue of managing expectations,

diagnosis 2, A need to search for a new growth platform,

diagnosis 3, An eroding competitive advantage.

Each diagnosis suggests a range of things to do. But, none of these diagnoses may be correct. Therefore, diagnosis is a judgment about the meaning of facts.

Their problem, however, was il structured, meaning no one could be sure how to define the problem. There was no prominent list of promising approaches or actions, and the connections between most actions and outcomes were unclear relative to the problem. Therefore the diagnosis was an educated guess about what was determined to be necessary.

A strategic diagnosis does more than explain a situation — it also defines an area of action. The diagnosis of a good strategy promises leverage over the outcome.

A diagnosis is generally a metaphor, analog, or reference to an earlier diagnosis or framework that has already gained acceptance.

When he became CEO of IBM, Lou Gerstner changed the company’s diagnosis from focusing on too many different products to one company but focused on the customer rather than the hardware.

The Guiding Policy

The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis. It is “guiding” because it channels action in specific directions without defining every need.

CEO Gerstner’s diagnostic of IBM is an example of a guiding policy. The guiding policies direct and constrain action without fully defining its content. Guiding policies are not goals; they represent a way to solve the problem or situation and at the same time rule out a group of possible actions.

A good strategy is not just what you are trying to do; It is also why and how you are doing it. The guiding policy draws on the sources you can use to gain an advantage.

A guiding policy creates an advantage by anticipating the actions and reactions of others. Reducing complexity also lets you gain leverage by concentrating your efforts.

Coherent Action

Many people refer to the guiding policy as the strategy and stop there. Wrong. Strategy is about action. Doing something, The kernel of strategy must contain action; It doesn’t have to include all activities, but enough to implement the strategic concept.

The planed actions within the kernel of strategy should be coherent, meaning they should be consistent and coordinated. The coordination of movement provides the most fundamental source of leverage or advantage available in strategy.

Strategic actions that are not coherent are either in conflict with one another or taken to pursue other unrelated challenges.

Conclusion

This concept of the kernel of strategy is not easy to execute and takes considerable time. But, it is critical to a company’s success and continued success over time. Don’t wait to do this later. Start from day one and keep a record.

Remember, this initial strategy is a hypothesis and must be tested, adjusted as necessary, and validated. Also, modified as industries, technologies, markets, and customers change,

Leverage Strategy Through Inertia and Entropy

Posted on April 23, 2021 by harborcapitalgroupinc

In business, inertia is a company’s unwillingness or inability to adapt to changing circumstances.

Why? Organizational inertia is the reason. A well-adapted corporation can remain healthy and efficient as long as the outside world remains unchanged.

But another force– entropy — is also at work. Entropy measures an organization’s degree of disorder and increases in isolated systems or organizations.

According to Richard Rumelt, Professor and author, companies with inertia and entropy tend to become less organized and focused. Entropy makes it necessary for leaders to constantly work on maintaining an organization’s purpose, form, and methods, even if there are no changes in strategy or competition. Inertia and entropy have several important implications for strategy:

Successful strategies often owe a great deal of their success to the inertia and inefficiency of rivals. For example, Netflix pushed past and now bankrupt blockbuster because the latter could not or would not abandon its focus on retail stores.
A company’s most significant challenge may not be external threats or opportunities but the effects of inertia and entropy. In such a situation, organizational renewal becomes a priority.
Transforming a complex organization is an intensely strategic challenge. Leaders must diagnose the cause of effects of entropy and inertia, create a sensible guiding policy for effecting change, and design a set of coherent actions designed to alter routines, culture, and structure of power and influence.

Inertia

Organizational inertia generally falls into one of three categories: the inertia of routine, cultural inertia, and inertia by proxy. Each has different implications for those who wish to reduce inertia or those who seek to gain by attacking a less responsive rival.

The inertia of routine

Sudden outside shocks can reveal inertia created by standard routines: a tripling of the price of oil, the invention of the microprocessor, telecommunications deregulation, and so on. The shock changes the basis of competition in the industry, creating a significant gap between the old routines and the needs of the new regime.

The inertia of culture

The problem may not be the competence of individuals but of culture. The use of the word culture means the elements of social behavior which tend to be stable and strongly resist change. It is not realistic to think you can change a company’s culture quickly or easily.

After the first round of simplification, it may be necessary to break down operating units to analyze each unit in-depth and use creative thinking to improve the situation further. You may even need a new structure or business model. You will want to look at both performance and culture. Also, remember that changing units can also change work norms and related values.

Inertia by proxy

The lack of response is not always an indication of sticky routines or a frozen culture. A business may choose not to respond to change or attack because responding might undermine values and profit streams. The streams of profit persist because of customer inertia, a form of inertia by proxy.

For example, in 1980, the prime interest rate was 20%, and banks were free to create money market accounts. With this new freedom, smaller banks jumped at the opportunity to create these high-interest deposit accounts. However, larger banks with long-established customers id not,

However, when an organization decides that adapting to change is more important than hanging onto profit streams, everything changes. And this change can happen suddenly.

Entropy

What Is A Good Strategy

Posted on April 22, 2021 by harborcapitalgroupinc

First of all, If you have a strategy, you have a natural advantage because your competitors often do not have one, and they don’t expect you to have one either. For many companies, their strategy is to “spend more and try harder.

Strategy is not only about what you want to do. It is also about what you don’t want to do as well. There are not enough resources or enough time to do everything. You have to stay focused. A good leader must be willing to say no to a wide variety of actions and interests. Strategy is as much about what a company does not do as it is about what a company does.

According to Richard Rumelt, in his book “Good Strategy/Bad Strategy”, you want to gain insight into new sources of advantages and opportunities as well as weaknesses and threats.

A good strategy is about discovering power

Wal-Mart is a good example. Common knowledge was that a full-line, discount store needs a population base of at least 100,000 people. They put big stores in small towns and broke conventional wisdom.

They created a store distribution system that had trucks taking products (just-in-time inventory) to small-town stores daily – in a designed loop that brought the trucks home again each night. Stores had enough inventory but didn’t need the massive floor space of the big box stores. Their trucks would also pick up inventory to bring back to the warehouse on their way home.

But, their strategy didn’t stop there. They had low prices, used barcodes — when that technology was new — to keep track of inventory and sales daily.

Their competitor, K-Mart failed to see or acknowledge the dynamic changes Wal-Mart was making. Wal-Mart had a network of 150 stores and reached a population of millions. K-Mart went out of business and today, this strategy is called supply-chain management.

You can see this situation happening again and again. Blockbuster didn’t want to give up their 9,000 retail stores even as Netflix was eating their lunch. Blockbuster owned the stores but Netflix owned the customers.

.What is a bad strategy?

Bad strategy is long on goals and mission statements and short on policy and action. A good strategy defines a critical challenge, the policies the company will use to position itself in the minds of the customers and use a coherent, focused execution plan.

There are many bad strategies out there. I have already mentioned so many are goals and mission statements that are simply wishes, not strategies. Also, a lot of strategies are filled with meaningless fluff. We will be the number one company in this industry, but have no strategy, or execution plan to back up this statement.

What they are doing is ignoring the problem that needs to be solved or the opportunity they want without a creative strategy or the resources to back it up. Or they have a lofty, BlueSky objective with no idea how they are going to achieve it.

A good strategy takes a lot of work.

A strategy takes diagnosis, creative insight, a well thought out general policy on what the company will do and what it will not do. Pus, focused, cohesive use of company resources. It involves focus and therefore choice. And choice means setting aside some goals in favor of others.

Template-style strategy

A lot of people think you can simply get a template and write out your strategy. It’s not that simple. Yes, it takes lots of research, data, and analysis. But it also takes creative problem solving and creative opportunity ideas to get a strategy that will make your company, your products, and services the valued leader of your industry.

Be sure to read the articles on strategy in this section. E-mail us if you have a question.

What Is A Strategy?

Posted on April 14, 2021 by harborcapitalgroupinc

The basic definition of strategy is overcoming obstacles. Following is the definition of strategy according to Richard Rumelt, the professor at UCLA and recognized as an exceptional strategist, “The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.”

Strategy is a term that has been so widely used that its meaning has been diluted to the point that many CEOs define it as a goal or mission statement. Strategies are not goals or mission statements. Strategy is a cohesive response to an important challenge.

Also, you cannot have a strategy if you don’t have implementation. If your strategy does not have a plan of coherent action it is missing an important part of the strategy.

A good strategy according to Rumelt has a logical structure that he calls the “kernel. This kernel consists of three parts: a diagnosis, a guiding policy, and coherent action.

The guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis, It defines the general way forward but without specific details.

Coherent actions are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.

Once you understand the definition of strategy, diagnosis, general policy, and coherent action, you will be able to detect bad strategies. And there are plenty of bad strategies around. Many people treat strategy as goal setting rather than problem-solving

A good strategy doesn’t just draw on existing strength, it creates strength through the coherence of its design. The creation of new strengths is done through subtle shifts in viewpoint.

Now, when you think of strategy, think about the kernel –diagnosis, general policy, and coherent action. Does your strategy include those components?