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[Good Strategy Bad Strategy] Bad Strategy will destroy the company
Roughly speaking
- Bad strategies will shut down the company. An example of pathetic strategy.
- The laws of good strategy. Diagnosis of current situations, basic policy and action.
- Nvidia is the skilled strategist. A good strategy lies in the fierce battles that led to the birth of the GPU champion.
Bad strategies will shut down the company
Lemelt is an American business scholar with a prominent track record in researching diversification strategies.
While his research papers are prolific, he only has two books for the general public, and this is his second book (2012).
For a book by researchers with such a well-known track record, it is surprisingly easy to read with its rich examples and easy-to-understand expressions. It may be the power of the translator Murai Akiko. Compared to Simon's hyperdimensional intricacies that I introduced previously, it is so simple that it makes my ears squeal.
This is packed with useful points for those who are in the position of thinking about business strategies in practical terms, or for those who want to plan their lives strategically.
There are many good cases, while there are typical failure cases. There are also some examples of poor strategies that destroy a company. For example, Enron, which was a major accounting fraud that went bankrupt, caused by the accounting division of Arthur Andersen, the predecessor of the current Accenture.
The above diagram shows the strategy that Enron announced in 2000 when holding a large-scale event. Enron was founded as an energy company, and in 2000 its main business was to make efficient use of IT to trade electricity and gas commodity. In 2001, a huge amount of fraudulent financial statements using SPC (special purpose company) was discovered, and the company went bankrupt.
Enron announced that by making full use of IT, its strengths, it can expand from a simple market (?) commodity market such as energy, electricity, and CO2 emission rights to a commodity market that contains complex knowledge space (?).
The venue was not in a state of uproar, including Lemmert himself. Lemelt was the only one who was stunned, and the audience and management were excited by the stylish charts. All I can see is that Enron is likely to become a great one.
Here, Lemmert's first principle of bad strategies, "vacuum," applies. Another example is Japan's NEC, and NEC will in fact repeatedly withdraw from 2000-2012. Even today, looking at what is called the strategies (?) of various companies, there are many places of incomprehensible, beautiful and slogans. Well, such companies generally suffer from poor performance.
What is a good strategy?
A good strategy is more realistic. Lemmelt says a good strategy has three kernels.
1. Diagnosis
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Diagnose the situation and identify the issues to tackle. A good judgment selects vital and important problems and clearly unravels complex and intertwined situations.
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2. Basic Policy
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It provides a major direction and comprehensive policy on how to tackle the challenges found in the diagnosis.
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3. Action
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What we call actions here is a consistent set of actions designed to implement the basic policy. Coordinate all actions and implement the policy.
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Lemelt gives passionate speeches about each of these rules, with examples that are too clear. In any case, it is important to follow this principle by word. The word "coordination" is used in "3. Action," but it has a proper meaning. It teaches that coordinated strategic actions are necessary, rather than simply a task list that lists actions. The order and weighting must be clearly set for actions.
An example of a good strategy that has become a hit is IBM. IBM, an integrated IT company in the 1990s, lost its competitiveness in its own chips and PCs due to the rise of Intel and Microsoft. During this, CEO Lewis Garsner calmly diagnosed IBM's current state, and decided to make a policy that it would provide solutions rather than products to customers, saying that his strength is the world's top technical capabilities and expertise in data processing, and he continued to act steadily. It is thanks to this strategy that IBM is still able to show its presence today.
Another example is the IKEA, which has a competitive advantage in the chain structure. IKEA is a furniture chain that operates low-cost furniture with unique designs in large suburban stores. As you can see from this explanation, rival furniture manufacturers cannot compete with IKEA, which has a chain of advantages. To balance low-cost furniture with our own designs, large-scale production is essential, but these products cannot be fully managed and logistics cannot keep up. They don't have the courage to operate large suburban stores, and they don't have the know-how. This case is the strength of the so-called SPA business, and Uniqlo and MUJI also apply. It is extremely difficult until you establish an SPA, but once you create it, your competitive advantage will last for a long time.
One side of Nvidia's cool strategists
This book presents an example of Nvidia, known for its 3D graphics chips, as a review of case studies using good strategies. This history is also interesting.
When it was founded in 1993, its PC graphics chips were the best of 3dfx. In 1995, NVIDIA decided to enter the PC graphics chip for individuals, and at this time it made strategic decisions regarding the programming interfaces needed for the chip. This programming interface was exclusive to rivals, 3dfx's Glide, but NVIDIA decided that adopting rivals was a suicide, and will continue to use Microsoft's Direct X, which is the core of gaming technology. At the time, Direct X was only just developed and was in a state that could not be considered a sea or mountainous object, but through close meetings with the development team, I felt the excitement and bet on becoming an industry standard.
Nvidia was convinced that increasing the development pace would have a competitive advantage for its company, taking Moore's law (chip performance will grow dramatically). As a result, NVIDIA has decided to double its performance in six months, compared to the industry standard of 18 months (basic policy).
Here, many executives will mischievously pound and exhaust the development team's butts based on their goals. This is a discrepancy between the site and many companies. However, Nvidia is calm and has made a realistic plan of action.
First, three development teams were launched in parallel, each with a lead time of 18 months until it was brought to market, and by shifting the development period, it was possible to update for six months. Furthermore, in order to prevent delays in schedules, we actively invested in developing simulation technology for chip designs to prevent design errors that could cause fatal delays.
Another reason for the delay was that the driver production was switched to a method in which NVIDIa provided all at once, and made it a common interface so that it could be risk-controlled. (Nvidia still provides drivers for Win/Mac/Linux, and although this method is common, Nvidia was the first to adopt the driver provision method.)
Rival 3DFX initially confronted Nvidia's incredible update pace, but as it gradually became a reality, it began to take on an inconsistent strategy. They used their high-tech capabilities to make unnecessary resources for low-tech products for the mass market, and increased advertising spending through campaigns with Intel. He also acquired a board manufacturer and began manufacturing boards that he was unfamiliar with. Furthermore, in opposition to NVIDIA, they came up with a simultaneous update plan, but the release schedule was delayed, and in 2000 they ended up selling patents, brands and inventory to NVIDIA.
Companies such as Intel and Silicon Graphics (known for their CG at Jurassic Park) were also actively developing 3D graphics chips, but as a result of using modelling bad strategies, they themselves were killed. As of 2006, the only rival was Canadian ATI Technology, and Nvidia had reached the point of taking over it, but as a result of Intel's rival, AMD, a semiconductor manufacturer, suddenly acquired ATI Technology and made an aggressive investment, the industry remains in a two-leading position until the current 2020.