What's your strategy?

This is a tough question to answer, not only because it’s hard to find a winning strategy, but also because it's difficult to understand strategy.

In his book Good Strategy Bad Strategy, Richard Rumelt defines strategy as a set of coherent actions and policies that support a thesis for how a business plans to create and manage advantages in pursuit of a specific outcome.

According to him, the kernel of good strategy contains three elements:

1. A diagnosis of the problem and challenge at hand.

2. A thesis that serves as your guiding policy.

3. A set of coherent actions to execute your thesis.

While a good and accurate diagnosis is fundamental to great strategy, we want to focus on the importance of having a guiding policy and coherent strategy.

CRAFTING A GUIDING POLICY

Study the history of great companies and it will become abundantly clear that they are built on a clear philosophy– a set of values and leadership principles woven through the fabric of the organization, expressed coherently through every decision and action, and visible at every touchpoint.

A guiding philosophy can usually be distilled to a singular idea that serves as the throughline which connects everything the company does: from product and strategy, to culture and marketing. At Amazon, it’s Customer Centricity. At Apple, it’s Design Excellence. At Brunello Cucinelli, it’s Humanistic-Capitalism. At Patagonia, it’s Sustainability. At Grio, it’s Empathy-Led.

When building a company, there are quasi-unlimited choices and opportunities. Strategy is as much about what you choose to do as it is about what you refuse to do. The only way to know which are the right decisions to make and which are the right opportunities to seize, is to have a clear north star.

With a clear diagnosis of the problem to solve and philosophy, it becomes easier to craft your guiding policy— the thesis for how the company plans to win. But as the saying goes, theory without practice is sterile so you need to identify a set of coherent actions to support and test your theory.

IDENTIFY YOUR COHERENT ACTIONS

Great companies and brands are built through coherent actions that create a flywheel effect and compound over time to create a durable competitive advantage.

At Amazon, customer satisfaction is delivered through a huge selection of products that create convenience, low prices and great customer experience. And in order to yield that kind of customer satisfaction, Amazon had to drive operational excellence, frugality to drive costs down, and a long term mindset that prioritizes customer’s value over shareholder’s value. Every decision is shaped by and measured against the guiding policy: becoming earth’s most customer-centric company. It all has to be coherent.

What great companies do is rarely a secret. But it’s almost impossible to duplicate because it’s the combination of multiple things that compound over time.

If Amazon’s competitive advantage was lower prices, then a company would only have to lower their prices to beat Amazon. But simply lowering prices without the other pieces of the puzzle would shrink profit margins in a race to the bottom.

CHOOSING THE RIGHT METRICS

We can’t really talk about strategy without discussing metrics.

Amazon makes a distinction between input metrics and output metrics, with the intention to spend a disproportionate amount of time focusing on inputs, because they are controllable; outputs aren’t.

We make a similar distinction at the agency. We teach our clients the difference between goals and outcomes, urging them to focus on the former, not the latter.

An outcome is a desired result that is neither fully nor directly within your control, while a goal is a controllable and actionable step tied to a desired outcome. Going to the gym three times a week (input metric) is a goal; losing 10% body fat (output metric) is an outcome. You can’t just lose 10% body fat no matter how badly you want it, so you have to focus on hitting the gym instead (if that’s your strategy).

This is a subtle but profound difference.

Ultimately, strategy will dictate your focus, where you allocate your precious resources and what you prioritize.