If you want to plan something non-trivial, you need a strategy. If you don’t know what strategy is, you can’t make a good strategy.
I’ve read one book that covers strategy better than any other — Competition Demystified: a radically simplified approach to business strategy, by Bruce Greenwald and Judd Kahn (I haven’t read On War yet but I have read Porter). While it focuses on business as opposed to political or military strategy the principles are similar.
Competition Demystified‘s first chapter defines strategy, describes its importance, outlines its main principles, and begins the process of creating a strategy. On top of that, you can read most of it online for free, along with other parts of the book. I recommend reading it if your life involves strategy; also before reading my posts on strategy. Greenwald and Kahn write on their expertise better than I can. They’ve taught the course behind the book to thousands of students at the Columbia Business School.
I will quote the chapter at length, highlighting the key issues relevant to North Korea.
WHAT IS STRATEGY?
For at least the last half century, strategy has been a major focus of management concern. The Allied victory in the Second World War highlighted the necessity of grand strategy for success in warfare, and in the subsequent decades, corporate chieftains appropriated the concept for their own battlefields. Today, strategy is a primary business school discipline. …
Over the decades, definitions of strategy have changed, and the processes for developing it have undergone endless modifications and revolutions. … Yet within all of this flux, one feature of strategy has stood out to distinguish it from other management responsibilities.
Strategy is big. Unlike tactical choices, everyone knows strategic decisions mean long-term commitments for the organization. They require large allocations of resources. Top management makes the strategic decisions. … Changing strategies is like changing the direction of an aircraft carrierâ€”it doesnâ€™t happen quickly.
In World War II, the highest-level strategic decision made by the United States was whether to fight the major campaign first in Europe or in the Pacific. Other strategic decisions at somewhat lower levels were the commitment to open a second front and the selection of the Normandy beaches for the invasion of Europe. On the corporate side, AT&Tâ€™s two separate decisions to enter the information processing business and to spin off local telephone service were strategic choices. Neither was successful. General Electricâ€™s policy, enunciated long before Jack Welch became CEO, that it would leave any business in which it did not have a leading market share, was a strategic principle.
So strategy is big and its consequences far-reaching. We see the concepts of strategy apply to diplomacy and the military as much as business. As we will see, North Korea’s case is simple to understand, contributing to its incredible stability and difficulty to change.
A simple understanding of strategy will reveal the case in North Korea. Let’s continue and cover the rest of the main principles.
Strategic choices, in contrast to tactical ones, are outward looking. They involve two issues that every company must face.
The first issue is selecting the arena of competition, the market in which to engage. All the illustrations weâ€™ve citedâ€”the United States picking the prime theater of operations in World War II, AT&Tâ€™s selection of markets to enter and to abandon, General Electricâ€™s policy of qualifying business segments in which to competeâ€”involve this kind of choice. So did IBMâ€™s decision to outsource the operating system and the microprocessor for its PC; it opted not to compete in those markets. The choice of markets is strategic, according to our definition, because it determines the cast of external characters who will affect a companyâ€™s economic future.
The second strategic issue involves the management of those external agents. In order to devise and implement effective strategy, a firm has to anticipate and, if possible, control the responses of these external agents.
Strategy looks outward from your organization, which may be commercial, but needn’t be. It involves choosing your field and how to manage the other players on the field.
On the field various forces affect you. Porter’s five forces model has dominated business thinking since 1980, but Competition Demystified points out one force dominates all others.
One of [the forces] is clearly much more important than the others. It is so dominant that leaders seeking to develop and pursue winning strategies should begin by ignoring the others and focus only on it. That force is barriers to entryâ€”the force that underlies Porterâ€™s â€œPotential Entrants.â€
If there are barriers, then it is difficult for new firms to enter the market or for existing companies to expand, which is basically the same thing. Essentially there are only two possibilities. Either the existing firms within the market are protected by barriers to entry (or to expansion), or they are not. No other feature of the competitive landscape has as much influence on a companyâ€™s success as where it stands in regard to these barriers.
If there are no barriers to entry, then many strategic concerns can be ignored. The company does not have to worry about interacting with identifiable competitors or about anticipating and influencing their behavior.
The threat of new entrants dominates all strategic choices.
WHICH COMPETITIVE ADVANTAGES?
Strategic analysis should begin with two key questions: In the market in which the firm currently competes or plans to enter, do any competitive advantages actually exist? And if they do, what kind of advantages are they?
If you have a sustainable competitive advantage, you are the elephant in the field.
For an elephant operating within the barriers, life is sweet and returns are high. But competitive advantages still have to be managed. Complacency can be fatal, as can ignoring or misunderstanding the sources of oneâ€™s strength. An elephantâ€™s first priority is to sustain what it has, which requires that it recognize the sources and the limits of its competitive advantages.
If you have a sustainable competitive advantage, your business is to maintain your advantage. If you don’t, you will face competition on a level playing field and your only strategy is to be more efficient than your competitors.
As we will see, the North Korean government has an incredible sustainable competitive advantage, which accounts for the stability I described yesterday. Jumping ahead of myself, we’ll see the leaders know they do or at least nearly all their actions support sustaining it, no matter how odd their behavior may seem to people who don’t understand the situation and strategy.
Once you know your situation, you need to understand the elements of competition.
The salient features of a competitive situation are:
â€¢ The playersâ€”a restricted number of identifiable actors, generally competitors; if the list is not short and manageable, there are probably no genuine barriers to entry
â€¢ The actions each player can pursueâ€”the choices that are available to them
â€¢ The motives that drive themâ€”profitability is the most common in business, but other goals, like winning against competitors regardless
Okay, to review today’s post,
- Strategy is big, important, long-term, and applies to politics, diplomacy, and the military.
- Strategy involves choosing where you compete and how you interact with your competitors.
- The most important consideration is if you have a sustainable competitive advantage.
- If you do, you don’t have to worry about others and your primary strategy is to maintain your advantage. (As we will see, this is North Korea’s leaders’ position)
- If you don’t, you have to compete with others and your only strategy is to be more efficient (not relevant to North Korea, except that the leaders want to avoid it).
- The elements of competition are the players, their actions, and their motives.
Competition Demystified gives many examples of all of the above. Again, I recommend it, especially the freely downloadable chapter 1. I’m skipping the examples and more extensive explanations, meaning I assume you get the logic of the book. If you don’t get the concept of a sustainable competitive advantage nothing that follows will make sense.
EDIT: I just found a wonderful extra relevant resource. The authors of Competition Demystified also published a Harvard Business Review article, All Strategy is Local, shortly after the book. This article demonstrates the importance of dominating a local market. Though in business “local” can mean a product that enjoys a sustainable competitive advantage, in general dominating a geographic area is one of the best strategies for success.
As we will see, North Korea has an incredible protected local dominance which forms most of its sustainable competitive advantage, as in many successful companies and other competitive entities.
Next:Â Geography: the playing field and relevant players
EDIT: I included much of this post and this series on strategy (edited and polished) in my ebook, Understanding North Korea: Demystifying the Worldâ€™s Most Misunderstood Country. I wrote the book to help increase understanding, communication, and freedom.