Article Summary "Strategy as Simple Rules"
„Strategy as Simple Rules“ by Kathleen Eisenhardt and Donald Sull
A) Article Summary
Basically the article describes how and why companies like Yahoo, AOL or Enron use simple rules in rapidly moving markets. In the past companies were able to apply complex strategies due to a simple business landscape and stable markets, but nowadays most markets are not stable any more. Markets are fast moving and so complex themselves that companies are forced to react and to simplify their strategies.
The authors' central statement is that the traditional approach of staking out a defensible position misses the key to success in rapidly moving markets. That key is the ability to recognize and capitalize on fleeting opportunities. For dotcoms like Yahoo or AOL it's more important to pursue opportunities than to establish position or to leverage resources.
As Kathleen Eisenhardt and Donald Sull analyzed dozens of companies in unpredictable markets, they have discovered that simple rules can be divided into five categories:
How-To Rules show key features of how a process is executed. For example Enron focuses on the risk management process in its commodities trading business with two rules:
1) Each trade must be offset by another trade that allows the company to hedge its risk and
2) every trader must complete a daily profit-and-loss statement.
Boundary Rules define a framework in which managers have to focus on the right opportunities and to sort out the ones which are outside the pale. Example: Cisco focuses on the acquisition process with three rules:
1) The target must have no more than 75 employees
2) 75% of those employees must be engineers and
3) the target must be within 50 miles of headquarters.
Priority Rules rank the accepted opportunities. Intel for example focuses on the process of allocating manufacturing capacity with one rule based on a product's gross margin.
Timing Rules synchronize managers with the pace of emerging opportunities
A) Article Summary
Basically the article describes how and why companies like Yahoo, AOL or Enron use simple rules in rapidly moving markets. In the past companies were able to apply complex strategies due to a simple business landscape and stable markets, but nowadays most markets are not stable any more. Markets are fast moving and so complex themselves that companies are forced to react and to simplify their strategies.
The authors' central statement is that the traditional approach of staking out a defensible position misses the key to success in rapidly moving markets. That key is the ability to recognize and capitalize on fleeting opportunities. For dotcoms like Yahoo or AOL it's more important to pursue opportunities than to establish position or to leverage resources.
As Kathleen Eisenhardt and Donald Sull analyzed dozens of companies in unpredictable markets, they have discovered that simple rules can be divided into five categories:
How-To Rules show key features of how a process is executed. For example Enron focuses on the risk management process in its commodities trading business with two rules:
1) Each trade must be offset by another trade that allows the company to hedge its risk and
2) every trader must complete a daily profit-and-loss statement.
Boundary Rules define a framework in which managers have to focus on the right opportunities and to sort out the ones which are outside the pale. Example: Cisco focuses on the acquisition process with three rules:
1) The target must have no more than 75 employees
2) 75% of those employees must be engineers and
3) the target must be within 50 miles of headquarters.
Priority Rules rank the accepted opportunities. Intel for example focuses on the process of allocating manufacturing capacity with one rule based on a product's gross margin.
Timing Rules synchronize managers with the pace of emerging opportunities