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Strategy as Simple Rules
by Kathleen M. Eisenhardt and Donald N. Sull

Reprint r0101g

When the business landscape was simple, companies could afford to have complex strategies. But now that business is so complex, they need to simplify. Smart companies have done just that with a new approach: a few straightforward, hard-and-fast rules that define direction without confining it.

as Simple Rules

by Kathleen M. Eisenhardt and Donald N. Sull

ince its founding in 1994, Yahoo! has emerged as one of the blue chips of the new economy. As the Internet’s top portal, Yahoo! generates the astounding numbers we’ve come to expect from stars of the digital era – more than 100 million visits per day, annual sales growth approaching 200%, and a market capitalization that has exceeded the value of the Walt Disney Company. Yet Yahoo! also provides something we don’t generally expect from Internet companies: profits. 107

Copyright © 2001 Harvard Business School Publishing Corporation. All rights reserved.

S t rat e g y a s S i m p l e Ru l e s

Everyone recognizes the unprecedented success of 50 to do.” In traditional strategy, advantage comes from exYahoo!, but it’s not easily explained using traditional ploiting resources or stable market positions. In strategy thinking about competitive strategy. Yahoo!’s rise can’t as simple rules, by contrast, advantage comes from sucbe attributed to an attractive industry cessfully seizing fleeting opportunities. structure, for example. In fact, the It’s not surprising that a young comThe new economy’s most Internet portal space is a strategist’s pany like Yahoo! should rely on stratworst nightmare: it’s characterized by egy as simple rules. Entrepreneurs have profound strategic implication always used that kind of opportunityintense rivalries, instant imitators, and customers who refuse to pay a cent. grabbing approach because it can help is that companies must Worse yet, there are few barriers to them win against established competientry. Nor is it possible to attribute tors. What is surprising is that strategy capture unanticipated, Yahoo!’s success to unique or valuable as simple rules makes sense for all resources – its founders had little more kinds of companies – large and small, fleeting opportunities than a computer and a great idea old and young – in fast-moving markets when they started the company. As for like those in the new economy. That’s in order to succeed. strategy, many analysts would say it’s because, while information economics not clear that Yahoo! even has one. and network effects are important, the The company began as a catalog of new economy’s most profound strateWeb sites, became a content aggregagic implication is that companies must tor, and eventually grew into a comcapture unanticipated, fleeting oppormunity of users. Lately it has become tunities in order to succeed. a broad network of media, commerce, Of course, theory is one thing, but and communication services. If Yahoo! putting it into practice is another. In has a strategy, it would be very hard to fact, our recommendations reverse pin down using traditional, textbook some prescriptions of traditional stratnotions. egy. Rather than picking a position or While the Yahoo! story is dramatic, leveraging a competence, managers it’s far from unique. Many other leadshould select a few key strategic proers of the new economy, including eBay and America Oncesses. Rather than responding to a complicated world line, also rose to prominence by pursuing constantly with elaborate strategies, they should craft a handful of evolving strategies in market spaces that were considered simple rules. Rather than avoiding uncertainty, they unattractive according to traditional measures. And it’s should jump in. not exclusively a new-economy phenomenon. Companies in even the oldest sectors of the economy have excelled Zeroing in on Key Processes without the advantages of superior...
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