This post explores the idea of an evolved approach to strategy – the development and implementation of simple rules. It came about as a result of increasingly rapid change – and shortened periods of strategic advantage. It relates closely to the growth of the “project economy”.
What Is “Strategy as Simple Rules”?
Kathleen M. Eisenhardt and Donald N. Sull introduced the concept in their article “Strategy as Simple Rules” in the Harvard Business Review in 2001.
The article, written relatively early in the digital era, talks about rapidly changing conditions and equally quickly evolving strategies. It was a departure from the idea of traditional long range, text book notions of strategy. The idea was to uncover the way to success while pursuing constantly evolving strategies.
As with the emergence of increasingly temporary competitive advantages, companies can use simple rules to maintain focus under rapidly changing conditions and an overwhelming number of opportunities. In short, they can be agile with their strategies! That agility is summarized in the phrase, “strategy as simple rules”
The idea is for managers to “select a few key strategic processes” rather than rely on elaborate strategies. In doing so, they will “craft a handful of simple rules.”
And finally, they will embrace rapid implementation under uncertainty: “Rather than avoiding uncertainty, they should jump in.”
The authors assert that the approach is actually highly disciplined. It is unique to the business, provides a way to take logical action and peak around corners in the face of chaos, and builds hard-to-see competitive advantages.
‘Simple Rules’ As an Approach to Strategy
In “Strategy as Simple Rules“, Eisenhardt and Sull cite three approaches to strategy that managers can take:
“Managers competing in business can choose among three distinct ways to fight. They can build a fortress and defend it; they can nurture and leverage unique resources; or they can flexibly pursue fleeting opportunities within simple rules. Each approach requires different skill sets and works best under different circumstances.”
This is foundational thinking which leads to strategy as simple rules. Only one of these three approaches can be taken in developing strategy:
- Position – Focused on building and defending a position within an attractive market, where business activities will be tightly integrated and consistent over time, with a goal of sustained profitability.
- Resources – Focused on establishing and pursuing a vision to build hard-to-imitate resource capabilities that can be leveraged across multiple markets for sustained long-term dominance of a market.
- Simple rules – Focused on pursuing opportunities in an often confusing context moving with agility to build key processes and unique simple rules to build advantage and grow.
The authors assert that each approach requires distinct skill sets, and each works under different circumstances. Opportunities in evolving marketplaces have been trending away from position and resources toward simple rules as the continuing chaos of digital transformation plays out.
Examples: Where ‘Strategy as Simple Rules’ Is Favored
The starting point for identifying simple rules lies in managers “focusing on key strategic processes that will position their companies where the flow of opportunities is most promising.”
Here are ten examples of “Strategy as Simple Rules” – examples of key strategic processes – that organizations may adopt:
- First-mover advantage: Whenever a new market opportunity arises, as a rule, be the first to enter and establish a strong position.
- The Pareto Principle, or 80/20 rule: In virtually everything, 20% of the effort brings 80% of the results. What 20% bring 80% of the results in terms of customers, products, or markets? Set rules that emphasize that 20%.
- Strictly maintain cultural fit: Set rules that ensure that all employees, especially in recruiting new employees, are aligned with the organization’s values and culture.
- Adopt an experimental mindset: Be willing to “fail fast and fail cheap”. Set rules with clear limits to acceptable failure – appropriate for the context – across teams and the organization.
- Exceed customer expectations: Strive to deliver exceptional customer service and consistently go above and beyond what is expected. Set rules that speak to the competitive environment in your industry.
- Keep it simple: As a cultural norm, simplify processes, products, and communication to reduce complexity and for efficiency. Set rules for desired common practices.
- Embrace continuous improvement: As an extension of keeping things simple, make it common practice to identify and implement small, incremental changes.
- Focus on core competencies: Concentrate resources on areas where the organization has a distinct advantage and outsource non-core activities. Rules clarify to limits. This is an application of 80:20 thinking.
- Speed over perfection: Prioritize speed and agility in decision-making and execution, rather than striving for perfection at the expense of timeliness. Set rules to help distinguish these situations.
- Foster cross-functional collaboration: Set rules to accommodate and encourage collaboration and knowledge-sharing across different departments or teams. This usually includes rotating people through cross-functional assignments.
These are just a few examples, and the specific simple rules adopted by organizations can vary depending on industry, competitive landscape, and strategic objectives.
The key is to identify a small set of rules that capture the essence of the organization’s core strategy and can guide decision-making in a clear and actionable manner.
Implications of ‘Strategy as Simple Rules’ for Strategists
The difference in using simple rules as an approach to strategy lies in the mindset and questions asked when thinking about strategy. These rules set the borders within which people can operate freely and with minimal constraint.
As a result, devising strategy using the simple rules approach involves a large degree of trial and error – learning through experience. This makes the simple rules approach pertinent in more cases than the position or resources approaches for the following reasons:
- Advantages can be short-lived – The length of time that an advantage flows through the five transient advantages stages – launch, ramp-up, exploit, reconfigure, and disengage – continues to shorten, reducing returns for any single advantage. This puts a premium on the ability to be agile about strategy.
- Disruption is more likely – Position and resource strategies depend heavily on stability of overall conditions. Although a company may build some position and resource advantages, they are more likely to be smaller and for shorter duration, so economies of scope might be a more profitable and sustainable path to take.
- Organizational harmony – Many of the examples above relate to consistency, coordination, and harmony within the organization as a common thread. You can find this in strategic frameworks like the MicKinsey 7S Framework, Digital Transformation Strategy, Business Model Innovation, and Network Effect.
Strategy becomes no less complex, but becomes more organic, flexible, and grounded.
Application of ‘Strategy as Simple Rules’ for Project Managers
Execution of the simple rules falls to operational and, increasingly, project management. Rapid change and agility points to more projects.
Here are the key ways I see simple rules in practice in project management:
- Project Management – What metrics do we need? What are the key drivers of my project? What “cultural rules” do we need to implement for the project team? What strategic objectives does our project need to achieve?
- Program Management – Some questions are similar to those for projects. Programs are broader, though, and have a whole strategic thrust of their own. Sometimes it can even be different from the organization; a program could be somewhat of a separate entity that has been created to actually set up its own rules. Thus, it needs to be clear what the objective of the program is.
- Portfolio Management – This is where numerous of the rules are set and applied. Prioritizing certain projects – and rejecting or eliminating others – is key.
Projects, programs and portfolios implement change. They are set up to implement the rules of the overall organization, explore new rules, or implement a set of rules that might otherwise be contrary to the overall organizaiton.
Projects, programs, and portfolios are also prevalent in organizations where “simple rules as strategy” applies. Such organizations are trying to find their way through the fog in a deliberate and structured way, and projects help them to do that.
Conclusion and Further Resources
This post has explored the idea of an evolved approach to strategy – the development and implementation of simple rules.
How do you implement simple rules for your project team, and how might you do it better?
The following is a brief – under 4 minutes – and simple explanation of simple rules by one of the authors of the approach, Kathleen M. Eisenhardt: