Eisenhardt tools are a set of famous strategy tools, where she describes how some of the most successful companies have played their strategy. Cisco, Yahoo, AOL are all examples of those who have used her tools, with or without knowing them :) Here is a small excerpt from what I have learnt from this article "Strategy as Simple Rules" by Kathleen M. Eisenhardt.
How can companies compete in unattractive markets with intense rivalry, instant imitators, customer that refuse to pay, few entry barriers and without unique or valuable resources?
(1) position: build a fortress and defend it
(2) nurture and leverage unique resources
(3) flexibly pursue fleeting opportunities within simple rule:
Ø Strategic step: jump into the confusion, keep moving and seize opportunities
Ø Source of advantage: key processes and unique simple rules
Ø Works best in changing ambiguous markets
Ø Unpredictable duration of advantage
Ø Risk: Too tentative in executing on promising opportunities
Ø Performance goal: growth
5 categories of Simple Rules
Ø How-To Rules: Key features of how the process is executed
Ø Boundary Rules: Focus on which opportunities can be pursued and which are outside the pale
Ø Priority Rules: Rank the accepted opportunities
Ø Timing Rules: Synchronize managers with pace-of-emerging opportunities and other parts of the company
Ø Exit Rules: Decide when to pull out of yesterday´s opportunities
Number of rules matters
Ø 2 to 7 rules: good thumb rule
Ø Too many rules: Blinds opportunities and reduces flexibility to respond to market changes
Ø Too little rules: creates confusion on which opportunity to pursue and which to ignore.
Ø Period of predictability & focused opportunities: use more rules to bring efficiency
Ø Diffuse opportunities and less predictable environments: use less rules to increase flexibility
How Rules are created:
From experience and mistakes, mostly. These rules exist implicitly and needs to be identified. Small moves are faster and safer, and the rules are not one-size! Changing too frequently is not good but knowing when to change is necessary.
What simple rules are not!
Broad – Company’s guiding principles are not simple rules! Simple rules are tailored to a single process
Vague – Can a random person argue the exact opposite of your rule? If yes, the rule is Effective rule; If not then the rule is too vague and needs to be re-framed!
Mindless – Filter implicit rules in the company and throw out the embarrassing ones
Stale – Do you notice your share price dropping? Or Growth slowing down? Or Losing market share? – It’s time to press „Refresh” and re-visit your simple rules.
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