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“simple but not simplistic.”
The 7 Powers, a Strategy framework borne of hundreds of consulting engagements and decades of active equity investing, clears this hurdle.
If your business does not have at least one of these seven Power types, then you lack a viable strategy, and you are vulnerable. My goal in writing this book is to enable you to flexibly navigate the hazardous shoals of strategy development.
Strategy (the intellectual discipline)
strategy (the specific approach of a single business).
Strategy: the study of the fundamental determinants of potential business value
Strategy can be usefully separated into two topics: Statics—i.e. “Being There”: what makes Intel’s microprocessor business so durably valuable? Dynamics—i.e. “Getting There”: what developments yielded this attractive state of affairs in the first place?
Power: the set of conditions creating the potential for persistent differential returns
strategy: a route to continuing Power in significant markets
some themes that will recur in the chapters to come: Persistence. The Fundamental Formula of Strategy specifies unchanging m—differential margins.
Attributes of strategy
“Power” for those conditions that create durable differential returns. In other words, we are trying to discern long-term competitive equilibria,
Benefit. The conditions created by Power must materially augment cash flow,
manifest as any combination of increased prices, reduced costs and/or lessened investment needs. Barrier. The Benefit must not only augment cash flow, but it must persist, too.
The Barrier conditions, on the other hand, prove far rarer, a reality that merely proves the ubiquity of competitive arbitrage.
“Always look to the Barrier first.”
Industry Economics and Competitive Position. The conditions of Power involve the interaction between the underlying industry’s economics and the specific business’ competitive position.
Complex Competition. Power, unlike strength, is an explicitly relative concept: it is about your strength in relation to that of a specific competitor. Good strategy involves assessing Power with respect to each competitor, which includes potential as well as existing competitors, and functional as well as direct competitors.
Single Business Focus.
In the case of Intel, memories and microprocessors were essentially separate businesses, posing two unique orthogonal Strategy problems.
Warren Buffett’s view that if you combine a poor business with a good manager, it is not the business that loses its reputation.
Good leadership studies Strategy and develops a strategy by understanding the Power of the business. There is nothing inherent, only developed by good leaders.
their combined leadership was decisive in backing microprocessors in the first place and in a variety of choices that assured “a route to continuing Power.”
But let me offer a first insight right here up front: all Power starts with invention.
the other key element of the Fundamental Equation of Strategy—market size.
