Strategy As Simple Rules

Eisenhardt, K.M., Sull, D.N. (2001, January). Strategy as simple rules. Harvard Business Review, 106-116. 

This article lays out guidelines for designing straightforward, hard-and-fast rules that will define strategic direction in organizations without confining it.  The strategic logic behind simple rules is one of pursuing opportunities.  This is contrasted with position and resources, which follow logics to establish position or leverage resources, respectively.  Managers who use simple rules are advised to pick a small number of strategically significant processes and craft a few simple rules to guide decisions regarding these processes.  Such processes might include product innovation, spinout creation, or new-market entry.

The authors recommend organizations set for themselves rules in the following categories to guide large and small strategic decisions:

• How-to Rules:
  Spell out key features of how a process is executed – “What makes our process unique?”
• Boundary Rules:
  Focus managers on which opportunities can be pursued and which are outside the pale.
• Priority Rules:
  Help managers rank the accepted opportunities.
• Timing Rules:
  Synchronize managers with the pace of emerging opportunities and other parts of the company.
• Exit Rules:
  Help managers decide when to pull out of yesterday’s opportunities.

The authors make some important distinctions about what simple rules are not.  First, simple rules are not broad.  Hewlett-Packard’s celebrated “HP way” may create a productive culture, for example, but it fails to guide strategic action for employees.  Second, simple rules are not vague.  If no reasonable person could argue against your rules, it’s too vague.  Third, simple rules are not mindless.  Do some self-evaluation and examine what implicit rules are you following that are pointless or embarrassing.  Finally, simple rules are not stale.  Refresh your rules if there have been significant changes in your environment or market in recent years.

Because no one in an organization can precisely predict how long a competitive advantage will last, it is important to have a simple strategy disseminated through the organization.  Simple rules provide a way for strategy to reach all members of the organization and equip all members to follow strategic direction in decisions large and small.

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