Conventional wisdom held that a discount store needed a large population to spread its overhead and support low prices. Yet early Wal-Mart put large stores in small towns. Richard Rumelt's explanation starts with the unit being measured. An isolated store and a store connected to a regional network had different economics.
Strength depends on the contest. A team with fewer resources can sometimes choose conditions that make its particular capabilities more useful without exposing its weaknesses. It then needs a feasible objective and activities that reinforce one another. Concentrating on fewer things helps only when there is a reason those things can change the result.
Wal-Mart linked stores to distribution centers, shared information and coordinated transport. Trucks delivered goods and collected supplies on return trips. Store data helped manage logistics and suppliers. Frequent deliveries made lower inventories possible. The network served millions of people, allowing costs to be spread across far more business. Scale still mattered, but the network supplied it. Store locations had to fit that network as well as local demand. A rival installing bar-code scanners without the information and transport arrangements would not reproduce the same benefit. The policies made one another useful; they created strength through their connections.
That response had to be designed. Useful alternatives rarely arrive as a ready-made menu, although a design can change with experience. Focus also requires buyers who value the whole offering enough to justify its costs. Serving a smaller market does not, by itself, establish an advantage.
Choose a change that can work
Rumelt calls the amplification of focused effort leverage. Its source might be unmet demand, a vulnerable rival or a bottleneck that can be removed. Timing matters because the opportunity may be temporary. An arbitrary priority acquires no extra power just because everyone concentrates on it.
Buyers and rivals also respond. Their incentives, routines and expectations affect what they will do and how quickly. An action can induce a response, perhaps prompting costly defensive measures that consume a rival's resources. Simply matching the opponent's spending directs attention toward its strengths and can hide these opportunities.
Concentration can matter when effort has to cross a threshold. Advertising spread too thinly, for example, may never get noticed. Scarce managerial attention and time before a rival responds also favor concentrating effort. Choose only as many objectives as available resources can influence decisively. There is no universal payoff from concentrated spending.
The objective must be achievable for this team. Rumelt calls that a proximate objective: clear and reasonably within reach, even if difficult. Leaders must settle enough working assumptions to give people a solvable task, without pretending the assumptions are established facts. When distant outcomes are uncertain, nearer gains in capabilities or options can improve the position for later choices.
Each unit must translate its assignment into concrete tasks. Reliable basic skills and coordination free attention for harder work; early accomplishments make later ones possible. Information must also travel upward. Strong operating evidence that an objective is impossible warrants changing it. Abandoning direction at every snag, however, can reward people who obstruct the effort. Feasibility requires communication with those doing the work.
Why repairs have an order
Linked activities create another difficulty. When one necessary component limits the result, improving a stronger component leaves the constraint intact. The priority is a weakness that both matters and can be repaired. Where a particular quality is required, adding more inadequate inputs cannot supply it.
Several weak links can trap a business. Better machines bring little benefit if salespeople cannot explain them. Better selling brings little benefit while the machines remain inadequate. Each department can reasonably resist spending on an improvement that raises its costs before another department improves. Separate short-term profit targets then preserve a poor combined result.
Rumelt describes a machinery-company turnaround led by Marco Tinelli. Machine quality had slipped, sales staff lacked technical sophistication, and costs were too high. Tinelli began with a campaign to improve quality. Once the machines improved, engineering and manufacturing helped sales develop skills, tools and communication with the factory. Market benefits arrived slowly. He protected the early work from demands that each improvement immediately pay for itself and took responsibility for the combined result.
Cost work came last, so economy would support the improved machines. Making some tools and dies internally increased machine speed, reducing customers' cost of use without reducing the purchase price. Explaining that benefit required the selling capability built earlier. Temporary central direction and protection of intermediate accomplishments made the sequence possible. These were capabilities being assembled in order, with a payoff that depended on their connection.
A strong linked system can also resist imitation, since copying one component yields little without the rest. That protection requires well-performed core activities, substantial interdependence and an unusual combination rivals cannot readily assemble. Connecting mediocre activities gives no automatic defense.
Coordination itself has costs. Local purchasing freedom can obstruct shared logistics, but removing autonomy can sacrifice responsiveness and specialization. Tighter integration can help scarce resources meet a hard challenge; better underlying resources can sometimes achieve the same performance with less coordination. A tight design is harder to construct, narrower in use and more vulnerable when one component fails. Its power must justify the flexibility it gives up.
Three things to keep
Choose conditions where your capabilities matter and buyers value the whole offering.
Repair binding weaknesses in a sequence that protects the eventual combined benefit.
Tighter coordination can conserve resources while making a system harder to adapt.