The Idea in Brief
Yahoo!’s success is astounding: This Internet portal generates 100 million visits per day, annual sales growth near 200%, and profits surprising for an e-company.
The secret of Yahoo!’s success? A unique set of strategic processes and a handful of simple rules to guide them.
Today’s unpredictable, complicated markets demand especially clear and simple strategies. “Strategy as simple rules” makes any company—not just dot-coms—nimble and flexible enough to capture fleeting but profitable opportunities that others miss. A few hard-and-fast rules provide just enough structure for firms to pursue the hottest opportunities—without constraining them in straitjackets.
The Idea in Practice
Defining Your Processes and Rules
Pick key strategic processes that place your company where the flow of opportunities is swiftest and deepest; e.g., product innovation, partnering, branding. Then guide those processes with a few concrete, specific rules. Example:
Autodesk, maker of software for design professionals, faced plateauing growth in the mid-1990s. Suspecting that its technologies offered prime growth opportunities, it focused anew on its product-innovation process, but with a new simple rule: product-development time had to radically decrease from two years to three months. Stock price tripled and strategic flexibility expanded.
Five Kinds of Simple Rules
- How-to rules define how to distinctively execute your key processes.
Example:
Akamai, the Internet technologies company, has defined three clear rules to guide its customer-care process: 1) staff must consist of technical gurus, 2) customer service reps must answer questions on the first call or e-mail, and 3) R&D staff must rotate through customer service.
- Boundary rules help you quickly decide which opportunities to pursue. When Cisco chose acquisitions as a key process, its first boundary rule was: Acquire only companies with no more than 75 employees, 75% of whom are engineers.
- Priority rules help you quickly rank competing opportunities. Intel allocated manufacturing capacity to products based on products’ gross margins. That rule helped Intel shift into the nascent, highly profitable microprocessor niche.
- Timing rules synchronize you with the pace of emerging opportunities, as well as with other parts of your company. At Nortel Networks, rules are: 1) know when a product must be delivered to win leading customers, and 2) complete product development in under 18 months.
- Exit rules discipline you to pull the plug on yesterday’s opportunities. Oticon kills projects in development if a key team member leaves for another project within the company.
The Number of Rules Matters
Too many rules are paralyzing; too few, confusing. Aim for two to seven, shifting the number as appropriate. In predictable markets, use more rules to increase efficiency. In turbulent markets, use fewer rules to increase flexibility. Example:
Cisco added five rules to its 75 people/75% engineers rule when its market became more focused, including: Potential acquisitions must share Cisco’s vision of where the industry is headed and must have a compatible culture.
Since its founding in 1994, Yahoo! has emerged as one of the blue chips of the new economy. As the Internet’s top portal, Yahoo! generates the astounding numbers we’ve come to expect from stars of the digital era—more than 100 million visits per day, annual sales growth approaching 200%, and a market capitalization that has exceeded the value of the Walt Disney Company. Yet Yahoo! also provides something we don’t generally expect from Internet companies: profits.