The Mind of the Strategist

The Art of Japanese Business

by Kenichi Ohmae
1982 McGraw-Hill
304 pages

Focus Take-Aways
Leadership & Mgt.
The purpose of business strategy is to cause events to favor your strengths.
Strategy
Identify your strengths and build on them.
Sales & Marketing

Corporate Finance Every industry has a key success factor know yours.
Human Resources Penetrate appearances.
Technology & Production
Address the problem, not the symptoms.
Small Business
Know what separates winners from losers in your industry and your market.
Economics & Politics

Industries & Regions
Career Development
Personal Finance
Concepts & Trends
Analyze potential improvements in terms of cost, benet and strategic advantage.
Keep track of customer and market trends even though customers may not
know what they want.
Know the difference between a business and a product.

Think like an entrepreneur, but think.

Rating (10 is best)

Overall Applicability Innovation Style

9 9 9 9

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 Relevance
What You Will Learn
In this Abstract, you will learn: 1) How Japanese business people think about strategy;
and 2) How you should conceptualize and execute your strategy.

Recommendation
This book, rst published in Japan in 1975, is a somewhat dated classic, since the rst
edition appeared at the high water mark of Japanese competitiveness. Japans economic
doldrums since 1990 probably ensure that few business people will emulate it now. In a
way, the fact that the bloom is off Japans chrysanthemum makes this book more useful
and relevant than it was a quarter-century ago. Now that people arent starry-eyed about
Japan, its possible to sort through the recommendations, take them with a grain of
salt and nd their deeper usefulness. The author is a famous McKinsey consultant, so
the book is packed with charts and jargon. Ignore the jargon, the obsolete observations
about how U.S. companies organize themselves and the anachronisms about Soviet-style
central planning, now a relic. Focus instead on the examples and asides. getAbstract.com
also notes that this is a must-read for anyone working in Japan or competing against
Japanese companies, if only because so many Japanese managers give it to their new
hires as part of their training programs.

Abstract
The Point of Beginning
Japanese companies have astounded the world with their competitive drive and success, so
everyone wonders what their secret is. Surely such remarkable achievement must derive
from some equally remarkable formula or insight. How paradoxical it is that these world-
Strategic success beating rms have no formal processes of strategic planning, lean or nonexistent planning
cannot be reduced
to a formula, nor staffs and rudimentary technologies. With all these deciencies, they still manage to
can anyone be- penetrate new markets and establish dominance in a wide range of industries.
come a strategic
thinker merely by In fact, although Japanese companies dont usually have an army of strategic planners,
reading a book. they do have some remarkable strategic insights. Usually those insights reside in one
person, often the person who founded the company, perhaps a man with scant formal
education. Instead of a thorough grounding in analytical methodologies, this man usually
has an intuitive understanding of how the market works and where the company must
position itself. These insights are creative, usually unorthodox and often radically new.
This kind of strategic visionary leader is becoming obsolete. In both the East and
the West, the pressure of organization and institution overwhelms the individual,
Everyone thinks pushing aside the prophetic visionary, exalting the number-crunching rationalist. U.S.
the Japanese pos-
sess some special
corporations, in fact, look like the Soviet economy. Theyre full of central planners who
magic that enables attempt to control every detail of policy, procedure, resource allocation, risk and return.
them to run rings This sort of thing does not make for strategic success. Strategy is always and everywhere
around their com-
the product of an attitude and a way of thinking, not of an analysis or a set of facts. Great
petitors in world
markets. strategists are like great artists.
Recognize that strategy begins with analysis. The strategist analyzes a set of facts,
in the sense of taking the set apart, and then reassembling it in an order that makes
The Mind of the Strategist Copyright 2003 getAbstract 2 of 5
 sound strategic sense. The purpose of strategy is to maximize ones advantage. On
a battleeld, this means picking the right place to ght, the right time to attack, the
Over time, man- right time to retreat weighing and re-assessing as circumstances change, but always
agement pro- with maximum advantage in mind. Strategy is intuitive, but it is also analytical; it is
cesses and analytical, but also intuitive.
systems tend to
shape and form
the culture of the
Main Issue
corporation. The rst step in strategy is to identify the one issue that matters most the critical
issue. To do this, you must frame the question properly. Suppose a company is incurring
high costs for overtime work. What is the correct question? Could it be, How can we
reduce overtime? or maybe, Do we have enough staff? or perhaps, Does our staff
have the necessary skills to do the work in a timely manner? Each question would elicit
a different response. Clearly, though, it is necessary to answer the third question before
In Japanese eyes
a corporation is
moving to the second, and then the rst.
nothing but an
assembly of Unfortunately, many business people would simply assume away the two most critical
people, each questions and focus on the rst. It takes a certain disciplined creativity to question what
known as a sha-in, everyone else takes for granted. Some people can intuit the critical issue, but they are
or member (not an
employee) of the
scarce. Fortunately, a disciplined method can help anyone arrive at a workable denition
corporation. of the critical issue. This methodology can apply to a broad spectrum of business issues:
Diagram the issue or question (e.g., Can we lower costs on this product?).
Identify the issue components (e.g., Fixed costs, variable costs, design specs).
Question each component (e.g., Can we change the design specs to use cheaper mate-
rials?). Look at the advantages and disadvantages of changing that component.
Without competi-
tors there would Offer a specic plan of action for each issue component.
be no need for
strategy, for the Four Strategic Paths
sole purpose of Strategy is about achieving competitive advantage. If there were no competitors, there
strategic planning
is to enable the
would be no strategy. No one would need it. This suggests that the most important
company to gain, strategic issue is competitiveness. A company can tolerate certain internal deciencies,
as efciently as but rms cannot survive competitive inadequacy. Allowing the company to deteriorate vis
possible, a sus- a vis its competitors means putting the companys fate in the hands of the competition.
tainable edge over
its competitors. People think differently when they face competitive survival. This changes their focus.
They recognize that the best is the enemy of the good, and possibly the friend of the
competition. Good enough is good enough. Theres no point looking for the perfect
strategy or the perfect competitive situation. The point is to gain an advantage over the
competition at a reasonable cost. Do that often enough and you will win. This can be
accomplished four ways:
If you can identify
the areas which
1. Re-allocate resources.
really hold the key 2. Focus on ones relative strength.
to success in your
industry and apply 3. Redene the key issue of the business by a bold stroke.
the right mix of 4. Be free.
resources to them,
you may be able Now, lets look at each path separately:
to put yourself into
a position of real Re-allocate Resources
competitive superi- As noted earlier, every industry has one or two factors that determine success. No matter
ority.
how complicated the industry may seem, at its heart it is simple. Banking, for example,
is about collecting money at a low cost and lending it at a higher return.
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 The critical factors in an industry can be identied several ways. One is to analyze
the industry, looking at each segment, dening how competitors in each area behave
It is hard to over- and drawing some overall conclusions about the success factors. Another is to examine
state the import- the conduct of winners and losers to dene the behavior, advantages or resources that
ance of formulat- made the difference. Once you have identied the key factor for success (KFS) in your
ing the question
correctly. industry, re-deploy your resources to focus on building strength in that key factor. If it
is service, focus your resources on developing outstanding service. If product design is
a key factor, focus on that.

Relative Strength
Examine your product and identify areas where you can focus on achieving a relative
advantage. This may mean literally taking your product apart, taking your competitors
product apart and comparing the two.
For example, Fuji and Sakura competed in the market for photographic lm. Their
The strategists quality was comparable, but Fuji had an advantage in its name, which suggested the
weapons are stra- sharp colors and contrasts of Japans scenic, holy mountain. Sakura means cherry
tegic thinking,
consistency and
blossom, and connotes a vague, hazy sort of beauty. Sakura analyzed the market to nd
coherence. out whether it could reverse its loss of market share to Fuji, and found that consumers
were becoming more concerned about cost and often tried to squeeze an extra shot or
two onto a roll of 20 exposure lm. Sakura decided to introduce a 24 exposure lm at
the same price as Fujis 20 exposure lm. Strategically, this made sense. Sakura could
not win the image contest Fuji had relative strength there. But Sakura could develop
relative strength on the basis of cost. The corporate strategist who relies on relative
strength should think through competitors likely reactions to each move, and prepare to
defend against those reactions.

The Bold Stroke

Structural chang-
es are usually Simply put, this is about asking Why to test every assumption that is ordinarily
slow, incremental taken for orthodox wisdom in your industry. One of the best practitioners of this
processes, imper- method is Taiichi Ohno of Toyota. He asked why car companies had to keep costly-to-
ceptible from year
to year to those
nance inventory on hand, and wound up inventing just-in-time material management
inside the busi- practices. Keep asking why. Great breakthroughs come from answering this question.
ness.
Be Free
Specically, take advantage of strategic degrees of freedom. Having identied the key
factors for success, precisely identify what courses of action may be open. In the case of
an auto company, perhaps safety is a KFS. An automaker can do many things to improve
safety, but cant do all of them at once. Meanwhile, there are some things that might
improve safety but that the company simply cannot do. Strategic planning and strategic
action should proceed in the areas where the company is indeed free to move.

Strategic Triangle
Other things
being equal, a
Using the methodology above, you will avoid some of the great errors of strategy, including:
lower-cost function
can be a source of Tunnel vision You must keep alternatives in view at all times.
prot if the product All or nothing In fact, half a loaf, even a quarter, is preferable to none.
is priced on a par
with competition. Think of strategy as a triangle with three sides: company, customer and competition.
Movement by any of these elements affects the market and may make it necessary to change
the strategy. However, strategic change can be vexingly difcult. Here are some examples:
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 Company-based strategy One Japanese air conditioner company with an out-
standing reputation for engineering decided to cope with a competitive threat by
developing a line of high-quality, high-priced home air conditioners. The product
If the competition went to market and opped. It was well-engineered, but so heavy that distributors
has a clear cost were not willing to carry and install it. Theres an old saying to the effect that when
advantage and
chooses to reect the only tool you have is a hammer, every problem looks like a nail. Beware. Stra-
it in price, a com- tegic planning must be broad and comprehensive; it must address not only immedi-
pany with a higher ate possibilities but what if consequences. Companies that opt to outsource some
cost structure is
doomed to fail if
operations make a clear decision, a commitment, usually based on costs, to change
it resorts to mere what their company does and to focus their resources on what they do best.
cutthroat warfare. Customer-based strategy Generally, a company should identify one subset or seg-
ment of customers and focus on them, instead of trying to satisfy the entire market.
This means knowing your customer segment very well and understanding why you
might have a relative strength with this group. Japanese car companies adopted this
type of strategy in the 1970s, when they introduced fuel-efcient compact cars to the
Because he segment of the U.S. market that was the most receptive to them.
understands the Competitor-based strategy Seek areas where the competitive situation allows you
full range of alter-
natives that lie to develop a clear edge. Sony had a great reputation for quality in the U.S., but its
before him and reputation in Japan was comparable to its competitors reputations. Sony invested
constantly weighs heavily in advertising, PR and marketing, and soon commanded a price premium over
the costs and
benets of each its Japanese competitors because it had built relative superiority on the image front.
one, the true
strategic thinker Business strategy concerns how best to operate in a given economic environment; it would
can respond ex-
ibly to the inevi-
be foolish to ignore the implications of the overall economy. Low growth, for example,
table changes in can exacerbate competitive pressures. Meanwhile, advances in technology or changes in
the situation that industry structure may well derail strategies based on the assumptions of the past.
confronts the com-
pany.
Be aware, use foresight and never stop asking why? Remember that your purpose in
developing a strategy is to gain competitive advantage. Many small steps can add up to
one very long lead over the competition.

About The Author

Kenichi Ohmae, a director at McKinsey & Company and co-leader of its strategy
practice, has written several best-selling books on strategy and several scientic papers
on nuclear engineering.

Buzz-Words
Critical issue / Degrees of freedom / Key factor for success (KFS) / Relative strength /
Strategic triangle

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