4 WHY SO MUCH BAD STRATEGY?​

There are three reasons-

1. It is painful to make a choice
   • A democratic voting may result in the paradox of voting (reaching an unlogical result like A > B > C > A). For example, the DEC company had three options when making strategic choices - producing server "boxes", "chips", or "solutions". CEO Ken Olsen let people reach a consensus. However, you cannot make sub-organizations give up their passions by themselves. Finally, they failed to choose any one of them, and the answer was "DEC is committed to providing high-quality products and services and being a leader in the data processing."
   • Eisenhower in 1952 won the presidential election and promised to urge the Soviet Union to retreat from Eastern Europe. However, after researching, he cannot do so and had to confront reality.
   • Intel CEO Andy Grove moves the company from producing dynamic random access memory (DRAM) to the one focused on microprocessors. In retrospective, that was a great move but back at his time, he did this under enormous pressure.
2. People like to follow templates without thinking
   • Mistaking leadership for strategy. Leadership and strategy have something similar but are substantially different.
     • Leadership makes people feel better when they are sacrificing for changing.
     • Strategy decides which kind of change worth pursuing.
   • misbelieving that having a strategy equals to having a GOOD strategy. There are numerous templates for strategies and people just take them without thinking, which leads to countless bad strategies.
3. New Thought Movement: people misbelieve that a positive attitude and a strong desire can earn them everything they want.
   • This kind of "positive energy" is the opium of the people, which makes them too lazy to focus on the execution that is truly helpful to the result.

5 THE KERNEL OF GOOD STRATEGY​

The kernel of the good strategy

1. diagnosis: simplifying the problems and identify the challenges and obstacles.
2. guiding policies: specifically dealing with those problems and challenges.
3. coherent actions: under the guiding policies, taking actions with alignments.

Three examples:

In business, the challenge is usually dealing with change and competition.

1. diagnosing the specific structure of the obstacle rather than simply naming performance goals.
2. choosing an overall guiding policy for tackling the obstacle that enables some type of leverage or advantage.
3. design of a configuration of actions and resource allocations that implement the chosen guiding policy.

In many large organizations, the challenge is often diagnosed as internal.

1. organization's competitive problems may be much lighter than the obstacles imposed by its own outdated routines, bureaucracy, pools of entrenched interests, lack of cooperation across units, and plain-old bad management.
2. reorganization and renewal.
3. changes in people, power, and procedures.

Amazon's Flying Wheel

1. Diagnosing that e-commerce and cloud computing are high-costs with high-returns. Thus the company should keep or increase the high return while cutting the costs.
2. Designing the policies of the flywheel. See the picture below.
3. Building infrastructures and services around the flywheel.

I think the "coherent actions" are very interesting.

• Coherent actions means that those actions should align in the same direction, instead of conflicting with each other. For example, as a manager, when I introduce any process to anyone, my principle is that "I would never do things that are not helpful to your work."
• Strategic alignment can hardly be arranged in real-time. It is designed by the leader and enforced on the system.
• Centrally-controlled system sounds bad but each component of the system cannot just operate in absolute autonomy. For example, in the manufacturing industry, the salespeople love to please customers with rush orders, but the manufacturing people prefer long steady production runs. Rush orders and steady production runs cannot happen at the same time. The management has to make a tradeoff.

Introduction: Targeted Approach​

Strategy is about designing and executing a combination of punches: Where is the enemy? Where should we strike, and where should we not? How do we throw our punches? How can the first punch help the second and third?

The core of strategy = Analyzing the current situation + Guiding principles + Coherent actions

Part One: Good Strategy, Bad Strategy​

1 Good Strategy is Unexpected​

Good strategy is unexpected yet reasonable. For example, in 1997, when Steve Jobs returned to Apple, he drastically reduced the product line and focused on a few profitable products. When asked how to deal with the dominant Wintel alliance, he did not give an elaborate strategic speech or set grand growth targets; he simply smiled and said he would wait for the next wave.

Another example is the Gulf War's Operation Desert Storm, where the main forces were reported to be advancing slowly in the media, while another wave of troops stealthily penetrated the enemy from another direction.

Doing everything and believing everything is important is equivalent to believing nothing is important. Good leaders need to know not only what to do but also what not to do.

2 Viewing Strengths with a Discoverer's Eye​

The most fundamental strategy is the SO strategy—Strengths (S) plus Opportunities (O). So where do these strengths come from?

Shakespeare said well in Hamlet: "There is nothing either good or bad, but thinking makes it so." Viewing the world dynamically, strengths and weaknesses are relative. A classic example is the story of David and Goliath. From a secular perspective, David is weak and Goliath is strong; David is a newcomer, while Goliath is an experienced giant warrior. Yet David defeated Goliath with a sling.

The story of Walmart defeating Kmart illustrates discovering advantages from unexpected places. Traditional wisdom in American retail is that a diverse supermarket needs to be located in an area with at least 100,000 people. However, Walmart was able to open in less populated areas. Why? Because Walmart has more efficient supply chain management, creating an organic network between stores, while Kmart's stores were less interconnected, leading to higher inventory management costs and less bargaining power in procurement.

During the Cold War arms race, Andy Marshall's strategy against the Soviet Union was to develop comparative advantages by leveraging America's economic and technological strengths to develop technologies that would be costly for the opponent to counter but would not pose a threat to the U.S., such as improving missile accuracy and developing silent submarines. Ultimately, this strategy led to the downfall of the Soviet Union.

3 Bad Strategy​

Bad strategy is formalism and has four basic characteristics:

1. Empty rhetoric == Fluff ==: Strategy should not be a pile of grandiose terms.

   • For example, a bank might say, "Our core strategy is to be a customer-centric intermediary," but essentially, it means "Our bank's core strategy is to be a bank."

2. Inability to confront challenges

   • If you cannot face resistance, there will be no strategy. Instead, you will only have an unattainable goal.
   • This reminds me that choosing root-level metrics must be done very carefully; == if it cannot be quantified, it cannot be improved. ==
   • A positive example is DARPA.

3. Mistaking goals for strategy

   • For instance, a company claims a 20/20 strategy—20% revenue growth this year and a profit margin of at least 20%. This is not strategy; it is merely a goal.
   • Metrics are not strategy.

4. Sub-goals that are irrelevant or unrealistic

   • Goals are the overall objectives; objectives are sub-goals.
   • Good strategy focuses limited energy and resources on a single or few sub-goals, achieving which can generate new advantages.
   • What constitutes a bad sub-goal?
     1. Putting everything together without prioritization.
     2. Setting unrealistic expectations.

4 Why Are There So Many Bad Strategies?​

There are three main reasons:

1. Making choices is painful.

   • Voting leads to the voting paradox: democratic voting can yield irrational results like A > B > C > A. For example, when DEC was making strategic choices, there were three factions: focus on "servers"? Or "chips"? Or "solutions"? CEO Ken Olsen sought consensus, but essentially, you cannot make a sub-organization automatically give up its own enthusiasm. So in the end, everyone chose a compromise: "DEC is committed to being a leader in providing high-quality data products and services." This is just empty rhetoric.
   • Eisenhower promised to withdraw Soviet troops from Eastern Europe during his 1952 presidential campaign, but after winning the election and conducting extensive research, he made the difficult decision to abandon that promise.
   • Intel CEO Andy Grove faced a tough decision to shift from DRAM to microprocessor strategy.

2. People prefer to use templates without thinking.

   • For example, mistaking leadership for strategy. Leadership and strategy have similarities but should never be confused.
     • Leadership encourages self-sacrifice and transformation, making people feel good.
     • Strategy is about articulating what transformations are worth pursuing.
   • A similar confusion arises when having a strategy leads one to believe it is a good strategy. Countless books and tutorials provide templates for people to fill in mindlessly, resulting in numerous bad strategies.

3. People often believe in human dominance over fate, thinking attitude determines everything.

   • Zhang Defen's "Law of Attraction" creates a fantasy of "positive energy" regarding outcomes, leading people to neglect the real efforts that contribute to results, which is a form of mental opium. We should focus more on imagining the process of doing things, akin to simulation training.

5 The Core of Good Strategy​

The core of good strategy consists of three basic elements:

1. Diagnosis: Simplifying problems, identifying challenges and obstacles.
2. Guiding principles: How to respond to challenges?
3. Coherent actions: A series of actions guided by principles that mutually reinforce each other.

Here are three examples:

In business, many challenges arise from external changes and competition.

1. Analyze the structure of specific competition rather than merely listing performance goals.
2. Choose guiding principles that can broadly address these situations and create advantages for the future.
3. Set up a series of actions and resource allocations that effectively realize the guiding principles.

In large organizations, challenges often come from within, which is why large organizations frequently undergo restructuring.

1. External competition is not as important as internal obstacles—outdated processes, bureaucracy, conflicts of interest, lack of cooperation, and outdated management styles.
2. Choose restructuring strategies that can innovate the organization.
3. Change the distribution of people and power through restructuring to improve processes.

The flywheel effect of Amazon.

1. Analyze that e-commerce and cloud services are high-cost and high-return, so reduce costs while ensuring returns.
2. Design the flywheel effect.
3. Build AWS's data centers and various cloud services around the flywheel effect, creating the infrastructure and e-commerce services for Amazon.com.

This point about "coherent actions" is particularly interesting.

• "Coherent complementary actions" means these actions directly help each other to create synergy. For example, as a manager, I introduce the principle that == "I will never make you do anything that does not help your core work." ==

• Strategic collaboration is not something arranged on the fly; it is deliberately designed and centrally imposed on the system.

• Centralization can be a bad thing, but a disorganized approach is also ineffective because different sub-organizations have different interests. For instance, in manufacturing, sales may prefer to please customers with urgent large orders, while production departments prefer stable, uninterrupted output over the long term. It is impossible to manage both urgent large orders and stable production simultaneously.

• Organizational collaboration is time-consuming and labor-intensive; do not pursue it without sufficient benefits. Smart organizations do not aim for 100% communication among everyone but rather achieve just the right amount of coordination.

Part Two: Sources of Strength​

The effectiveness of good strategy lies in focusing limited energy on the points that yield the most results. Good steel is used at the cutting edge.

So we must ask, where does this energy come from? Here are some common sources:

• Leverage: We cannot have infinite power to do anything, but there is always a certain amount of power to do some things. If this power is leveraged, we can achieve more with less effort. Leverage can come from several places:

  1. Forecasting. In competitive strategy, key forecasts often involve buyer demand and competitor responses.
  2. Pivot points. Pivot points can amplify capabilities and resources. For example, when 7-11 was in Japan, it discovered that "customers in different regions of Japan have their unique local tastes" and accordingly adjusted its supply based on feedback from staff and store managers.
  3. Concentration. Many things have a == threshold effect ==; if your continuous investment does not reach a certain threshold, the final effect will be no different from doing nothing. For example, in the advertising industry, continuous small-scale advertising is less effective than concentrated promotion in specific regions. Mao Zedong concentrated superior forces to eliminate the enemy's living strength.

• Grasp: Kennedy broke down the Apollo moon landing program into several clear, achievable sub-goals or milestones: unmanned exploration, larger propulsion rockets, parallel development of liquid and solid fuel rockets, and building landing vehicles.

• Chain systems. A system like a chain, where the weakest link determines the maximum pull the entire chain can withstand. To strengthen the entire system, each link must be reinforced. Such systems are extremely difficult to replicate, like IKEA. This investment requires leaders to withstand pressure to advance because the strengthening of the system is nonlinear; only when the last link is reinforced can the effects be seen.

• Design.

  • Hannibal's Battle of Cannae resulted in one of the most painful defeats in ancient Roman history and is also one of the deadliest battles in global history in a single day.
  • Analysis and design of complex systems: What elements does the system have? How do these elements interact? What trade-offs will there be for optimizing towards what goals?
  • For example, in the U.S. heavy truck market, a thorough analysis of how this system operates identified key persons who could decide purchasing choices, then optimized specifically for the needs of these key persons.

• Focus strategy, providing specific services for specific groups.

  • For example, Crown Cork & Seal Company survived in this competitive field by focusing on small urgent orders for small manufacturers.

• Growth. The growth of team size should not be deliberate but rather a natural result of the company's product growth.

  • Again, the aforementioned Crown company made acquisitions, which led to a stock price crash from $55 to$5. Similar cases include LeEco and Yahoo.

• Utilizing advantages. Comparative advantages are domain-specific; a champion runner may not excel in high jumping.

  • For instance, a startup that the author collaborated with wanted to transition from making fabrics to making clothes, mistakenly not realizing that the fabric for clothing and making clothes are entirely different fields.

• Dynamics: exploit a wave of exogenous change.

• Inertia, momentum, and entropy. Inertia can be utilized; for example, Microsoft transitioned from a B2B office suite to a B2B cloud. Closed systems decay due to entropy, which may explain why American companies are keen to bring in external managers.

Among these, the point about external change is particularly interesting. Generally speaking, there are two ways to gain strategic high ground that is easy to defend and hard to attack:

1. Independent innovation.
2. Riding the wave of change.

It's easy to be an armchair strategist after the fact. To make predictions before taking action requires a deep understanding of the past and present, seeing through phenomena to the essence, and thus being able to deduce the second and third steps. Unfortunately, most people can only see the present.

For example, after television emerged in the 1950s, everyone realized that the film industry would struggle, but few could predict that the next step would be the rise of independent films. Independent filmmakers could break free from traditional studio ties and focus on making good films, as only good films could attract audiences to theaters.

Cisco has occupied three competitive high grounds:

1. Software and microprocessors.
2. Corporate networks.
3. IP networks.

Signposts pointing to competitive high ground:

1. Fixed costs soar. For example, capital-intensive big productions give rise to large film companies. The development costs of large software systems give rise to large software companies.

2. Deregulation. For example, China's reform and opening up.

3. Prediction bias.

   1. The illusion of growth. For example, few can predict when a business or economy reaches its peak and begins to decline. Growth always has an end; a person who has bought one television is unlikely to buy a second immediately. == The faster sales grow, the faster the market saturates. ==
   2. The illusion of winner-takes-all. Yes, it is winner-takes-all, but not necessarily; large companies can suffer from internal issues, and external changes can occur.
   3. The illusion of winners always winning. For example, Yahoo.

4. The incumbent effect: unwilling to harm short-term interests for reform, similar to the Innovator’s Dilemma. B2B businesses cannot consider helping companies save money; they should help companies make money, or they will offend entrenched interests within those companies.

5. == Attractor state == or "end-state thinking," the state the market should reach. ==

Attractor state is an interesting new concept. Here, we elaborate on it. It differs from a company's vision in that a vision is unique to the company, while an attractor is the equilibrium that the entire market should reach.

It has two related concepts: accelerants and impediments.

• A typical accelerant is the "proof effect"; for example, Napster made everyone suddenly realize that 2.5MB of music could be downloaded, copied, and sent, while Bitcoin made everyone suddenly realize that investing in virtual currencies could lead to wealth.

  • Mao Zedong's idea that a spark can start a prairie fire: concentrating forces to eliminate larger enemies, occupying towns, can mobilize a broad base of support and establish a regime across several counties. This can amplify political influence and promote the actual effectiveness of revolutionary peaks.

• A typical example of an impediment is the public's fear and resistance to nuclear power plants, even though people know that nuclear energy is the trend of the future.

Let's analyze the external changes facing the newspaper industry.

Taking The New York Times as an example, the cost of printing newspapers is about two to three times the subscription revenue, and printing costs are mainly covered by advertising. Since 2009, two problems have emerged:

One is the rise of other easily accessible new media, leading to a decline in newspaper readership, and the other is that advertising in newspapers has been taken over by Google.

Differentiation in news media has three dimensions: space, frequency, and depth. The author believes that the market's attractor leans towards specialization in these niches rather than broad coverage. In the era of "Internet + newspapers," from a cost-reduction perspective, The New York Times should leverage its brand and collaborate broadly with various information sources rather than relying on a small number of professional journalists.

The more precise the reader base, the more advertising revenue can be generated.

Part Three: Thinking Like a Strategist​

How to think like a strategist? The answer is "external perspective," thinking about why you think the way you do.

16 What Kind of Discipline is Strategy?​

• Deductive vs. Inductive reasoning

  • The author meets with engineers from Hughes to formulate strategy.
    • Engineers dislike formulating strategy because their thinking is == deductive ==. They plan with certainty; they do not design a bridge that might hold a certain weight.
  • Deductive reasoning only works when one is omniscient; when faced with the unknown, it becomes ineffective.
  • == Deductive reasoning can stifle innovation. == Galileo's trial inspired the Enlightenment, which addressed how to deal with this issue through scientific empiricism.
  • Good strategy is based on hypotheses about what will work.

• Formulating and implementing strategy is a scientific inductive process: observing and learning, forming hypotheses, collecting data, validating hypotheses, proposing hypotheses, and repeating the cycle. When Howard Schultz founded Starbucks, he had a hypothesis that an Italian café could succeed in the U.S., where cheap coffee was prevalent. He started by investing hundreds of thousands of dollars in a small café to validate the hypothesis, continuously optimizing until achieving vertical integration.

17 Focus on the Process of Thinking​

• Back to basics—list priorities.

  • Steel magnate Andrew Carnegie asked the father of scientific management, Taylor, "Young man, since you are my advisor, if you can tell me what management methods I should know, I will give you $10,000."$10,000 was a fortune in 1890. Taylor replied, "I would suggest you list the ten most important things and then focus on the first one." A week later, Taylor received a $10,000 check.
  • The author, when young, interviewed an executive and felt that there was nothing significant, just templates, and asked many template questions. However, the executive later felt that this conversation was the most valuable one he had had in the past year.
  • We cannot control thoughts, but we can control the process by which thoughts arise. The list itself may not be important; what matters is the process of generating the list.

• Where do strategic thoughts come from? Typically, ideas emerge directly from the mind, and people find it hard to realize how these ideas come about; strategic thinking often means stepping outside this shortsightedness.

  • The core solution: == Think about your thinking. ==

• There are tools that can help you think about your thinking.

  • Develop good habits.
    1. Use tools and processes to combat shortsightedness.
    2. Question your judgments, especially before genuinely engaging in competition.
    3. Record your judgments for future validation and review.
  • Tools and processes.
    • Strategic core: Diagnosis, guiding principles, coherent actions.
    • Q&A: Ask questions, analyze problems, provide answers. First ask why, then ask what.
    • Break and establish.
      • Do not list other options that a straw man might consider; set up a == virtual expert committee. ==
      • == Good strategies are often corner solutions. == This means emphasizing focus rather than compromise, concentrating on helping a subset of people solve specific problems without trying to solve every problem for everyone.
    • Contact review.
      • Three levels of review:
        • Recognizing one's own abilities and biases.
        • Recognizing others and how they will react to information and challenges.
        • Recognizing the market.
      • How to practice?
        • Rehearse.
          • Know as much as possible.
          • Identify important and unimportant factors.
          • Cultivate your viewpoint and be able to confidently disagree with others.
        • == Predict how people will behave before meetings. ==

18 Maintain Your Views​

This chapter illustrates a problem through two examples: how to have opinions without being narrow-minded and stubborn. The answer is to introduce external perspectives.

• One example is that when evaluating a company, one should not only look at the stock price but also consider the fundamentals. Global Crossing made decisions solely based on stock prices and subjective desires, creating a closed loop between stock prices and company decisions, leading to a disastrous outcome. == Gödel's incompleteness theorem tells us that in sufficiently complex logical systems, there are always things that cannot be self-verified within the system. To judge right from wrong, one must rely on external knowledge. ==

• Another example is the 2008 financial crisis, a product of herd behavior combined with internal perspectives.

Intro: Focusing on Obstacles​

A strategy is like designing and throwing a bunch of punching combos: where is the enemy? Where to punch? Where NOT to punch? How to punch? How does your first punch help the second and third ones?

The key idea of this book is the kernel of good strategy. Kernel of strategy = diagnosis + guiding policy + coherent actions.

PART I GOOD AND BAD STRATEGY​

1 GOOD STRATEGY IS SURPRISING​

A good strategy is surprising but reasonable. For example, when Steve Jobs returned to Apple, he cut the product lines to a few profitable ones. When asked how to compete against the Wintel standard, he just smiled and said, "I am going to wait for the next big thing."

Another example is Desert Storm. While the media exposure was focusing on the main troops moving slowly in the frontline, another group of military force was moving across the empty desert of southern Iraq as a "left hook."

Doing everything and thinking everything is important means everything is equally unimportant. Good leaders are supposed to know what to do and what NOT to do.

2 DISCOVERING POWER​

When we ask what a strategy 101 is, a fundamental answer is SO strategy (Strength + Opportunity).

Shakespeare says in Helmet: there is nothing either good or bad, but thinking makes it so. From a dynamic perspective, strength and weakness are relative. The story of David and Goliath is a good example. People may think that David, the small and the inexperienced, can never fight against Goliath, the giant and the experienced. However, the truth is that David leverages the shepherd's sling to beat the slow and clumsy Goliath.

Walmart vs. Kmart is another example of finding strength out of where people hardly see. The traditional wisdom of retailing believes that a full-category grocery store has to be placed in an area with the population of at least 100K. However, Walmart can launch its store where there is less population than 100k. How could this happen? It is because that Walmart has a way more efficient supply management system, which makes those stores into an organic network; on the contrary, Kmart does not have close relationships between stores, and they cannot get united, cannot lower inventory costs, and cannot negotiate against suppliers as a whole.

In Cold War, Andrew Marshall designs the strategy to compete against the Soviet Union with comparative advantages - back by the economic and technological advantages of the US, developing things with huge costs but cannot establish actual offensive threats, like increasing the accuracy of missiles or quiet submarines.

3 BAD STRATEGY​

Bad strategy is formalism. People mistakenly think the form of the strategy is the most important and cannot embrace the reality. There are four hallmarks to detect bad strategy.

1. ==fluff==: strategy should not be just a collection of fancy buzzwords.

   • e.g. a major bank says, "Our fundamental strategy is one of customer-centric intermediation." = "Our bank's fundamental strategy is being a bank.".

2. ==failure to face the challenge==:

   • If you fail to identify and analyze the obstacles, you don't have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.

   • It takes caution to establish =root-level metrics. ==If you can't measure it; you can't improve it. However, are you improving the right thing?==

     • OKR-driven Google vs. KPI-driven Baidu

   • A successful example is DARPA.

3. mistaking goals for strategy.

   • e.g., a 20/20 goal - We will grow revenue by at least 20% each year. We will maintain a profit margin of at least 20%.

   • metrics themselves are not a strategy.

4. bad strategic objectives
   • Objectives are sub-goals of your goal.
   • A good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.
   • What are bad objectives?
     1. Dog's Dinner Objectives. Again, everything important equals to everything unimportant.
     2. Blue-Sky Objectives.

The failure rate of a new product can be as high as 40% to 90%. Why is that? The 9x Effect: your new product must be nine times better than existing alternatives to win the market.

• Companies often overestimate new products by three times.
  • They are driven by dissatisfaction with the status quo and believe that innovation is effective, which leads them to create this new product.
  • The IKEA Effect: effort can increase a worker's affection for the outcome of their labor.
  • They view innovation as an important criterion.
• Consumers often underestimate new products by three times.
  • They feel satisfied with the status quo and have an aversion to change.
  • Due to a lack of understanding of the product, consumers often hold a skeptical attitude toward new products.

1. Millions of users love the brands and leaders of these unicorns. Those tech giants have everything—except a way to achieve high profits.

2. Three things have changed over the past 25 years.

   1. The rapid growth of unicorn companies has become easier due to the development of cloud computing, smartphones, and social media.
   2. Low interest rates have provided returns for investors.
   3. Some well-known companies (such as Google, Facebook, Alibaba, and Tencent) have demonstrated that wealth primarily comes from:
      • large markets, high margins, and natural monopolies
      • limited physical assets and light regulation

3. Due to the contentious market for unicorns, profit margins have not consistently improved despite rapid sales growth.

4. The lightning-fast idea of buying customers at any cost has peaked. After unicorns, a new, more compelling entrepreneurial approach must be designed.

Alas! Andrew Grove said—success breeds complacency. Complacency leads to failure. Only the paranoid (those who embrace change) will survive.

What is Architecture?​

Architecture is the shape of a software system. To illustrate with a building:

• Paradigm is the bricks.
• Design principles are the rooms.
• Components are the structure.

They all serve a specific purpose, just like hospitals treat patients and schools educate students.

Why Do We Need Architecture?​

Behavior vs. Structure​

Every software system provides two distinct values to stakeholders: behavior and structure. Software developers must ensure that both values are high.

==Due to the nature of their work, software architects focus more on the structure of the system rather than its features and functions.==

Ultimate Goal — ==Reduce the human resource costs required for adding new features==​

Architecture serves the entire lifecycle of software systems, making them easy to understand, develop, test, deploy, and operate. Its goal is to minimize the human resource costs for each business use case.

O'Reilly's "Software Architecture" provides a great introduction to these five fundamental architectures.

1. Layered Architecture​

Layered architecture is widely adopted and well-known among developers. Therefore, it is the de facto standard at the application level. If you are unsure which architecture to use, layered architecture is a good choice.

Examples:

• TCP/IP model: Application Layer > Transport Layer > Internet Layer > Network Interface Layer
• Facebook TAO: Network Layer > Cache Layer (follower + leader) > Database Layer

Pros and Cons:

• Pros
  • Easy to use
  • Clear responsibilities
  • Testability
• Cons
  • Large and rigid
    • Adjusting, extending, or updating the architecture requires changes across all layers, which can be quite tricky.

2. Event-Driven Architecture​

Any change in state triggers an event in the system. Communication between system components is accomplished through events.

A simplified architecture includes a mediator, event queue, and channels. The diagram below illustrates a simplified event-driven architecture:

Examples:

• QT: Signals and Slots
• Payment infrastructure: As bank gateways often have high latency, asynchronous techniques are used in banking architecture.

3. Microkernel Architecture (aka Plug-in Architecture)​

The functionality of the software is distributed between a core and multiple plugins. The core contains only the most basic functionalities. Each plugin operates independently and implements shared interfaces to achieve different goals.

Examples:

• Visual Studio Code and Eclipse
• MINIX operating system

4. Microservices Architecture​

Large systems are decomposed into numerous microservices, each a separately deployable unit that communicates via RPCs.

Examples:

• Uber: See designing Uber
• Smartly

5. Space-Based Architecture​

The name "Space-Based Architecture" comes from "tuple space," which implies a "distributed shared space." In space-based architecture, there are no databases or synchronized database access, thus avoiding database bottleneck issues. All processing units share copies of application data in memory. These processing units can be flexibly started and stopped.

Example: See Wikipedia

• Primarily adopted by Java-based architectures: for example, JavaSpaces.

@[toc]

Intro​

What are habits? Do things just like doing no brainers. Businesses cultivating customer habits gain a significant competitive advantage. This book proposes The Hook Model describing how to form a user habit with four steps:

1. Trigger
2. Action
3. Variable reward
4. Investment

The Habit Zone​

1. Benefits of Habits

   1. Increasing LTV
   2. Providing Pricing Flexibility. Warren Buffett: People are less sensitive to the price of products they formed routines around.
   3. Supercharging growth. ==More is more principle:== Linear decreasing of the Viral Cycle Time can speed up the user acquisition exponentially.
   4. Sharpening the competitive edge. 9x Effect: new product has to be 9x better than its existing competitor (which users have been familiar with) to win the market.

2. Successful companies build the mind monopoly.

3. How to identify the product's habit-forming potential?

   • Not all software usage could form a habit. As presented above, only a behavior happens with ==enough 1) frequency and 2) perceived utility==, a.k.a entering a habit zone, can help to make it a default behavior.

4. Habit-forming technologies often start as vitamins, but once the habit is formed, they become painkillers.

The Hook Model​

Trigger​

What cues people to take action? Triggers.

1. External triggers to attract users first
   1. Paid triggers
   2. Earned triggers
   3. Relationship triggers
   4. Owned triggers
2. Internal triggers
   1. Related to thoughts, emotions (particularly negative ones), or preexisting routines
   2. people suffering from symptoms of depression used the Internet more.
3. The goal of a habit-forming product is to kill or relieve the user's pain.

Action​

How to initiate any behavior?

B = MAT (behavior = motivation + ability + trigger)

1. Motivation
   1. Three ==Core Motivators==. all humans are motivated
      1. to seek pleasure and avoid pain;
      2. to seek hope and avoid fear;
      3. and finally, to seek social acceptance and avoid rejection.
   2. examples
      1. Barack Obama's Hope Poster
      2. Sex Sells
      3. Sports Ads
      4. Ads trigger negative emotions such as fear
2. Ability
   1. Easier task leads to the higher adoption rate
      • 
   2. Six elements of simplicity
      1. Time
      2. Money
      3. Physical effort
      4. Brain cycles
      5. Social deviance
      6. Non-routine
   3. examples
      1. Login with Facebook
      2. Share with twitter
      3. Search with Google
      4. Snap a picture with iPhone lock screen
      5. Pinterest infinite scroll
      6. Twitter uses the homepage to encourage certain behaviors
3. Daniel Kahneman: Four mental biases
   1. The Scarcity Effect: The appearance of scarcity affected their perception of value
      • e.g. Amazon "Only 6 left in stock."
   2. The Framing Effect: The mind takes shortcuts informed by our surroundings to make quick and sometimes erroneous judgments.
      • e.g. Tasting the same wine, the higher the price, the more pleasure people will feel.
   3. The Anchoring Effect: People tend to anchor to one piece of information when making a decision.
      • e.g. 30% off
   4. The Endowed Progress Effect: people are more motivated when they believe they are nearing a goal.
      • e.g. Linkedin Progress Bar near to finish to improve your profile strength.

Variable Reward​

1. Principles in our brains
   1. When do people feel happy about rewards?
      • People feel happy not when they receive the reward itself but when in anticipation of it.
   2. Same rewards do not work over time. Fondness = familiarity + novelty.
2. Three variable reward types
   1. The tribe: We seek rewards that make us feel accepted, attractive, important, and included.
   2. The hunt: We need to acquire physical objects, such as food and other supplies that aid our survival.
   3. The self: We desire to gain a sense of competency.
3. Finding the proper variable rewards is not easy. Gamification is effective only when they really scratch the user's itch.
4. Maintain a sense of autonomy. Let the user choose what to do.
5. ==Finite variability== leads less engagement because they eventually become predictable. e.g. Zynga's FarmVille. People usually don't watch the Breaking Bad twice. Thus UGC is super valuable.

Investment​

1. The escalation of commitment: The more users invest time and effort into a product or service, the more they value it. Our labor leads to love.
   • e.g. The origami bidding game: those who made their own origami animals valued their creation five times higher than the second group's valuation and nearly as high as the expert-made origami values
   • e.g. IKEA effect is a kind of cognitive dissonance. The more effort we put into something, the more likely we are to value it; we are more likely to be consistent with our past behaviors; and finally, we change our preferences to avoid cognitive dissonance.
   • E.g. social game mafia war
2. People tend to use the product again if it stores values, which are
   • Content
   • Data
   • Followers
   • Reputation
   • Skill
3. How to compound user retention? Loading the Next Trigger with virtuous loops.

Should I use the hook model?​

How to apply the hook model?​

1. Pros and cons analysis based on the model
2. Habit Testing
   1. Identify the user workflow
   2. Identify the habitual users' workflow
   3. Experiment with promoting the habitual users' workflow to more users.
3. Observe yourself
4. Find ==nascent behaviors== that can go popular in the future

The Vast Differences Between Western and Chinese Marketing Markets​

How Western Marketers Can Learn from Their Chinese Peers​

1. Build good relationships with major companies like BAT
2. Prioritize mobile
3. Embrace all-in KOL-driven viral marketing on social networks
4. Focus on content marketing rather than simple promotions and collaborations
5. Manage multiple channels in the West while navigating large companies' multi-platforms in China
6. Balance "thoughtful planning" with "plans not keeping up with changes"

New products fail at the stunning rate of between 40% and 90%. Why? The 9x Effect: You have to be 9x better than the existing alternatives to win their market.

• companies often overweight the new product's benefits by a factor of 3.
  • dissatisfied with the status quo and convinced the innovation works.
  • IKEA effect: labor alone can be sufficient to induce greater liking for the fruits of one’s labor.
  • view the innovation as the benchmark.
• consumers often overweight the old product's benefits by a factor of 3.
  • satisfied with the status quo and have change aversion.
  • don't know the product and are skeptical about the new product's performance.

Warning Signs of Economic Recession​

• Ballooning corporate debt .
• Government yields that are dramatically lower than the previous long-run average.
• Negative returns on the S&P 500.
• Lower GDP growth in China relative to what it was before 2010.

How did Resilient Company Prepare?​

Back in 2008, companies turning out to have higher total shareholder return(TSR) did these things:

• By the time of reaching the lowest point of the recession, they had increased EBITDA(Earnings Before Interest, Taxes, Depreciation, and Amortization) by 10%.
  • By reducing operating costs earlier in the recession, and more deeply.
• Introduce more flexibility into the investment-planing
  • Reduce > $1 per$1 of total capital on their balance sheet
• Prepare far more cash than peers for acquiring assets once on the upswing of the economy.
• Maintain high-value customers’ loyalty.
  • Forgo revenues from price changes, while peers are reducing the price.

==However, slashing costs may hurt the brand and the company moral==.

Finally, getting ahead of peers create a huge advantage.