(2011-06-30) Rumelt Perils Of Bad Strategy

Richard Rumelt: The perils of bad strategy (Business Strategy)

Horatio Nelson had a problem. The British admiral’s fleet was outnumbered at Trafalgar

Nelson’s victory is a classic example of good strategy, which almost always looks this simple and obvious in retrospect. It does not pop out of some strategic-management tool, matrix, triangle, or fill-in-the-blanks scheme. Instead, a talented leader has identified the one or two critical issues in a situation—the pivot points that can multiply the effectiveness of effort—and then focused and concentrated action and resources on them. A good strategy does more than urge us forward toward a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them.

Too many organizational leaders say they have a strategy when they do not. Instead, they espouse what I call “bad strategy.” Bad strategy ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests

I have condensed my list of its key hallmarks to four points: the failure to face the challenge, mistaking goals for strategy, bad strategic objectives, and fluff

Failure to face the problem

If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy

As a corporation, International Harvester’s main problem was its inefficient work organization—a problem that would not be solved by investing in new equipment or pressing managers to increase market share. By cutting administrative overhead, Harvester boosted reported profits for a year or two. But following a disastrous six-month strike, the company quickly began to collapse

Mistaking goals for strategy

“This 20/20 plan is a very aggressive financial goal,” I said. “What has to happen for it to be realized?”

I tried again: “Chad, when a company makes the kind of jump in performance your plan envisions, there is usually a key strength you are building on or a change in the industry that opens up new opportunities. Can you clarify what the point of leverage might be here, in your company?”

Bad strategic objectives

One form this problem can take is a scrambled mess of things to accomplish—a dog’s dinner of goals. A long list of things to do, often mislabeled as strategies or objectives, is not a strategy

A second type of weak strategic objective is one that is “blue sky”—typically a simple restatement of the desired state of affairs or of the challenge. It skips over the annoying fact that no one has a clue as to how to get there

Good strategy, in contrast, works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes

Fluff

Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise

Why so much bad strategy?

Bad strategy has many roots, but I’ll focus on two here: the inability to choose and template-style planning—filling in the blanks with “vision, mission, values, strategies.”

The inability to choose

Strategy involves focus and, therefore, choice. And choice means setting aside some goals in favor of others. When this hard work is not done, weak strategy is the result.

the group compromised on a statement: “DEC is committed to providing high-quality products and services and being a leader in data processing.” This fluffy, amorphous statement was, of course, not a strategy. It was a political outcome reached by individuals who, forced to reach a consensus, could not agree on which interests and concepts to forego.

Template-style strategy

Type “vision mission strategy” into a search engine and you’ll find thousands of examples of this kind of template for sale and in use.

The Vision

The Mission

The Values

The Strategies

Fill in some aspirations/goals but call them strategies. For example, “to invest in a portfolio of performance businesses that create value for our shareholders and growth for our customers.”

The kernel of good strategy

1. A diagnosis (cf BottleNeck)

2. A guiding policy: an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis

3. Coherent actions: steps that are coordinated with one another to support the accomplishment of the guiding policy

I’ll illustrate by describing Nvidia’s journey from troubled start-up to market leader for 3-D graphics chips

The diagnosis: “We are losing the performance race.”

Nvidia CEO Jen-Hsun Huang’s key insight was that given the rapid state of advance in 3-D graphics, releasing a new chip every 6 months— instead of at the industry-standard rate of every 18 months—would make a critical difference. The guiding policy, in short, was to “release a faster, better chip three times faster than the industry norm.”

To accomplish this fast-release cycle, the company emphasized several coherent actions

Over the next decade, the strategy worked brilliantly.