Why do so many businesses choose the wrong strategy? Even some of the largest corporations in the world struggle with strategy and incorrectly attribute their success to their ability to make wise decisions. Whether it benefits their business or not, leaders often act in ways that make them feel good.
In Good Strategy, Bad Strategy, Richard Rumelt outlines the critical elements of a sound organizational strategy and flawed assumptions that underlie a terrible strategy. Additionally, he provides detailed, quantifiable methods for creating a targeted plan that gives your business the highest chance of success.
Richard Rumelt is one of the world’s top strategists, advising various organizations, including many countries, the U.S. Department of Defense, small entrepreneurial start-ups, and significant global conglomerates.
Richard Rumelt outlines the components of an effective organizational strategy in his book Good Strategy, Bad Strategy. He also describes creating a plan that builds on your advantages while addressing your disadvantages. This article will summarize relevant points you need to know about this fantastic book in less than 20 minutes.
What is Strategy Work
At the heart of any strategy, work is finding essential aspects in a situation and developing plans to coordinate and concentrate activity to cope with the issue.
Strategic objectives frequently serve as visions and goals. Nevertheless, these are goals and intended outcomes, not strategies. Being too ambitious alone is not a strategy.
What is a good strategy?
A good strategy does more than help you reach your objectives and vision. It is based on reality, recognizing the difficulties experienced and offering a plan to overcome them.
A wrong strategy speaks of broad ambitions, aims, and principles.
Ambition is zeal and desire, Determination is grit and dedication, and Innovation is the discovery of new processes. The course is chosen by strategy, identifying the why, how, and where of applying leadership and tenacity.
A good strategy includes a coherent set of actions.
A crucial element is absent from a strategy if it fails to specify various reasonable and feasible measures.
The two truths of strategy
There are two fundamental truths of strategy to understand what it entails properly.
- Just Having a Strategy Is a Strategy
Surprisingly, only having a strategy qualifies as a strategy. Most firms have a vague sketch of long-term objectives that they wrongly refer to as “strategy,” and they respond to problems daily in a reactive manner. As a result, when a business has a well-thought-out and detailed strategy, it has the edge over its rivals since it is equipped better to meet the obstacles that all competitors in an industry confront.
This benefit was demonstrated by Apple’s success in the late 1990s under Steve Jobs. When Jobs rejoined the organization as CEO in September 1997, Apple was on the verge of bankruptcy and was losing market share to Microsoft. After stripping Apple down to a simple, tiny, and strong core and getting rid of everything that didn’t serve that core, Jobs was able to turn the firm around in under a year. By doing this, he could pinpoint the company’s main issue-that it lacked focus and then create a concrete plan of action to resolve it. Instead of just attempting a little bit of this and that, like his predecessor had done, he turned the firm around by implementing a clear, defined plan.
- A Good Strategy Uses Hidden Strengths
Above all else, an effective strategy balances strengths against weaknesses, preferably an unexpected strength against an unanticipated weakness to catch your rivals off guard. The success of Walmart serves as an example of this strategy. In the 1970s and 1980s, Kmart, the market leader, was a sizable, established national chain, whereas Walmart was a tiny, regional retailer. Kmart’s scale and decentralized organizational structure were viewed as assets by everybody. Still, Walmart perceived them as flaws since they made it more difficult for the business to react rapidly to market issues. When Walmart demonstrated how effective a centralized, networked center overseeing its different stores could be, Kmart’s scale and deeply engrained personalized culture prevented it from restructuring into a comparable networked structure. In 1990, Walmart surpassed Kmart’s in terms of scale.
Three Important Elements of Strategy
- Guiding Policy
- Coherent action
Diagnosis: a description of the problem and its most important feature. A proper diagnosis clarifies and simplifies the sometimes-overwhelming complexity of reality by designating some features as crucial. Sometimes, various people will hold contrasting opinions regarding the appropriate diagnosis of an issue. Recognizing this and, when necessary, seeking out a better diagnosis is a challenge for leaders. For instance, when IBM had problems in the early 1990s, many suggested that it be split up and focus on a more specific niche since the corporation was too intertwined. However, the company’s CEO saw the issue as insufficient internal team collaboration and not too much integration. After resolving the issue, the organization was able to reclaim its position as the leading integrated provider of client solutions.
Guiding Policy: choosing a general strategy to deal with or get around the challenges highlighted by the diagnosis. A guiding policy uses an organization’s competitive advantages and directs its activities toward specific goals that address the problem. For instance, Wells Fargo’s business vision is to meet all its clients’ financial requirements. It supports this challenging objective with a cross-selling strategy as a guiding principle.
Coherent Actions: coherent activities are planned acts that implement guiding Policy and coordinated actions that cooperate in guiding Policy. It outlines the tools, regulations, and movements that complement one another. To maintain low costs, a firm with a primary and obvious competitive advantage, such as a low-cost shop, will have related policies impacting sales, marketing, distribution, and design.
Now that we have discussed what constitutes a good strategy, let’s look at what constitutes a bad strategy. A wrong strategy is not just lacking a plan or a strategy. Instead, it is a poorly thought-out plan built on false assumptions and bad leadership.
A bad strategy has four elements and three motivating factors.
Elements of a Bad Strategy
A bad strategy has the following four characteristics:
- Fluff: Bad strategy uses too extravagant phrases and words to convey the illusion of expertise.
- Failure to identify the challenge: a poor strategy fails to identify the particular problem the organization is facing. You can’t effectively solve an issue if you don’t precisely identify it.
- Conflation of goals and strategy: a poor strategy concentrates on financial or performance targets rather than solutions to problems.
- Misguided strategic objectives: a bad strategy focuses on too many goals rather than focusing on a narrower set of plans. Additionally, it selects too high goals without offering practical advice on reaching them.
The Three Causes of Bad Strategy
After defining a bad strategy, let’s look at what causes people to create a bad one. There are three leading causes of poor strategy:
- The inability to choose between competing values and priorities: complex organizations frequently do not want to choose between the different and diversified interests inside their operations to build a focused, targeted strategy that directs resources toward one area of expertise. For instance, the CEO of Digital Equipment Company, a pioneer in computers, could not balance the conflicting interests of three of its senior executives. Rather than picking one priority and concentrating on it, the CEO attempted to embrace all three competing visions, resulting in an unfocused approach. Compaq, a competitor, finally purchased the failing business.
- The lure of strategy-by-template: sometimes, strategy writers will use template-like tools and provide general suggestions to make the process of building strategy easier. Unfortunately, rather than encouraging precise analysis of problems and solutions, these prompts foster vague statements of intentions and goals. They frequently appear in annual reports or company plans with blank-field sections like the ones below:
- Vision: where do you envision your business in five years?
- Mission: what is your purpose? (This frequently sounds grandiose since it mentions “passion” and “Innovation.”)
- Values: What are the core values of your business? (These values are often uncontested; consider “respect” and “integrity.”)
- Strategies: What objectives and sub-objectives are referred to as strategies? (Words like “portfolio” and “management” are often used.)
- The false promise of positive thinking: many leaders base their “strategies” on inspirational, do-it-yourself language as if desiring success is all that matters. But ambition by itself won’t carry a business to victory. For instance, Steve Jobs is frequently praised for his imaginative thinking. Still, the initiative had less impact on Apple’s success than competence and a specific competitive advantage: the technological advancement that allowed the Apple II to directly connect to the floppy disk rather than using pricey controllers.
Ineffective “strategy” has permeated every organization’s culture. Why? Good strategy requires a lot of effort. People do what makes them feel good, whether it benefits their organization or not, from repetitive vision-building to lazily using the law of attraction. Making hopeful statements is simple; putting up a plan to guarantee that executives’ wishes are fulfilled is far more complicated.
A successful plan cannot be discovered by accident. Even some of the largest businesses in the world struggle with strategy and mistakenly attribute their success to their ability to make good decisions. On the other hand, a lot may be learned from the expertise of numerous firms in strategy execution. A solid strategy’s “kernel” comprises three elements: a problem diagnosis, a suitable guiding principle, and coordinated activities. An ineffective strategy is inevitable if each stage is not adequately handled.
A model of organizational strategy, Richard Rumelt guides readers past the numerous landmines waiting to detonate if leaders err in their approach. At its core, strategy is the skillful information of coordinated activities to address essential aspects of a situation after discovering such factors. It demands a keen grasp of one’s sector and the area around it and an awareness of one’s resources and talents. Although there is still much to learn, strategy is inherently highly labor-intensive and cannot be readily substituted by template-vision creation or any other pseudo-strategy.
Book Review Written by an Hexavian
Strategy. Business StartUps and Corporate Restructuring Consulting
Uwaoma Eizu is the lead strategist at Hexavia! He is a graduate of Mathematics with two MBAs and over a decade of experience working with startups and big businesses. His core is in building startups and in corporate restructuring. He is also a certified member of the Nigerian Institute of Management, Institute of Strategic Management of Nigeria and the Project Management Institute, USA. By the side, he writes weekly for the BusinessDay newspaper.