Good and bad strategy
I read earlier this year Richard Rumelt’s book Good Strategy Bad Strategy, much acclaimed when it was published in 2011. And you can see why: it is lucid, well-writtem, and largely free of jargon, which already marks it out from the average business book. It also has a clear view of what strategy is (and what it is not), which is welcome, given how much the word is abused. And the business stories he tells illuminate his argument.
Rumelt is entertaining on the differences between bad strategy and good strategy – and I’ll come back to the bad strategy later. Good strategy, he says, is composed of a kernel of three elements (p77):
- A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the complexity by identifying the critical aspects of the situations.
- A guiding policy for dealing with the challenge.
- A set of coherent actions that are designed to carry out the guiding policy.
In particular, I found his advice on diagnosis valuable. A good diagnosis “should replace the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects.” This is, in effect, a sense making exercise. And a good strategic diagnosis does a second critical thing: “it also defines a domain of action.” Good strategy can then be built on a diagnosis that points to areas of leverage over outcomes.
To get to the good, and avoid the bad, there is a number of approaches or methods that need to be deployed. These run as follows:
- Using leverage: Leverage, he writes (p98), arises from a mixture of anticipation, insight into what is most pivotal, and a concentrated application of efforts. Anticipation, of course, is the futurist’s domain, and Rumelt uses the example of Toyota’s investment in hybrid auto technology when its US competitors were instead capitalising on the boom in demand for SUVs. A pivot point is an element that allows you to transform that insight into value; it “magnifies the effect of effort.” And concentration is about choosing to focus resources on the points that make a difference (shades of Adam Morgan’s insight in Eat The Big Fish about “sacrifice and over-commit”).
- Proximate objectives: A proximate objective is one that is close enough to hand to feasible. Although Kennedy’s 1961 commitment to put a man on the moon and bring him back, by the end of the decades, is often portrayed as visionary leadership, Kennedy already knew that it was a feasible objective. (In contrast, the “war on drugs”, or come to that, the “war on terror”, are vague objectives that are likely to have unintended consequences.) A good proximate objective also helps to resolve ambiguity by requiring the organisation to assess what it knows, and doesn’t know. It’s also a tool that helps direct the organisation in conditions of high uncertainty – provided that it also comes with options for when things change.
- Chain-link systems: Systems have a chain-link logic, in that they are only as good as their weakest link (I’d connect this to the Theory of Constraints). Businesses that are managed as separate units can get stuck, because the whole business gets held back by low-quality units. Unsticking them requires making effective connections between the parts.
- Using design: Design is about interpreting the strategic context: premeditation (making plans), anticipation (of the actions and responses of others), and co-ordinated action (in the face of situations or options that are not always clear-cut). “Performance”, Rumelt wrotes, “is the joint outcome of capability and clever design.” This usually involves trade-offs. When Rumelt writes of using design, he’s talking about the same thing that John Kay describes as “architecture“: the specific and distinctive configuration of resources and relationships that create competitive advantage.
One area where Rumelt is very good is on the gap – more precisely, the delay – between doing the strategy work and gaining the benefits (increased revenues and profits).
“When the profits roll in, leaders will point to their every action with pride. Books will be written recommending that others immediately adopt the successful firm’s dress code, its vacation policy, its suggestion box policies, and its method of allocating parking spaces. Of course, such suggestions are specious. … It is the disconnect between current results and current action that makes the analysis of the sources of success so hard.” [His emphasis]
When it comes to bad strategy, Rumelt is pretty scathing. In passing, the Superintendent of the Los Angeles Education Board, David Brewer, gets a sideswipe for a strategy built on addressing “underperformance,” without addressing the main symptoms – which were a huge dropout rate – or analysing the causes of underperformance.
But his real scorn is for the chief executive of a graphics company, ‘Chad Logan’ (I’m assuming he’s pseudonymous, but only because of the explicit way Rumelt writes about their discussions), who mistook motivational objectives for strategy. There’s an interesting point here which is worth a discussion another time, on the difference between business and professional sport, especially since they seem to get blurred quite frequently. ‘Logan’ has a ’20/20′ goal for his business – 20% revenue growth per year, and 20% profit margin.
“The 20/20 plan is a very aggressiive financial goal”, I said. “What has to happen for it to succeed?”
“Logan tapped the plan with a blunt forefinger. “The thing I learned as a football player is that winning requires strength and skill, but more than anything it requires the will to win – the drive to succeed. … Sure, 20/20 is a stretch, but the secret of success is setting your sights high, We are going to get moving and keep pushing until we get there.””
“When I asked Logan, “What has to happen?” I was looking for some point of leverage, some reason to believe that this fairly quiet company could explode with growth and profit.”
My own heuristics about strategy are, first, that strategy is about what you choose not to do as well as what you choose to do, second, that it requires deep and layered thought, and third (this is taken from John Kay’s Foundations of Corporate Success) that all strategy is distinctive to a particular organisation in a particular time and place. I was pleased to discover that none of these were invalidated in reading Rumelt’s book. There’s much to enjoy in watching his analytical mind at work, although sometimes he’s a little too hard-edged.
Charismatic or transformative leadership
I think, for example, that in his scathing assessment of charismatic leadership, he obliterates the distinction between this and transformative leadership (which he evidently sees as cut from the same cloth, but re-branded). In defence of transformational leadership, it seeks to take a whole system view of the organisation and re-connect it, in terms of flows of work and information, so less value is lost between the parts.
The point is that this may not be a strategic response, in Rumelt’s terms, but it can significantly improve the value of what the organisation produces and delivers. And there’s a lot of evidence that it is effective, from the work of John Seddon to Future Search to the practice of Appreciative Enquiry. These approaches are not the leadership cults of the charismatic leader.
For similar reasons he’s unduly dismissive of Peter Senge, whose work he misrepresents. Yes, two of Senge’s five disciplines are ‘Building shared values’ and ‘Personal mastery’, which Rumelt appears to regard as largely vacuous. In my experience, though, building shared values is essential to creating alignment, a necessary precondition to delivering a strategy. And the other three disciplines of the five are Systems thinking, Mental models, and Team Learning, which have quite a lot to do illuminating strategy.
Objectives and methods
Finally, although there are examples here from the military as well as business (though, it should be said, Rumelt evidently has no time for the ‘what business leaders can learn from Sun-Tzu’ management library), there’s a limit to the value of what he has to say to public sector organisations. The reason: for a public sector organisation, the objective is largely given (e.g. “free health care at point of use”), but the method can be the subject of choice. Nonetheless, some of the thinking on display here, about understanding messy information, thinking about data, and identifying points of leverage, and relating these to purpose, would be of help to public leaders.
With most books on strategy, once you put them down you can’t pick them up again. This is not true of Good Strategy, Bad Strategy. Even if you have space in your life for only a handful of strategy books, this should be one of them. Along with John Kay, Blue Ocean Strategy, and Henry Minzberg’s primer Strategy Safari.