All my work with clients involves Strategy. But it took me a while to embrace this fact. I remember a valued contact in an Enterprise Agency commending me for being very good on strategy. At first, I was not sure that I pleased with the description. This was because Strategy is often seen as a bit intangible or in collequial language, a bit ‘wishy washy’. It is so engrained with Vision, Mission and Values that it is often misunderstood and seen as of limited day to day value. Then I read a book and understood that Good Strategy has real value but a lot of strategy work can be described as Bad Strategy. That book of course was written by Richard Rumelt.
The book Good Strategy, Bad Strategy: The Difference and Why it Matters, by Richard Rumelt (Profile Books, 2011) is superb. The author is acknowledged as one of the world’s leading thinkers on strategy and management. Shortlisted for the Financial Times and Goldman Sachs Book of the Year 2011 you can read a worthy review on Summary.com and this is a superb opinion piece published by the Washington Times.
This blog post is a 2024 update on my book review of several years ago after listening to a fantastic podcast with the author on Lenny’s podcast. The podcast, 90 minutes which can also be watched on YouTube, starts with Richard advising not to call it a Strategy but to refer to it as an Action Agenda. He defines strategy as follows:
Strategy is a design for overcoming a high-stakes challenge. It’s a mixture of policy and action designed to deal with either an upside or downside challenge.Richard Rumelt, author of Good Strategy, Bad Strategy on Lenny’s Podcast
He explains that thinking strategically starts with trying to identify the one or two key challenges that can actually be addressed and deciding what the organisation is going to do about them? An Action Agenda, therefore, is a list of coherent actions an organisation is going to take to address these challenges and follow through on to realise its amibtion. It is not just a list of things that you wish would happen. This brings us to the topic of bad strategy.
What is Bad Strategy?
Goal setting is a key component of strategy development but Strategy can not be simplified or dressed up as a process of setting goals – that viewpoint may lead to the creation of ‘bad strategy’. One of the central tenets of the superb book Good Strategy, Bad Strategy: The Difference and Why it Matters, by Richard Rumelt (Profile Books, 2011) is that in many cases, the key strategy question ‘How are we going to do that?’ is not answered. The author explains that strategy is not what you hope your performance is going to be, rather it is about how you are going to get there.
What is Good Strategy?
I like reading business books – on all topics within business and I was looking for a good one on Strategy. I decided to read this particular one having watched this video on YouTube (it is 90 minutes but well worth watching).
Six highlights from the books:
#.1 A good strategy does more than urge us towards a goal or vision.
The core of strategy is discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors. The greater the challenge, the more a good strategy focuses and coordinates efforts to achieve a powerful problem solving effect.
#.2 A good strategy has an essential logical structure that Rumelt calls a Kernel.
The kernel of a good strategy contains three elements: a diagnosis, a guiding policy and coherent action.
– A diagnosis defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical.
– The guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis.
– Coherent actions are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.
Good guiding policies follow from visions of desirable end states. They define a method of grappling with the situation and ruling out a vast array of possible actions. For example, Wells Fargo’s corporate vision is this: “We want to satisfy all our customers’ financial needs, help them to succeed financially, be the premier provider of financial services in every one of our markets, and be known as one of America’s great companies”.
The ‘vision’ communicates an ambition, but alone it is not a strategy because there is no information about how this ambition will be achieved. Wells Fargo Chairman emeritus and former CEO Richard Kovacevich knew this and emphasised a guiding policy based on cross-selling. He believed that the more different financial products Wells Fargo could sell to a customer, the more the company would know about that customer and about its whole network of customers. That information would, in turn, help it create and sell more financial products. This guiding policy, calls out a way of competing – a way of trying to use the company’s large scale to advantage.
#.3 Strategy is the application of strength against the most promising opportunity.
A good strategy doesn’t just draw on existing strength, it creates strength through the coherence of its design. The opposite however is often the reality – organisations pursue multiple objectives that are unconnected with one another, or worse, that conflict with one another.
#.4 Problem diagnosis is the first step in strategy development.
The most powerful strategies arise from game changing insights – of customers, markets, competitors, regulators and industries. A guiding policy creates advantages by anticipating the actions and reactions of others, by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, and by creating policies and actions that are coherent, each building on the other rather than cancelling one another out.
#.5 Good proximate objectives – one that is close enough at hand to be feasible – are Powerful.
A proximate objective names a target that the organisation can reasonably be expected to hit even overwhelm. In chapter seven, Rumelt explains that President Kennedy’s call for the United States to place a man on the moon by the end of the 1960s is often held out as a bold push into the unknown. Seemingly audacious, however, landing on the moon was a carefully chosen proximate strategic objective. It was a matter of marshaling resources and political will. It was a model in clarity. Good proximate objectives do wonders for organizational energy and focus.
#.6 Dynamic situations require ‘even more’ proximate strategic objectives
Many writers on strategy seem to suggest that the more dynamic the situation, the farther ahead a leader must look. But Rumelt holds that the more dynamic the situation, the poorer your foresight will be. Therefore, the more uncertain and dynamic the situation, the more proximate a strategic objective must be. The logic must be to take a strong position and create options. The question to ask is: what one single feasible objective, when accomplished, would make the biggest difference?
What is proximate for one nation, one organisation, or even one person may be far out of reach to another. The obvious reason is difference in skills and accumulated resources. Which brings us back to the first point in this list, namely that coordinating and focusing action is hugely critical in strategy. The skill of co-ordination should not be under estimated. This requires good people, processes and systems.
As I was writing this article, I came across a superb article about Intuit and HubSpot. The author makes the point that there are many really large successful software companies that target large enterprise. But there is only one really large business that targets and serves the small business. The article explains why and how to overcome the inherent obstacles in such an approach – focuses on the why behind the how!
Think of an Eagle to understand Strategy
The book uses an Eagle as an example to explain the ingredients of Strategy – hence the image of an Eagle in the sky for this post on Business Strategy. If one was to think about the terminology of business strategy, Mission and Key Resources, one could say that:
– The Purpose (preferable to the word Mission) of the Eagle is to secure food. It is not necessarily to be the best eagle in the world or even in its local area. Continuing the analogy ‘the customer’ is her family who requires food.
– The key resources are Sight, Power and Speed and of course location or territory. I was watching a BBC documentary recently which explained how the design of the wing is ideal for riding thermals. Using awesome skills, the eagle is a brilliant example of efficient use of energy.
So the strategy is clear. This is without spending time on elaborate vision or value statements. I also don’t think it matters whether this strategy is conscious, evolving or driven by natural instinct but one can definitely associate this image with the art of learning, skill acquisition and risk management.
The question is whether a business strategy can be illustrated or stated as simply as the Eagle. Yes according to this fascinating post about Amazon.
I am reminded that the concept of setting proximate goals is not new and is indeed a long understood (but maybe forgotten or often ignored) principle. It is as explained on Wikipedia the kernel of the fable ‘Belling the Cat’ .
The fable concerns a group of mice who debate plans to nullify the threat of a marauding cat. One of them proposes placing a bell around its neck, so that they are warned of its approach. The plan is applauded by the others, until one mouse asks who will volunteer to place the bell on the cat. All of them make excuses. The story is used to teach the wisdom of evaluating a plan not only on how desirable the outcome would be, but also on how it can be executed. It provides a moral lesson about the fundamental difference between ideas and their feasibility, and how this affects the value of a given plan.
As I writing this post, Seth Godin’s daily email arrived. The topic ‘What are you competing on?’ … explains that the real power is to ask the right question.
As always, I hope you enjoyed this post. As mentioned at the outset, the majority of my work with clients involves Strategy in its many guises. If you have a strategy question facing your business, feel free to get in touch. I am also available to run strategy workshops for senior decision makers if your organisation wants to create an Action Agenda which it will pursue to realise its ambition. Comments are always welcome, published and responded to.
The Kernel of Good Strategy is more HOW than HOPE
Good Strategy Bad Straegy: The Difference and Why it Matters