Good strategy is rare
Richard Rumelt, UCLA professor, argues that good strategy is rare. He outlines the 4 common ways that companies often fool themselves into a bad strategy in a McKinsey Quarterly article here. Based on his book Good Strategy Bad Strategy: The Difference and Why It Matters (2011) (affiliate link).
Fact: most companies lose money
When you go to Finviz and sort through the 8,600+ US publicly traded companies, you see that only 2,500+ or so make money. Basically more than half of publicly-traded companies lose money. What?
That’s crazy here. Being profitable is the human equivalent of breathing.
Too many organizational leaders say they have a strategy when they do not – Rumelt
Four classic hallmarks of bad strategy
- Failure to face the problem – bad
- Mistaking goals for strategy – bad
- Bad strategic objectives – bad
- Fluff – bad
Strategy is about choice
If you want to consistently beat the market – you need a competitive advantage – something uniquely valuable that you do better, more consistently than others. This requires focus and trade-offs. You can’t accommodate all conflicting demands and interests. You cannot please everyone.
- What is your unfair advantage?
- What can you be #1 at?
Too often leaders are not being honest with themselves on the severity of the problem, not making trade-offs, or blindly applying some “template” to the problem.
For me, bad strategy often includes:
- Platitudes – Strategies which re-state the obvious things (e.g., customer service, operational excellence, innovation). The only thing left out is mom, and apple pie – bad
- Vagueness – Strategies which don’t provide any guidance, filtering, or translation of what action should be taken. After reading it, you are not any smarter about the problem OR the solution. When you ask 5 employees about the strategy, they all say different things – bad
- Potpourri – A laundry list of 1-2 dozen “strategies” to check the box for a specific need, or set of stakeholders. This tends to look like the mark-up process for legislation that gets passed by US Congress – a little something for everyone – bad
Bad strategy ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Like a quarterback whose only advice to his teammates is “let’s win,” bad strategy
covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values. – Rumelt
Playing to Win (2014). This book was written by A.G. Lafely (ex-CEO of P&G) and Roger L. Martin (Dean of Rotman School of Management – University of Toronto). Found it to be straight-forward, readable story-telling into business and corporate strategy. Highly recommend. Worth owning here (affiliate link). They highlight 5 common flaws leaders make in crafting (ineffective) strategy:
- They define strategy as vision – bad
- They define strategy as a plan – bad
- They deny that long-term (or even medium-term) strategy is possible – bad
- They define strategy as the optimization of the status quo – bad
- They define strategy as following best practices – bad
Related posts:
Nice post, really good subject. I’m always traying to define and redefine my career strategy to stay focused on my goals and also to think about future goals to accomplish.
Winning – thanks for reading.
Bad strategy answers the what but ignores why, who, how and where. Or any combination of these! 🙂
Like that. Yes, sometimes “bad strategy” does not even answer that (what).
I would say a good 1/5 of my consulting work is UN-doing “bad strategy” work.
– One problem is the confusion between what’s easy to reach/build as a differentiator and building up a true competitive advantage (unique, hard to replicate etc). Or just repeating how good company XYZ is at something, and that mantra is proof of a competitive advantage. Deep down, it’s a problem of whether top management can face reality.
– Something I see in emerging markets is the copy-pasted “strategies” and business models. This may work for very well capitalized first or second movers, ex: food retailers. They scale quickly using a “true and tested” model (true and tested in a different market with different customers, etc). But inherently, these companies grow “monkey see monkey do” cultures. And after 10+ years you get wholly mammoths: all the problems of large and mid-sized companies -cash guzzling, slow and top-heavy- and none of the advantages of young companies, such as hunger and nimbleness.
Amen completely. As you said, a lot of it is a matter of time-frame. If you are thinking longer-term, enduring strategies that last multiple business cycles (e.g., 15-25 years), then copy/paste will certainly not suffice.
This is particularly true, interesting, foreboding in the current environment where money is cheap (QE2) and the equity markets reward short-term growth over consistency. Seems like shareholders reward “fast, fast” vs. “strong and enduring.” We shall see, right?
Indeed! Didn’t think of this.
I wonder if this is widespread. If yes, how many/which of these companies will be the next M&A targets, will fail or will succeed? And which ones will have caught the QE2 wave too late (to grow big enough and be either sustainable or good M&A targets).
US corporations have so much cash – increasing dividends, buying back shares, acquiring competitors. Next 10 years will definitely be slower growth for many industries. As business people (and investors), fascinating thought experiment. Happy investing.
I Love that book! Good Strategy Bad Strategy.
Goog strategy: There is no formula!!!!
Bad strategies: in Brazil, we call “hugging the tree” when people value more the concept and the words written than the logical and real implications of a strategy.
We all want to save the world, be the number one, sell more, value people, contribute to society and environment, etc. but please, stop confusing, goals, objectives, values, with strategy.
Amen.
loved “Playing to Win”. but I liked Mckinsey’s “strategy beyond the hockey stick” better as it dives deep into the workings of strategy rooms and the stats were eye opening. To me strategy rooms-as researched in the mckinsey book-can sometimes be a bubble of biases and ego wars and business agendas being fought out, when sometimes reason is overlooked and we end up with more hairy backs than hockey sticks.
Fascinating. Have not read that one yet, now – it’s on my list. Do I imagine that (strategy rooms?) can be an echo chamber of bias, assumptions, egos? Absolutely.