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
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