Strategy is easy to define, so why do so many companies get it wrong?
The main advantage of a
good strategy is that your competitors won't have one. They might think they do, but strategy is a frequently misapplied and misunderstood term. A good strategy is
a coherent plan to tackle a defined problem. It has a particular shape. It identifies a challenge and sets out a plan for dealing with it.
Most organisations don't know what strategy is. Modern chief executives confuse it with goal-setting. "Our strategy is to grow at x. We want to be world leaders at y." But this is confused. It's all about how you will get to where you want to be. It's about problem definition, and creating a plan of action to overcome that dilemma. Effort and determination are valuable commodities, but they are not strategy. Strategy is a lever that magnifies effort and determination.
Catholics believe evil is more than the absence of good, it's an active force. Likewise, bad strategy is not just the absence of good strategy. It has a life of its own. We're surrounded by public officials claiming to have plans for everything from the debt crisis to terrorism, but they don't. They haven't even diagnosed the problem.
Consider the US and UK governments' approaches for dealing with the 2008 financial crisis. There has been no official diagnosis of the underlying malady, only a shift of resources from the public to the banks. Unless you state what the problem is – and say how you intend to overcome it – then it isn't a strategy.
A hallmark of true expertise is making a complex subject understandable. A symbol of bad strategy is unnecessary complexity. It's easy to tell a bad plan from a good one. A bad one is full of fluff: fancy language covering up the lack of content. Enron's so-called strategy was littered with meaningless buzzwords explaining its aim to evolve to a state of "sophisticated value extraction". But in reality its chief strategies could be summed up as having an electronic trading platform, being an over-the-counter broker and acting as an information provider. These are not strategies, they are just names, like butcher, baker and candlestick maker.
Strategy by definition is a logic imposed on an organisation to make it do something it wouldn't otherwise do. In a sense, it's about doing what at first seems unnatural. Many chief executives prefer the smiley-face approach: "We have no problems, only opportunities." But good strategy requires that you not only identify problems, but also actively divert your attention away from other areas in order to deal with them. Good strategy is almost always a trade-off.
Of course, chief executives don't like to take decisions that make some people worse off. They feel more comfortable when everybody wins. But good strategy forces you to choose. When Steve Jobs returned to Apple, the company's parlous state sharpened his instincts. To Jobs, the choice was clear: simplify, or die. He cut out virtually all manufacturing. He slashed inventory by 80 per cent. A new Web store sold Apple products direct, cutting out distributors and dealers.
True, Jobs was under pressure. But this wasn't a blind, axe-wielding frenzy, it was a redesign of the entire company setting the foundations for one of the most astonishing corporate comebacks ever. Such strategies can be politically painful. But when they work, we remember what was accomplished, not the possibilities that were distressingly set aside.
Richard Rumelt is a strategy consultant and author of Good Strategy/Bad Strategy
