By Gene Russell, President & CEO of Manex
The problem for many companies today, according to longtime strategy expert and UCLA Professor Richard P. Rumelt, is not simply a lack of a good strategy. Because of misconceptions and leadership dysfunctions, companies are pursuing an explicitly bad strategy. In his book, “Good Strategy/Bad Strategy: The Difference and Why it Matters,” Rumelt describes the tell-tale signs of bad strategies for which leaders should be on the lookout: fluff, that is “gibberish masquerading as strategic concepts” that uses buzzwords to restate the obvious; failure to face the challenge; mistaking goals for strategies; and bad strategic objectives that fail to address critical issues. Rumelt creates real-world stories and examples from both his career and by academic observation. He does not dwell on sustainable competitive advantage, value propositions and so forth. He dwells on problem identification, intelligent thinking, solution identification, actionable items and of course real-time flexibility much like a commander in battle.
The Kernel of Good Strategy
In contrast to bad strategy, writes Rumelt, all good strategy has a basic underlying structure — which he calls the “kernel” — that contains three elements: a diagnosis, a guiding policy and a set of coherent actions. We could stop there and the blog post would be a good one, as long as you really, really gave thought to those three steps or elements. But let’s continue.
Good strategy contains three elements: a diagnosis, a guiding policy and a set of coherent action
The diagnosis summarizes and simplifies the challenge facing the company or the organization. When Lou Gerstner took over IBM, most observers believed the company’s skills in integrated computer services were obsolete; as the industry moved from mainframe to desktop, it had begun to fragment into a myriad of small suppliers of hardware and services. IBM was being pushed to break up and become less integrated. When Gerstner arrived, the Board, Wall Street and employees assumed that’s what was about to happen. Gerstner was an outsider to not only IBM but the industry. He turned IBM around by rejecting conventional wisdom. His diagnosis: The computer industry could still use IBM’s unique integrated skills, but IBM had failed to learn how to use these skills effectively in light of the changes in the industry. In the end, his diagnosis was that IBM was not integrated enough! Gerstner, previously CEO of RJR Nabisco, with stints at American Express and McKinsey first developed an insightful diagnosis, then set guiding policy, with coherent action.
The guiding policy is the overall approach that will be used to meet the challenge identified in the diagnosis. A guiding policy is not a set of goals or a vision for the strategy. It does not say where the company wants to go; instead, it gives some general rules or guidelines for helping the company meet the challenge. IBM’s guiding policy for its new strategy was to draw on all of IBM’s resources to solve customer problems.
Once a very difficult diagnosis has been made and a guiding policy established, a set of coherent actions is designed to implement the guiding policy. Too many people, Rumelt writes, mistake the guiding policy for the strategy and forget the action element. Based on the guiding policy, the company must take specific coordinated steps to put the policy in action. In my personal experience, these steps are very difficult because confronting reality opens up difficult-to-make decisions about employees and finances.
At the heart of identifying a good strategy is what Rumelt calls “discovering power.” The best strategists, he writes, bring a fresh perspective that uncovers the untapped power of the organization. In short, writes Rumelt, “a good strategy works by harnessing power and applying it where it will have the greatest effect.” Think of this as a SWOT (strengths, weakness, opportunities and threats) analysis of sorts but taken to a much more specific and deeper level.
In the second part of the book, Rumelt dedicates a chapter to each source of power: leverage, proximate objectives, chain-link systems, design, focus, growth, advantage, dynamics, inertia and entropy. Rumelt notes that the list is not exhaustive. These are only a selection of the sources of power available to strategists.
About the Author
Gene Russell is President and CEO of Manex and has over 30 years of senior executive strategic planning, operational management, and consulting experience in the manufacturing and technology sectors. With his extensive knowledge of manufacturing operations, he has developed and implemented key strategic initiatives for companies, allowing them to improve performance and achieve profitable growth. He can be reached at firstname.lastname@example.org.