Are You Guilty Of Bad Strategy?
I know I was. Fluff was my greatest sin.
Implementing lessons from business books can be challenging. I simplify abstract principles and add real-world perspectives by summarizing my favorite chapters. These will help you build stronger mental models and spur professional growth.
In this post, I discuss the third chapter (titled “Bad Strategy”) of Richard Rumelt’s Good Strategy/Bad Strategy — The Difference And Why It Matters. If you’d like to read the second chapter’s summary, here it is.
Avoiding common mistakes is an excellent way to start honing a skill. By outlining the hallmarks of bad strategy, this chapter helps the reader do just that. Here they are.
Mistaking Goals For Strategy
“Many bad strategies are just statements of desire rather than plans for overcoming obstacles”
Before I dig in, here are a couple of essential definitions.
Goals reflect overall values and desires
Objectives reflect operational targets.
Strategic plans can stop at goal identification, which is essential but merely the beginning of a plan. Even if such plans go one step further from goals to objectives, the objectives are usually unattainable. Simply because they rarely outline levers that will help them outperform. These levers can range from a recent trend to fixing internal bottlenecks. When budgeting exercises are confused with strategic activities, these levers become harder to identify. This is common in corporate scenarios.
Rumelt believes the confusion between goal identification and strategy formulation comes from an over-reliance on ‘motivation,’ ‘boldness,’ and other management tropes. While motivation is critical, it is never the sole reason for any organization’s success.
As new managers, identifying levers can be challenging. Leverage your team’s knowledge to get to it. Also, always think of execution. This helps you make a strategy genuinely implementable.
As leaders, ask ‘How?’. Often. Also, don’t see unambitious goal setting as a lack of motivation. Your problem may lie in why goals are being set low. Conversely, be skeptical of lofty goals, and big motivation but no levers.
Failure To Face The Challenge
“Bad strategy fails to recognize or define the challenge. When you cannot define the challenge, you cannot evaluate a strategy or improve it.”
To make the above point, Rumelt discusses International Harvester (IH), then the 4th largest corporation in the US. Their ‘strategy’ was to increase profitability by increasing market share and cutting costs. The essence of any strategy. This was too high-level. The plan never addressed internal policies that created an inefficient workforce. Cost reduction was impossible with those policies in place. Additionally, poor labor relations didn't let them renegotiate costly union agreements. Eventually, failing to improve efficiency and smoothen labor relations, led to the closure of 80% of its plants and the shedding of 85% of its workforce. They failed to face the true challenge ahead of them - worker inefficiency and labor relations. Talking about an org that did it right is outside the scope of this article, but the next article has DARPA's strategy statement clearly outlining the obstacle it faces.
For managers, it may be helpful to remember this: Nobody likes being reminded of their failures, not even leadership. So middle-management avoids bringing up challenges traceable to their leaders. It’s rarely wise to be ‘straightforward’ in such situations, especially in large corporates. Managers need to develop skillful communication that doesn’t put leaders on the spot but highlights systemic issues.
Leaders must create channels that allow mid-management to speak freely without affecting their credibility. An inability to get as much information as possible is a good predictor of a bad strategy.
Fluff
“Fluff is a form of gibberish masquerading as strategic concepts or arguments.”
Rumelt draws on Enron’s ludicrous plan to trade internet bandwidth the same way they traded oil futures. Enron created a presentation that drew parallels between oil markets and ‘bandwidth markets.’ Enron believed they could transfer skills from the former to the latter. This logic was grossly incorrect. Here’s one of many reasons - the incremental cost to provide already available bandwidth once cables are laid is zero. Additionally, supply always exceeded demand. The price was always going to be close to zero. Futures protect their holders from significant variations in the future price of their underlying asset - bandwidth in this case. With no risk of future variation, futures contracts were unnecessary. Clearly, the presentation lacked quality reasoning, so it resorted to fancy graphs and jargon. This, is the epitome of fluff.
As managers, avoiding fluff in real-world scenarios is easier said than done. Immediately after completing an MBA, a few of us may take up mid-level positions in unfamiliar industries. Leaders may expect us to create game-changing strategies within weeks. Fluff-production ensues. It is best, to be honest here. Set expectations around your role with your manager. Resolve to understand the industry in a short time. Explain to leaders that lacking industry knowledge any strategic work you do will be…fluff.
As leaders, candidate selection and training is a strategic necessity. To avoid seeing fluff choose mid-level managers with excellent industry knowledge and analytical skills. They can be hard to find. In such situations, training mid-level management and placing them in roles that allow them to observe ground realities becomes critical.
Bad Strategic Objectives
“Strategic objective is set by a leader as a means to an end. Strategic objective are “bad” when they fail to address critical issues or when they are impracticable”
Objectives (operational targets) when accomplished, must meet the goals of a strategy (desires and values). They are ‘Bad’ when they don’t serve this purpose.
This problem can manifest in a couple of ways. The first is ‘a scrambled mess of things to accomplish.’ These usually arise from brainstorming sessions that lack focus. All stakeholders’ suggestions are collated into a ‘dog’s dinner of strategic objectives.’ The second is unachievable objectives given existing resources and competence. Objectives need to be achievable and need to bring us closer to the broader goal. Once completed, objectives need to be redefined to bring us closer still.
The next chapter outlines the framework that the book is built upon. This chapter’s important. Check it out its summary here
TL;DR
Here are the hallmarks of bad strategy. Fun fact: you can share just this part of the article if you like.
Fluff
The problem: Gibberish is used to create the illusion of high-level thinking.
The solution: If we dive deep enough, there won’t be the need for ‘fluff.’ We can explain our strategies using simple words.
Failure to face the challenge -
The problem: Strategic plans can jump to goals, objectives, and tactics before identifying obstacles.
The solution: Identify and define the challenge before creating a plan. In the absence of this, goals and objectives are merely wishful thinking.
Mistaking goals for strategy -
The problem: An over-reliance on ‘belief’ and ‘motivation’ can lead to an over-emphasis on goals.
The solution: Complement goals by identifying levers or opportunities that will help you achieve those goals instead. Don’t be reliant on motivation alone.
Bad Strategic Objectives
The problem: A disconnect between goals (high-level desires) and objectives (operational targets). Meeting operational targets may not accomplish goals.
Choose objectives that, when achieved, accomplish the company’s more high-level goals. Bridge the strategic gap between goals and objectives.
I’d love to hear your thoughts on this article!
Great Quotes From The Chapter
“A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity - a flurry of fluff masking an absence of substance”
“A strategy is a way through a difficulty, an approach to overcoming an obstacle or a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And if you cannot assess a strategy’s quality, you cannot reject a bad strategy or improve a good one”
“DARPA’s surprising strategy has a shape and structure common to all good strategy. It follows from a careful definition of the challenge. It anticipates the real-world difficulties to be overcome. It eschews fluff. It creates policies that concentrate resources and actions on surmounting those difficulties”
“Yes, you might be able to drag a giant block of rock across the ground with muscles, ropes, and motivation. But it is wiser to build levers and wheels and then move the rock.”
“Strategic objectives should address a specific process or accomplishment, such as halving the time it takes to respond to a customer, or getting work from several Fortune 500 corporations.”
“Motivation is an essential part of life and success, and a leader may justly ask for “one last push,” but the leader’s job is more than that. The job of the leader is also to create the conditions that will make that push effective, to have a strategy worthy of the effort called upon”
“One of the challenges of being a leader is mastering the shift from having others define your goals to being the architect of the organization’s purposes and objectives”
“A leader’s most important job is creating and constantly adjusting this strategic bridge between goals and objectives”
“The purpose of good strategy is to offer a potentially achievable way of surmounting a key challenge”
“When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance.