Richard Rumelt is the Harry and Elsa Kunin Professor of strategy at UCLA’s Anderson School of Management who has spent his life in the study of corporate strategy. His seminal studies in 1972 on corporate strategy and profitability established that moderately diversified companies outperform more diversified ones. And then his work on the role of business competence over corporate ownership determining the success in business units landed him at the beginning of, what now is a large body of academic literature on the resource-based view of strategy.
In a recent article from McKinsey, he maintains that there’s plenty of bad strategy around - I guess all you need to do is read the latest news to appreciate that, no big revelation there. However, he goes on to say that a good strategy, “does more than urge us forward to a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them.” He then provides four hallmarks of bad strategy:
- Failure to face the problem - having a clear assessment of the obstacles to be overcome by the organization
- Mistaking goals for strategy - setting the BHAG and thinking that will somehow get us there; the bigger, hairier and more audacious the better!
- Bad strategic objectives - either a catch-all of everyone’s top to-do’s or just “blue sky” objectives that are weak on substance and just restate the goal in glowing terms
- Fluff - boy have we seen this one! Just a bunch of high-sounding, latest business-fad buzzwords and slogans that say nothing and mean the same
- Vision-Mission-Values-Strategy template approach - you know the routine, fill in the blanks with a bunch of great sounding phrases after spending weeks or months agonizing over word choices. Only to end up with something that sounds oddly similar to everyone else's “unique” approach.
- The Inability to Choose - we can’t get everyone to agree on what the strategy needs to be because everyone’s turf needs to be protected, so we just say yes to everyone and never actually make any strategic choices at all.
- A diagnosis: explanation of the challenge to overcome
- A guiding policy: the overall approach to overcome the identified obstacles
- Coherent actions: coordinated steps to take to accomplish the policy
It’s revealing that in this article Rumelt starts with a military example: Nelson’s brilliant strategic maneuver in the battle at Trafalgar, (French & Spanish minus 22 ships, British, minus 0.) Rumelt calls this a classic example of good strategy, and it certainly is. But, military strategy, which is all about applying superior force, gaining the “high ground” and maneuvering for maximum advantage (and destruction) has it’s limits, I believe, when applied to certain businesses that don't derived sustained advantage from resource-based means.
Knowledge and service-based business are a good example of such businesses. Their mission is to build and maintain high value, customer relationships - the software industry being a prime case. Resource and capital intensive industries, especially those that deal in hard goods that have long product life-cycles, (how long has Cheerios been around?) with well entrenched and clear competitive environments, tend to be more applicable to the military-styled, resource-centric strategies. And even they need to keep the customer-focus as General Motors has illustrated in the past few years.
A good strategy for a software company, I believe, must be crafted to focus the organization on building those relationships by delivering superior customer experiences. That’s why I don’t believe it’s appropriate for software company to build their strategies around an inside-out, resource-oriented viewpoint. Just because you’ve got a bunch of great programmers doesn’t mean you’re going to great products that customers will be clamoring for.
If you’re not building your business strategy around the customer experience, you’re building on the wrong foundation which will lead to a “bad strategy”. As one author put it: “The customer has the best view of the inherent contradictions in the strategy.” Amen.
So, what shape is your strategy in? What’s your strategic viewpoint? Does it start with the customer?
And, stay tuned for Part II next week where I’ll share some thoughts on creating a “good” strategy by adapting Rumelt’s “kernel” mentioned above.