28/7/2013

Good Strategy/Bad Strategy

good bad strategygood bad strategy

Strategy is interesting. In some sense we all know strategy is important but its hard to define, we all don’t agree on the same thing, we use it differently and there are various gurus who say this strategic framework is important than others. Then, there are the self-help success books in business that try to understand patterns and learn from that and make it into a strategic framework that can be applied.

Five Forces is not for everybody

As everyone else I was introduced to the work of Porter’s five forces in my education and learning through the years. That is an economic paradigm of competition and how that is key to developing your strategy. That is one way, not that it is wrong but its not totally relevant for a lot of cases. When I started working in startups and then in the social sector a lot of the corporate strategy concepts did not make sense in that context. It was hard. How do you work in that environment? It is evident that strategy is actually not suitable.

What I learnt was that Strategy as defined by corporate strategy and its frameworks are not useful in a lot of cases. The MBA if you are curious did not help. The focus was on corporate strategy and was in my view not very helpful. That awareness was the key for me to explore and find others ways to think about the issues for organisations and startups that are not a multinational company working in 24 countries around the world.

The Approach of Scientific Method

The second thing about strategy is the approach. Complex data gathering, analysis over weeks and months, detailed planning and action steps can be very tough to use and implement. Like anything else in this world, the scientific method is the key. The approach of science is fundamental to creation of new knowledge and a strategy is the same.

A great one minute video of the physicist Richard Feynman that I blogged earlier is fantastic. Worth looking at again.

Richard Feynman on the scientific method (60seconds)

In this he explains that it is about a guess or hypothesis, then its about having an approach to do an experiment and then comparing that to the real world. If it passes in the experiment you go the next step or its a fail. That process over many times - iterative I should add - is the key to scientific discovery and knowledge.

Strategy Frameworks

How does this fare with Strategy? For me, any approach in Strategy should be following that basic scientific method. In my search I have found two frameworks that work very well in any kind of organisation - business, not for profit, social enterprise, hospitals, and as Rumelt says even nation states. There is Richard Rumelt’s framework and Roger Martin’s 5 inter-related questions from the Rotman School of Management.

Rumelt’s framework

Richard Rumelt explains his idea in the book, Good Strategy/Bad Strategy. This is going to a bit long but I think first looking at the story of Steve Jobs is key to understand what Rumelt is saying.

Steve Jobs’s story

Rumelt tells the story of Steve Jobs coming back to run Apple in 1996. At that time Apple was on the brink of bankruptcy and there were multiple suggestions for what to do. Micheal Dell suggested that Steve should give back the money to shareholders and close the company. There were ideas of cloning and giving the licensing of Mac OS. Lots of ideas. Steve’s wife’s sister asks him one day, which Apple computer he should buy. Steve, looking at the 15 computers he has got did not know what to suggest. He thought that as a CEO if he cannot suggest then how can customers make a decision. He cut down everything to one computer. He stopped selling all peripherals like laser printers. Did a deal with Microsoft for $150 million (the Apple fans thought that was equivalent to sleeping with the enemy). He moved manufacturing to Taiwan. Stopped working on all the various software. People thought he was crazy. This guys is a technologist, what is he doing. He was basically doing Business 101. Cost cutting. The company was closing down, cut costs and lets survive. Lets do something so that we can breath.

Rumelt says that everything Jobs did was about survival. And that was the one single focus. And he survived.

Rumelt meets Jobs after a year and asks him, now that you have survived what will you do. He says, I will wait for the next big thing. That’s it. That’s his strategy. The thing is it may seem simple but Rumelt talked to hundreds of executives in the electronics industry at that time and asked, Whose is the most successful player in your industry? How did that player get to be successful?. They all said, Something had changed, some window of opportunity has opened. Some company had jumped on that wave early and they were successful. But the executive’s strategy was a long list of things that they are doing. In the electronics industry, Success comes from a window of opportunity and jumping with a huge amount of focus. Jobs did the next big thing in iPod, iPhone, iPad

What is a bad strategy?

That’s a strategy. And it worked. Before we go ahead, we need to understand what is a bad strategy.

Bad Strategy Hallmarks

  • When its all about goals
  • When its all fluff
  • When it does not talk about a problem
  • When its about the future and how we get there but not the challenges
  • When its a dog’s dinner, its a bad strategy

What is a Strategy?

The basics of strategy is a coherent mix of policy and action. Its’s a design to deal with a challenge.

Rumelt talks about the kernel of a strategy. It’s not the whole thing, but it is key. It consists of three parts

  1. Diagnosis - What is the problem? What is the nature of the challenge?
  2. Guiding Policy - What is the basic approach? How do we solve this problem?
  3. Coherent Action - Focus and coordinated action around the central approach

For diagnosis, you need to think of the essential set of forces you are struggling with….think about it and analyse it”. What is the challenge? Why is the debt crisis in Europe? Why are 40% of children dropping out of school? Why is the retail sales going down?

Rumelt suggests 7 factors for a good strategy. I will not go into detail here. More in his book.

  1. Diagnosis
  2. Focus &Coordination
  3. Strategy is about insight
  4. Create a proximate objective
  5. Ride the wave
  6. Links matter. Chain-linked system that work together
  7. Entropy and Intertia

In the end, he acknowledges that it is tough to come to a good diagnosis unless you have more data. For that you need to have an approach and do something and then fine tune the diagnosis. He suggests that A strategy is like a hypothesis. A good strategist is like a scientist. He develops experimental data from the world to understand what works and what does not. Rather than on big leap, improvements over time”. That is the scientific method we discussed earlier.

Rumelts book can be easy to read and hard to think about ways to apply. But that is the way of strategy. It can be hard but this simple framework and the scientific method approach should work. I will discuss Martin’s framework in another post.


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