The Kernal of Good Strategy

Crafting good strategies is based on an underlying structure:

There are dramatic differences between good and bad strategy. Crafting good strategies is based on an underlying structure:


1. A diagnosis: an explanation of the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as being the critical ones.

2. A guiding policy: an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

3. Coherent actions: steps that are coordinated with one another to support the accomplishment of the guiding policy.

ACTION POINT: Base strategy on the underlying structure of diagnosing the challenge, guiding through policy and following through with coherent actions.

Why so much Bad Strategy?

Strategy involves focus and, therefore, choice.

Bad strategy has many roots, two significant ones are: the inability to choose and template-style planning—filling in the blanks with “vision, mission, values, strategies.”


The inability to choose.  Strategy involves focus and, therefore, choice. And choice means setting aside some goals in favor of others. When this hard work is not done, weak strategy is the result. In 1992, there was a strategy discussion among senior executives at Digital Equipment Corporation (DEC). A leader of the minicomputer revolution of the 1960s and 1970s, DEC had been losing ground for several years to the newer 32-bit personal computers. There were serious doubts that the company could survive for long without dramatic changes.

Three points of view emerged from the executive team.  “Alec” argued that DEC had always been a computer company and should continue integrating hardware and software into usable systems. “Beverly” felt that the only distinctive resource DEC had to build on was its customer relationships. Hence, she derided Alec’s “Boxes” strategy and argued in favor of a “Solutions” strategy that solved customer problems. “Craig” held that the heart of the computer industry was semiconductor technology and that the company should focus its resources on designing and building better “Chips.”

Choice was necessary: both the Chips and Solutions strategies represented dramatic transformations of the firm, and each would require wholly new skills and work practices. One wouldn’t choose either risky alternative unless the status quo Boxes strategy was likely to fail. And one wouldn’t choose to do both Chips and Solutions at the same time, because there was little common ground between them. It is not feasible to do two separate, deep transformations of a company’s core at once. With equally powerful executives arguing for each of the three conflicting strategies, the meeting was intense. DEC’s chief executive, Ken Olsen, had made the mistake of asking the group to reach a consensus. It was unable to do that, because a majority preferred Solutions to Boxes, a majority preferred Boxes to Chips, and a majority also preferred Chips to Solutions. No matter which of the three paths was chosen, a majority preferred something else. This dilemma wasn’t unique to the standoff at DEC.

The French philosopher Nicolas de Condorcet achieved immortality by first pointing out the possibility of such a paradox arising, and economist Kenneth Arrow won a Nobel Prize for showing that “Condorcet’s paradox” cannot be resolved through cleverer voting schemes.

Not surprisingly, the group compromised on a statement: “DEC is committed to providing high-quality products and services and being a leader in data processing.” This fluffy, amorphous statement was, of course, not a strategy. It was a political outcome reached by individuals who, forced to reach a consensus, could not agree on which interests and concepts to fore go. Ken Olsen was replaced, in June 1992, by Robert Palmer, who had headed the company’s semiconductor engineering. Palmer made it clear that the strategy would be Chips. One point of view had finally won. But by then it was five years too late. Palmer stopped the losses for a while but could not stem the tide of ever more powerful personal computers that were overtaking the firm. In 1998, DEC was acquired by Compaq, which, in turn, was acquired by Hewlett-Packard three years later.

Scan through template-style planning documents and you will find pious statements of the obvious presented as if they were decisive insights. Template-style strategy, the Jack Welch quote about “reaching for what appears to be the impossible” is fairly standard motivational fare, available from literally hundreds of motivational speakers, books, calendars, memo pads, and Web sites. This fascination with positive thinking has helped inspire ideas about charismatic leadership and the power of a shared vision, reducing them to something of a formula. The general outline goes like this: the transformational leader (1) develops or has a vision, (2) inspires people to sacrifice (change) for the good of the organization, and (3) empowers people to accomplish the vision.

By the early 2000s, the juxtaposition of vision-led leadership and strategy work had produced a template-style system of strategic planning. (Type “vision mission strategy” into a search engine and you’ll find thousands of examples of this kind of template for sale and in use.) The template looks like this:

The Vision. Fill in your vision of what the school/business/nation will be like in the future. Currently popular visions are to be the best or the leading or the best known.

The Mission. Fill in a high-sounding, politically correct statement of the purpose of the school/business/nation. Innovation, human progress, and sustainable solutions are popular elements of a mission statement.

The Values. Fill in a statement that describes the company’s values. Make sure they are noncontroversial. Key words include “integrity,” “respect,” and “excellence.”

The Strategies. Fill in some aspirations/goals but call them strategies. For example, “to invest in a portfolio of performance businesses that create value for our shareholders and growth for our customers.” This template-style planning has been enthusiastically adopted by corporations, school boards, university presidents, and government agencies. Scan through such documents and you will find pious statements of the obvious presented as if they were decisive insights. The enormous problem all this creates is that someone who actually wishes to conceive and implement an effective strategy is surrounded by empty rhetoric and bad examples.

ACTION POINT: Recognize that choice involves "choosing" and that strategy requires more than filling in the blanks.

Fluff

Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise.

A final hallmark of mediocrity and bad strategy is superficial abstraction—a flurry of fluff—designed to mask the absence of thought. Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise.


Here is a quote from a major retail bank’s internal strategy memorandum: “Our fundamental strategy is one of customer-centric inter mediation.” Inter mediation means that the company accepts deposits and then lends out the money. In other words, it is a bank. The buzz phrase “customer centric” could mean that the bank competes by offering better terms and service, but an examination of its policies does not reveal any distinction in this regard. The phrase “customer-centric intermediation” is pure fluff. Remove the fluff and you learn that the bank’s fundamental strategy is being a bank.

ACTION POINT: Good strategy requires deep thought and can be communicated simply and clearly.

Bad Strategic Objectives

...if the consequent strategic objectives are just as difficult to meet as the original challenge, the strategy has added little value.

Another sign of bad strategy is fuzzy strategic objectives.  One form the problem can take is a scrambled mess of things to accomplish—a dog’s dinner of goals. A long list of things to do, often mislabeled as strategies or objectives, is not a strategy. It is just a list of things to do. Such lists usually grow out of planning meetings in which a wide variety of stakeholders suggest things they would like to see accomplished. Rather than focus on a few important items, the group sweeps the whole day’s collection into the strategic plan. Then, in recognition that it is a dog’s dinner, the label “long term” is added, implying that none of these things need be done today. As a vivid example, the mayor of a small city in the Pacific Northwest and his planning committee developed a strategic plan containing 47 strategies and 178 action items. Action item number 122 was “create a strategic plan.”

A second type of weak strategic objective is one that is “blue sky”—typically a simple restatement of the desired state of affairs or of the challenge. It skips over the annoying fact that no one has a clue as to how to get there. A leader may successfully identify the key challenge and propose an overall approach to dealing with the challenge. But if the consequent strategic objectives are just as difficult to meet as the original challenge, the strategy has added little value.

Good strategy, in contrast, works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes. It also builds a bridge between the critical challenge at the heart of the strategy and action—between desire and immediate objectives that lie within grasp. Thus, the objectives that a good strategy sets stand a good chance of being accomplished, given existing resources and competencies.

ACTION POINT:  Focus energy and resources on very few pivotal objectives whose accomplishment will lead to a cascade of favorable results.

Mistaking Goals for Strategy

“If you don’t have a competitive advantage, don’t compete.” - Jack Welch

A few years ago a strategist was talking to the management team of a graphic-arts company that was working on “strategic thinking.”   Chad Logan the leader of the management team said the overall goal was simple—it was called “20/20 plan.” Revenues were to grow at 20 percent a year, and the profit margin was to be 20 percent or higher. “This 20/20 plan is a very aggressive financial goal,” said the strategist. “What has to happen for it to be realized?” Logan tapped the plan with a blunt forefinger. “The thing I learned as a football player is that winning requires strength and skill, but more than anything it requires the will to win—the drive to succeed. . . . Sure, 20/20 is a stretch, but the secret of success is setting your sights high. We are going to keep pushing until we get there.” The strategist tried again: “Chad, when a company makes the kind of jump in performance your plan envisions, there is usually a key strength you are building on or a change in the industry that opens up new opportunities. Can you clarify what the point of leverage might be here, in your company?” Logan frowned and pressed his lips together, expressing frustration that I didn’t understand him. He pulled a sheet of paper out of his briefcase and ran a finger under the highlighted text. “This is what Jack Welch says,” he told me. The text read: “We have found that by reaching for what appears to be the impossible, we often actually do the impossible.” (Logan’s reading of Welch was, of course, highly selective. Yes, Welch believed in stretch goals. But he also said, “If you don’t have a competitive advantage, don’t compete.”)

The reference to “pushing until we get there” reminded the strategist of an association with the great pushes of 1915–17 during World War I, which led to the deaths of a generation of European youths. Maybe that’s why motivational speakers are not the staple on the European management-lecture circuit that they are in the United States. For the slaughtered troops did not suffer from a lack of motivation. They suffered from a lack of competent strategic leadership. A leader may justly ask for “one last push,” but the leader’s job is more than that. The job of the leader—the strategist—is also to create the conditions that will make the push effective, to have a strategy worthy of the effort called upon.

ACTION POINT: Create conditions that will make your teams efforts effective.