Richard Rumelt is the author of “Good Strategy/Bad Strategy: The difference and why it matters“. An excellent book about strategy. Hence picking up “The Crux: How Leaders Become Strategists”. Focussing on the crux, understanding what is truly important and which is secondary. It is about judging the difficulties of dealing with these issues and the ability to focus, about avoiding spreading resources too thinly by trying to do everything at once. Creating coherent action.
Strategy = Disappointment
For many businesses, strategic planning has been a disappointment. The fundamental problem for most companies is that their so-called strategic-planning exercises do not produce strategies. Instead, they are attempting to predict and control financial outcomes. Put simply, they are a form of budgeting. Important lessons from history are different in each organisation. But the common themes are a lack of support from the top, having too broad a collection of initiatives, having an impossible goal, opposition from some powerful internal interests, insufficient resources, and too little understanding of the on-the-ground mechanics of action.
Strategy = PR
For too many executives, “strategy” is all about the public face. It is about the shape and substance of a public statement of purpose and priorities. Employees and investors have come to expect a public statement of “strategy” that describes the organisation’s basic activities, values, and priorities.
Strategy = Diagnosis
The single most important element of the strategy is a focus on identifying and diagnosing the challenges facing the organisation and understanding the difficulties in overcoming them. Boiling it down to a few addressable strategic challenges, or ASCs.
Strategy = Finding the crux
Good strategy work produces policies, actions, and objectives. The art of strategy is in defining a crux that can be mastered and in seeing or designing a way through it. For the strategist, the focus is not just attention. It means bringing a source of power to bear on a selected target. If the power is weak, nothing happens. If it is strong but scattered and diffused across targets, nothing happens. If power is focused on the wrong target, nothing happens. But when power is focused on the right target, breakthroughs occur.
Strategy = Policy and action
Strategy is a mixture of policy and action designed to surmount a high-stakes challenge. It is not a goal or wished-for end state. Strategy is not simply pure goal-seeking or decision-making unless there are fairly well-structured causal connections between actions and results. The “art of strategy” is not decision-making—that discipline assumes that you have been handed a list of possible actions from which to choose. The art of strategy is not finding your one true goal and passionately pursuing it with all your heart and soul in everything you do—that is a type of mental illness called monomania.
Strategy = Coherence
Strategy is a design and direction imposed by leadership on an organisation. Creating coherent action. Coherent actions support one another. The cost of coherence is saying no to many interests with reasonable values and arguments. For example:
- Don’t base your competitive edge on continuing development; cut R&D to make your numbers.
- Don’t adopt new trendy marketing presentations for a product that is supposed to be stable and reliable.
- Don’t base your strategy on your data wizardry and then outsource your software development.
- Don’t close down one of two warehouses to cut costs while having marketing and sales seek sales based on quick delivery.
- Don’t claim that your Web platform is about free speech and then shut down sites based on their political positions.
Strategy = Ongoing
Real-life business strategy is a bit like that route up a mountain. Real-life strategy is an ongoing process of dealing with critical challenges and deciding what consequential actions to take. The strategy should be an ongoing process. An organisation doesn’t face a single “battle” or even a single “war.” If it is to persist over time, it will face an ongoing series of challenges, each of which should be dealt with.
Strategy = problem solving
Strategy is a form of problem-solving. You cannot solve a problem you have not understood. Diagnosis is the starting point in creating a strategy. Diagnosis is basically a process of focusing on challenges and asking “what” and “why” over and over again in order to gain insight. With insight, you see what others have not or what they have ignored.
Strategy = Insight
The creation of strategies is the connection between intellect and grand outcomes. Creating insight. Insight does not automatically awaken at our call. It cannot be guaranteed, but it can be aided. And insight is helped by looking in the right places. The key source of insight is a clearheaded diagnosis of the structure of the challenge, especially its crux, by employing a tool kit of persistence, analogy, point of view, making explicit assumptions, asking why, and recognising your unconscious constraints.
Strategy = Exercise in power.
The issue of power often makes people uncomfortable. Attacking the crux of a problem or challenge requires action. And that means making some activities, people, and departments more important than others. These shifts in roles, influence, and resources are the consequence of focus, making some objectively more important than others.
Strategy = Judgement
Strategy is a decision about how, where, and with whom it will compete. Consequently, there is no way to work backwards from broad goals to strategy. And narrow goals are no more than strategy in disguise minus any supporting analysis. Strategy should be based on judgments gained by examining changes, problems, skills, resources, and opportunities. Strategy is a considered judgment about what to do.
Lots of tips and lessons
- To be a strategist, you will have to keep your actions and policies coherent.
- Some situations are irretrievable, and there is not always a clever way out.
- Organisations cannot change direction on a dime.
- Some situations are so locked up with competing political interests that there is not enough executive power anywhere to break the logjam.
- Strategy is not magic.
- Write. The process of writing reveals contradictions, weak arguments, and places where more data is needed to back up an opinion.
- The best way to deal with strategic issues is by squarely facing the challenge.
- Understand the sources of power and leverage that are relevant to your situation.
- Avoid the bright, shiny distractions that abound.
- If you haven’t analysed your business, its competitors, the dynamics of competition, and more, claiming that you want to “be the technology leader” is just vague bloviation.
- A goal, by itself, has no action implications. A goal is not a strategy.
- You cannot deduce a strategy from some set of always relevant preset principles.
- The crux of a challenge is a point of tension where a constraint or conflict between resources and issues, or among policies, seems to chafe.
- People and organisations can spend enormous resources and effort on what, based on history, they think they “are good at,” or what others say they are good at, or doubling down on a losing position instead of on what promises the greatest gain. Such concentrations become a habit.
- When there are many conflicting desires and conflicting theories about how they can be met, the consequences are indecision and myopic vacillation among various half-measures.
- What is “important” depends on the situation and the interests of those asking the question.
- Focus on what passes the joint filters of critical importance and addressability, called an ASC (addressable strategic challenge).
- For most firms, the growth challenge is a mixture of competitive pressures and the limitations of both organisational agility and entrepreneurial insight.
- If you sit in on a poker game and don’t see a patsy, get up. You’re the patsy.” In the world of fast-growth, no-earnings companies, you’d better know who the patsy is.
- Strategy is more than inspirational and motivational messaging.
- A strategist tries not to be a politician.
- Measurement is always a comparison.
- The mass has inertia. The greater the mass, the more force will be needed to change its speed or direction.
- The only way to change a group’s norms is to change the alpha. In all human groups, the alpha person defines the ‘right’ way to think and act.
- Success leads to plenty, which leads to laxity. That diminished alertness allows old structures and practices to persist long after their sell-by date.
- Good strategy work is not management work. You need both but don’t confuse one with the other.
- Don’t confuse current financial results with strategy.
- Research on incentive pay and corporate performance does not show any strong connection.
- If you want to stimulate a longer-term view, don’t crowd your board of directors with deal makers or investment bankers.
- When the rubber meets the road, when faced with an audience, too many top executives cannot help falling back on the kind of positive-thinking “success theatre”.
- Create a red team. It is one way of adjusting for currently unanticipated contingencies.
- Executives should take the time to write down the key assumptions underlying their strategy. Unless you commit to making them explicit and checking their accuracy as events unfold, it becomes very hard to adapt.
- Good strategy is about focus, not about everything that everybody does.
Bundle of ambitions
The reality is that most people and organisations have “a bundle of ambitions.” They have multiple intentions, visions of the future, and things they would like to see or achieve. These kinds of intents and dreams are precursors to strategy, but they cannot all be accomplished, or at least not all at once.
Ingredient 1: deliver exceptional value to an expanding market. Strategic effectiveness in a business is the combination of the unique value you are able to create and how strongly that position resists competitive erosion and imitation.
Ingredient 2: simplify to grow. To grow a company, it is very helpful to get it trimmed and focused on the business areas that will grow. “Weed the garden” of stale activities and business units.
Ingredient 3: be quick. Reaction time is critical in competitive situations. Can a bureaucracy be quick? Most of the time, large complex organisations cannot move quickly around.
Ingredient 4: use mergers and acquisitions to speed and complement a strategy. However, don’t overpay. Many research studies keep showing negative returns to acquiring firms.
Ingredient 5: don’t grow the blob. The “blob” is the complex interconnected structure at the heart of so many older organisations.
Ingredient 7: don’t fake it. Wall Street analysts love a company that generates predictable increases in earnings—not just increases but predictable increases.
The book lists a lot of analytical tools, five forces, capital budgeting, Boston Consulting matrix, value-chain analysis, willingness-to-pay modelling, multinomial logit models of competition, McKinsey’s 7S framework, the Blue Ocean Strategy Canvas, scenario development, benchmarking, product life cycle, root-cause analysis, and more. Each narrows attention to just a few factors or issues or even just one. And each tool is built on assumptions. Ignore those assumptions at your peril.
The author has an interesting perspective on disruption in the context of strategy. The real challenge of “disruption” is not that you don’t see it coming. The real challenges are (A) that it costs more profit to respond than it seems to be worth, (B) that your organisation lacks the necessary technical ability, financial strength, or organisational skills to respond, (C) that it is the destruction of the whole ecosystem in which you live. If you do not face any of these three sharp challenges, then you do not really have a disruption problem.
- In case (A), where a new technology could hurt a current profit pool too much to warrant an immediate response, the cost and benefits of waiting should be assessed. Letting the business decline for a while, then acting later, is the other option in case.
- In case (B), if you lack the technical skill to respond, the usual path is to acquire a company that does have the skill. More often, a company lacks the organisational flexibility to respond; its structure long specialised around something else. Or the firm has a large sclerotic “blob” at its centre that specialises in committees and PowerPoints rather than problem-solving.
- In case (C), where the entire ecosystem collapses, there is not much you can do unless you have a crystal ball and can get out before the deluge.
The fundamentals of advantage
In business competition, one cannot expect to make a profit without some source of advantage. We look for advantage in four basic places: in information, knowing something that others do not; in know-how, having a skill, or patent, that others do not have; in position, having a reputation, brand, or existing market system (for example, distribution, supply chains) that others cannot readily imitate or push aside; in efficiency, whether based on scale, technology, experience, or other factors that others cannot easily attain; and in the management of systems, whether bridging complexity or moving with speed and precision, that others do not have. To expect to make a business work under competition, you need to have an advantage in knowledge or resources or both. Immerse yourself in that subject. Learn about the people, the issues, the various approaches, the locations, the politics, and so on. Opportunity, like the devil, is in the details.
The book covers coupling, uncoupling, integration, de-integration, scale, experience, network effects, and complementary assets as choices, but always in the context of understanding the long waves. Technologies advance in waves, layer upon layer, each building upon the infrastructure and knowledge laid down in previous layers. The strategist needs to have an appreciation for the long wave—one that extends over a century or more—and for the shorter waves that are generally driven by reductions in the costs of delivering particular new benefits.
The nature of waves
One lesson is that the strategist needs to know the nature of the long wave being considered. Some advance greatly over time, while others, like ship propulsion, seem to reach natural limits. In general, the further into the future one looks, the more unpredictable technology becomes. Within a long wave of change, technology progresses in shorter steps. These steps occur when the costs of doing something new become low enough to permit commercialisation.
Size increases the difficulty of coordinating large groups of specialists; size makes it more difficult to move information from its source to the locations where it can be best used. Size dilutes the effects of each individual’s efforts and thus makes motivation more difficult. Size insulates and buffers the organisation as a whole against isolated and local challenges, thus making responsiveness more difficult. Size increases the span of activity beyond that with which even the most skilful senior manager can be familiar with, making the intelligent direction of the enterprise more difficult.
For many organisations, however, real change seems out of reach. Well-educated and well-intentioned managers sit on top of complex organisations started generations ago by talented entrepreneurs and grown labyrinthine over time. It can take years to make fundamental changes in traditional firms. The average renewal took over five years. There is a large literature on organisational change. Below are some aspects the author thinks are important:
- The senior leadership must commit to change, not just the words, but the discomfort and outright pain of wrenching loose traditions.
- Those who cannot commit cannot be part of the team.
- Complex organisations must be simplified before real change can be engineered.
- The first step is weeding out unnecessary activities, outsourcing them, and assigning them to subcontractors or to the dustbin.
- Further, simplify by removing superfluous layers that filter information without adding any substance.
- Then one must break large units into smaller ones.
Transformation choke points
Talented executives are often called in to transform and renew the company and install new systems and an updated managerial logic. Then, after a time, things change again, and those structures and processes become problems. Agilepoint (a company I work for) calls them transformation choke points, including technical debt.
It’s very hard to change a culture, and you can’t impose it. You’re dealing with people’s beliefs people’s commitments, so it tends to be a multi-year process. You have gotta talk about it a lot; you gotta give them a reason why they should behave differently. You have to connect it to the strategy of the institution and to their own personal benefits.
Bright, shiny distractions
Modern leaders of companies and agencies are tempted by a host of distractions. They are told that the company must have a “mission” They are liable to begin their strategy work with an attempt to explicate their goals in the belief that a strategy can be deduced from goals. They may confuse, as have many influential leaders and speakers, strategy with management.
Don’t start with goals
It is common to believe that strategies are plans for attaining certain goals. But who specifies the goals, and how do they do this? By contrast, a good goal is the result of effective strategy work that targets certain actions that will move the organisation forward. To avoid confusion, it is best to call this an objective to distinguish it from an unsupported goal.
If a goal—a decision—is set based on an understanding of the forces at work in the central challenge being faced, then it can be useful in guiding action. But if a goal is simply proclaimed, absent a diagnosis of the forces at work, then it, by itself, is a decision about what is important, a decision lacking a foundation in sound diagnosis.
Goals are an outmode of strategy
What is a good strategic goal? It is obvious that a business should try to survive and to increase profit. Yet, these aspirations do not translate into specific actions. “What shall we do?” Answering that question creates the goals the organisation will work to accomplish. Good strategic goals are the outcome of strategy, not its input. Ambitions, desires, and values do not tell us what to do. Critically, declarations of specific goals like these are actually decisions. They are sharp choices about what will be done. Strategy defines which broad interests can be advanced and which cannot in the current situation. Having decided on a way forward—a strategy—we can then fashion the specific goals that will guide its implementation.
Vision, mission, and values are not a strategy
Working with a cascade of “statements” about vision, mission, value, and strategy is a feckless activity, lacking a logical backbone and having no evidence of being enduring. They cannot really guide strategy. Neither the high-sounding statements of global purpose nor the profit-oriented statements are of any use for the kind of problem-solving strategy being espoused in this book. The author’s advice is to keep it to a motto. This is a maxim or dictum that evokes emotion and a sense of commitment.
Strategic development programme
I could not agree more. It starts with information, filtering, analysis, perception and framing your business for the future through scenarios and action planning. If you want help with strategy development, look here and give me a call.