If your business strategy includes financial targets, sales goals, or mission statements, you're doing it all wrong.
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Ever wonder why your company's objectives seem so elusive and your strategy so hard to deliver on? The problem, says Richard Rumelt, probably isn't your employees' lack of engagement or failure to execute. It may be that you never had a strategy in the first place.
In his new book, Good Strategy Bad Strategy, Rumelt, the Harry and Elsa Kunin Chair of Business and Society at the UCLA Anderson School of Management, explains that the process of strategizing has become muddled and misrepresented.
Using case studies, historical examples and his own experiences as a strategy consultant for small and large companies, Rumelt seeks to change the current ways of strategizing in favor of clear, action-oriented plans that move businesses forward. Rumelt recently spoke with Inc.'s Elizabeth Sile.
What makes your definition of strategy different?
In companies, strategies tend to be defined as, "Who are we going to acquire next?" or, "How much money are we going to make next year and the year after?" These are worthy questions, but they're not strategy. I define strategy as a problem-solving activity. That problem-solving activity applies to businesses, multi-businesses, governments, and armies. Strategy is a coherent way of grappling with an obstacle, a challenge, and maybe an opportunity. But even grappling with an opportunity is a challenge. Strategy and power derives from a clear-headed understanding of what the dilemma is, why it's hard to do, and then the coordination of forces of energy to deal with that dilemma.
Why do you think strategy has been corrupted?
There has been a merging of business thinking and speech with pop culture and motivational thought. If you were to go into a bookstore in 1970 and say, "Let me see some books on business," there was a very small shelf. It was a couple feet long with Peter Drucker and other classics. Now, the bookshelves go on for a wall, and a great deal of it is motivation thinking. It's about how to try harder and how to get people to reach for the sky. These motivational ways of thinking about business are a problem for thinking clearly about strategy. Maybe that kind of language and thought have to do with motivation and leadership, but they don't have to do with strategy. Strategy is a different subject.
What makes a good strategy then?
The key components of a strategy—I describe it as a kernel in the book—are the diagnoses of the situation, the approach to dealing with the situation, and a set of immediate coordinated actions to deal with the situation. The diagnosis is so important. Without a diagnosis you don’t know whether the proposed actions make any sense. If you don't know what the problem is and you don't know why it's difficult to overcome the problem, then you can’t assess the proposed action.
Why are proximate objectives so important when drafting a strategy?
I thought of titling the book, "The Proximate Objective," at one point. The idea of a proximate objective is that good strategy has, as part of it, a feasible goal that you're going after right now—something that the organization can actually achieve. Not just some ambition on the far horizon, but something that you can do now that will yield a step forward on the road, and that you can coordinate resources to accomplish. It's what makes it real. It's what makes it implementable.
In your book you say people tend to think of strategy in terms of action. Why should someone think of why something is being done as opposed to what is being done?
You can't improve what you're doing unless you know why you're doing it. If you say, "Here's my strategy," and have a group meeting to discuss whether it makes any sense, we better have some idea of why it's a good strategy. What's going on here? What's it trying to accomplish? Then as we roll out into the future, you need to adjust it, always. When I meet with a client, and I say, "What are we trying to do around here," very often that discussion immediately turns to, "Well, we're tying to make more money." The trick is to get them to backtrack into what actions we are trying to do, and what the problems are we're trying to solve.
Many people confuse goal setting with strategizing. How then do goal setting and strategy fit together?
It's a logical error to see strategy as a way of hitting a goal. Strategy is an existential exercise. You're creating the purposes and goals that will be pursued. If you think about a company or even a person or a country, there are multiple things that they would like to have. They'd like to have fame, money, more size, more technology, and more skills. They'd like to be more global. But thinking these are goals is a mistake, because you can't go after all of them.
The strategist's job is to figure out what the key things are that we can do that can advance our interests against at least some of these values. It's a matching between values and which problems you're going to try to solve. You can't solve all problems all at once. So you're not using goals to create a strategy. You're creating a strategy in response to opportunities and problems. Then if you're an effective leader, you're creating goals that the organization can go after as a way of accomplishing strategy. Goals follow strategy. Goals are the marks on the meter that tell you what you're making along the road. Goals are the marching orders for the various units inside your organization.
How can companies overcome the "problem of execution"?
Often the problem of execution happens simply because companies started by defining strategy as a set of goals. They say, "Okay, our goal is to grow the company 15 percent." Then they come around in nine months, and it's not there and they say, "We have problem of execution." Well they don’t really have a problem of execution. They just didn't have a strategy. They just had a bunch of financial numbers they were hoping to hit.
If you have a strategy, the way to execute it is to create proximate goals. This means that the senior leadership has to take responsibility for turning the strategy into a set of objectives that can actually be accomplished. Then you have something that can be executed. When senior management doesn't do that, they're not really taking responsibility for strategy. They're pointing at the horizon, and they're telling people to do something that nobody knows how to do.
What kind of advice can you give to small businesses or entrepreneurs for coming up with effective strategies?
The most important thing for small businesses is the idea of focus—the idea of not trying to do everything. Each business and each entrepreneur may have their own sense of what is the highest priority issue for them. There is no general rule that everyone should have the same title for every item, but focusing on that important item, focusing their time and energy to actually overcome it and deal with it, that's very important in all businesses all over this nation. Trying to cover all the bases all the time is the road to mediocrity.