Understanding good strategy

Strategy is a fundamental concept in business. It has permeated through history as a method for reaching success. Unfortunately, strategy has become little more than a buzzword - interchangeable with “goal”, “vision”, and “objective”. These latter things are all useful for a business – but they are not strategy.

 

Richard Rumelt is a thought leader in the field of strategy. He has significantly influenced the professional and academic fields since the early 70's. In his book Good Strategy, Bad Strategy: The difference and why it matters (2011) he writes:

“The most basic idea of strategy is the application of strength against weakness. Or, if you prefer, strength applied to the most promising opportunity. "

(Parenthesis mine).

 

I have found a great deal of wisdom in Rumelt’s work in the field of strategy. The following is part review, part description of his book – paraphrased for brevity. Let’s take a look at the three aspects making up the kernel of good strategy:

 

1. Diagnosis

It is not enough to draw up a list of objectives, a mission statement, and a vision statement, and call it a strategy. Though useful, these activities are little more than wish lists. They have no attachment to practicality, and the planning required to achieve them. They also omit any opportunities for creating or maximising advantage.

Specificity is crucial in business. So, to begin your strategy, start by identifying a particular challenge your business faces. Perhaps you’re making a decision about whether to hire one specialist over another. Maybe you’re having difficulty deciding who your target market is.

Whatever the case, identify the challenge currently facing your business. Then, highlight specific aspects of the challenge crucial to overcome.

 

2. Guiding policy

The point of the guiding policy is that it is a general approach to dealing with the challenge. It also serves as an indicator of whether the challenge is being addressed.

Many businesses – particularly small businesses – have an ambiguous policy or plan at best. Drawing up a clear policy will eliminate ambiguity, making a solution more likely.

 

3. Coherent actions

Finally, think about the set of actions required to carry out this guiding policy. A strategy is not a strategy unless it includes action. 

The listed actions must be coherent – that is, they must be unified, aligned to achieving the same end. They must also be feasible (you have the resources necessary) and proximate (you can carry them out now, or in the very near future); there is no point setting up actions if you do not have the ability to follow through.

Here are some examples Rumelt gives of good strategy in action:

- For a doctor, the challenge is the set of signs and symptoms, coupled with the patient’s history. She makes a clinical diagnosis; the therapeutic approach chosen is the guiding policy. The prescribed medication, diet, and therapy are the coherent actions to implement. 

- In many large organisations, the challenge diagnosed is internal (competitive culture). The guiding policy lies in the realm of reorganisation and renewal. And the set of coherent actions are the changes in people, power, and procedures.

- In business, the challenge is usually dealing with change and competition. A common error by businesses is to name performance goals rather than identifying the structure of the challenge. The latter is the first step. 

The second step is to set up an overall guiding policy to deal with the situation, one that builds on or creates some time of leverage or advantage. The third step is the design of actions and resource allocations to implement the guiding policy. 

 

 

Bad strategy arises when a business replaces one or all of these with any of the following:

- Fluff/buzzwords 

- Failure to face the challenge

- Mistaking goals for strategy

- Setting impracticable objectives. 

 

 

These are destructive to businesses, and are certainly behind their stagnation and/or failure. 

 

 

But a diagnosis, guiding policy, and coherent actions make up the kernel of good strategy. Developing one is fundamental to creating advantage, building resilience, and sustaining your business long term.


This guest blog post was written by Courtney Deagon, a former business owner who's returned to undergraduate studies; combining her experience and degree, she's hoping to complete PhD in marketing in the future.

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