By: Richard Rumelt

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Think of a successful company. Their strategy almost always looks simple and obvious and does not take a thick deck of PowerPoint slides to explain. It doesn’t pop out of some fill in the blanks “strategic management” tool, matrix or scheme.

Instead, the talented leader has identified one or two critical issues: pivot points that can multiply the effectiveness of effort and then focuses and concentrates action and resources on them. The company has identified a good strategy and so can you.

Spend the next ten minutes or so with us and find out from Richard Rumelt the difference between Good Strategy and Bad Strategy.

Lesson 1: Bad Strategy is Vague and Ambiguous

Bad strategy skips over those annoying (yet important) details such as the actual problem. It ignores the need to focus on the best option and tries to accommodate a multitude of conflicting demands and interests. As Rumelt states: “Like a quarterback whose only advice to teammates is “Let’s win,” bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values.”

For many people in business, education, and government, the word “strategy” has become a grammatical appendage. Business speech has transformed marketing into “marketing strategy,” data processing into “IT strategy,” and making acquisitions into a “growth strategy.”

Strategy defined in broad concepts which leave out action, creates a wide chasm between “strategy” and “implementation.”

Bad Strategy equates strategy with success or with ambition. But strategy cannot be a useful concept if it is only a synonym for success. Nor can it be a useful tool if it is confused with ambition, determination, inspirational leadership, and innovation. That’s Bad.

Lesson 2: Bad Strategy is Fluffy

Rumelt defines fluff as a form of gibberish masquerading as strategic concepts or arguments.

Fluff is a statement of the obvious combined with a generous sprinkling of buzzwords. Fluff is vague words disguised as expertise, thought, and analysis.

Take the following statement from a major retail bank’s internal strategy memoranda: “Our fundamental strategy is one of customer-centric intermediation.”

The word “intermediation” means that the company accepts deposits and then lends them to others. “Customer-centric” could mean that the bank competes by offering depositors and lenders better terms or better service. Pull off the fluffy covering and you have the superficial statement “Our bank’s fundamental strategy is being a bank.”

Bad Strategies mistake goals for strategy. Many bad strategies are just statements of desire.

Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impracticable. It uses high-sounding words and phrases to hide these failings.

If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.

Lesson 3: Bad Strategies are Prescriptive

Bad strategies are often created using prescriptive templates.

The Vision: Fill in your unique vision of what the school/business/nation will be like in the future. Currently popular unique 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.

The Values: Fill in a statement describing the company’s values. Make sure they are noncontroversial.

The Strategies: Fill in some aspirations/goals but call them strategies.

This approach is often taken because of its ease of application. Sit in a room for a few hours, complete the blanks and Hey Presto! You have a strategy. Bad. Executives have found that template-style strategy frees them from the onerous work of analysing the true challenges and opportunities faced.

Plus, by couching strategy in terms of positives—vision, mission, and values—no feelings are hurt. The 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.

Lesson 4: Good Strategy is Innovative and Ambitious

Rumelt identifies a good strategy as being responsive to innovation and ambition, one that selects the path to take and identifies how, why, and where leadership and determination are to be applied.

A good strategy recognises the challenges being faced and provides an approach to overcoming them. The greater the challenge, the more a good strategy focuses and coordinates efforts to achieve a powerful competitive punch or problem-solving effect.

A good strategy doesn’t just draw on existing strength; it creates strength through the coherence of its design. Most organisations of any size don’t do this. Rather, they pursue multiple objectives that are unconnected with one another or, worse, that conflict with one another.

Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organisation does not do as it is about what it does.

Lesson 5: The Kernel of Good Strategy: Diagnosis, Guiding Policy, Coherent Action

Rumelt suggests a good strategy has an essential logical structure he calls the kernel.

The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action. The guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis. It is like a signpost, marking the direction forward but not defining the details of the trip. Coherent actions are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.

The kernel of a good strategy is not based on any one concept of advantage. It does not consider visions, missions, goals, strategies, objectives, and tactics. It does not split strategies into corporate, business, and product levels.

Diagnosis
At a minimum, a diagnosis names or classifies the situation, linking facts into patterns and suggesting that more attention be paid to some issues and less to others. When a diagnosis classifies the situation as a certain type, it gives access to knowledge on how similar situations were handled in the past.

In business, most deep strategic changes are brought about by a change in diagnosis—a change in the definition of the company’s situation.

The diagnosis should replace the complexity of reality with a simpler story, a story that calls attention to its crucial aspects. This simplified model of reality allows us to make sense of the situation and engage in further problem solving. A good strategic diagnosis does more than explain a situation—it also defines a domain of action.

Guiding Policy
The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis. It is “guiding” because it channels action in certain directions without defining exactly what shall be done.

Good guiding policies are not goals or visions or images of desirable end results. Rather, they define a method of addressing the situation and help rule out less practical actions.

A guiding policy creates advantage by anticipating the actions and reactions of others, by reducing the complexity and ambiguity in the situation and by creating policies and actions that are coherent, each building on the other rather than canceling one another out.

Many people call the guiding policy “the strategy” and stop there. This is a mistake. Strategy is about action, about doing something. The kernel of a strategy must contain action. It does not need to point to all the actions that will be taken as events unfold, but there must be enough clarity about action to make sense.

Coherent Actions
The actions within the kernel of strategy should be coherent. That is, deployment of resources, policies, and manoeuvres that are undertaken should be consistent and coordinated. The coordination of action provides the most basic source of leverage or advantage available in strategy.

Strategic coordination is not ad hoc. It is actions imposed by policy and design. In very general terms, a good strategy works by harnessing power and applying it where it will have the greatest effect. In the short term, this may mean attacking a problem or rival with combinations of policy, actions, and resources.

In the longer term, it may involve cleverly using policies and resource commitments to develop capabilities that will be of value in future contests. In either case, a “good strategy” is an approach that magnifies the effectiveness of actions by finding and using sources of power.

Lesson 6: Leverage: I’ve got the power

A good strategy draws power from focusing minds, energy, and action. That focus, channeled at the right moment onto a pivotal objective, can produce a cascade of favourable outcomes. Rumelt calls this “power leverage”.

In general, strategic leverage arises from a mixture of anticipation and insight into what is most pivotal or critical in a situation, and consequently making a concentrated application of effort.

The strategist may have insight into predictable aspects of others’ behaviour that can be turned to advantage. In competitive strategy, the key anticipations are often of buyer demand and competitive reactions.

Most strategic anticipation draws on the predictable “downstream” results of events that have already happened, from trends already at work, from predictable economic or social dynamics, or from the routines other agents follow that make aspects of their behaviour predictable.

Anticipation does not require psychic powers. In many circumstances, anticipation simply means considering the habits, preferences, and policies of others, as well as various inertias and constraints on change.

To achieve leverage, the strategist must have insight into a pivot point that will magnify the effects of focused energy and resources. A pivot point is a natural or created imbalance in a situation, a place where a relatively small adjustment can unleash much larger pent-up forces. In business, the pivot point may be an imbalance between a rival’s position and their underlying capabilities, between vision and reality.

Lesson 7: Find a Proximate Objective

One of a leader’s most powerful tools is the creation of a good proximate objective—one that is close enough at hand to be feasible. A proximate objective names a target that the organisation can reasonably be expected to hit, even overwhelm.

President Kennedy’s call for the United States to place a man on the moon by the end of the 1960s is often held out as a bold push into the unknown. Actually, landing on the moon was a carefully chosen proximate strategic objective. The objective Kennedy set, seemingly audacious to the layman, was quite proximate. It was a matter of marshalling resources and political will.

A good proximate objective’s feasibility does wonders for organisational energy and focus. The more dynamic the situation, the poorer your foresight will be. Therefore, the more uncertain and dynamic the situation, the more proximate a strategic objective must be. The proximate objective is guided by forecasts of the future: the more uncertain the future, the more its essential logic is that of “taking a strong position and creating options,” not of looking far ahead.

In organisations of any size, high-level proximate objectives create goals for lower-level units, which, in turn, create their own proximate objectives, and so on, in a cascade of problem solving at finer and finer levels of detail.