What makes a good strategy?
Most organizations have it all wrong when defining a good strategy or differentiating between good and bad.
A good strategy is often confused with ambition, innovation, inspirational leadership, goal-setting, high-level decisions, determination, or successful outcomes.
But here is what a good strategy is:
A cohesive blend of ideas, analyses, policies, and actions to respond to a high-stakes challenge.
It’s about uncovering the critical factors in a situation.
After that, you must direct your energy and resources to address those factors through focused, coordinated action.
In this blog, we’ll take inspiration from Richard Rumelt’s Good Strategy Bad Strategy: The Difference and Why It Matters to tell you about crafting good strategies.
Overview on the Good Strategy
According to Rumelt, a good strategy is made of three components: diagnosis, guiding policy, and coherent decisions.
A diagnosis defines the challenge in clear, simple terms.
Just like doctors diagnose a disease, you must diagnose the situation before deciding what to do.
A guiding policy is a broad approach to addressing your identified obstacles.
It directs you toward the correct pathway without exactly dictating what to do.
Coherent actions are how you execute the guiding policy.
These are a set of coordinated policies, resources, and maneuvers aligned with and supporting each other.
These components combine to form a good strategy’s core or ‘kernel.’
The kernel needn’t define all the actions you need to take.
But it must provide enough clarity to make the strategy actionable while ensuring your actions are well-coordinated and non-conflicting.
Overview on the Bad Strategy
For starters, a bad strategy is not just the absence of a good strategy.
Instead, it comes from misconceptions hindering sound strategy.
A strategy is bad when it includes the following:
Fluff – this is gibberish masquerading as strategic concepts.
That means a company may use buzzwords like ‘customer-centric’ or ‘cutting-edge’ to portray high-level thinking and hide the lack of substance.
- Failure to Face Challenges – If you can’t define the obstacles, you can’t respond to them effectively either.
- Goals Mistaken for Strategy – a bad strategy revolves around a statement of desire instead of a plan for overcoming obstacles.
- Bad Strategic Objectives – strategic objectives are the means to overcome an obstacle.
Bad strategic objectives fail to address critical issues or are simply feasible.
Key Reasons of Bad Strategy
There are three key reasons why organizations are prone to making bad strategies.
- If you’re unwilling or unable to choose different values or prioritize things, you’re likely to end up with a vague compromise with no strategic focus. That’s because you must give up on something to focus on one area.
- If you use a template-style approach that revolves around filling in your vision, mission, values, and strategies, it won’t work. The result usually expresses your goals and aspirations that can be useful for articulating an inspiring vision. However, it lacks the analysis and coherent actions of a real strategy.
- If you envision your success and avoid thoughts of failure, you’re likely to stray away from facing and tackling your problems – which is the crux of a good strategy.
What Are the Key Differences Between Good & Bad Strategies?
A good strategy:
- Makes a complex situation simple and understandable
- Identifies the key challenge and pivotal objectives
- Indicates how to get there
- Has a set of coherent actions supporting one another
A bad strategy:
- Is complex and uses fluffy words to cover the lack of substance
- Doesn’t define the challenge or critical area of focus
- Lacks actions or clarity on how to get there
- Is a mess of disjointed or conflicting tasks and priorities
What Powers a Good Strategy?
At its root, a good strategy is about applying your biggest strengths to your biggest opportunity.
A coherent strategy gives you two natural sources of strength:
- Since most organizations don’t have a good strategy, they won’t expect you to have one.
- You can uncover hidden insights by looking at things from a fresh perspective.
In his book Good Strategy Bad Strategy: The Difference and Why It Matters, Rumelt discusses the sources of power you can leverage:
Insightful predictions or anticipating others’ behaviors: for example, by analyzing customers’ or rivals’ responses to current events and trends.
Just like Toyota, which invested >$1B in hybrid gasoline-electric technologies during the SUV boom in the USA.
Pivot points that magnify the effects of focused effort: take the example of 7-Eleven, which focused its organizational energy on each market’s decisive aspects.
In Japan, they catered to local tastes and the love for novelty, using store data to develop new product offerings.
In China, they stood out by offering spotless interiors, tasty lunches, and white-gloved personnel who smiled and bowed to customers.
Proximate objectives that are close enough to be feasible: this means targeting what you can reasonably achieve or even exceed.
Just like Kennedy’s ambitious goal to put a man on the moon by 1969 was a proximate objective.
Kennedy knew it was just a matter of directing and coordinating resources accordingly.
Remember, you can only have a new strategic objective if your basics are in place.
So, you must master how to take off and land a plane before attempting complex maneuvers.
How Can You Develop a Good Strategy?
External ideas and feedback are useful, but the most vital tool to develop a good strategy is this:
You need to change your way of thinking.
The Science of strategy says that it’s like a scientific hypothesis.
Both operate at the edge of knowledge with guesswork that logical and empirical tests must validate.
To develop a good strategy, you must:
- Treat your strategy as a hypothesis and test your insight against established principles and accumulated business knowledge. If it passes, test it in the market. Remember not to confuse subjective opinion with fact. Instead, test your beliefs and assumptions with observable data in the real world.
- Capture proprietary information about various business elements and their interaction with testing and refining your strategy.
- Treat anomalies as opportunities to discover valuable insights.
Evaluate and Improve your Strategic Approach
Once you know, use these three essential skills to evaluate and improve your strategic approach:
- Overcome your myopia
- Question your judgment
- Record your judgments
Where You Can Apply These Strategies?
Lastly, the book sheds light on the techniques a strategist can apply to strengthen their strategic thinking:
- Make a list of the ten most important things you can do, and start with number 1.
- Don’t latch on to the first insight or solution you find. Test if it meets the kernel of a good strategy.
- Shift your focus away from what’s being done to why it’s being done.
- Imagine a virtual panel of experts and have a mental debate with them. Once you’ve refined your ideas, you can discuss them with colleagues.
- Improve your judgment through practice.
Above all, keep your head up instead of blindly following the crowd.
And that is the crux of avoiding bad strategies and developing good ones.
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