Richard P. Rumelt
A good strategy consists of three essential elements that form a cohesive response to a high stakes challenge. The first element is a diagnosis that simplifies the overwhelming complexity of reality by identifying the critical obstacles holding an organization back. The second element is a guiding policy that outlines an overall approach to overcoming the identified obstacles. The third element is a set of coherent actions that dictate how the guiding policy will be carried out. These actions must coordinate and support each other rather than fight for resources.
Bad strategy is not simply the absence of a good strategy but rather the active avoidance of the hard work of problem solving. It relies on fluff, using abstruse buzzwords to create the illusion of high level thinking. It fails to define the underlying challenge, making the strategy impossible to evaluate or improve. Furthermore, bad strategy mistakes goals for actual plans, substituting statements of desire for coordinated action. It frequently relies on dog's dinner objectives that attempt to please all stakeholders without making hard choices.
Leaders often produce bad strategy because they are unwilling or unable to make difficult choices. A focused strategy requires saying no to certain initiatives, which inevitably alienates some stakeholders. To avoid this conflict, leaders create compromise statements that lack focus and fail to guide action. Additionally, many organizations adopt template style planning, filling in blanks for vision, mission, and values instead of addressing real obstacles. This is compounded by the belief that positive thinking and motivation alone can overcome systemic problems.
Good strategy draws power by focusing minds, energy, and action onto a pivotal objective. This leverage arises from anticipating the predictable behavior of competitors and buyers to identify imbalances in a situation. By concentrating effort on these pivot points, an organization can multiply the effectiveness of its resources. Concentration requires limiting objectives to those that can be decisively affected by the resources at hand, crossing the threshold necessary to actually change the system.
A powerful strategic tool is the creation of a proximate objective, which is a target close enough at hand to be feasible. The more dynamic and uncertain a situation is, the more proximate the objective must be. By setting a solvable problem, leaders absorb the overwhelming ambiguity of a situation and provide their organizations with clear direction. Hitting a proximate objective creates a strong position that generates new options for future action.
A system has a chain-link logic when its overall performance is limited by its weakest component. In these systems, strengthening the strongest links provides no benefit if the weak links remain broken. Organizations often get stuck in low performance states because improving just one department decreases overall profit, dulling the incentive to change. Escaping this trap requires strong leadership to sequentially upgrade each weak link. Conversely, a well managed chain-link system creates a formidable competitive advantage because rivals cannot successfully imitate just one piece of the integrated design.
Strategy is fundamentally an exercise in design, requiring the engineering of fit among various organizational parts. Tightly integrated designs coordinate policies across all activities to focus competitive punch on a specific target. This focus allows a company to extract greater value from a specific market segment than larger competitors who try to serve everyone. While a highly integrated design is less flexible, it is necessary to overcome significant competitive challenges when resources are constrained.
Competitive advantage is rooted in the asymmetries between rivals. A successful strategy presses where an organization has an advantage and sidesteps areas where rivals are stronger. To sustain this advantage, an organization must build isolating mechanisms like patents, brand reputations, and network effects that prevent competitors from duplicating their success. An advantage only increases in value if the organization takes deliberate action to deepen it by widening the gap between buyer value and cost, or by engineering higher demand for its unique resources.
Organizations can capture new, undefended high ground by exploiting exogenous waves of change. These waves result from shifts in technology, deregulation, and buyer preferences that alter the competitive landscape. To harness this power, strategists must look beyond the immediate effects of change and deduce the secondary impacts and underlying forces. By anticipating the ultimate attractor state that an industry will evolve toward, an organization can position itself to benefit from the disruption while incumbent firms remain paralyzed by their own obsolete routines.
A new strategy is effectively a scientific hypothesis about what will work in the marketplace. Because strategy deals with the edge between the known and the unknown, it cannot be deduced entirely from existing facts. Leaders must make educated judgments, implement them as experiments, and carefully observe the results. By paying close attention to anomalies that defy conventional wisdom, organizations can capture proprietary information and iteratively refine their strategies to exploit newly discovered opportunities.