Monday, January 25, 2016

Good Strategy, Bad Strategy - Richard Rumelt

Richard Rumelt is considered to be one of the most influential thinkers on strategy and management in the world. This book written by him is about "creating and implementing powerful, action-oriented strategy that gets results". In a nutshell Rumelt says that the heart of good strategy is insight into the hidden power in a situation. To get to good strategy requires hard work and a deep desire to find that solution that gives you an advantage with the least effort. He emphatically says strategy is not goal setting or any of those things that most people confuse it with.

What is good strategy?
He deconstructs good strategy which has a logical structure. He calls it the kernel comprising of 1) diagnosis 2) guiding policy (which acts as a signpost) and 3) coherent action. Since strategy is important we must demand it from our leaders - even more than charisma and vision.

What does it bestow you with?
At a basic level strategy is the application of strength against weakness. Today strengths can be defined as advantages of the first mover, scale, scope, network effects, reputation, patents, brands etc. To gain advantage in a situation with the least effort should be what one should aim to do.

"A good strategy coordinates policies and actions. It does not merely rely on existing strength - it creates strength through coherence of its design. It also creates new strengths through subtle shifts of viewpoint. A good strategy has coherence, coordinating action, policies and resources so as to achieve an important end."

Good strategy requires leaders who will say no to a bunch of actions. It is about what an organisation does not do as much as about what it does.

"The second natural advantage of good strategy comes from insight into new sources of strength and weaknesses. One must learn to uncover the hidden power in situations and use relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you."

What is bad strategy?
Bad strategy is about 1) Fluff 2)Failure to recognise and define challenges (and thereby face it) 3) Mistaking goals for strategy and 4) Setting bad strategic objectives (which is primarily failure to address critical issues).

Somewhere there Rumelt says something I completely identify with - "True expertise is making a complex subject understandable. Mediocrity and bad strategy is unnecessary complexity."

As with many books that are of exceedingly high value on content I will refrain from using my mind but quote certain lines which will convey best what they mean.

"A strategy is a way through difficulty, a response to a challenge. A strategic objective should address a specific purpose or accomplishment."

"The job of the leader is to create conditions that will make a strategy worthy of the effort. He must decide general goals and design sub goals."

"Good strategy focuses energy and resources on one or few pivotal objectives that lead to a cascade of favorable outcomes.Good strategy defines the challenge and builds the bridge between challenge and action."

"Bad strategy floats above analysis, logic and choice, rests on hope and not on mastering fundamentals. It is active avoidance of good strategy - of hard work. Of leaders unwilling to make choices. of following a template-style strategy."

"Strategy involves focus - and thereby choice. The essential difficulty in creating strategy is not logical - its the choice. Coherent analysis pushes resources towards one end and away from another."

"Change in strategy will make some people worse off."

"Strategy is the craft of figuring out which purposes are worth pursuing and capable of being accomplished."

"Change requires painful adjustments. Good leadership helps people feel more positively about making those adjustments."

Rumelt spends some time on how many companies go by the formula of Vision/ Mission. Value and Strategies without ever truly understanding what they mean. He emphasises the importance of shared vision.

Understanding good strategy - Kernel
Diagnosis - It simplifies the complexity of reality by identifying certain aspects of the situation as critical
Guiding policy - It is the overall approach to cope with or overcome obstacles identified in the diagnosis. A good guiding policy tackles obstacles identified in the diagnosis. Without a good guiding policy there is no principle of action to follow.
Coherent action - It is designed to carry out the guiding policy. Strategy is about action. To have punch, actions should coordinate focusing organisation energy.

"Coordination can be a huge source of advantage. But coordination comes with a cost. To coordinate actions, specify proximate objectives. Seek coordinated policies where gains are very large."

Rumelt emphasises how strategically important coordination can be. However it comes with a cost. To achieve the same, set proximate objectives.

Sources of Power
"A good strategy harnesses power and applies it where it has the greatest effect."

Using leverage
"Good strategy draws from focusing mind, energy and action. The focus channelled in the right moment onto a pivotal objective can produce a cascade of favorable outcomes."

"Leverage arises from a mixture of anticipation, insight into what is most pivotal or critical or situation and making a concentrated application of effort."

"Anticipation in most circumstances means considering habits, performances and policies of others as well as inertia and constraints as always."

"Gain insight into pivot points that magnify the effects of focused energy and resources. Pivot points magnify effect of effort. It's a natural or created imbalance in a situation, a place where a relatively small adjustment can unleash much larger pent up forces."

"It is focusing effort on fewer objectives that generate larger payoffs. Threshold effect when there is a critical level of effort necessary to effect the system."

Proximate objectives
"One of the leaders' most powerful tools is the creation of a good proximate objective - close enough and feasible."

More dynamic the situation the closer you must look. More uncertain the future, the more you should take a 'strong position and create options'. Strong position within a field of options that provides future actions. Proximate objectives cascade down hierarchies and time.

"To concentrate on an objective - to make it a priority - necessarily assumes that many other important things will be taken care of."

"Skills of coordination are like rungs on a ladder."

Chain link systems
In chain link systems remember that it is only as strong as the weakest link. It is limited by that weak link. There is a problem of quality matching. Don't strengthen a few links in such cases. Instead identify bottlenecks and take personal responsibility to gradually strengthen the chain. (quality, sales and cost)

However, excellence achieved by a well managed chain link system is difficult to replicate.

Using design
Design is about premeditation, anticipation of others behavior and purposeful design of coordinated action. It's about mutual adjustment
A good strategy coordinates policies to focus competitive punch. Performance is the outcome of capability and clever design.

"Denotes coordination of policies that produce extra power through their interacting and overlapping effects and application of power to the right target."

"Healthy growth is the outcome of growing demand for special capabilities or of expanded capabilities. It is an outcome of superior products or skills."

Using advantages
"Understand your advantages. Press when you have them and sidestep when you don't.
For sustainable advantage you must possess an 'isolating mechanism' - a patent, reputation, network effects, scale, tacit knowledge and skill gained through experience."

"Interesting" - to alter advantages it gives

To increase value 1) deepen advantage 2) broaden extent of advantage 3) create higher demand for advantaged products 4) strengthen isolating mechanisms that block easy replications and imitations

Using Dynamics
Gain high ground through 1) innovation 2) grab high ground by exploiting a wave of change

To know how a wave will play question experts
Guideposts to waves of change
1) Escalating fixed costs 2) Deregulation 3) Predictable biases in forecasting 4) Incumbent response to change 5) Attractor state

Inertia and Entropy
Inertia is the unwillingness of or inability to adapt to change
Entropy is degree of disorder. It requires leaders to constantly push purpose, form and methods, on his people.

Inertia -
1) of routine (standard routines)
2) of culture (culture is social behavior (which normally resists change). As a 1st step simplify, eliminate complex routines, processes and hidden bargains
Fragment operating units
Look at the triage of units that can be closed, that can be repaired and those that form the nucleus of new structure
Changing culture, changing work norms and work related values
Norms established are held and enforced by small special groups that are taken care from the top
A challenging goal speeds this up.

3) of proxy
Customer inertia

Thinking like a strategist
To think like a strategist look at other viewpoints. A common mistake people make is by confusing intention with thought.

Science of strategy
"Good strategy is built on functional knowledge about what works, what doesn't and why. Available functional knowledge is essential. Proprietary knowledge is precious."

"Good strategy must have an entrepreneurial component. It must embody some ideas into new combinations for dealing with new risks and opportunities."

Do not approach strategy by thinking that all is known. All is not known - that's when you innovate
Strategy is an educated prediction of how the world works.

Using your head
"Being strategic is about being less myopic than others, than your own undeliberative self."

"Work with your feet on the ground, not with vague outlines."

"To create strategies in any area requires a great deal of knowledge about the specifics. Knowledge is necessary but not sufficient."

Keeping your head
"Good strategy grows out of an independent and careful assessment of the situation, harnessing individual insights to carefully crafted purpose."

Errors of human judgement 1) engineering overreach 2) smooth sailing fallacy 3) risk seeking incentives 4) social herding 5) inside view

Though some of the quotes and phrases and lines may not make too much sense in isolation (without the luxury of reading the book) they do say enough about what good strategy is about. Good strategy should identify or create an advantage that when applied at some pivotal points, provides great results with cascading effects over hierarchies and time, with the least effort. It is an elegant intervention brought out of deep study of the issue at hand, an understanding of the specifics and how things work, of outcomes desired and possible, and then using it. It means choosing among several alternatives and choosing the few that work best. Most times this ability to choose and to enforce this choice comes in the way of good strategy. It is about design, premeditation and careful choosing the point to focus resources and energy, guided by a clear objective that is long term. Good strategy bears fruit when we understand the pivot points, set proximate objectives and enforce a process for change. It is not an easy subject and needs much work to gain the level of expertise Rumelt has but certainly it is to do with clarity, outcome and the will to achieve outcomes elegantly.

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