Good strategy, bad strategy

“There is no wrong or right strategy; there is only good or bad strategy.” This is always my reply to strategic management students when they ask me what the “right” strategy is after case analysis discussions.

Students of strategy as well as many business leaders think that strategy can either be right or wrong, which also means that it can be true or correct as a fact or otherwise. Strategy is not only a science but also an art. Its formulation needs to go through a series of methodical steps but it also entails creativity in “connecting the dots” and iterations to adjust to nuances of the environment.

“Crafting good strategy is intensely complex and difficult, and involves informed, critical thinking,” as Richard Rumelt, author of Good Strategy/Bad Strategy, said. He highlighted dramatic differences between good strategy and bad strategy: the latter is more than the absence of the former; it is also long on goals and short on policy or action.

 

Good strategy is complex but is something that can be learned and practiced. In my decades of strategy consulting, teaching and practice, I have distilled what constitutes good strategy and have summed it up as the 5Cs:

Comprehensive. The strategic management process covers seven stages. Stage 1 analyzes the external environment using frameworks such as Pestel (political, economic, social, technological, environments, legal) to evaluate changes and shifts in environmental forces, from which we can derive opportunities and threats. Stage 2 involves formulating or revisiting the organization’s purpose, vision, mission and values. Stage 3 is about setting objectives, be it strategic or financial, such as increasing market share or growing revenue. Stage 4 analyzes the organization’s internal environment by evaluating its strengths and weaknesses. Stage 5 is about crafting strategies by using those strengths or converting weaknesses to capitalize on opportunities or ward off threats and ultimately achieve the organization’s objectives, and realize its vision and mission. Stage 6 involves executing the formulated strategies and lastly, Stage 7 includes monitoring developments, evaluating performance and making corrective adjustments.

 

Coherent. According to Rumelt, good strategy “is a coherent set of analyses, concepts, policies, arguments and actions that respond to a high-stakes challenge.” Coherence means that all seven stages in strategic management are logically linked and unified. For example, the organization’s vision (Stage 2) should reflect significant changes in the environment (Stage 1). Strategies (Stage 5) are derived from linking opportunities and threats (Stage 1) with the organization’s strengths and weaknesses (Stage 4).

Clear. A good strategy provides a clear roadmap, comprising a set of guiding principles or policies. These define the actions people in the organization should take (and not take) and the things they should prioritize (and not prioritize) to achieve desired goals. Good strategy should avoid fluff or “impressive sounding terminology,” as Rumelt put it. Instead, it should use clear and concise language to communicate to the stakeholders.

 

Creative. While a good strategy uses analytical tools such as environmental analysis, competitive forces, strategic maps, and so on, game-changing strategies “are born of creative thinking: a spark of intuition, a connection between different ways of thinking, a leap into the unexpected,” as Adam Brandenburger wrote in a 2019 Harvard Business Review article. Strategy formulation does not finish with linking threats, opportunities, weaknesses and strengths (TOWS), but involves an iterative process of looking at “contrasts,” “combinations” and “constraints” as prescribed by Brandenburger. An example he cited was Chinese social media platform WeChat (owned by Tencent), which combined and integrated a mobile payment platform called WeChat Pay that enabled users to buy and sell products within their social networks.

Cogent. With clarity, comprehensiveness and coherence, a good strategy will be convincing and persuasive to the board, shareholders and other stakeholders. “Good strategy is a plan for action backed up by a cogent argument — an effective mixture of thought and implementation with a basic underlying structure,” Rumelt said. Good strategy, in the end, is about convincing those who will back it up with investments and support.

So, what makes a bad strategy? It is missing out one or more of the 5Cs. For example, in 2013 Microsoft’s mission statement was “to create a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most.” At that time, cloud computing was rising with the threat from new competitors like Amazon Web Services and Salesforce. Microsoft instead acquired Nokia’s smartphone business for $7 billion, which eventually was written off in 2015, making it the worst acquisition strategy ever made. Microsoft’s strategy, together with its vision and mission, were obviously not aligned to the external environment, a clear example of a strategy lacking comprehensiveness in its analysis.

Business leaders need to distinguish between good and bad strategy. It will spell the difference among being successful, run-of-the-mill or an utter failure.

The author is the founder and CEO of Hungry Workhorse, a digital and culture transformation consulting firm. He is a fellow at the US-based Institute for Digital Transformation. He teaches strategic management in the MBA Program of De La Salle University. The author may be emailed at rey.lugtu@hungryworkhorse.com.

Source: https://www.manilatimes.net/2022/11/24/business/top-business/good-strategy-bad-strategy/1867507