Strategy, or resource budget?

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Strategy? (Photo credit: Sean MacEntee)

Why have management teams reduced strategy to a compliance matter – something they go away to do once a year. Some have even invented a host of reasons why they can afford to take strategy off their list of tasks. “Strategy is a talk-fest.” “Strategy isn’t real.” “Strategy isn’t practical.” “Strategy is just a fancy name for planning.” In so doing, they have overlooked the creative, pre-emptive and competitive opportunities that great strategy should go looking for.

In an interview with McKinsey Quarterly in November 2007, Professor Richard Rumelt of UCLA’s Anderson School of Management, says most corporate strategic plans don’t deserve the name. Far from being strategies, they are actually three-year or five-year rolling resource budgets tied to a market share projection (designed, I imagine, to appease shareholders’ demands for dividends). Calling this strategic planning, Rumelt says, creates  false expectations that the exercise will somehow produce a coherent strategy.

Amen to that. Great strategy is not about all talk and no action or the talk before the action. I  don’t think it’s about just talking at all. Strategy is about seeing. It’s about visualising the company that you most want to run, and that your customers would most want you to be, at the point in time when that aspiration is most likely to be most effective. And then it’s about calmly, clearly and ambitiously thinking your way forward based on what you see. Along the way it’s about continually challenging everything you take for granted. It is, as Rumelt asserts, about delivering a clear pathway to substantially higher performance, something that “resource budgets” simply can’t do.

Last year, Rummelt’s new book Good Strategy/Bad Strategy  expanded on another  idea he coined in 2007. He summarised his key points from this book in another McKinsey publication in June 2011. “Bad strategy”, he says, is what happens when strategists go for the buzzword approach at the expense of differentiation. So there’s goals and ambitions and visions and missions – there’s just not a compelling and competitive approach to overcoming a defined and qualified challenge. “If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have a stretch goal or a budget or a list of things you wish would happen.”

The key causes of bad strategy in Rummelt’s view? Mistaking goals for strategy, bad objectives and obfuscation … caused by indecision and a templated approach to strategy.

The other problem with many strategic plans of course is that so many don’t include checkpoints. The actions run until the plan finishes, then more numbers are drawn up, and new actions start. Context, contribution and competitiveness – or the lack of them – go unchecked. A failure to solve any of the articulated problems or achieve any of the stated goals is greeted with a collective shrug of the shoulders and another management retreat to figure out what to do next.

And it’s not a once a year thing either. I’m with Rumelt in believing that strategy and its development should revolve entirely around opportunity. Every company, he suggests in his 2007 paper, should have a separate, non-annual, opportunity-driven process for strategy. In other words, strategy should  be cued by  conditions – and those conditions don’t necessarily just fall on a given number of calendar days when a favourite conference centre is available.

For me, the most important thing about a strategy is that it is very clear – about what’s faced, what’s needed and what success looks like. So, a clear strategy in my view has five aspects:

1.     A specific dilemma, challenge or opportunity that the organisation faces

2.     A detailed explanation of that situation, including an exploration of what has happened, who is leading it, what their motivations might be, where it might lead,  and those parts of that situation that pose the greatest threat and the greatest opportunity

3.     A distinct and articulated goal that resolves the dilemma or challenge, or maximises the opportunity

4.     A differentiated, on-brand approach to achieving that goal

5.     Actions within that approach that are specific, measurable, budgeted, resourced  and yet flexible enough to be adapted if the situation changes

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