How does one tell a bad strategy from a good one? What are the signs that your business is operating under a misguided strategy?<\/p>\n\n\n\n
According to author and UCLA management professor Richard Rumelt, there are four elements that can signal a misguided strategy: 1) fluff, 2) failure to identify the challenge, 3) conflation of goals with strategy, and 4) misguided strategic objectives. The effects of bad strategy can be seen in everything from the failures of corporations to the poor performance of our educational system.<\/p>\n\n\n\n
Keep reading to examine four elements that can create a misguided strategy.<\/p>\n\n\n\n\n\n\n\n
A bad strategy is not simply the absence of any strategy, nor is it a good strategy<\/a> that has failed. Rather, it is a poorly thought-out strategy that\u2019s based on misconceptions and misguided leadership.<\/strong> <\/p>\n\n\n\n There are four major elements of bad strategy:<\/p>\n\n\n\n When a corporation uses fancy phrasing to describe their grand vision or performance goals, they often call it strategy. It\u2019s not. It\u2019s \u201cfluff.\u201d<\/p>\n\n\n\n At its core, \u201cfluff\u201d is the statement of an obvious fact sprinkled with industry buzzwords. Because of its lofty vocabulary and convoluted sentence structure, fluff is often mistaken for intelligent expertise, but only authentic analysis makes a complex issue understandable. Fluff works in the opposite direction, injecting complexity into simple concepts to cover up a lack of insight, original thought, or useful directives. <\/strong><\/p>\n\n\n\n For example, a bank might say their core strategy is \u201ccustomer-focused intermediation.\u201d Here, \u201cintermediation\u201d merely means being the middleman between customer transactions, and \u201ccustomer-focused\u201d simply means working with customers. Replacing the buzzwords gives you a simplified statement: \u201cOur bank\u2019s strategy is to be a bank.\u201d There\u2019s nothing useful there that shows how this particular bank is going to set itself apart from the competition. <\/p>\n\n\n\n Fluff often shows up in the information technology industry; an EU report talked of \u201ccloud computing\u201d as \u201can elastic execution environment of resources involving multiple stakeholders and providing a metered service at multiple granularities for a specified level of quality-of-service.\u201d Taking out the buzzwords, this translates to \u201ca group of servers providing a range of services.\u201d It\u2019s a meaningless, vague, and general description; not an actionable strategy. <\/p>\n\n\n\n The fall of accounting firm Arthur Anderson shows the danger of using fluffy industry-speak to obscure a lack of solid foundations.<\/p>\n\n\n\n In 2000, Arthur Anderson was helping the energy-trading and utilities company Enron enter the bandwidth-trading markets. This was a fundamentally different market from Enron\u2019s previous areas of expertise\u2014the gas and electric markets, through which it had access to information on supplies and demand that gave it a competitive advantage<\/a> over other traders. <\/p>\n\n\n\n In moving into bandwidth-trading, all of Enron\u2019s expertise and competitive advantages disappeared. Bandwidth was not quantifiable nor deliverable in the same way gas and electricity were. Enron was not the central player in the market and so had less access to critical data. Further, the bandwidth market was fundamentally different than gas and electricity markets because capacity and demand followed different rules, which Enron\u2019s lack of expertise in the market blinded them to.<\/p>\n\n\n\n Instead of acknowledging and addressing these challenges, Arthur Anderson flooded its own corporate communications with fluffy visuals and statements with industry words like \u201cmarket enablers,\u201d \u201cover-the-counter broker,\u201d and \u201celectronic trading platform,\u201d which were merely ostentatious ways of saying that they would help Enron function as a trader. Arthur Anderson enticed investors to sink their money into this unproven business, covering up their lack of knowledge with overblown vocabulary. <\/p>\n\n\n\n By the time Enron filed for bankruptcy protection in December 2001, it was clear that Arthur Anderson had not actually understood or devised a viable strategy for the bandwidth market, and had relied on industry-speak, given credence by their reputation, to mask their lack of knowledge. <\/p>\n\n\n\n The second way<\/a> strategies typically fail is that they don\u2019t properly identify the core challenges an organization faces so that these challenges can be planned for.<\/strong> If a problem is not well defined, you can\u2019t devise a workable solution to it. Further, you can\u2019t distinguish a good strategy from a bad one if you don\u2019t know what obstacle it aims to overcome, and you therefore will be more susceptible to choosing a bad one unwittingly. <\/p>\n\n\n\n The fall of International Harvester (IH) is an example of what can happen when a company fails to identify the one core challenge that is more critical than all the others.<\/p>\n\n\n\n IH was once one of the largest corporations in the United States. However, by the late 1970s it was a sleepy outfit with declining profits. In 1979, in an attempt to turn the company around, it published a dense, lengthy new corporate strategy. The plan consisted of five separate plans, one from each of the company\u2019s divisions\u2014truck making, gas turbines, components, agricultural equipment, and industrial equipment. <\/p>\n\n\n\n The plan was detailed but failed to identify the primary challenge facing the company: an inefficient work structure. IH\u2019s profit margins were close to one-half those of their competitors at the time because its organization encouraged ill-thought-out and frequent transfers of personnel. Further, the company had one of the worst labor relations in the industry, which increased costs. <\/p>\n\n\n\n Because its plans to invest in new equipment and cut administrative overhead did nothing to address its actual main challenge, the company was unable to halt its decline. Though profits improved for a couple of years after the implementation of the new strategy, a poorly-resolved labor dispute left IH hobbled and by 1985, it had lost over three billion dollars and been forced to lay off 85 percent of its workforce. It was finally broken up and with the exception of one trucking division, it was sold piecemeal. <\/p>\n\n\n\n In contrast to the failure of IH, the success of the Defense Advanced Research Projects Agency (DARPA) illustrates what can happen when an organization adopts a strategy that places its primary challenge front and center. <\/p>\n\n\n\n DARPA\u2019s stated challenge is to find technological solutions for military problems. They note that this challenge has two sub-challenges: First, some problems have unclear solutions, and second, some solutions may not ultimately work, so there is risk inherent in developing them. <\/p>\n\n\n\n They focus their efforts and resources on projects the military avoids because they are too difficult and have uncertain returns on investment. Some of DARPA\u2019s successes include ballistic missile defense<\/a>, the first iteration of the Internet, stealth technology, GPS, and unmanned land and air vehicles. <\/p>\n\n\n\n DARPA\u2019s strategy has been successful because it starts with a clear identification of their primary challenge and then concentrates its actions and resources on that challenge. It is focused; it doesn\u2019t try to address all<\/em> military problems but only the ones that fall into their space, and it doesn\u2019t spread its resources thinly between internal interests. Likewise, the strategy is specific\u2014it defines policies that drive its daily operations. It is devoid of fluff.<\/p>\n\n\n\n The third way strategies fail is that they don\u2019t identify actual strategies, but instead name performance goals\u2014five-year budgets paired with market share projections, for instance. For example, a company might outline a plan to increase revenues by twenty percent, become the industry leader, or increase customer retention<\/a> by ten percent. These are goals, not actionable strategies.<\/strong> <\/p>\n\n\n\n A company might also decide that stronger motivation is their strategic game plan, as if a failure to want<\/em> these goals is all that\u2019s standing in the way of achieving them. It might then speak of a \u201cculture of commitment\u201d or \u201cdedication to achievement,\u201d which are great big-picture values, but are not strategies.<\/p>\n\n\n\n Strategy based on goals and motivation<\/a> misses the insight that competition is about more than just strengths and wills; it is about judgment and aptitude. When you mistake goals for strategies and motivation for a plan, you can end up on a dead-end path hoping that if you just hang in there long enough, things will start to go your way. Organizations who mistake motivation for a strategy usually adopt a \u201cnever give up\u201d attitude that compels them to commit to a losing position even when the data says they should adjust their aims or actions. <\/p>\n\n\n\n A tragic example of this goal-based, motivation-driven strategy underpinned by a \u201chang in there, don\u2019t ever give up, just keep trying harder\u201d mentality was the slaughter of Allied troops during the First World War outside the Belgian village of Passchendaele. <\/p>\n\n\n\n In 1917, British general Douglas Haig decided to break through German lines in that region to open up a path to the sea. He envisioned that this would divide and weaken the German army. His advisors told him that shelling German fortifications would destroy the Belgian dikes and submerge the area in seawater. Ignoring their advice, he bombed the fortifications anyway and destroyed the dikes. The resultant flooding turned the entire area into a morass of sticky clay that swallowed men to their waists and drowned tanks, horses, and the wounded. <\/p>\n\n\n\n Though Haig had, prior to the battle, promised to call off the attack if it didn\u2019t go their way, once his operation was underway he refused to back down, committed to the idea that \u201cone last push\u201d might turn the tide in his favor. After three months, more than 70,000 Allied soldiers had died in the attack and another 250,000 were wounded\u2014and only five miles of ground had been gained. <\/p>\n\n\n\n In this tragedy, the Allied forces did not suffer from a lack of motivation or perseverance; they suffered from a lack of a strategic game plan that would either make their efforts worthwhile or cause them to redirect. <\/p>\n\n\n\n A fourth way strategies can fail is by choosing misguided objectives. Objectives are different from goals. Goals are broad, big-picture visions. Objectives are subgoals: specific approaches that will allow an organization to accomplish those larger goals.<\/strong> Strategy is the road map linking objectives to goals. <\/p>\n\n\n\n For example, the United States\u2019 goals<\/em> may be freedom, peace, security, and justice. Its objectives<\/em> may then be to defeat the Taliban and establish a working government in Afghanistan. These objectives will form its strategy<\/em>. <\/p>\n\n\n\n Sometimes, leaders don\u2019t choose their objectives wisely. There are two common mistakes leader make when defining objectives:<\/p>\n\n\n\n The journey of the organic food distributors Chen Brothers illustrates the proper way to use strategic objectives to accomplish goals. The company outlined specific, focused objectives and shifted them as needed in response to short-term challenges in order to achieve long-term success. <\/p>\n\n\n\n Chen Brothers was a specialty food distributor that aimed to increase profit and become the leading distributor for organic products. The company didn\u2019t fall into the trap of thinking these overall goals were a strategy; instead, it developed a very specific set of objectives to accomplish them. These objectives targeted local specialty retailers with well-thought-out sales and marketing methods. <\/p>\n\n\n\n With the rise of Whole Foods, though, the market changed. Chen Brothers adjusted accordingly. They didn\u2019t adjust their goals\u2014they still aimed to be market leaders<\/a> in organic food distribution\u2014but they adjusted their objectives, and thus their strategy. Instead of targeting a hodge-podge collection of local retailers, they set their sights exclusively on Whole Foods and developed a plan to unite local food producers under a common label that could be sold at the national chain. <\/p>\n\n\n\n In this way, the company successfully focused its energy and resources on one or two important short-term objectives that would position it to accomplish its long-term goals. Once those objectives were met, it was able to adopt new objectives, ones targeting, for example, shelf space and market share. <\/p>\n\n\n\n In contrast, the difficulties of the Los Angeles Unified School District (LAUSD) illustrate what happens when a leader doesn\u2019t choose objectives wisely. <\/p>\n\n\n\n In 2006, David Brewer took over LAUSD as superintendent with the directive to improve its educational performance. Brewer started off well by narrowing his focus to just the 34 lowest-performing schools in the district. <\/p>\n\n\n\n However, the objectives he chose to pursue in regards to those schools fell into the \u201call ambition, no direction\u201d trap. He set goals such as creating \u201ctransformational leaders\u201d but didn\u2019t define what this meant or provide guidance on how to become such leaders. Likewise, he ignored the fact that teachers and administrators were stretched to capacity just keeping up with daily problems and had no decision-making<\/a> power anyway within the highly regulated bureaucracy of the system. He also initiated a volunteer-parent-led community outreach program at each school, a hugely unrealistic ambition given that much of the underperformance of the students was due to poverty and the unstable family lives that often resulted from this. <\/p>\n\n\n\n Now that we\u2019ve defined bad strategy, let\u2019s explore why there\u2019s so much of it around, and why people don\u2019t generally develop good strategy when tasked to. <\/p>\n\n\n\n There are three primary reasons behind bad strategy:<\/p>\n\n\n\n These three points are discussed below.<\/p>\n\n\n\n One of the main drivers of bad strategy is an inability to prioritize interests. Often, complex organizations like corporations or governments are too concerned with placating the various and diverse interests within their operations to develop a focused, targeted strategy that concentrates resources into one specialty. It can be unpleasant to make hard choices that favor one coalition over another, and therefore, large, successful organizations can end up with a hodgepodge of conflicting goals and interests among their various parts. When they try to accommodate all of these conflicting interests by spreading resources evenly around, they end up with unfocused, bad strategy. To create good strategy, leaders must be willing to say no<\/em> to these varying interests. <\/p>\n\n\n\n Making choices is difficult because it means that some people and departments within the organization will be worse off, and therefore will resist such decisions. Making such choices gets even more difficult when a company is more established; the longer certain interests have been allowed to assert themselves, the more entitled they feel to their participation.<\/p>\n\n\n\n In the case study we looked at earlier of the U.S. Desert Storm operation, it\u2019s worth noting that one of the main reasons Schwarzkopf\u2019s strategy worked is that he ignored pressures from various parts of his organization who wanted to play bigger roles in the offensive. For example, sea-based Marines wanted to fight but he told them to simply station themselves off the coast as a decoy, the Air Force wanted to participate with strategic bombing but he forbade them to, and the Secretary of Defense (Dick Cheney) wanted to implement a different action plan but Schwarzkopf refused. Resisting the pull of these internal factions allowed him to maintain a focused, clear strategy.<\/p>\n\n\n\n Another source of bad strategy is the lure of template-style fill-in-the-blank strategy that promises easy solutions without much thinking. This type of strategic planning grew out of the business world\u2019s obsession with charismatic leaders. <\/p>\n\n\n\n In the mid-1980s, business thinkers noted that transformational leaders can have an outsized impact on a company\u2019s future, and then mistakenly conflated strong, charismatic leadership with strategy. This gave rise to the false belief, held by many organizations, that if they had a strong leader, they had a good strategy.<\/p>\n\n\n\n In chasing this myth, management experts tried to boil leadership down to a formula with three elements. According to this theory, a good leader<\/a>:<\/p>\n\n\n\n While this may be a good way to develop strong leadership, it does not address strategy. Leadership may be about vision, but strategy is about figuring out the specifics of how to accomplish that vision. <\/p>\n\n\n\n The leadership template and its assumed connection to strategy gave rise to a related template designed to capture the essence of a company\u2019s strategy in a fill-in-the-blank sort of way. You\u2019ll often see it in a business plan or annual report. Unfortunately, these templates encourage vague statements of goals and ambitions, rather than clear analysis of challenges and solutions. You\u2019ll typically see sections for the following prompts:<\/p>\n\n\n\n1. Fluff<\/strong><\/h3>\n\n\n\n
Case Study: Arthur Anderson<\/h4>\n\n\n\n
2. Failure to Identify the Challenge<\/strong><\/h3>\n\n\n\n
Case Study: International Harvester<\/h4>\n\n\n\n
Case Study: DARPA<\/h4>\n\n\n\n
3. Conflation of Goals With Strategy<\/strong><\/h3>\n\n\n\n
Case Study: Douglas Haig<\/h4>\n\n\n\n
4. Misguided Objectives<\/strong><\/h3>\n\n\n\n
Case Study: Chen Brothers<\/h4>\n\n\n\n
Case Study: Los Angeles Unified School District <\/h4>\n\n\n\n
The Three Causes of Bad Strategy<\/strong><\/h3>\n\n\n\n
1. The Inability to Choose Between Priorities<\/strong><\/h4>\n\n\n\n
2. The Lure of Strategy-by-Template<\/strong><\/h4>\n\n\n\n