Good Strategy & Bad Strategy - The Difference and Why it Matters

We were discussing the formulation of a strategy recently. Richard Rumelt has a few amazingly simple tips to help with the formulation and implementation of a successful strategy. I have outlined some of my notes and thoughts below:

Do not confuse strategy with ambitious goalsetting. A 20% increase in growth and a 20% increase in profit is not a strategy. They are financial goals.

• A strategy is how a set of goals can be met.
• Purpose describes why an organisation exists.
• A strategy describes how this purpose is going to be achieved.
• A Transformation plan describes what will be done.

A Strategy should have a diagnosis, a guiding policy, and an implementation plan. Making tough decisions about what are the highest priority aims is the most important part of developing a great strategy.

Intel was competing with Japanese microchip memory manufacturer, and to survive Andy Grove made the brave strategic decision to develop Microprocessors, and the rest is history…

Your strategy should give your organisation leverage over your competitors.

It is also particularly important to balance the amount of activity required by the strategy with the resources available. The dynamics of rapidly changing marketplaces, technology and economies are the perfect conditions to take advantage of a good strategy. The whole idea of a strategy is to maximise competitive advantage in creating more value for customers than the competitors do.

To become a good strategist, you need to be able to form your own hypotheses.

Howard Schultz of Starbucks thought when he visited Italy that the whole experience of coffee drinking at espresso bars would be successful in the USA. Shulz got permission from his employer, a coffee roaster in Seattle, to create a coffee bar and test his hypothesis. He began by copying the American experience and very quickly discovered that the Italian tradition of standing at the bar drinking Espresso did not suit Americans. He then discovered that many Americans like take away coffee, so he introduced paper cups. A strategy is another type of problem-solving where you use scientific methods to produce a hypothesis and either prove or disprove it with experimentation. It is also important to test your strategy with an outside view with special emphasis on the views of your prospective customers.

Beware of the inside view where we tend to believe that even though something has happened to others it will not happen to us. This is a dangerous trap that many companies fall into. Good strategists keep testing the strategies of their competitors and others they admire. This ensures that the strategy is as effective as possible.