The difference between good and bad
Why bad strategy is a social contagion
Author and academic Richard Rumelt explains how to develop strategies that aim to solve problems rather than simply state ambitions.
Business leaders often misunderstand the actual meaning of strategy, Richard Rumelt argues in his new book, The Crux: How Leaders Become Strategists. In an episode of the Inside the Strategy Room podcast, the long-time professor at the UCLA Anderson School of Management and former president of the Strategic Management Society talks with McKinsey senior partner Yuval Atsmon about the parallels between mountain climbing and strategy, the difficulty in committing to choices, and strategy sessions as “success theater.”
This is a glimpse and edited transcript of the discussion. For access to the full interview check out episode 135 of the Inside the Strategy Room podcast on your preferred podcast platform.
Yuval Atsmon: What are the differences between what you call good strategy and bad strategy, and why is the latter on the rise?
Richard Rumelt: Certainly, the trend over the past 30 to 40 years has been in the direction of bad strategy. It’s a social contagion of sorts. In fact, my provisional title for the book was Breaking the Bad Strategy Habit. Many companies treat strategy as a way of presenting to the board and to the investing public their ambitions for performance, and they confuse that with having a strategy. Some of it is the victory of finance as the language of business because we talk about shareholder return as the ultimate measure of success. Executives end up saying, “Our strategy is to achieve these results,” but that is not strategy.
Strategy is problem-solving. It is how you overcome the obstacles that stand between where you are and what you want to achieve. There are, of course, companies and individuals with brilliant insights into what’s happening in the world and how to adapt to or take advantage of it, but I am often asked to participate in strategy sessions, and a lot of them are awfully banal. In a typical session, the CEO will announce certain performance goals: “We want to grow this fast, and we want to have this rate of profitability.” Maybe they will throw out some things about safety and the environment, and that’s their strategy. But that’s not a strategy—that’s a set of ambitions.
Nowadays, I first ask, “What are your ambitions?” If you have six or seven senior leaders in the room, you get a big spread. It’s not just about shareholder returns; it’s about success, and respect, and responsibility. That’s fine. We all have ambitions. In The Crux, I write that when I was 25, I wanted to climb the big mountains of the world. I wanted to be a professor of business and an inspiring teacher. I wanted to marry a beautiful woman and have successful children. I wanted to drive a Morgan Plus 4 Drophead. Those were desires. Could I accomplish them all at once? Of course not. The beginning of strategy is, which of these ambitions can we make progress on today or in the near future? Then you formulate an action plan. This gap between action and ambition is where most bad strategies come from. Bad strategy is almost a literary form that uses PowerPoint slides to say, “Here is how we will look as a company in a year or in three years.” That’s interesting, but it’s not a strategy.