The morning I sat with James (CEO of a high-tech start-up) was one that came as a surprise to me. Upon inquiring about his strategy, he said: “to be the number one in our market segment”. Thus, changing his path of thinking was one of the most difficult tasks in my professional career as he was stuck with a large To-Do list which he proudly called a strategy.
In our blog, The difference between a great idea and a success, start with your strategy to create and capture value FIRST we described why we should care about strategy and how a good strategy ultimately relies on being different from other firms in ways that create and capture value. A company’s strategy must reflect the fundamental choices about how to stand out in the market with a net positive value. That bundle of choices includes “products, customers, geography and activities” as the key aspects of the firm’s strategical development.
In this blog, we look at the kind of strategical ideas or methods that you need to avoid to take your company forward in the footsteps of large successful organizations. Then, we need to keep in mind that choosing what to do is as important as choosing what not to do as it allows a firm to specialize its activities and generate a competitive advantage. Richard Rumelt explains in his book “Good Strategy, Bad Strategy” that saying “no” is a foundational tool of your strategy:
“… To have a strategy, rather than vague aspirations, is to choose one path and eschew others. There is difficult psychological, political and organizational work in saying “no” to whole worlds of hopes, dreams, and aspirations.” Rumelt
Rumelt further compares a company with a goal rather than a strategy is just like a quarterback saying ‘let’s win’ in the team huddle. The win comes from hours of practice and coaching of strategies in the after-practice board room pep talk between the coach and support staff.
Let’s now analyze the 4 principles of bad strategies defined in Rumelt’s book:
1. Failure to face the problem
Firstly, a strategy in simple words is the methodology to overcome a consistent obstacle. However, if the obstacle is not defined, the anti-dote can neither be defined nor be implemented. Therefore, if you cannot asses this, you cannot reject a bad strategy or improve a good one. As a consequence, if you fail to identify and further analyze the obstacles, you will never have a successful way forward. Instead, you will just have a TODO list of things that you will call a strategy. This may work in the short term but will never do so in the long run.
In 1975, Steve Sasson at the Kodak HQ developed the world’s first digital camera which was the size of a toaster. This was seen as a game-changer for the future and a lot of money went into the program for a few years. However, just before the launch of the world’s first digital camera, senior management halted the whole operation and associated launch.
The reason they gave was that it will affect their film division. They didn’t make any alterations to the strategy when they were told that it would take approximately ten years for the digital camera to take over the world. They resisted to save short term financial goals and disregarded a long-term strategy. The digital camera eventually took over and Kodak was nowhere in the scene when the boom came. They failed to analyze the trends and how they needed a strategy to overcome obstacles in the future.
2. Mistaking goals for strategy
Secondly, many bad strategies are just statements of desire rather than plans for overcoming obstacles in the present or the future. This is a very common phenomenon in a lot of companies as they define their strategy as James did, “to reach double digital growth in 2025 or to have a 30% market share”. Then, how to do so is not mentioned anywhere which just makes these goals being mistaken for Strategy.
Growing business size is not a strategy but a direct result of a successful strategy that drives the increasing demand for products and services. It is a reward but doesn’t define the way to create value. Similarly, growth is usually taken as a success indicator in some industries.
In the tech industry, this is a common mistake as growth is one of the key drivers of investment but can’t be the driver of a successful strategy. Rumelt explains how most companies don’t need to be, and can’t be, as big as Google, Facebook, Apple, and Amazon. Tech companies grow artificially, i.e. spending the money of their investors, not money they’re making from customers. This kind of growth isn’t sustainable, and when they can’t turn a profit they shut down (or get acquired) just like the recent example of WeWork.
This generally doesn’t harm investors because they only need a handful of big exits out of their entire portfolio, so they pay for the ones that fail off of the profits from the few that make it big. However, the one who pays here is a small-medium company that mistook its goal as a strategy.
3. Bad strategic objectives
Another sign of bad strategy is fuzzy strategic objectives. For instance, they usually form a long To-Do list based upon numerous planning meetings. Rather than focusing on a few important items, the group sweeps the whole day’s work into a strategic plan.
The second type of bad strategic objective is one that is “blue sky”—typically a simple restatement of the desired state of affairs or of the challenge. It skips over the annoying fact that no one has a clue as to how to get there. A leader may successfully identify the key challenge and propose an overall approach to dealing with the challenge. But if the consequent strategic objectives are just as difficult to meet as the original challenge, the strategy has added little value. On the contrary, the objectives that a good strategy sets stand a good chance of being accomplished, given existing resources and competencies.
One example of a bad strategic objective is McDonald’s move into the salad in 2005. With regulatory bodies constantly pushing for healthy food on McDonald’s menu, the world’s largest food chain came up with a healthy salad in its menu. Although, the salads didn’t sell. Since its launch in 2005, they’ve only managed to make it up to be around 2% of McDonald’s’ overall sales revenue. So, what did they do about it?
“Our customer focus group observed that people will not just show up at McDonald’s with an aspiration of getting a cheeseburger and then change their mind to healthy living by ordering a salad”. Therefore, McDonald’s starting experimenting with the salad by adding fried chicken. The sales went up from 2 to 3% but still wasn’t a viable idea. Finally, the CEO of McDonald’s admitted to his investors that the new salad on the McDonald’s menu will never have a major share in the revenue of profit.
Therefore, the lessons learned from this salad adventure are that a company’s strategy should always surround their core competencies. Whenever you embark on a new strategy – you need to clearly articulate why you’re doing it, and what problem you’re trying to solve. This shared vision needs to be so well embedded in the strategy that the people involved can recite it easily and quickly and that it permeates everything around the execution of that strategy.
A final hallmark of bad strategy is a fluff design that is for masking the absence of thought. In other words, fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise. Fluff generally means that it uses abstruse and inflated words to create the illusion of high-level thinking whereas the basics of the strategy are essentially missing. You may recognize this one easily!
One example of the Fluff is Kmart vision statement that stated
“To thrive as a mass merchandising company that offers customers quality products through a portfolio of exclusive brands and labels.”
This is as generic as it gets and when compared with the other two giants in retail shopping “Walmart and Target’, this looked like a failure from day one. Walmart had a strategy of the lowest price whereas Target cited its strategy as ‘cheap-chic clothing at an affordable rate’. Once foot traffic fell in the 21st century, Kmart could not sustain the drop-in sales that it came along. In 2012, 10% of Kmart stores shut down with more following suit later. The broad statement like strategy made Kmart fall outside the Big 3 position that it once enjoyed.
We can see and analyze the planning and execution of bad strategies in all sectors, that are heavy with goals and slogans which amasses to a To-Do list rather than an implementable long-term strategy. Corporate boards sign off on strategic plans that are little more than wishful thinking. This is why if you are devising a strategy for your company, you should not make mistakes that the tycoons of the industry made when they were on the top. Focus is the best way to eliminate such changes. Look at the problem or obstacle and emphasis upon devising a practical strategy that overcomes the obstacles in the short and long term.
In addition to a great slogan like ‘be number one’ also devise a strategy on how to get there with a practical approach.
If you have any great slogan vs. strategy stories, do share your comments so we know Kodak, Kmart & McDonald were not alone!
References and Where to learn more