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Companies today are mixing up strategy and goals with dire effects, says Richard Rumelt, the Harry and Elsa Kunin Professor of Business & Society at UCLA Anderson, a graduate school of business and management. Companies claim they have a strategy, but they do not.
Rumelt acts a consultant to some of the world’s leading companies: petroleum giant, Shell; engineering firm, Parsons Corporation; computer maker, IBM; and Indian technology giant, Tata Consulting Services, among others.
He tells LeadingCompany while visiting Australia this week: “I am old enough to have seen back through generations, and people today tend to equate a visionary, bold sense of the future and the setting of a goal with strategy. That isn’t what strategy is. Strategy is how you are going to move forward.”
The impact of this misunderstanding is that companies set strategies, often many at one time, and fail to achieve any of them. “Many companies say their mission to make the world a better place. It is a bunch of nonsense. Who is the audience for this? People know it is just puffery.
“The problem for someone who wants to take strategy seriously is that they are surrounded by bad examples.”
Why strategy has gone wrong
Popular culture and management theory has contributed to the demise of concrete strategy in both corporations and in government, Rumelt says.
“There is fluff, there is using fancy language to cover up a lack of substance. There is a lack of identifying the challenge. That means that if President Obama says, ‘We want to graduate more people from college than any other country, or create civil society in Afghanistan, is it a goal or pipe dream?”
What is missing is an analysis of the problem, he says. “The other approach is to try to say, why is this so hard, why the struggle? The starting point is a diagnosis of the nature of the challenge.”
Another distraction from creating good strategy is “medium term budgeting” – the attempt by companies to predict their people and capital needs for three to five years, Rumelt says. “That is very important, but a food fight over resources is not strategy. Strategy is about the most significant challenge facing the company.”
Unfortunately, many leaders are unwilling or unable to define the nature of that challenge.
Choice is not helping
The many strategic issues facing leaders is a big part of the problem in getting strategy right, says Rumelt, who is a keynote speaker at the Creative Innovation conference on November 30 this year. “There is always a long list of things the company wants to do. I call these the hangers-on; the payoffs to all the different interested parties in the process. This diffuses the company's ability to act at all.”
Too often, leaders are dishonest about the purpose of their strategies, Rumelt says. “They are not experimenting with strategic possibilities, they are satisfying power bases.”
Rumelt says one of his clients developed 11 priorities in its 2009 strategic plan. By 2012, when they called for Rumelt’s help, they had achieved none of them.
Leaders fear picking the wrong strategy if they do narrow down their focus. But Rumelt says: “If you have no idea what to do, you need to loosen up. You need the ability to experiment.”
Do something doable
Faced with many competing strategic needs, Rumelt has a simple solution: do something doable. Rumelt calls it a “proximate objective” – one that is close enough at hand to be feasibly achieved.
This approach builds a company's confidence in its ability to solve problems and realise strategy, and it also means that money, time, effort and people are used more efficiently.
Competitive advantage is not in itself going to make any company wealthy. “You get wealthier by actively strengthening a competitive advantage,” Rumelt says.
Strategy in volatile times
The title of Rumelt’s address in November is “Keys to strategy in volatile times”. It is something that is occupying the minds of leaders around the world.
Rumelt suggests that the idea that the world used to be more stable is a myth. “Between 1885 and 1920 the aeroplane was invented, cars appeared, electric motors appeared, the world turned upside down. Today we have the internet and everyone is excited. But that is not as big a change as aeroplanes that take you anywhere in the world.
“And so we live in volatile times. The trick to strategy is to have a relatively moderate time horizon, say 18 months. Start with something you can accomplish in 18 months that will make a substantial difference.”
To hear Richard Rumelt’s recipe for effective strategy in more detail, with case studies of both successes and failures, book your tickets to Creative Innovation Asia Pacific, November 28-30, 2012, at the Sofitel in Melbourne. LeadingCompany is a Digital Media Partner to the Creative Innovation event.
Good Strategy/Bad Strategy: The Difference and Why it Matters was chosen as one of six finalists for the Financial Times & Goldman Sachs Business Book of the Year award for 2011.