Richard Rumelt wrote an article for McKinsey Quarterly titled Getting Strategy Wrong—And How to Do It Right Instead (May 3, 2022).
« The word “strategy” means an approach to dealing with a difficult challenge, especially that of competing with a clever opponent. To have a strategy is to have an approach to overcoming critical obstacles and difficulties. However, through many years of working with companies, government agencies, and the military, I have too often seen strategies that are actually a toxic mix of wishful thinking combined with a jumble of incoherent policies. »
« In 2016, an S&P 500 company I’ll call Royalfield gathered 25 of its senior executives … The chief executive officer spoke next, armed with PowerPoint slides presenting what he called the Strategic Commitment and the Success Score Card (SSC). … 15 percent annual growth in earnings and a 15 percent return on equity. … After lunch, the four business unit managers each presented their individual SSCs… The CEO’s system of defining the SSCs in largely financial-performance terms shaped the options they considered and shifted strategic thinking away from technology, product, customer, and competition and toward tactics for achieving targeted accounting results. There was no serious consideration of how the contradictory demands for increased sales and reduced costs would be reconciled. … Some of Royalfield’s strategic challenges seemed fairly evident. …The technology it had invented and successfully deployed in the past had been equaled—and, in places, surpassed—by a competitor’s inventions. The company’s engineering group was competent but slow to act, responding to its own internal sensibilities rather than to competitive issues. When, over drinks before dinner, I raised some of these issues with the CEO, he held out his hand, palm forward, asking me to stop. “I don’t want to hear negative things about the team. I don’t want them distracted from the SSCs.” »
« At many businesses, nonprofits, and government agencies, so-called strategy exercises do not produce strategies—because they are designed to do something else. In commercial settings, they are often attempts to predict and control financial outcomes, nothing more than a form of budgeting. The process may glance at broader issues, but it quickly centers on financial targets and then budget allocations. In nonprofits and government agencies, the strategy activity often develops a list of ambitions that passes as “strategy.” What is missing are the elements giving strategy its bite: a realistic assessment of the obstacles blocking or slowing forward progress and a mix of policies and actions designed to focus organizational energy on surmounting these obstacles. »
« Real strategy work is hard. It is hard because serious strategy situations are much more complex than decision situations. They are what I call gnarly, resisting easy resolution. Gnarly situations do not present easy-to-identify answers; they don’t even present readily identifiable choices. Rather, they present multiple issues where the underlying forces and logic at work are not immediately obvious. Is the engineering issue at Royalfield due to a lack of training, not enough spending, overlapping divisional responsibilities, poor leadership, a combination of the above, or something else altogether? In a gnarly situation, clear choices must be searched for and designed or imagined. Many of the most apparent alternatives—invade or blockade, acquire BuyCo or not—have been posited with artificial clarity by shortsighted staff or parties with vested interests. There are almost always other ways to proceed. »
« Making matters most complex is the fact that the connection between potential actions and actual outcomes is unclear. »
« To execute strategy well, one must consider the logic of challenges instead of wished-for end states. At a moment in time, a properly configured strategy is a mixture of policy and action designed to surmount a high-stakes challenge. »
« A dynamic strategy is designed to be a way forward that deals with particular obstacles and barriers to progress. It is not static but rather is renewed as new challenges and opportunities appear and as older challenges are surmounted. Strategy is continued, ongoing problem solving. »
« Given a set of gnarly challenges, three strategic skills can define the path forward. The first is judgment about which issues are truly important and which are secondary. The second is judgment about the difficulties of dealing with different issues. And the third is the ability to focus, to avoid spreading resources too thinly or trying to do everything at once. In combination, these three skills lead to what I call the crux—the most important part of a set of challenges, the part that is addressable, which has a good chance of being solved through focused, coherent action. »
« Strategic focus… To create a strategy, one must keep actions and policies coherent and aligned, instead of nullifying efforts by pursuing too many different initiatives or conflicting purposes… One sees how coherence is easily lost. The cost of coherence is saying no to many interests with reasonable values and arguments. »
« To create a strategy, one needs to embrace the full complex and confusing force of the challenges and opportunities being faced. »
« To create a strategy, one has to develop a sense for the crux of the problem—the place where a commitment to action will have the best chance of surmounting the most critical obstacles. »
Richard P. Rumelt is professor emeritus at UCLA Anderson School of Management and the author of the forthcoming book The Crux: How Leaders Become Strategists (2022). He is also the author of Good Strategy, Bad Strategy (2017).