a rumelt perpsective on good strategy
DESCRIPTION
Richard Rumelt distinguishes between Good and Bad Strategy. This presentation uses examples to show this.TRANSCRIPT
“A hallmark of true expertise and insight is making a complex subject understandable”
Client to Consultant: “So I am paying you to ask me
questions”
Consultant to Client: “Absolutely! Without these questions you are not identifying your main challenges”
Strategy – such an over-used and abused word
Strategy and Two Popular
Misconceptions
1. Strategy is formulaic or mechanistic
2. Strategy is goal-setting [email protected] 4
The Three Key Hallmarks of Fake Strategy • You must define the challenge • If you cannot define the challenge, you
cannot evaluate the strategy or improve it
Failure to Face the Challenge
• Do not confuse desire with a plan to overcome obstacles
Mistaking Goals for Strategy
• Fail to address critical issues • Objectives are impracticable
Bad Strategic Objectives
Incoherence: The Essence of Bad Strategy
• At best pursuing multiple unconnected
objectives
• At its worst, it involves pursuing conflicting objectives
What is Direction?
• It’s focus
• And this can only be obtained by making choices
=
Problem-Solving
Define the problem Make Choices –
hard choices
(Genuine) Strategy
Pre-requisite for Genuine Strategy:
Define the challenge
• If you apply careful consideration and define then challenge then you are well on the road to good strategy
• If you fail to identify and analyze the obstacles, you cannot have a strategy. – Instead, you have either a stretch goal, a budget, or
a list of things you wish would happen”
The Absence of Good Strategy Explained
Good Strategy
• Begins with the admission that there is always a specific problem
Bad Strategy
• Begins with an implicit denial that there is any specific problem
Essence of Good Strategy
Diagnosis Guiding Policy
(the signpost indicating future
direction)
Coherent Action
Strategy is the Path
• The How • The Why • The Where • The When • The Who
(Genuine) Strategy
What is Genuine Strategy?
• A cohesive response to an important challenge
• A genuine or good strategy must therefore include the details – the actions to be implemented
• Strategy is not grandiose goals – it’s about how an organization will move forward
Developing Genuine or Good Strategy
• It emerges from identifying one or two critical issues in the situation and then focuses and concentrates action and resources on them.
Bad Strategy vs Good Strategy Bad Strategy: Widespread • Urges achievement of a
goal…but nothing else • It’s essentially wishful
thinking • ‘Problems’ are glossed over; • Tries to meet conflicting
goals and ducks making hard choices
Good Strategy: Rare • Is honest in identifying
challenges • develops a cohesive
approach to overcome them
Coherence: The Essence of Good Strategy
• Good strategy does NOT simply build upon existing strength
• It is a source of strength because it is coherent
Strategy and Competitive Advantage
• Competitive Advantage often arises simply by
having a genuine or good strategy
• Because most organizations have a fake or bad strategy – Sure they have goals but are essentially guided by
‘spend more, work harder’ mantra
The Advantage of Having Good Strategy
• Focus – as it is so unexpected by rivals
• And as such identifies the “don’ts” as well as the “do’s”
Genuine Strategy Provides Dual Purpose
• It stipulates the “do’s”
• It stipulates the “don’ts”
Remember
it's just as important to decide
what not to do in business as it is to determine what to do
What makes for a good strategy?
• Harnessing power and applying it where it will have greatest effect
• We can find good examples of this
Sources of Power: Leverage
Strategic leverage arises from a mixture of: 1. Anticipation 2. Insight into what is most pivotal or critical in
a situation; 3. Making a concentrated application of effort
The “Being Better” Argument
• In order to succeed, it’s true you do need to possess at least one advantage:
• Better • Cheaper • Faster • Richer • Stronger
The “Being Better” Argument
• But simply ‘being better’ provides only short-lived success
• The ‘better’ is based only on operations
Three Questions 1. What biblical story do you most associate with
an underdog defying expectations to beat a more impressive opponent?
2. Who is the greatest boxer of all time, and indeed considered the greatest sportsman of the 20th century?
3. Who are considered the greatest ever football (i.e. soccer) team?
Example 1: David vs Goliath
David • Youthful • Inexperienced in hand-to-
hand conflict • Physically weak • No protection
Goliath • Mature • Experienced in hand-to-
hand conflict • Physically strong • Heavily protected
Example 1: David vs Goliath • If David is to win, he
only had one option…and his insight enabled him to identify that fact
• Goliath – classic case of ‘brawn and no brain’
Lessons from David vs Goliath
Smarter can beat better
• Good strategy comes
from fresh insight into strengths and weaknesses, and opportunities and threats
Facing ‘Goliath’
• So developing a strategy to topple the ‘invincible’ is not easy
• Do you try and copy the best – but the core competence of the best is always hard to imitate
• Or do you have to invent a superior solution?
Example 2: Ali vs Foreman World Heavyweight Championship Fight, Zaire,
October 1974
The Challenger 32 years of age
The Defending World Champion 25 years of age
Ali vs Foreman: Comparison Based Upon the ‘Better’ argument
Ali • Former World Champion • Past success was based on
being ‘better’ • Past his peak in terms of
being ‘better’ • 32 years of age • Making a comeback after
years without competitive fights
Foreman • Defending World Champion • Present success was based
on being better • At his peak • 25 years of age • Getting better with each
fight
What’s Missing?
We have not identified a crucial difference!
Only one boxer had a genuine
strategy [email protected] 48
Ali vs Foreman • Two boxers • One, the defending world champion • The other, the former, older champion • One Common goal • Two Different Strategies
– Ali – Good Strategy – Foreman – Bad Strategy
Ali vs Foreman
Ali Practiced Good Strategy • diagnosed his critical problem • He could no longer “float like
a butterfly, sting like a bee” over 15 rounds against a younger opponent
• So he developed an action plan to overcome his critical weakness
• Rope-a-dope
George relied on Bad Strategy • The 3D Effect
Two Vital Lessons from Ali vs Foreman
1. Even the very best
are eventually overtaken;
2. If they are to
continue winning, they need genuine
strategy
Lessons from “Rope-a-dope” • Exhaust your rival’s
resources through suckering them into constant expenditure of ineffective yet debilitating effort
• When you look at the market for some products, do we see that the market leader is employing the “rope-a-dope”?
Example 3: Barcelona’s Dominance of World Soccer
• The present Barcelona side, Spanish and
European champions, are considered the greatest team of all time;
• It features Lionel Messi (born 24 June 1987), the World Footballer of the Year (2009, 2010)
• Spain, current European and World Champions, is heavily dependent upon Barca players
Example 3: Barcelona and Spain’s Dominance of World
Soccer
This example shows that this success is based upon a genuine strategy that
was developed 40 years ago
Example 3: Barcelona and The Dutch Legacy • In the early 1970s, Barcelona was managed by
Dutch coach, Rinus Michels • He bought the player Johan Cruyff – ‘the Messi’
of his generation • Cruyff managed Barcelona in the late 1980s-mid
1990s • One of his key players was Josep Guardiola,
manager of Barcelona since 2008 • Today the present Barca team are hailed as the
greatest ever side
Example 3: Barcelona and The Dutch Legacy • In 1970 Brazil beat Italy 4-1 in the soccer
World Cup final in Mexico • The Brazilian team was considered invincible • The next World Cup was in Germany in 1974 • But how could anyone beat Brazil?
Example 3: The Dutch Influence on Soccer
• Rinus Michels, the coach of the Dutch national team, concluded that no one could match Brazil
• So a radical new approach was required • He invented ‘total football’ • At the heart of this new system was the player
Johan Cruyff
Total Football Defined
• In Total Football, a player who moves out of his position is replaced by another from his team, thus retaining the team's intended organisational structure. In this fluid system, no outfield player is fixed in a nominal role; anyone can be successively an attacker, a midfielder and a defender. The only player fixed in a nominal position is the goalkeeper.
The Immediate Outcome
• In 1974 Holland beat Brazil but were beaten in the final 2-1 by the host country Germany
• In 1978 Holland was again beaten in the final by the host nation Argentina
Barcelona F.C: The Lasting Legacy
• Michels introduced ‘total football’ to Barcelona
• The commitment to ‘total football’ continued under Cruyff
• Cruyff recognized the exceptional ability required to implement ‘total football’
• He thus established in 1978 “La Masia”, the youth academy to train young players in the system from an early age
Barcelona F.C: The Lasting Legacy
• One of the first graduate from ‘‘La Masia” was Guardiola, exceptional player and manager;
• Today’s current midfield of Xavi, Iniesta and Fabregas are all graduates of “La Masia”;
• Messi is also a product of the youth academy
Barcelona F.C: The Lasting Legacy
Barcelona F.C. • When Barca won the
European Champions League in 2009, 8 of the 11 players were graduates from the youth system
Spanish National Side • When Spain won the 2010
World Cup the 22 man squad included 8 Barca players and 6 were in the starting 11 for the final
The Lasting Legacy: From Total Football to Tiki-taka
Tiki-taka has been variously described as
• "a style of play based on making your way to the back of the net through short passing and movement"
• a "short passing style in which the ball is worked carefully through various channels, and
• a "short passing, patience and possession".
• The style involves roaming movement and positional interchange amongst midfielders, moving the ball in intricate patterns, and sharp, one or two-touch passing.
The Lasting Legacy: From Total Football to Tiki-taka
• One of the weaknesses of Spanish sides and the national team was that their players were often much smaller and less physical than players from other nations (e.g. Northern Europe, Africa);
• Tiki-taka focuses on movement, possession and skill
• Some of the best players for Barcelona and Spain are physically small
Barcelona and Competitive Advantage
Differentiation • Barcelona competes through
innovation – it has developed a unique style or brand of football
Low Costs • The youth academy enables
Barcelona to produce the world’s best players at low costs;
• This reduces the club’s need to spend in excess of $50m per player
Barcelona and Competitive Advantage
Competition: • competitors have so far failed
to overcome the Barcelona system;
• This is despite the fact that arch-rivals, Real Madrid have:
• acquired the world’s most expensive player ($132m);
• the world’s highest paid soccer manager (about $20m)
Customers: • Barcelona is the world’s
most popular club as its style is uniquely entertaining;
• It has 20m ‘likes’ on facebook, narrowly beating Real Madrid
Barca Has Clear Core Competencies
• “Core competencies are the most significant value creating skills within your corporation and key areas of expertise which are distinctive to your company and critical to the company's long term growth”.
• It can be leveraged widely
• It’s hard for rivals to imitate
• It’s of great value to customers
1. Multiple Lessons from Barca and its Genuine Strategy
• It arose from a foreign idea (i.e developed in Holland)
• It involved honest internal analysis and identification of weakness;
• Indeed the essence of the new strategy is to render weaknesses that cannot be overcome obsolete;
• It has received constant commitment over 40 years – even in ‘difficult’ times;
• It is now delivering the best ever results as the original business model (i.e. total football) evolved to ‘ticki-tacka’;
Multiple Lessons from Barca and its Genuine Strategy
1. It is centered upon differentiation (i.e.
innovation);
2. The commitment to innovation compelled a focus upon New Product Development (i.e. the youth academy)
Multiple Lessons from Barca and its Genuine Strategy
3. New superstar brands (i.e. players) are
developed at low cost and sourced locally and internationally;
4. Costly acquisitions are seldom required – and even when they are they are graduates of La
Masia who were allowed to join other clubs
Multiple Lessons from Barca and its Genuine Strategy
5. Even when Barca is briefly overtaken by a
‘better’ team, it is without equal strategically, so the strategy is a constant that ultimately prevails
6. Barca may not always win, but its strategy always delivers exceptional value to its growing number of customers globally
Barca vs Real Madrid: Genuine vs Fake Strategy
Barca • Genuine strategy • Commitment to core values • Consistency • Succession planning • Relies primarily upon
organic growth (i.e. development of players and managers)
Real Madrid • Fake Strategy – all about
goals; • Lacking core values • Inconsistency • Absence of succession
planning • Relies primarily upon
external growth (i.e. acquisitions of players and managers)
Apple: the corporate Equivalent to Barca
• Apple has a genuine strategy; • At one time it struggled but remained totally
consistent to its strategy; • It seized opportunity (i.e. the iPod) and has
refined its original strategy with each successive product and/or service
Apple: the corporate Equivalent to Barca
• Apple can/should expect to be overtaken briefly in some areas;
• But by applying its genuine strategy it can expect to once again come out tops
Conclusions
‘Better’ is Good
‘Smarter’ is Better ‘Better’ and ‘Smarter’ is Best
Conclusions
1. David was ‘smarter’ than Goliath
2. Ali extended his success by transitioning from ‘better’ to ‘smarter’
3. Barca relied on being ‘smarter’ to get ‘better’ and is now best
Conclusions 1. Apple was ‘smarter’ than PC
producer; 2. PC producers were briefly ‘better’; 3. But Apple was the ‘smarter’ and used
this to conquer new markets, leaving PC producers to fight over scraps
4. Apple does not always have to be ‘better’ so long as it’s always ‘smarter’
