The Perils of Bad Strategy

But Nelson had a strategic insight into how to deal with being outnumbered. He broke the British fleet into two columns and drove them at the Franco-Spanish fleet, hitting its line perpendicularly. The lead British ships took a great risk, but Nelson judged that the lesstrained Franco-Spanish gunners would not be able to compensate for the heavy swell that day and that the enemy fleet, with its coherence lost, would be no match for the more experienced British captains and gunners in the ensuing melee. He was proved right: the French and Spanish lost 22 ships, two-thirds of their fleet.

The British lost none. 1 Nelson’s victory is a classic example of good strategy, which almost always looks this simple and obvious in retrospect. It does not pop out of some strategic-management tool, matrix, triangle, or fill-in-theblanks scheme. Instead, a talented leader has identified the one or two critical issues in a situation—the pivot points that can multiply the effectiveness of effort—and then focused and concentrated action and resources on them. A good strategy does more than urge us forward 1

Nelson himself was mortally wounded at Trafalgar, becoming, in death, Britain’s greatest naval hero. The battle ensured Britain’s naval dominance, which remained secure for a century and a half. 2 toward a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them. Too many organizational leaders say they have a strategy when they do not. Instead, they espouse what I call “bad strategy. ” Bad strategy ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests.

Like a quarterback whose only advice to his teammates is “let’s win,” bad strategy This article is adapted from Richard Rumelt’s Good Strategy/ Bad Strategy: The Difference and Why It Matters, to be published in July 2011 by Crown Publishing. covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values. Each of these elements is, of course, an important part of human life. But, by themselves, they are not substitutes for the hard work of strategy. In this article, I try to lay out the attributes of bad strategy and explain why it is so prevalent.

Make no mistake: the creeping spread of bad strategy affects us all. Heavy with goals and slogans, governments have become less and less able to solve problems. Corporate boards sign off on strategic plans that are little more than wishful thinking. The US education system is rich with targets and standards but poor at comprehending and countering the sources of underperformance. The only remedy is for us to demand more from those who lead. More than charisma and vision, we must demand good strategy. The hallmarks of bad strategy I coined the term bad strategy in 2007 at a Washington, DC, seminar on national-security strategy.

My role was to provide a business and corporate-strategy perspective. The participants expected, I think, that my remarks would detail the seriousness and growing competence with which business strategy was created. Using words and slides, I told the group that many businesses did have powerful, effective strategies. But in my personal experiences with corporate practice, I saw a growing profusion of bad strategy. In the years since that seminar, I have had the opportunity to discuss the bad-strategy concept with a number of senior executives.

In the process, I have condensed my list of its key hallmarks to four points: the failure to face the challenge, mistaking goals for strategy, bad strategic objectives, and fluff. Failure to face the problem A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it 3 is difficult or impossible to assess the quality of the strategy. And, if you cannot assess that, you cannot reject a bad strategy or improve a good one. International Harvester learned about this element of bad strategy the hard way.

In July 1979, the company’s strategic and financial planners produced a thick sheaf of paper titled “Corporate Strategic Plan: International Harvester. ” It was an amalgam of five separate strategic plans, each created by one of the operating divisions. The strategic plan did not lack for texture and detail. Looking, for example, within the agricultural-equipment group—International Harvester’s core, dating back to the McCormick reaper, which was a foundation of the company—there is information and discussion about each segment.

The overall intent was to strengthen the dealer/ distributor network and to reduce manufacturing costs. Market share in agricultural equipment was also projected to increase, from 16 percent to 20 percent. The ‘great pushes’ during World War I led to the deaths of a generation of European youths. Maybe that’s why motivational speakers are not the staple on the European managementlecture circuit that they are in the United States. That was typical of the overall strategy, which was to increase the company’s share in each market, cut costs in each business, and thereby ramp up revenue and profit.

A summary graph, showing past and forecast profit, forms an almost perfect hockey stick, with an immediate recovery from decline followed by a steady rise. The problem with all this was that the plan didn’t even mention Harvester’s grossly inefficient production facilities, especially in its agricultural-equipment business, or the fact that Harvester had the worst labor relations in US industry. As a result, the company’s profit margin had been about one-half of its competitors’ for a long time.

As a corporation, International Harvester’s main problem was its inefficient work organization—a problem that would not be solved by investing in new equipment or pressing managers to increase market share. 4 By cutting administrative overhead, Harvester boosted reported profits for a year or two. But following a disastrous six-month strike, the company quickly began to collapse. It sold off various businesses— including its agricultural-equipment business, to Tenneco. The truck division, renamed Navistar, is today a leading maker of heavy trucks and engines.

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