Why Bad Strategy is a Social Contagion and How Thinking in Business Models can help
As business leaders, we often hear the term “strategy” thrown around in boardrooms, presentations, and annual reports. But what does it truly mean to have a good strategy versus a bad strategy? In his thought-provoking book, “Good Strategy, Bad Strategy: The Difference and Why It Matters,” Richard Rumelt, a seasoned professor at the UCLA Anderson School of Management, dives deep into this critical distinction.
Rumelt’s book stands out from so many books strategy since he also names the culprits for a bad strategy. Thinking in business models can help you to go from a bad strategy to a good strategy. But this also needs clear thinking and the acceptence of reality. Work on your business model is not just filling out a cool business model canvas. Business modelling is the hard work of bringing a strategy down to an excecutal future. With the precise use of the business model as a unit of strategizing you see the pitfalls of your current business model and where you have to evolve from just a goal to guiding principles and a plan.
The Rise of Bad Strategy
Rumelt observes that over the past few decades, there has been a troubling trend toward bad strategy. It’s almost like a social contagion infecting organizations. We have climate strategy from governements and companies. We have sustainable strategy to fullfill the milenium goals of the United Nations. We have digital transformation strategy. And many of them are just bad strategies. Not that the intentions are wrong but many strategies are just bad strategies.
But what exactly characterizes bad strategy?
The Ambition Trap
Many companies fall into the trap of confusing ambitions and setting goals with strategy. They present their lofty performance goals to stakeholders, believing that this alone constitutes a strategy. However, ambition is not strategy. Strategy is about problem-solving—it’s the path you take to overcome obstacles standing between your current state and your desired outcomes.
Performance measured in KPIs like growth, profitability, returns are just goals, but how do we achieve these goals? As Rumelt writes, a good strategy takes you from a current state to a desired outcome. And for this the business model is very useful tool. It is amazing how few companies do a sober analysis of their current business model. Ambitions are not achieved by just claiming the ambitions. You have to do something to get from A to B. And it starts from confronting reality. Asked yourself in the strategy process if you are relly honest in you assessment of the current state? Most people, are not. They want to avoid the bad feeling that you get when you see your current state as dismal and outdated. Or that you are or better were a great company that had all it’s glory based on compentences and products of the past?
Confront the brutal facts is core
Jim Collins in his seminal book “From Good to Great” coined the term “Confront the brutal facts” as a precondition for any firm to be a long lasting successful company, he coined as great. Great firms have not just had luck with one, initial business idea (model) but were build to last, meaning that they mastered several times the transformation from their original business model to continiously reinventing their business model. To be a great company, one has to adopt its business model continously.
To do so, you have to understand who you are today, what makes you successful and what are restrictions of the future. To understand the last point, one has to understand that your core assets can turn easily to core liabilities that can drag your business down the wrong path. Kodak excelled in chemical film processing and had huge chemical factories and highly skilled chemical workers. Well, not really a great precondition to be a leader in digital photography or even worst, these chemical assets and the people become liabilities. Same with German care manufacturers those core assets were mechanical engineering skills to be build the most beautiful driving machines aka combustion engines like BMW claimed in their ads. BMW, short for Bayrische Motoren Werke or Bavarian Motor Works, even has it core compentency, the competency to build beautiful running combustion enginges in its name. Well, what to do know with all your skilled labor and engineers when batteries become a core technology?
Denial and Waiting for some magic trick at the Santnimmerleins Day is bad strategy
The classic response is denial and waiting for the new savior. “No, the EV will not dominate but eFuels will give the combustion engine an even more glory future. A very common believe in the German car manaufacturers and also the current customer base.” Or, we do not have to use photovoltaic cells and wind energy to become fossil free. Small nuclear plants and nuclear fusion technology will solve the problem soon. Just wait. These technology will be magic!”
And while they wait for the savior, the proponents of bad strategy claim that they have a great strategy. However, they do not tell you where all the eFuel will come from and they do not invest in the infrastructure for clean eFuels. They wait for the magic savior who will come with the mana from heavan.
The Gap Between Ambition and Action
Imagine you have a list of personal ambitions: climbing the world’s tallest mountains, becoming an inspiring teacher, having a beautiful family, and driving a dream car. These are desires, not strategies. The crucial step is to bridge the gap between ambition and action. Which of these aspirations can you realistically make progress on today or in the near future? That’s where true strategy begins.
The Elements of Good Strategy
- Focus: Good strategy involves making hard choices. It’s about narrowing down your options and concentrating your efforts on what truly matters. Identify the critical areas where you can make a difference.
- Obstacle Recognition: A good strategy acknowledges the obstacles in your path. Rather than avoiding them, face them head-on. Understand the challenges and devise ways to overcome them.
- Action Plan: Strategy isn’t just about setting goals; it’s about creating a practical action plan. How will you move from where you are to where you want to be? Break it down into actionable steps.
Avoiding the Pitfalls of Bad Strategy
- Pop Culture and Buzzwords: Bad strategy often masquerades as a mish-mash of pop culture references, motivational slogans, and business buzzwords. Don’t fall for the fluff; focus on substance.
- Ignoring Choice and Focus: Bad strategy tries to accommodate conflicting demands and interests. It lacks the power of choice and focus. Remember that saying “yes” to everything dilutes your impact.
Conclusion
As business professionals, let’s break free from the bad strategy contagion. Invest the time to make hard choices, recognize obstacles, and create actionable plans. Good strategy isn’t about impressing the board; it’s about solving real-world problems. So, next time you’re in a strategy session, ask yourself: Are we truly strategizing, or are we merely sharing our ambitions? 🚀💡
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