Last Updated Jul 8, 2011 10:32 AM EDT
Rumelt's method for writing strategy will be sweet succor to anyone staring at a mountain of business documents in search of a way forward. I know he's already helped me. (In my last post, I wrote about Rumelt's four signs of a bad strategy.)
Rumelt also identifies what constitutes a good strategy, and he says all good strategies share the same "kernel." A good strategy "may consist of more than the kernel," Rumelt says, but it must include one: "once you apprehend this kernel, it is much easier to create, describe, and evaluate a strategy."
Rumelt identifies the elements of the kernel and includes examples that illustrate what an effective strategy really looks like.
1. Accurate diagnosis: You need to define and explain the nature of the challenge facing the organization. He notes that UCLA management professor Bill Ouchi's book, Making Schools Work, spurred city-wide reforms in Los Angeles and other cities largely because Ouchi's diagnosis was sound and actionable. Ouchi identified the challenge of improving school performance as one of how schools are managed and organized--not how they are funded, or what curriculum they teach. His diagnosis does not explain or untangle every possible reason schools perform poorly, but Ouchi pinpointed an area policy and city leaders could address through the mechanisms of government. His diagnosis, therefore, was strategic.
Another example pointed out: At IBM, Lou Gerstner's diagnosis was the single most critical step in turning around the integrated technology giant. Gerstner disagreed with many experts that IBM's problem was its integrated structure with expertise and products in every technology sector. Gerstner saw that IBM's problem was "not that it was integrated, but that it was failing to use the integrated skills it possessed." IBM needed to shift from providing hardware and hardware platforms to software, solutions, and services.
2. Guiding policy: The organization needs a policy for managing the challenge. Rumelt describes how a local gourmet grocer correctly diagnosed her key challenge was competition from a local supermarket. The grocer needed to draw customers away from this store, which had lower prices. She knew her best customers were those that walked by her store; so, she honed in on two types of these customers--students and busy professionals who did not have time to cook. Because the later group spent more money, she fine tuned her guiding policy to target the "busy professional who has little time to cook."
3. Coherent action: To carry out the guiding policy, you need to identify a set of actions. These actions constitute the heart of a strategy, what the author calls "the hard nut at the core of the concept." As you consider what steps your business should take, the author also says you need to consider the big picture too--so teams don't work at cross purposes. In many companies, for example, sales teams will want to meet goals and please customers with rush orders while manufacturing people will prefer long uninterrupted press runs. A strategy must show how sales and manufacturing will be coordinated.
Rumelt notes that when Jacques Nasser took over as CEO of Ford Europe he acquired "passion" car brands including Volvo, Jaguar, and Land Rover--as Nasser's diagnosis for success focused on having great car brands people loved. In a failure of coherence, Nasser then started building these vastly different machines on the same industrial platform, diluting the "brand equity of both marques"; this had the effect of annoying the "most passionate customers, dealers, and service shops."
How do you think teams can create great strategies? What do you see as the elements of a winning strategy?
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