Build a Strategy that Addresses Your Gnarliest Challenges
by Richard P. Rumelt
A CEO recently asked me to sign a “non-disclosure agreement” before we looked at his company’s strategy. Then, his assistant brought in a folder of printed PowerPoint slides labeled “Strategy” and “not for distribution.” There were 22 pages, most summarizing the company’s mission and values as well as recent performance. With regard to strategy, the key points were that the company would:
- invest in the growing segments of the industry;
- continue to refine the supply chain;
- increase the EBIT margin to over 30%; and
- develop newer versions of its key products.
Reading this, I wondered why it was a secret. Apart from the specific numerical target, this could well have been printed on cardstock and sold as the “any company strategy.” How had this CEO and the company’s Board of Directors come to accept this pablum as “strategy?”
Too many “strategies” produced by companies and national governments are weak, lacking astute diagnosis and actions with any bite. The reason is social herding — the tendency for humans to take their ideas and behavior from the observed behavior of others. That is why studies of drug use and obesity show these behaviors spreading geographically as if they were communicable diseases. For those charged with creating strategies, the internet has provided hundreds of examples of bland word-salads masquerading as strategies.
To counter this phenomenon, we must actively fight against it. To begin, we must recognize what a strategy actually is. The term “strategy” comes to us from ancient roots. It derives from the Greek strategoi (στρατηγός) meaning a military general. The essence of a strategy is a design for actions required to meet an important challenge or opportunity. Whether in chess, war, business, or politics, the basic idea is to focus energy and resources where they will do the most good — on the enemy or opponent’s weakness, or where the opportunity for gain is the greatest. A strategy is not a list of aspirations or ambitions, nor is it a list of all the things the committee members think are good ideas. Effective strategies are designs of coordinated actions aimed at overcoming specific challenges.
Why Strategy Is Hard
Strategy work is hard. It is hard because most serious strategy situations are much more complex than decision situations. They are what I call gnarly, resisting easy resolution.
Gnarly situations do not present an easy-to-identify choice or action opportunity. Rather, there are multiple issues and various executives will differ in their assessments of their importance. The underlying forces and logic at work in these issues will not be immediately obvious. And, there are not clear connections between possible actions and real-world outcomes.
There are times when the most pressing challenge is an issue with the organization itself. It may be that some divisions are not working well with others or that there is a structural impediment to better performance. Strategy is not just about the competition — when organizational issues are critical, they are truly strategic.
Given a set of gnarly challenges, I use the term crux to denote the intersection of three skills exhibited by the best strategists. The first is judgment about which issues are truly important and which are secondary. The second is judgment about the addressability of different issues. And the third is the ability to focus, to avoid spreading resources too thinly — not trying to do everything at once. In combination, these three principles lead to identifying the crux — the most important part of a set of challenges which is addressable, having a good chance of being solved by focused coherent action.
The crux idea works because it means coordinating sources of power on a selected target. If the power is weak, nothing happens. If it is strong but scattered and diffused across targets, nothing good happens. If power is focused on the wrong target, again, nothing good happens. But when energy is focused on the right target, breakthroughs occur.
The Strategy Foundry
A group of senior executives can create a real strategy by setting aside a special time for examining challenges, resolving them into a crux, and devising coherent actions to follow through. I call this type of workshop a Strategy Foundry. Whatever it is called, it is important to separate this activity from financial reviews and budgeting cycles.
At a Strategy Foundry, one normally begins with an examination of changes in technology, society, buyer behavior, law, competition, and the results being attained. It is then helpful to review successful and unsuccessful past projects so as to remind participants about the organization’s strengths and weaknesses.
What makes a Foundry work is a commitment to working with challenges instead of performance goals or similar end-states. There is always value in clarifying ambitions and aspirations, but the work of crafting strategy requires concentrated attention to the barriers, blockages, issues, and other challenges that stand in the way. Work with the language of challenges rather than goals.
A second secret of a successful Strategy Foundry is time. It takes a minimum of two days, and more likely three days, for a group to fully engage in problem-solving. They will first have to fire-off salvos of their favorite plans and points before each begins to accept the gnarly quality of the situation.
Once engaged, most groups will initially generate a list of 10 or more different challenges. More can sometimes be added by working backwards from existing projects and examining the issues they are intended to resolve. With experience, groups will generate fewer, apprehending the necessity of focus.
A list of 10-25 challenges is no help unless it is resolved into one or two targets. A process of “taking things off the table” is the heart of the Strategy Foundry. It requires deeper and deeper assessments of the importance and addressability of a shrinking set of challenges. To have confidence in addressability, there must be a way to make significant progress against the issue in the near future — usually 12 to 24 months. If this cannot be done, the challenge should be broken into components or set aside. Good strategy tackles a sequence of objectives over time, each of which can be surmounted — it does not tilt at windmills.
The strategy created in a Foundry is not a long-term vision. It is an action-plan for overcoming critical challenges. The challenges may have a long-term feel, but the action plan should be executable now. If it is not, nothing much will happen.
Pushing aside many issues in favor of just one or two will understandably put some noses out of joint as favorite projects and initiatives are put on the back burner. But, without this separation of the critical from the less important, the organization will be always bogged down by multiple conflicting policies and actions. As executives come to appreciate the pace of creating real dynamic strategies to meet challenges as they arrive, they will find that a project that is not selected on this round may well become the crux of the next round.
Most executives are concerned about the public face of their strategy. Employees and investors have come to expect public descriptions of the organization’s basic goals and priorities. To deal with this demand, the group should spend time on the public face of the chosen policies and actions. In this regard, it is best to avoid goals and objectives and speak in terms of key challenges or urgent tasks. You do not want to create the sense that a strategy document is mentioning everything that is important, that it has a present under the Christmas tree for each interested party. This may be a break with tradition, but it is a necessary break. Effective strategy is about what is critically important, not about everything that everybody does or wants to do.