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The good and bad of corporate strategy

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Wednesday, July 27, 2011

BILL CONERLY

I just read one of the most important short papers on corporate strategy, published by McKinsey Quarterly. In "The Perils of Bad Strategy," Richard Rumelt explains common errors in developing corporate strategy. It's based on his forthcoming book.

I almost set this one aside, because I think telling people what to do is more valuable than telling them what not to do. (Buy me a beer and I'll tell you a long, heart-warming story of my failure as a professor which illustrates the point well.) However, Rumelt does a great job of skewering the usual ways in which corporate strategy is developed.

The hallmarks of bad strategy, he says, are:

Failure to face the problem. Like ignoring high costs or weak marketing.

Mistaking goals for strategy. I've often heard it said that big goals are important, but they never seemed to help me much. Then a world-class athelete explained it to me. He said that the big goal was only the first step. The most important step came second: identifying specific actions that would result in achieving the goal (such as working on fitness 2 hours a day, technical skills three hours a day, etc.) The third step, of course, is actually completing the action steps.

Bad strategic objectives. Rumelt cites the most common problem, a set of goals that are a "dog's dinner" of miscellany. I remember discussing banking strategy. It needed to include something about the trust department, even though its contribution to bank earnings was less than the retail division's bad check fees. Politeness or politics causes the "strategy" to become a laundry list of unrelated items.

Fluff: the usual platitudes.

If you're corporate strategy resembles these hallmarks of failure, read Rumelt's final section on the kernel of good strategy. It will get you headed in the right direction. Then, at every step, review the potential mistakes, and ensure that you're not making them.

Portland economist Bill Conerly is author of the Businomics Blog.

 
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