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A rumelt perpsective on good strategy

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A rumelt perpsective on good strategy

  1. 1. Good Strategy By Dr. Michael McDermott
  2. 2. “A hallmark of true expertise and insight is making a complex subject understandable” Client to Consultant: “So I am paying you to ask me questions” Consultant to Client: “Absolutely! Without these questions you are not identifying your main challenges”
  3. 3. Strategy – such an over-used and abused word
  4. 4. Strategy and Two Popular Misconceptions 1. Strategy is formulaic or mechanistic 2. Strategy is goal-setting 4
  5. 5. The Three Key Hallmarks of Fake Strategy Failure to Face the Challenge Mistaking Goals for Strategy Bad Strategic Objectives • You must define the challenge • If you cannot define the challenge, you cannot evaluate the strategy or improve it • Do not confuse desire with a plan to overcome obstacles • Fail to address critical issues • Objectives are impracticable 5
  6. 6. Bad Strategy in 3D The Focus is on 3D • Desire; • Drive; and • Determination 6
  7. 7. The 3d Essence of Bad Strategy Desire Drive Determination 7
  8. 8. Incoherence: The Essence of Bad Strategy • At best pursuing multiple unconnected objectives • At its worst, it involves pursuing conflicting objectives 8
  9. 9. The Cost of Bad Strategy It is a source of weakness because it is incoherent 9
  10. 10. So what is Genuine or Good Strategy? 10
  11. 11. Essence of Genuine Strategy: The D² rule • Avoid Dumb • Focus upon Direction 11
  12. 12. The Essence of Good Strategy Direction 12
  13. 13. What is Direction? • It’s focus • And this can only be obtained by making choices 13
  14. 14. (Genuine) Strategy = Problem-Solving Make Choices – hard choices Define the problem 14
  15. 15. Strategy is identifying the key challenges and the means to overcome them 15
  16. 16. Therefore developing a strategy is an exercise in problem-solving 16
  17. 17. Stop Right There! You suggestin’ we gotta problem? 17
  18. 18. Pre-requisite for Genuine Strategy: Define the challenge • If you apply careful consideration and define then challenge then you are well on the road to good strategy • If you fail to identify and analyze the obstacles, you cannot have a strategy. – Instead, you have either a stretch goal, a budget, or a list of things you wish would happen” 18
  19. 19. The Absence of Good Strategy Explained Good Strategy Bad Strategy • Begins with the • Begins with an admission that implicit denial there is always a that there is any specific problem specific problem 19
  20. 20. Essence of Good Strategy Diagnosis Guiding Policy (the signpost indicating future direction) Coherent Action 20
  21. 21. Strategy is the Path • The How • The Why (Genuine) • The Where Strategy • The When • The Who 21
  22. 22. What is Genuine Strategy? • A cohesive response to an important challenge • A genuine or good strategy must therefore include the details – the actions to be implemented • Strategy is not grandiose goals – it’s about how an organization will move forward 22
  23. 23. Developing Genuine or Good Strategy • It emerges from identifying one or two critical issues in the situation and then focuses and concentrates action and resources on them. 23
  24. 24. Bad Strategy vs Good Strategy Bad Strategy: Widespread Good Strategy: Rare • Urges achievement of a goal…but nothing else • It’s essentially wishful thinking • ‘Problems’ are glossed over; • Tries to meet conflicting goals and ducks making hard choices • Is honest in identifying challenges • develops a cohesive approach to overcome them 24
  25. 25. Common Strategic Thinking Strength Opportunity 25
  26. 26. Coherence: The Essence of Good Strategy • Good strategy does NOT simply build upon existing strength • It is a source of strength because it is coherent 26
  27. 27. Strategy and Competitive Advantage • Competitive Advantage often arises simply by having a genuine or good strategy • Because most organizations have a fake or bad strategy – Sure they have goals but are essentially guided by ‘spend more, work harder’ mantra 27
  28. 28. The Advantage of Having Good Strategy • Focus – as it is so unexpected by rivals • And as such identifies the “don’ts” as well as the “do’s” 28
  29. 29. Genuine Strategy Provides Dual Purpose • It stipulates the “do’s” • It stipulates the “don’ts” 29
  30. 30. Remember it's just as important to decide what not to do in business as it is to determine what to do 30
  31. 31. What makes for a good strategy? • Harnessing power and applying it where it will have greatest effect • We can find good examples of this 31
  32. 32. Sources of Power: Leverage Strategic leverage arises from a mixture of: 1. Anticipation 2. Insight into what is most pivotal or critical in a situation; 3. Making a concentrated application of effort 32
  33. 33. OK. I now get it. Strategy and goals are two different things. 33
  35. 35. But business success is simply about being better. Isn’t it? 35
  36. 36. The “Being Better” Argument • In order to succeed, it’s true you do need to possess at least one advantage: • Better • Cheaper • Faster • Richer • Stronger 36
  37. 37. The “Being Better” Argument • But simply ‘being better’ provides only shortlived success • The ‘better’ is based only on operations 37
  38. 38. Three Questions 1. What biblical story do you most associate with an underdog defying expectations to beat a more impressive opponent? 2. Who is the greatest boxer of all time, and indeed considered the greatest sportsman of the 20th century? 3. Who are considered the greatest ever football (i.e. soccer) team? 38
  39. 39. 39
  40. 40. What explains their success? Their success was based upon Genuine Strategy 40
  41. 41. Example 1: David vs Goliath David • Youthful • Inexperienced in hand-tohand conflict • Physically weak • No protection Goliath • Mature • Experienced in hand-tohand conflict • Physically strong • Heavily protected 41
  42. 42. Example 1: David vs Goliath • If David is to win, he only had one option…and his insight enabled him to identify that fact • Goliath – classic case of ‘brawn and no brain’ 42
  43. 43. Lessons from David vs Goliath Smarter can beat better • Good strategy comes from fresh insight into strengths and weaknesses, and opportunities and threats 43
  44. 44. Facing ‘Goliath’ • So developing a strategy to topple the ‘invincible’ is not easy • Do you try and copy the best – but the core competence of the best is always hard to imitate • Or do you have to invent a superior solution? 44
  45. 45. Example 2: Ali vs Foreman World Heavyweight Championship Fight, Zaire, October 1974 The Challenger 32 years of age The Defending World Champion 25 years of age 45
  46. 46. Ali vs Foreman: Comparison Based Upon the ‘Better’ argument Ali Foreman • Former World Champion • Past success was based on being ‘better’ • Past his peak in terms of being ‘better’ • 32 years of age • Making a comeback after years without competitive fights • Defending World Champion • Present success was based on being better • At his peak • 25 years of age • Getting better with each fight 46
  47. 47. Who is Going to Win? 47
  48. 48. What’s Missing? We have not identified a crucial difference! Only one boxer had a genuine strategy 48
  49. 49. Ali vs Foreman: Comparison of Strategy 49
  50. 50. Ali vs Foreman • • • • • Two boxers One, the defending world champion The other, the former, older champion One Common goal Two Different Strategies – Ali – Good Strategy – Foreman – Bad Strategy 50
  51. 51. Ali vs Foreman Ali Practiced Good Strategy George relied on Bad Strategy • diagnosed his critical problem • He could no longer “float like a butterfly, sting like a bee” over 15 rounds against a younger opponent • The 3D Effect • So he developed an action plan to overcome his critical weakness • Rope-a-dope 51
  52. 52. Rope a Dope Ali Wins by a Knockout in Round 8. Foreman had run out of steam. 52
  53. 53. Two Vital Lessons from Ali vs Foreman 1. Even the very best are eventually overtaken; 2. If they are to continue winning, they need genuine strategy 53
  54. 54. Lessons from “Rope-a-dope” • Exhaust your rival’s resources through suckering them into constant expenditure of ineffective yet debilitating effort • When you look at the market for some products, do we see that the market leader is employing the “rope-adope”? 54
  55. 55. Example 3: Barcelona’s Dominance of World Soccer • The present Barcelona side, Spanish and European champions, are considered the greatest team of all time; • It features Lionel Messi (born 24 June 1987), the World Footballer of the Year (2009, 2010) • Spain, current European and World Champions, is heavily dependent upon Barca players 55
  56. 56. Example 3: Barcelona and Spain’s Dominance of World Soccer This example shows that this success is based upon a genuine strategy that was developed 40 years ago 56
  57. 57. Example 3: Barcelona and The Dutch Legacy • In the early 1970s, Barcelona was managed by Dutch coach, Rinus Michels • He bought the player Johan Cruyff – ‘the Messi’ of his generation • Cruyff managed Barcelona in the late 1980s-mid 1990s • One of his key players was Josep Guardiola, manager of Barcelona since 2008 • Today the present Barca team are hailed as the greatest ever side 57
  58. 58. Example 3: Barcelona and The Dutch Legacy • In 1970 Brazil beat Italy 4-1 in the soccer World Cup final in Mexico • The Brazilian team was considered invincible • The next World Cup was in Germany in 1974 • But how could anyone beat Brazil? 58
  59. 59. Example 3: The Dutch Influence on Soccer • Rinus Michels, the coach of the Dutch national team, concluded that no one could match Brazil • So a radical new approach was required • He invented ‘total football’ • At the heart of this new system was the player Johan Cruyff 59
  60. 60. Total Football Defined • In Total Football, a player who moves out of his position is replaced by another from his team, thus retaining the team's intended organisational structure. In this fluid system, no outfield player is fixed in a nominal role; anyone can be successively an attacker, a midfielder and a defender. The only player fixed in a nominal position is the goalkeeper. 60
  61. 61. The Immediate Outcome • In 1974 Holland beat Brazil but were beaten in the final 2-1 by the host country Germany • In 1978 Holland was again beaten in the final by the host nation Argentina 61
  62. 62. Barcelona F.C: The Lasting Legacy • Michels introduced ‘total football’ to Barcelona • The commitment to ‘total football’ continued under Cruyff • Cruyff recognized the exceptional ability required to implement ‘total football’ • He thus established in 1978 “La Masia”, the youth academy to train young players in the system from an early age 62
  63. 63. Barcelona F.C: The Lasting Legacy • One of the first graduate from ‘‘La Masia” was Guardiola, exceptional player and manager; • Today’s current midfield of Xavi, Iniesta and Fabregas are all graduates of “La Masia”; • Messi is also a product of the youth academy 63
  64. 64. Barcelona F.C: The Lasting Legacy Barcelona F.C. • When Barca won the European Champions League in 2009, 8 of the 11 players were graduates from the youth system Spanish National Side • When Spain won the 2010 World Cup the 22 man squad included 8 Barca players and 6 were in the starting 11 for the final 64
  65. 65. The Lasting Legacy: From Total Football to Tiki-taka Tiki-taka has been variously described as • "a style of play based on making your way to the back of the net through short passing and movement" • a "short passing style in which the ball is worked carefully through various channels, and • a "short passing, patience and possession". • The style involves roaming movement and positional interchange amongst midfielders, moving the ball in intricate patterns, and sharp, one or two-touch passing. 65
  66. 66. The Lasting Legacy: From Total Football to Tiki-taka • One of the weaknesses of Spanish sides and the national team was that their players were often much smaller and less physical than players from other nations (e.g. Northern Europe, Africa); • Tiki-taka focuses on movement, possession and skill • Some of the best players for Barcelona and Spain are physically small 66
  67. 67. Barcelona and Competitive Advantage Differentiation • Barcelona competes through innovation – it has developed a unique style or brand of football Low Costs • The youth academy enables Barcelona to produce the world’s best players at low costs; • This reduces the club’s need to spend in excess of $50m per player 67
  68. 68. Barcelona and Competitive Advantage Competition: • competitors have so far failed to overcome the Barcelona system; • This is despite the fact that arch-rivals, Real Madrid have: • acquired the world’s most expensive player ($132m); Customers: • Barcelona is the world’s most popular club as its style is uniquely entertaining; • It has 20m ‘likes’ on facebook, narrowly beating Real Madrid • the world’s highest paid soccer manager (about $20m) 68
  69. 69. Barca Has Clear Core Competencies • “Core competencies are the most significant value creating skills within your corporation and key areas of expertise which are distinctive to your company and critical to the company's long term growth”. • It can be leveraged widely • It’s hard for rivals to imitate • It’s of great value to customers 69
  70. 70. 1. Multiple Lessons from Barca and its Genuine Strategy • It arose from a foreign idea (i.e developed in Holland) • It involved honest internal analysis and identification of weakness; • Indeed the essence of the new strategy is to render weaknesses that cannot be overcome obsolete; • It has received constant commitment over 40 years – even in ‘difficult’ times; • It is now delivering the best ever results as the original business model (i.e. total football) evolved to ‘ticki-tacka’; 70
  71. 71. Multiple Lessons from Barca and its Genuine Strategy 1. It is centered upon differentiation (i.e. innovation); 2. The commitment to innovation compelled a focus upon New Product Development (i.e. the youth academy) 71
  72. 72. Multiple Lessons from Barca and its Genuine Strategy 3. New superstar brands (i.e. players) are developed at low cost and sourced locally and internationally; 4. Costly acquisitions are seldom required – and even when they are they are graduates of La Masia who were allowed to join other clubs 72
  73. 73. Multiple Lessons from Barca and its Genuine Strategy 5. Even when Barca is briefly overtaken by a ‘better’ team, it is without equal strategically, so the strategy is a constant that ultimately prevails 6. Barca may not always win, but its strategy always delivers exceptional value to its growing number of customers globally 73
  74. 74. Barca vs Real Madrid: Genuine vs Fake Strategy Barca • • • • • Genuine strategy Commitment to core values Consistency Succession planning Relies primarily upon organic growth (i.e. development of players and managers) Real Madrid • Fake Strategy – all about goals; • Lacking core values • Inconsistency • Absence of succession planning • Relies primarily upon external growth (i.e. acquisitions of players and managers) 74
  75. 75. Apple: the corporate Equivalent to Barca • Apple has a genuine strategy; • At one time it struggled but remained totally consistent to its strategy; • It seized opportunity (i.e. the iPod) and has refined its original strategy with each successive product and/or service 75
  76. 76. Apple: the corporate Equivalent to Barca • Apple can/should expect to be overtaken briefly in some areas; • But by applying its genuine strategy it can expect to once again come out tops 76
  77. 77. Conclusions ‘Better’ is Good ‘Smarter’ is Better ‘Better’ and ‘Smarter’ is Best 77
  78. 78. Conclusions 1. David was ‘smarter’ than Goliath 2. Ali extended his success by transitioning from ‘better’ to ‘smarter’ 3. Barca relied on being ‘smarter’ to get ‘better’ and is now best 78
  79. 79. Conclusions 1. 2. 3. 4. Apple was ‘smarter’ than PC producer; PC producers were briefly ‘better’; But Apple was the ‘smarter’ and used this to conquer new markets, leaving PC producers to fight over scraps Apple does not always have to be ‘better’ so long as it’s always ‘smarter’ 79
  80. 80. Genuine Strategy is about being different! 80