A rumelt perpsective on good strategy


Published on

Richard Rumelt distinguishes between Good and Bad Strategy. This presentation uses examples to show this.

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

A rumelt perpsective on good strategy

  1. 1. Good Strategy By Dr. Michael McDermott mcdermottm1@nku.edu
  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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 5
  6. 6. Bad Strategy in 3D The Focus is on 3D • Desire; • Drive; and • Determination mcdermottm1@nku.edu 6
  7. 7. The 3d Essence of Bad Strategy Desire Drive mcdermottm1@nku.edu Determination 7
  8. 8. Incoherence: The Essence of Bad Strategy • At best pursuing multiple unconnected objectives • At its worst, it involves pursuing conflicting objectives mcdermottm1@nku.edu 8
  9. 9. The Cost of Bad Strategy It is a source of weakness because it is incoherent mcdermottm1@nku.edu 9
  10. 10. So what is Genuine or Good Strategy? mcdermottm1@nku.edu 10
  11. 11. Essence of Genuine Strategy: The D² rule • Avoid Dumb • Focus upon Direction mcdermottm1@nku.edu 11
  12. 12. The Essence of Good Strategy Direction mcdermottm1@nku.edu 12
  13. 13. What is Direction? • It’s focus • And this can only be obtained by making choices mcdermottm1@nku.edu 13
  14. 14. (Genuine) Strategy = Problem-Solving Make Choices – hard choices Define the problem mcdermottm1@nku.edu 14
  15. 15. Strategy is identifying the key challenges and the means to overcome them mcdermottm1@nku.edu 15
  16. 16. Therefore developing a strategy is an exercise in problem-solving mcdermottm1@nku.edu 16
  17. 17. Stop Right There! You suggestin’ we gotta problem? mcdermottm1@nku.edu 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” mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 19
  20. 20. Essence of Good Strategy Diagnosis Guiding Policy (the signpost indicating future direction) mcdermottm1@nku.edu Coherent Action 20
  21. 21. Strategy is the Path • The How • The Why (Genuine) • The Where Strategy • The When • The Who mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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. mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 24
  25. 25. Common Strategic Thinking Strength Opportunity mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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” mcdermottm1@nku.edu 28
  29. 29. Genuine Strategy Provides Dual Purpose • It stipulates the “do’s” • It stipulates the “don’ts” mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 32
  33. 33. OK. I now get it. Strategy and goals are two different things. mcdermottm1@nku.edu 33
  34. 34. REBUTTAL OF BEING BETTER ARGUMENT mcdermottm1@nku.edu 34
  35. 35. But business success is simply about being better. Isn’t it? mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 36
  37. 37. The “Being Better” Argument • But simply ‘being better’ provides only shortlived success • The ‘better’ is based only on operations mcdermottm1@nku.edu 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? mcdermottm1@nku.edu 38
  39. 39. mcdermottm1@nku.edu 39
  40. 40. What explains their success? Their success was based upon Genuine Strategy mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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’ mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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? mcdermottm1@nku.edu 44
  45. 45. Example 2: Ali vs Foreman World Heavyweight Championship Fight, Zaire, October 1974 The Challenger 32 years of age mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 46
  47. 47. Who is Going to Win? mcdermottm1@nku.edu 47
  48. 48. What’s Missing? We have not identified a crucial difference! Only one boxer had a genuine strategy mcdermottm1@nku.edu 48
  49. 49. Ali vs Foreman: Comparison of Strategy mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 51
  52. 52. Rope a Dope Ali Wins by a Knockout in Round 8. Foreman had run out of steam. mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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”? mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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? mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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. mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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. mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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) mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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’; mcdermottm1@nku.edu 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) mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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) mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 76
  77. 77. Conclusions ‘Better’ is Good ‘Smarter’ is Better ‘Better’ and ‘Smarter’ is Best mcdermottm1@nku.edu 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 mcdermottm1@nku.edu 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’ mcdermottm1@nku.edu 79
  80. 80. Genuine Strategy is about being different! mcdermottm1@nku.edu 80