How to identify Good Strategy
At the end of the first Strategy class I took in Business school, I asked the lecturer for some book recommendations. He recommended “Good Strategy / Bad Strategy” by Richard Rumelt. As a fresh inductee into the business world, I excitedly purchased a copy, but didn’t really discover the gold in it until about six years later with some work experience behind me.
In his book, he offers a simple construct to evaluate whether a strategy is good. He calls it the “Kernel” of a good strategy, which has three parts:
- A diagnosis that defines or explains the nature of the challenge
- A guiding policy for dealing with the challenge
- A set of coherent actions that are designed the carry out the guiding policy.
I love the simplicity of this, since the actual setting of good strategy is not easy. We can use the framework to help us set strategy if used as the following steps.
Step 1: Identify the challenge/problem. This step is often not given enough thought. The more specifically you can define a problem, the more likely your solutions are going to be effective in the following steps. The better you can identify the challenge, the most likely you will be able to win against your competitor(s).
Questions to ask: Is this a symptom or the root cause? What is the driver of the challenge? What drives that driver? How many steps back can we take? Is the problem specific enough, or is it too high level and generic? What is unique to our situation? What is common with challenges previously experienced?
Step 2: Design the guiding policy. These are meant to be designed specifically to meet the challenge described in step 1. Try to target the root cause as much as possible. Keep it simple, clear and understandable to avoid misinterpretation by the people taking action. The guiding policy also helps define what not to do.
Questions to ask: Have we seen a similar challenge in history or in other sectors before? What were some effective strategies that were used? What are the assumptions we are making?
Step 3: Plan a set of coherent actions. The first key word is “coherent”, the actions should not contradict with each other, nor with the guiding policy. They should also not be unrelated to the guiding policy, but instead helps you achieve the guiding policy. The second key word is “action”, the steps should be active, not reactive or passive. In lower risk environments, you can set up experiments to help you further refine your understanding of the challenge.
Questions to ask: Do the actions help us achieve the guiding policy? How would we know when we are making progress? Do the actions complement and amplify each other or are they contradictory? Does each action has a clear owner and enough resources? How do we set up each action for success? Are there any dependencies we do not control, and how can we reduce them? Are these actions given the appropriate priority?
Step 4: Refine the definition of the challenge. Use what you learnt in the actions and the effectiveness of the guiding policy to continue to refine your understanding of the situation.
Questions to ask: What have we learnt? Does this reinforce or change our understanding of the challenge? Have we sufficiently overcome this challenge so it’s time to move to the next one? If we are not yielding results, is it because our understanding of the challenge was inaccurate, or was it because of external factors (e.g. competitor actions, political/social shifts, etc).
What other strategy frameworks have you used, and what do you like about them?