Good Strategy/Bad Strategy: A book review by Bob Morris
Good Strategy/Bad Strategy: The Difference and Why It Matters
Richard Rumelt
Crown Business (2011)
How and why a good strategy “acknowledges the challenges being faced and provides an approach to overcome them”
As the title of this review correctly indicates, Richard Rumelt is convinced (and I agree) that a good strategy can provides both a timely head’s up to imminent challenges and guidance when preparing to respond effectively to them. With surgical skill and (to my delight) a light touch, he explains what a good strategy is. In fact, he also explains what is and isn’t a strategy, good or bad. Moreover, he cites dozens of real-world examples to illustrate which strategies succeed, which fail, and why. Both good and bad strategies are a result of a process so Rumelt correctly examines both good and bad processes, each of which involves a sequence of decisions. Thus a good strategy is the result of a process of correct decisions; a bad strategy is the result of a process of incorrect decisions.
One of Rumelt’s valuable insights suggests that a decision is correct if (huge IF) it is appropriate to the given needs, interests, resources, and objectives. This is what Peter Drucker had in mind (in 1963) when observing, “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.” Many years later, Michael Porter made essentially the same point when suggesting that “the essence of strategy is choosing what not to do.” Rumelt’s purpose in the book is to awaken his reader “to the dramatic differences between good strategy and bad strategy and to give [his reader] a leg up toward crafting good strategies.” Rumelt nails the “what,” devoting most of his attention to the “how” and “why.”
Here is a partial list of the real-world situations that Rumelt rigorously examines:
• How Steve Jobs saved Apple
• General Schwarzkopf’s strategy in Desert Storm
• Discovering Wal-Mart’s secret
• How blue-sky objectives miss the mark
• Pivot points at 7-Eleven and the Brandenburg Gate
Note: More about “pivot points’ later
• Why Kennedy’s goal of landing on the moon was a proximate and strategic objective
• How Hannibal defeated the Roman army in 216 B.C.
• What bricklaying teaches us about deepening advantage
• Deduction is enough only if you know everything worth knowing
• The worst industry structure imaginable
These and other mini-case studies reveal why strategy is, like a scientific hypothesis, “an educated prediction of how the world works. The ultimate worth of a strategy is determined by its success, not its acceptability to a council of philosophers or a board of editors. Good strategy work is necessarily empirical and pragmatic. Especially in business, whatever grand notions a person may have about the products or services the world might need, or about human behavior, or about how organizations should be managed, what does not actually ‘work’ cannot long endure.” Amen.
With regard to “pivot points,” they magnify impact of an effort. “It is s natural or created imbalance in a situation, a place where a relatively small adjustment can unleash much larger pent-up forces.” For example, in the business world, a strategic thinker “senses such imbalances in pent-up demand that has yet to be fulfilled or in a robust competence developed in one context that can be applied to good effect in another.” In m y opinion, pivot points seem to be first cousins to Michael Kami’s trigger points, Andy Grove’s inflection points, and Malcolm Gladwell’s tipping points. Obviously, a good strategy takes full advantage of every opportunity that pivot points offer.
Those who share my high regard for this brilliant book are urged to check out Walter Kiechel III’s The Lords of Strategy: The Secret Intellectual History of the New Corporate World.
A baker’s dozen of terrific interviews!
I am now in the process of completing interviews of thought leaders who include:
John Baldoni
Josh Bersin
Brian Carney
Ira Chaleff
Daniel Coyle
Charles Jacobs
Saj-nicole Joni
Guy Kawasaki
Art Kleiner
David Magee
Dan Pink
Tom Rath
Meanwhile, check these out and put some white caps on your gray matter:
Jim Collins
http://ffbsccn.wordpress.com/2010/03/10/complete-interview-jim-collins/
Scott Belsky
http://ffbsccn.wordpress.com/2010/04/15/interview-scott-belsky/
Richard Brandt
http://ffbsccn.wordpress.com/2010/04/15/interview-richard-l-brandt/
Richard Florida
http://ffbsccn.wordpress.com/2010/04/10/interview-richard-florida/
Jeremy Hope
http://ffbsccn.wordpress.com/2010/04/01/interview-jeremy-hope/
Walter Kiechel III
http://ffbsccn.wordpress.com/2010/03/28/interview-walter-kiechel-iii/
Jill Konrath
http://ffbsccn.wordpress.com/2010/04/19/interview-jill-konrath/
Roger Martin
http://ffbsccn.wordpress.com/2010/03/12/interview-1-roger-martin/
Joseph Michelli
http://ffbsccn.wordpress.com/2010/03/10/complete-interview-joseph-a-michelli/
Dean R. Pritzer
http://ffbsccn.wordpress.com/2010/04/10/interview-dean-r-spitzer-2/
Jeff Prouty
http://ffbsccn.wordpress.com/2010/0/15/interview-jeff-prouty/
Robyn Waters
http://ffbsccn.wordpress.com/2010/0/15/interview-robyn-waters-2/
Dave Ulrich
http://ffbsccn.wordpress.com/2010/0/16/interview-dave-ulrich-2/
Narcissism, Partnership and Strategy
Walter Kiechel III
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As the great Nebraskan Fred Astaire (born Frederick Austerlitz, Omaha, 1899) used to sing, “There may be trouble ahead…” An article in the latest issue of Academy of Management Learning and Education reports that over the past 25 years college students in the U.S. have scored steadily higher on tests for narcissism. Professors Bergman, Westerman and Daly note that “the mean narcissism score of 2006 college students on the Narcissistic Personality Inventory (NPI) approached that of a celebrity sample of movie stars, reality TV winners and famous musicians.”
Fabulous. If that weren’t bad news enough, “Narcissism in Management Education” (Academy of Management Learning and Education, 2010, Vol. 9, No. 1, 119-131) also cites research indicating that “narcissistic tendencies such as materialistic values and money importance tend to be particularly evident in business students.”
Most studies of narcissists in business focus on their usually awful eventual effect on co-workers. To ride along with them can be energizing, even inspiring at first, but frequently ends in tragedy. As I was reminded last week when I caught one of the last New York performances of Lucy Prebble’s “Enron,” which pretty much reduces that company’s rise and fall to a story about Jeff Skilling’s increasingly delusional hubris. (A hit in London, the play bombed in Babylon on the Hudson, which already has enough challenges to its own hubristic tendencies these days.)
In a terrific 2001 HBR article, Michael Maccoby argued that a “productive narcissist” can be good for a company — setting out a vision, rallying the troops to achieve it. (As examples he cited Jack Welch and George Soros.) But in my observation, narcissism in strategy-makers almost always represents an invitation to disaster.
This for at least two reasons. Narcissistic executives usually create around themselves a miasma of distrust. They take credit for other’s work, value no one else’s ideas as highly as their own, and are so busy looking after No. 1 that they can be oblivious to the welfare of others. This makes it tough to develop a strategy in consultation with colleagues, who usually know more about vital details of the competitive situation than the Great One. And even tougher to actually carry the strategy out, except under the narcissist’s lash, which most talented people quickly lose a taste for.
The more fundamental problem may be that with sufficient feeding of their grandiosity, narcissists deteriorate in their ability to do what psychologists call “reality testing,” being able to spot the difference between the movie they’re playing in their heads (guess who the star is) and what’s actually going on in the world.
The classic posterboy for this syndrome: John De Lorean, father of the Pontiac GTO, who when he wasn’t hanging out with movie stars or marrying again was going to set the automotive world on fire with the De Lorean Motors gull-wing doored DMC 12. The entrepreneur’s arrest for drug-trafficking — allegedly to raise money for his failing company — put the finishing touches on that endeavor; even though he eventually beat the charge, he would spend the rest of his days bouncing down the stairs, eventually into personal bankruptcy.
In the face of what may be a rising tide of MBAs with, how shall we say, narcissism issues, and the chance that some may climb into strategy-making positions, the news of Britain’s new coalition government comes as all the more intriguing. Here you have two politicians, David Cameron and Nick Clegg, heads of rival parties, who, admittedly under serious pressure, manage to quickly form a partnership that has at least some observers suspecting that the country may have lucked into a governing solution better than any one party could have afforded.
For all the usual bromides about how “you can’t run a company by committee” and “you gotta have clear lines of authority,” partnerships have worked remarkably well in running a few fabled companies, including in setting their strategy. The modern Walt Disney Co. was at its best when Michael Eisner was complemented by Frank Wells. Coca-Cola’s patrician, aloof Roberto Goizueta wouldn’t have accomplished nearly as much without the consummately personable Donald Keough presenting a smiling corporate face to the world. Some of us wonder whether Goldman Sachs would be in the doghouse it is today if it had stayed with its tradition of two-headed leadership — John Weinberg teamed with John Whitehead, Robert Rubin with Steve Friedman. Astaire wasn’t the only Nebraskan who appreciated the value of a good partner — to every Warren Buffet, his Charlie Munger.
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To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please visit dailyalert@email.harvardbusiness.org.
Walter Kiechel III is the former Editorial Director of Harvard Business Publishing, former Managing Editor at Fortune magazine, and author of The Lords of Strategy: The Secret Intellectual History of the New Corporate World. He is based in New York City and Boston.
The “strategic imperative not to hire anybody”
Walter Kiechel III
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My lunch companion arrived fifteen minutes late. “My phone has begun to ring again,” he explained, “which is a good sign for the economy.” Once a big-league strategy consultant, he now has a firm that advises CEOs on how to increase the value of their companies. “They’ve decided that we’ve touched bottom, or they wouldn’t be talking to me,” he said. “They’re starting to think about growing their businesses again.” Welcome news, but not what followed.
“But boy, I don’t see employment coming back, not for years. My clients were amazed by how much productivity they could squeeze out of their people in the downturn. They’re not going to start hiring again — well, maybe temps or contract workers, but not regular, full-time employees.” As if to punctuate the thought he added, chillingly, “In fact, the CEOs are mad at their middle managers for not having eliminated more jobs earlier.”
Asperity toward their colleagues aside, his clients are, in a narrow sense, doing exactly the right thing. If the modern history of corporate strategy teaches us anything, it’s that you have to keep cutting costs, systematically, never-endingly. This even at the same time you may be innovating, launching new initiatives, growing. Strategy’s recent history reinforces the point by demonstrating that any advantage you enjoy now is competed away faster than ever.
Smart companies have picked up on this aspect of fiercening capitalism. As Paul Vigna and John Shipman reported in a Jan. 25 Wall Street Journal article titled “Corporate America on a Diet,” even as Intel has resumed “enviable profit growth,” it’s keeping its work force at 2003 levels.
The trend dovetails nastily with changes underway for a long time, but up until recently not so unpleasantly evident. Our manufacturing sector sheds jobs not so much because those devils overseas are grabbing them, but rather because of technology-driven productivity gains. As Shoshana Zuboff pointed out a couple decades ago, the representative factory worker of the future will be a woman standing in an air-conditioned glass booth, monitoring gauges, whilst all about have fled, or been job-eliminated.
* * *
It used to be a joke among some of my conservative friends that there were two kinds of problems in this world. Problems that should be left to the free market to decide, and unimportant problems. Free markets may have begun to work again, albeit grudgingly sometimes, for companies seeking to buy, sell, and raise capital. But those glorious free-market mechanisms didn’t work particularly well for credit default swaps or collateralized debt obligations, and we bailed them out in the interest of the larger good. Our friends, neighbors and loved ones who can’t get jobs are the larger good. The supposedly self-regulating market mechanisms clearly aren’t working for them. We need a nationwide crusade on their behalf, both governmental and private, even if it means surrendering some of our hallowed belief in the supposed power and ultimate goodness of the free market.
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To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Daily Alerts, please visit dailyalert@email.harvardbusiness.org.
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Walter Kiechel III is the former Editorial Director of Harvard Business Publishing, former Managing Editor at Fortune magazine, and author of The Lords of Strategy: The Secret Intellectual History of the New Corporate World. He is based in New York City and Boston.
Book Review: The Lords of Strategy
The Lords of Strategy: The Secret Intellectual History of the New Corporate World
Walter Kiechel III
Harvard Business Press (2010)
Kiechel suggests that understanding what he calls the “strategy revolution” requires getting beyond three common beliefs: “The first is that at bottom, ideas don’t really matter much in business.” In fact, ideas that are sharp with a purpose to answer questions, solve problems, and facing challenges are essential. Another common belief to be overcome is that strategy has no intellectual history. In fact, “smart companies throughout history have had a sense of how they wanted to make money…What companies didn’t have before the strategy revolution was a way of systematically putting together all the elements that determined their corporate fate, in particular, the three Cs central to any good strategy: the company’s costs, especially costs relative to other companies; the definition of the markets the company served – its customers, in other words – and its position vis a vis competitors.” The third common belief to be overcome is that consultants are at best “hangers-on of only occasional, limited usefulness” or at worst “rapacious parasites whose slightest presence in the corporate body indicates gullibility, weakness, and insecurity on the par of its leadership.”
The “lords” to which the book’s title refers include Henderson, of course, as well as Bill Bain, Fred Gluck, and Michael Porter. Kiechel devotes a separate chapter to each and frequently refers to all of them throughout his lively narrative. Moreover, he also discusses the significance of several others who – to varying degree – also participated in the “invention” of corporate strategy. “This is a story not if paradigm shift, but of the bit-by-bit creation of the first comprehensive paradigm that pulled together all of the elements most vital for a company to take into account if it is to compete, win, and survive.” Given the number if different executives and academics involved in the process of introducing a new business discipline, should come as no surprise that that there have been – since 1963 when Henderson and his BCG associates launched the revolution – numerous and significant complications (and sometimes spirited disagreements) as to what organizational strategy is and isn’t, what it should and shouldn’t be expected to accomplish, how to measure its impact, and when to revise or replace it.
As Kiechel explains, “Implementation was not the only problem dogging the strategy revolution as it tried to consolidate its gains. The tools had to be continually sharpened, if not discarded altogether for something else, as began to become apparent in the 1970s and by the 1980s was glaringly obvious. The experience curve in particular needed reexamination. To their surprise, consultants were also discovering that there appeared to be industries for which low cost was no guarantee of competitive advantage. Enter the possibilities for ‘differentiation’.” (Page 185) Over time, academics and executives as well as consultants gave it intellectual structure, inclusive processes, systematic execution, reliable analytics and most important of all, clarity of purpose. The revolution continues to evolve.
Interview: Walter Kiechel III
Walter Kiechel III
Kiechel is the author of The Lords of Strategy. The book reflects much of what he has learned in three decades of reporting and writing on business, including over 100 interviews—a few stretching over days—for this work alone. In recent years he combined research on The Lords with occasional part-time jaunts as an editor at large for Harvard Business Publishing, helping the company in its perpetual quest for new ideas, authors, and business opportunities. Until January, 2003, Kiechel served as editorial director of Harvard Business Publishing and senior vice president in charge of its publishing division, with responsibility for the Harvard Business Review; HBS Press, the company’s book-publishing arm; the newsletter unit (which he helped start in 1996) as well as HBP’s video, reprints, and conference businesses. From early 1997 until his appointment as editorial director in March, 1998, he was publisher of HBR.
Kiechel spent most of his early career at Fortune magazine, where generally he had a wonderful time. After beginning at the magazine as a reporter in 1977, he rose to become its managing editor, the top editorial position, in 1994. As assistant managing editor (1988), executive editor (1992), and finally M.E., he crafted a strategy for the magazine as a journal of “ideas, strategies, and solutions for decision makers.” Through most of the 1980s, Kiechel was editor in charge of Fortune‘s coverage of management. Now and then he’d take a break to write cover stories including “Corporate Strategy for the 1990s” (1988), “The Workaholic Generation” (1989), and “How We Will Work In the Year 2000″ (1993). For 12 years he also wrote a regular column, “Office Hours,” on managerial technique, psychology, and sociology. In 1988, a collection of these pieces was published by Little Brown as a book titled Office Hours: A Guide to the Managerial Life. He has done daily broadcasts on “The New Economy” for the CBS Radio Network and hosted the not-much-lamented Fortune Week television program on CNBC.
Kiechel received JD and MBA degrees from Harvard University, and is a member of the New York bar. He got his undergraduate education at Harvard University as well, where he was awarded an AB degree with honors and elected to Phi Beta Kappa. From 1968 to 1973, he served as an officer in the U.S. Navy, spending most of the time on sea duty aboard destroyers, an adventure he still relishes.
Morris: Before discussing The Lords of Strategy, a few general questions. First, I am curious to know what you consider to be the most significant changes, during the last decade, in business education at institutions such as HBS, Kellogg, Wharton, Ross, and Haas.
Kiechel: The most important change, and it’s been going on for at least three decades, is the increasing “professionalization,” if that’s a word, of the faculty. By professionalization I mean the tendency of faculty members to have Ph.D.’s in their academic specialties, and for these specialties to be ever more narrowly defined. The higher-rated schools may have chief executives in residence or retired execs on three-year teaching fellowships, but the days when most faculty members had considerable prior experience as businessmen or women—those days are mostly over.
This has made for faculty members that have a lot of intellectual candlepower, often to the point of being able to command the respect of professors of economics or psychology elsewhere in their universities. It’s not as clear that the new-style faculty are as in touch with people and companies out there actually doing business. One thing I heard in the reporting for my book, from practitioners, consultants, and academics alike, was that practitioners were finding less and less useful what the business schools were doing by way of cutting-edge thinking of strategy.
At Harvard Business Publishing, at least when I was there through about 2002, we heard from junior faculty at Harvard Business School that their faculty mentors were discouraging them from publishing in Harvard Business Review, which is aimed at practitioners, until they had achieved tenure. Before then it was more important for them to publish in scholarly journals — The North Frisian Journal of Marketing Stochastics, to take a completely made-up example. How many marketing executives do you suspect read the North Frisian Journal?
Morris: In your opinion, what is the one area of business education at these and other institutions in which there remains the greatest need for improvement? Why?
Kiechel: The business schools could do a better job teaching face-to-face management, the actual work of organizing and helping along the efforts of others in the organization. The more quantitative disciplines—finance, even strategy—have gotten more attention, often more research dollars. Areas like organizational science or, even mushier, leadership have had more trouble settling on what it’s important to teach, and how. It’s rather like strategy itself, which as I argue in the book, has had trouble through most of its history figuring out how to incorporate people, their motivation and ability, into its calculations.
Morris: In an issue of Fortune magazine (March 22, 2010), there is an article in which Brian O’Keefe examines the ferocious competition to hire military officers whom he characterizes as “a new elite generation of business leaders.” As someone who once served on active duty as an officer in the U.S. Navy, how do you explain why companies such as Walmart*, PepsiCo, and GE are so eager to hire these men and women?
Kiechel: Companies are always looking for screening devices to use in making their selection processes more efficient—“Does Candidate X have an MBA? An accounting degree?” Service in the military is obviously one such screen.
But I think the reasons outfits like PepsiCo and GE have adopted this particular screen go deeper than that. The literature on leadership is all over the map. You can read the entirety of Bass and Stogdill’s Handbook of Leadership, which covers most of the research on the subject since the 19th century, and come away thinking that nobody in the field agrees on anything. But one practical point many experts will attest to is that if you want to develop someone as a leader, give them lots of responsibility early in their lives and careers. The military does that. I can remember being officer of the deck on a destroyer, on watch and in charge at two in the morning as we plowed through the Mediterranean while 300 shipmates slept below decks. I was 25 at the time. I don’t know how much of a leader I ever became, but the experience certainly brought home to me a sense of responsibility for others.
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To read the complete interview, please click here.
The myth of corporate persistence
The Lords of Strategy
In fact, a third of the “excellent” companies cited by Tom Peters and Robert Waterman in a book published in 1982 almost immediately no longer met the criteria by which they were selected. Few of the companies identified by Jim Collins as “built to last” and “great” in books published in 2001 and 2004, respectively, now qualify according to the criteria he used and the reasons for that are explained by Collins in How the Mighty Fall (2009).
Now consider this excerpt from Creative Destruction: Why Companies That Are Built to Last Underperform the Market–And How to Successfully Transform Them, co-authored by Richard Foster and Sarah Kaplan and published by Broadway Business (2001):
“McKinsey’s long-term studies of corporate birth, survival, and death in America clearly show that the corporate equivalent of El Dorado, the golden company that continually performs better than the markets, has never existed. It is a myth. Managing for survival, even among the best and most revered corporations does not guarantee strong long-term performance for shareholders. In fact, just the opposite is true. In the long run, markets always win.”
Nonetheless, despite the facts, the “myth of corporate persistence” persists. Why? That’s a subject for another post.
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