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Transcript

A Goal Isn’t a Strategy: Choose What to Do About the Obstacle · Modularity Podcast

• 0:00
  Here's a sentence that shows up in a lot of business plans: grow revenue 20 percent
• 0:04
  a year and hit a 20 percent profit margin.
• 0:07
  Fine.
• 0:08
  But how?
• 0:09
  According to UCLA professor Richard Rumelt, that sentence isn't a strategy.
• 0:14
  It's a wish with a spreadsheet attached.
• 0:17
  Rumelt tells the story of a graphics company CEO he calls Chad Logan,
• 0:22
  who called exactly that his 20/20 plan.
• 0:25
  Rumelt asked what had to happen for it to be realized.
• 0:28
  Logan tapped the page and talked about the will to win, then pulled out a Jack Welch
• 0:34
  quote about reaching for the impossible.
• 0:36
  Rumelt's comparison is a quarterback whose only advice to the team is,
• 0:41
  let's win.
• 0:42
  And that's the part small business owners should sit with, because we all do a
• 0:46
  version of it.
• 0:47
  Rumelt's definition is simple.
• 0:49
  Strategy is how you overcome the obstacles between where you are and where you want
• 0:54
  to be.
• 0:55
  A target is an outcome.
• 0:57
  Strategy is the coordinated action that produces it.
• 1:00
  If you can't name the obstacle, you're not doing strategy.
• 1:03
  You're doing a budget, or a stretch goal, or a list of things you hope happen.
• 1:08
  The example I can't shake is International Harvester in 1979.
• 1:12
  Their strategic plan projected rising market share and a profit graph that Rumelt
• 1:16
  describes as an almost perfect hockey stick.
• 1:19
  What the plan never mentioned was grossly inefficient production facilities and what
• 1:23
  Rumelt calls the worst labor relations in American industry.
• 1:26
  Their margin had been about half their competitors' for a long time.
• 1:30
  Then a disastrous six month strike hit, and the company started to collapse.
• 1:34
  So the plan was detailed.
• 1:36
  It just skipped the one thing that mattered.
• 1:39
  And Rumelt's point is that when the challenge is never defined,
• 1:43
  you can't judge the strategy at all.
• 1:45
  You can't reject a bad one or improve a good one.
• 1:49
  He also has my favorite example of fluff.
• 1:52
  A major bank's internal memo said its fundamental strategy was customer centric
• 1:57
  intermediation.
• 1:59
  Intermediation means taking deposits and lending them out.
• 2:02
  So the strategy was being a bank.
• 2:04
  Exactly.
• 2:05
  Strip the buzzwords and nothing's left.
• 2:07
  Then there's the list problem.
• 2:08
  Rumelt talked with the mayor of a small Pacific Northwest city whose plan had 47
• 2:13
  strategies and 178 action items.
• 2:16
  Item number 122 was, create a strategic plan.
• 2:19
  And he makes a point about the word itself.
• 2:22
  Priority means first.
• 2:23
  If you have twelve priorities, you've found a way to avoid choosing.
• 2:27
  That avoidance has a body count.
• 2:29
  In 1992, Digital Equipment Corporation had three camps arguing over the company's
• 2:34
  future: keep building computers, pivot to customer solutions,
• 2:38
  or bet on chips.
• 2:40
  Rumelt says you can't do two deep transformations at once.
• 2:44
  The CEO asked the group for consensus, and what came out was a statement that DEC is
• 2:49
  committed to providing high quality products and services and being a leader in data
• 2:53
  processing.
• 2:54
  That's not a choice.
• 2:56
  By 1998, Compaq had acquired the company.
• 2:59
  And a small company has less room for that than DEC did.
• 3:02
  Rumelt's line is that strategy is scarcity's child.
• 3:06
  If you can't afford to fight on ten fronts, and you can't, then the real leadership
• 3:11
  job isn't hyping the team with stretch numbers.
• 3:14
  It's choosing.
• 3:15
  So what does the real thing look like?
• 3:17
  Rumelt calls it the kernel, and it has three parts.
• 3:21
  First, a diagnosis, which answers one question: what's going on here?
• 3:28
  A good diagnosis cuts through the mess and picks out the critical issue.
• 3:32
  Imagine a home services company that says it has a lead problem.
• 3:36
  Maybe it does.
• 3:38
  Or maybe the real issue is that technicians spend 40 percent of their day driving
• 3:42
  between jobs.
• 3:43
  Same symptom, a completely different problem, and a completely different strategy.
• 3:48
  Second is the guiding policy, the overall approach to the obstacle.
• 3:52
  Rumelt compares it to highway guardrails.
• 3:55
  It directs and constrains action without spelling out every step.
• 3:59
  In that same hypothetical, the policy might be to tighten the service area to a 15
• 4:03
  mile radius so routes get denser.
• 4:05
  Now every decision has a filter.
• 4:08
  Does this job fit the radius or not?
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  Third is coherent actions, meaning steps that reinforce each other instead of
• 4:14
  fighting.
• 4:15
  If sales is bidding custom, one of a kind jobs while operations is trying to
• 4:20
  standardize the workflow, the company is pulling against itself.
• 4:23
  That's incoherent, and no amount of motivation fixes it.
• 4:27
  Rumelt's best illustration is Nvidia in 1995.
• 4:31
  Their first product failed, a rival called 3Dfx was winning with gamers,
• 4:36
  and Intel was rumored to be entering.
• 4:38
  The diagnosis was, we're losing the performance race.
• 4:42
  The guiding policy was to release a faster, better chip three times faster than the
• 4:48
  industry norm, every six months instead of every eighteen.
• 4:52
  Then the actions lined up behind it: three overlapping development teams,
• 4:57
  heavy investment in simulation, and taking driver development back in house.
• 5:02
  Notice what that isn't.
• 5:03
  It isn't a slogan or a revenue target.
• 5:07
  So, quick wins for this week.
• 5:09
  One: write your biggest obstacle in a single sentence, and make it a problem,
• 5:14
  not a goal.
• 5:15
  If it reads like a goal, try again.
• 5:18
  Two: count your priorities.
• 5:21
  If the number is more than two or three, pick which ones you're willing to set
• 5:25
  aside, out loud.
• 5:27
  Three: look at your last ten big decisions and ask whether they pulled in the same
• 5:32
  direction.
• 5:33
  Where sales, operations, and hiring are working against each other,
• 5:37
  you've found the friction worth fixing.
• 5:39
  The takeaway is this: a goal says where you want to go, and a strategy says what's
• 5:45
  in the way and what you're going to do about it.
• 5:48
  If you want help building a smarter, more resilient business,
• 5:52
  you can learn more at modularity.us.