book.chapter Distinguishing strategy quality

Inferior strategy is not simply the absence of a superior one; it often appears as vague clichés, unattainable objectives, and appealing yet empty catchphrases. In contrast, a superior strategy clearly outlines how an organization will allocate its resources to address a problem and make progress. It includes three components and draws from two significant and inherently crucial sources of strength. Unfortunately, effective business strategies are rare and often surprising. Many organizations lack a coherent business strategy, leading to disconnected objectives, conflicting interests, and a wish list of preferred outcomes rather than a solid plan. Effective strategy requires leaders who are prepared to reject a broad range of actions and interests, focusing as much on what an organization does not do as on what it does. The implementation of a sound strategy increases the likelihood of gaining insights into new strengths and weaknesses. For example, Wal-Mart challenged the prevailing belief that a full-line discount store needed a population base of at least 100,000 to be profitable by opening smaller stores in towns and managing a network of stores served by a centralized distribution center. This approach allowed Wal-Mart to serve much smaller populations than its competitors efficiently. Inferior strategy stems from specific misconceptions and leadership dysfunctions. It is characterized by fluff, a failure to face the challenge, mistaking goals for strategy, and utilizing bad strategic objectives. Fluff is when the stated strategy is gibberish or superficial, failure to face the challenge occurs when the challenge is not defined, mistaking goals for strategy happens when there are statements of intent rather than concrete plans, and bad strategic objectives are when critical issues are not addressed or objectives are impractical. Inferior strategy thrives because companies are unwilling or unable to choose goals, managers follow a fill-in-the-blanks template, or they emulate superstars without understanding the underlying principles. A good strategy, on the other hand, starts with an accurate diagnosis of the situation, creates or specifies a guiding policy to address the critical difficulties, and articulates a set of coherent actions to be undertaken. This approach ensures that the strategy is not just theoretical but involves concrete steps to add value and move forward. For instance, when Lou Gerstner became CEO of IBM, he diagnosed that IBM's strength lay in its expertise across different fields and shifted the company's focus to becoming a solutions provider. Similarly, Wells Fargo's guiding policy of using the network effects of cross-selling allowed it to leverage its size and knowledge of customers to sell more products. These examples illustrate that good strategy is about focusing resources and action on what is truly important, imposing coherence on a system by policy and design, and engineering a fit among the parts to specify how actions and resources will be combined.