Good Strategy and Bad Strategy - Rumelt - Assignment Example

Strategic Management Contents Introduction 2 Good strategy and Bad Strategy: Elements and Discussion 2 Bad Strategy 2 The Core of Good Strategy 3 Usage of leverage, proximate objectives, focus and design for competing 4 Rationale of descriptive and prescriptive models 5 Critical Evaluation of Benefits 7 Reference List 9 Introduction Good strategy is characterized as straightforward and simple, implying application of the most appropriate opportunity. Good strategy also means identification of pivotal or critical issues within the industry or market of a leader and then making strategic plans with the focus on result-oriented and forceful actions pertaining to the exact issues. According to Rumelt (2011), strategy has little relationship with vision, ambitious goals, innovation, leadership or determinations. He has criticized strategy for merely being a tidy exercise done by business leaders, which generates impressive yet unrealistic goals as well as meaningless slogans (Zeb and Baloch, 2011). The objective of the current research is to understand and critically analyze the concepts of good and bad strategy as described by Rumelt. The research report will also discuss the various factors highlighted by good strategy of Rumelt for the purpose of achieving competitiveness and strategic goals. Good strategy and Bad Strategy: Elements and Discussion Rumelt has severely criticized the contemporary concepts of strategy, which is largely followed by strategists, marketers and leaders. According to Rumelt, a good strategy consists of a specific plan for solving a defined problem or challenge (Rumelt, 1991). It involves multiple stages and tedious development of expertly and thoughtfully implemented policies. This strategy is designed focusing on the obstacles and the appropriate procedure to mitigate them. A major differentiating factor between Rumelt’s good strategy and other contemporary strategy is that his strategy stresses upon intelligent utilization of resources in order to solve specific issues, rather than distributing the resources without proper research (Rumelt, 2011). Bad Strategy According to Rumelt, bad strategy is not necessarily the reverse of good strategy (Rumelt, 1991). In general, bad strategy has emerged from specific leadership dysfunctions and specific misconceptions. Bad strategies are characterized as follows; 1. Fluff: It means filling slogans with trends and popular buzzwords rather than important insights, thereby rendering the slogans empty (Zeb and Baloch, 2011). Here, aims or objectives of an organization are bluntly put in their strategies, without adding creativity or streamlining the same with business function or target customers. Most of the mediocre and traditional organizations follow the similar unproductive approach (Gisling, Lemmens and Duysters, 2007). 2. Failure in facing challenges: It is impossible to create a strategy if leaders fail to identify as well as isolate the major issue or challenge faced. For instance, to revamp an organization though analysis and charts will be meaningless if its core assets, which are employees and workers, are ignored in terms of their demands, expectations and grievances (Pickett, 2005). 3. Confusing goals with strategy: Goals are long-term accomplishments set by the initial leaders of an organization. These goals might be altered with the changing demand and expectations among consumers as well as evolving external environment (Rumelt, 1991). It is unwise to mistake them as strategy and create action steps without proper research and evaluation. 4. Terrible strategic objectives: Bad strategic objectives are established when leaders set unrealistic and unmanageable targets. These leaders view smaller issues as annoying irritants. However, they fail to realize that small issues are the ones that restrict growth of the organization as well as management (Schaap, 2006). These objectives are majorly motivational, but not quite strategic. These bad objectives are very common because logical thinking, rigorous analysis, focused action and difficult choices is not involved (Rumelt, 2011). The Core of Good Strategy According to Rumelt, good strategy is based on three strategic components. 1. Diagnosis The core of any good strategy is not merely superficial analysis, but also diagnosis of the smaller issues that divert the management’s core objectives. This act involves identification of facts and patterns that might enable a leader to perceive new ideas and strategies and subsequently judge and evaluate those so as to choose the best alternative (Zeb and Baloch, 2011). For best results, it is necessary to list the basic ideas and analyze their strengths and weakness so that their exact value to the problem solving process is identified. Richardson and Thompson (1995) have suggested that Diagnosis also helps in countering the shortcomings and biases, which is often overlooked or ignored by leaders. Effective diagnosis involves counteracting on one’s own ideas and concepts in order to generate negative results or shortcomings and then resolving those to build a more robust and winning strategy (Rumelt, 2011). 2. Guiding Policy After successful diagnosis of an organization’s strategic intent or current and future problems, the second step is that of creating a methodology to provide direction to the team. For instance, the guiding policy of Wells Fargo is satisfying the objective of accomplishing the financial demands of clients by cross-selling of its services (Rumelt, 2011). A good strategy relies on available resources and in order to leverage those resources, it is critical to concentrate upon the guiding policies so that leaders can coordinate their actions and achieve desirable outcomes (Zeb and Baloch, 2011). 3. Coherent Actions set The most critical activity that an organization must undertake is to create consistent, concrete as well as coordinated action plans. These action plans generate momentum, which is necessary for an organization to succeed (Grobman, 2005). Usage of leverage, proximate objectives, focus and design for competing Using leverage Using leverage implies drawing power from minds of strategists or marketers that are focused on the exact issue, thereby producing favourable outcomes and good strategy (Rumelt, 2011). The behavioural aspects of potential leaders can be evaluated by analyzing their potential future steps, using them as leverage. In this context, the potential behaviour of customers is assessed and used as leverage. For instance, real-estate investments are generally based on anticipation and presumptions of people’s demand for real-estates in future. According to Handy (2002), a firm should only focus on few important issues at any given point of time, which should be studied in concentration during change. Proximate objectives Proximate objectives are targets that are achievable and feasible as well as expected by the management to be successful. For instance, when President Kennedy called for the mission of landing a human on the moon by 1960s, it was a feasible objective as the engineers were equipped with the right equipments and technologies for building rockets and spacecrafts (Rumelt, 2011; Zeb and Baloch, 2011). While establishing proximate objectives, it is essential to resolve any ambiguity. Also, in situations of high uncertainty, proximate objectives should be short-term and immediate in nature. For example, in case of sudden resignation or leave of a higher level executive during crucial organizational change, the proximate objective should be to hire the most appropriate replacement from internal organization, rather than seeking external opportunities (Rumelt, 1991). Design According to Evans and Linsday (2011), design can be used to achieve competitive advantage in organizations and business through three strategic steps. The first is premeditation, second is anticipating the future behaviour of potential customers or clients and the third is purposefully and appropriately designing the coordinated actions. Many organizational strategies are necessarily design and not decisions. For instance, most of the IT and graphic sector firms differentiate themselves through their designs (Rumelt, 2011). Tight coordination and resources can be helpful in determining the design strategy for achieving sustainable advantage by organizations. Focus Focus has been characterized as a unique mixture of positioning and policy. Many large and complex firms do not have strategies. Instead, their strategic actions refer to being focused as well as concentrating upon appropriate resources so as to attain one goal at a time (Zairi and Whymark, 2000). Rationale of descriptive and prescriptive models As the name suggests, descriptive models describe or explain the tasks. Descriptive models usually work according to the planned methods, directions and adhere to the strategy that has already been tested and approved. Barney (1991) has suggested that descriptive models of strategy are best utilized in situations, where resolving an issue or problem requires a streamlined procedure and pre-defined steps. For instance, issues occurring in the industrial plants and manufacturing processes can be cleared using pre-defined steps and flowchart diagrams. In these situations, the best method is inspecting and testing the processes and subsequently rectifying or isolating the problem (Jarzabkowski and Wilson, 2006). Hence, descriptive models of strategy can be considered suitable for solving manufacturing or industrial issues. According to Grant (2007), a major drawback related to the descriptive strategic models is that they do not function accurately or completely in a complex environment or system. For instance, descriptive models fail to work for issues related to organizations, cultures, political dogmas, universe and internal management. Another drawback of descriptive model is its reliance on the past data and historical analysis. According to Viseras, Baines and Sweeney (2005), while these historical data are used in developing further tools and models and even in predications, the accuracy and relevancy of this model of strategy is doubtful. The business and market environment is constantly changing and the trends and patterns followed by groups and individuals previously are no longer the same (Rumelt, 1991). Hence, the descriptive model fails to analyze the complex modern environment and act accordingly. An appropriate solution to the above drawbacks is that of using the prescriptive model of strategy in business. A prescriptive strategy takes multiple factors into consideration so that the issues are resolved, keeping in view multiple criteria as well as positive conflicting objectives. Consequently, prescriptive models of strategy realize any issue from the scratch. According to Grobman (2005), prescriptive models emphasizes on evaluating the root cause of problem, rather than undertaking pre-defined procedures and methodologies. Prescriptive models of strategy are based on the fact that complete analysis of issues or problems occurring in an organization can help in identifying applicable and potential factors and resolving the same. The strategies chosen according to this model of strategy are realistic, as opposed to descriptive that are based on pre-defined steps (Gisling, Lemmens and Duysters, 2007). In a prescriptive model based strategy, the most appropriate decision is not based on ranks or importance, but on the unique situation and characteristic of a problem faced by the management or organization (Zeb and Baloch, 2011). Critical Evaluation of Benefits After years of undertaking research and exhaustive surveys, both researchers and marketers have agreed that the prescriptive models used in strategy are more effective and beneficial compared to the descriptive strategies. According to Short, et al. (2007), prescriptive models are helpful owing to critical insights that are generated while resolving corporate and business issues. For instance, a unique way to solve an issue is by way of identifying structures that form the reasons behind resistance among individuals. The resistance creates a sense among the management that the issue is difficult, while it might be easy in reality. Prescriptive models also work based on intuition and leverage the knowledge and experience for formulating solutions to complex issues (Zeb and Baloch, 2011). While a descriptive model makes decisions based on previous experiences and tried and tested concepts, prescriptive models of strategies analyze all options and decision made in the past. According to Zeb and Baloch (2011), a benefit of prescriptive model is that it does not regard any failed attempt or strategy as obsolete. Rather, every failed opportunity or setback is seen as a missed opportunity or attempt, which can be rectified and further enhanced for generating successful solutions. Prescriptive models are known to provide solutions beyond normal future prediction and outcomes. Predictive models of strategies also prove beneficial by suggesting actions from previous predications as well as evaluating the implications of every decision option (Barney, 2002). Prescriptive models also anticipate underlying reasons for the possible occurrences and futuristic suggestions. Additionally, prescriptive model of strategy are also known to present various decision options, such as, considering advantage of future opportunities or mitigating future risks. In practical aspects, predictive models are known to automatically and continuously process data, which in turn improves overall accuracy of the decision options. For example, predictive models have been extremely helpful during strategic planning of the healthcare sectors (Manaf, 2006). In this context, the leverage usage and optional data is combined for multitudes of external environmental factors, including population, economic data, health trends and demographic trends, thereby creating a more accurate and precise financial and market plan for investing in future projects. These future projects can be establishment of new facilities, utilization of new and advanced technology equipments as well as opportunities of mergers and acquisitions (Zeb and Baloch, 2011). Reference List Barney, J. B., 1991. Firm resources and sustained competitive advantage. Journal of Management, 18, pp. 99–120. Barney, J. B., 2002. Gaining and sustaining competitive advantage (2nd ed.). Upper Saddle River, NJ: Prentice Hall. Evans, J.R. and Linsday, W.M., 2011. Managing for Quality and Performance Excellence. New York: Cengage Learning. Gisling, V.A., Lemmens, C.E.A. and Duysters, G., 2007. Strategic alliance networks and innovation: A deterministic and voluntaristic view combined. Techonology Analysis & Strategic Management, 19(2): pp. 227-249. Grant, R. M., 2007. Contemporary strategy analysis (6th ed.). Malden, MA: Blackwell. Grobman, G.M., 2005. Complexity theory, a new way to look at organizational change. Public Administration Quarterly, 29(3), pp. 350-382. Handy, C., 2002. What’s a business for? Harvard Business Review, 80(12), pp. 49-55. Jarzabkowski, P. and Wilson, D.C. 2006. Actionable strategy knowledge: a practice perspective. European Management Journal, 24(5), pp. 348-367. Manaf, N.H.A., 2006. The effect of Organizational Structure on Quality Management in Public Hospitals in a Developing Nation: A Comparative Study between District, State and National Level Hospitals in Malaysia. Asian Journal on Quality, 7(1), pp. 161 – 176. Pickett, L., 2005. Optimizing human capital: Measuring what really matters. Industrial and Commercial Training, 37(6), pp. 299 – 303. Richardson, B. and Thompson, J., 1995. Strategy evaluation in powerful environments: a multi-competence approach. Leadership & Organization Development Journal, 16(4), pp. 17 – 25. Rumelt, R. P., 1991. How much does industry matters? Strategic Management Journal, 12, pp. 167–185. Rumelt, R., 2011. Good Strategy Bad Strategy. London: Profile Books. Schaap, J.I., 2006. Toward Strategy Implementation Success: An Empirical Study of the Role of Senior-Level Leaders in the Nevada Gaming Industry. UNLV Gaming Research & Review Journal, 10, pp. 13-37. Short, J. C., Ketchen, D. J., Palmer, T. B., and Hult, G. T. M., 2007. Firm, strategic group, and industry influences on performance. Strategic Management Journal, 28, pp. 147–167. Viseras, E.M., Baines, T., and Sweeney, M., 2005. Key success factors when implementing strategic manufacturing initiatives. International Journal of Operations & Production Management, 25, pp. 151-179. Zairi, M. and Whymark, J., 2000. The transfer of best practices: how to build a culture of benchmarking and continuous learning – part 2. Benchmarking: An International Journal, 7(2), pp. 146 – 167. Zeb, A. and Baloch, Q.B., 2011. Good Strategy Bad Strategy: The Difference and Why it Matters Book Review. Abasyn Journal of Social Sciences, 6(2), pp. 117-128. Read More