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

Ryan Haylett

Here's a sentence that shows up in a lot of business plans: grow revenue 20 percent a year and hit a 20 percent profit margin. Fine. But how? According to UCLA professor Richard Rumelt, that sentence isn't a strategy. It's a wish with a spreadsheet attached.

Dave Rowley

Rumelt tells the story of a graphics company CEO he calls Chad Logan, who called exactly that his 20/20 plan. Rumelt asked what had to happen for it to be realized. Logan tapped the page and talked about the will to win, then pulled out a Jack Welch quote about reaching for the impossible. Rumelt's comparison is a quarterback whose only advice to the team is, let's win.

Ryan Haylett

And that's the part small business owners should sit with, because we all do a version of it. Rumelt's definition is simple. Strategy is how you overcome the obstacles between where you are and where you want to be. A target is an outcome. Strategy is the coordinated action that produces it. If you can't name the obstacle, you're not doing strategy. You're doing a budget, or a stretch goal, or a list of things you hope happen.

Dave Rowley

The example I can't shake is International Harvester in 1979. Their strategic plan projected rising market share and a profit graph that Rumelt describes as an almost perfect hockey stick. What the plan never mentioned was grossly inefficient production facilities and what Rumelt calls the worst labor relations in American industry. Their margin had been about half their competitors' for a long time. Then a disastrous six month strike hit, and the company started to collapse.

Ryan Haylett

So the plan was detailed. It just skipped the one thing that mattered. And Rumelt's point is that when the challenge is never defined, you can't judge the strategy at all. You can't reject a bad one or improve a good one. He also has my favorite example of fluff. A major bank's internal memo said its fundamental strategy was customer centric intermediation. Intermediation means taking deposits and lending them out.

Dave Rowley

So the strategy was being a bank.

Ryan Haylett

Exactly. Strip the buzzwords and nothing's left.

Dave Rowley

Then there's the list problem. Rumelt talked with the mayor of a small Pacific Northwest city whose plan had 47 strategies and 178 action items. Item number 122 was, create a strategic plan. And he makes a point about the word itself. Priority means first. If you have twelve priorities, you've found a way to avoid choosing.

Ryan Haylett

That avoidance has a body count. In 1992, Digital Equipment Corporation had three camps arguing over the company's future: keep building computers, pivot to customer solutions, or bet on chips. Rumelt says you can't do two deep transformations at once. The CEO asked the group for consensus, and what came out was a statement that DEC is committed to providing high quality products and services and being a leader in data processing. That's not a choice. By 1998, Compaq had acquired the company.

Dave Rowley

And a small company has less room for that than DEC did. Rumelt's line is that strategy is scarcity's child. If you can't afford to fight on ten fronts, and you can't, then the real leadership job isn't hyping the team with stretch numbers. It's choosing.

Ryan Haylett

So what does the real thing look like? Rumelt calls it the kernel, and it has three parts. First, a diagnosis, which answers one question: what's going on here? A good diagnosis cuts through the mess and picks out the critical issue. Imagine a home services company that says it has a lead problem. Maybe it does. Or maybe the real issue is that technicians spend 40 percent of their day driving between jobs. Same symptom, a completely different problem, and a completely different strategy.

Dave Rowley

Second is the guiding policy, the overall approach to the obstacle. Rumelt compares it to highway guardrails. It directs and constrains action without spelling out every step. In that same hypothetical, the policy might be to tighten the service area to a 15 mile radius so routes get denser. Now every decision has a filter. Does this job fit the radius or not?

Ryan Haylett

Third is coherent actions, meaning steps that reinforce each other instead of fighting. If sales is bidding custom, one of a kind jobs while operations is trying to standardize the workflow, the company is pulling against itself. That's incoherent, and no amount of motivation fixes it.

Dave Rowley

Rumelt's best illustration is Nvidia in 1995. Their first product failed, a rival called 3Dfx was winning with gamers, and Intel was rumored to be entering. The diagnosis was, we're losing the performance race. The guiding policy was to release a faster, better chip three times faster than the industry norm, every six months instead of every eighteen. Then the actions lined up behind it: three overlapping development teams, heavy investment in simulation, and taking driver development back in house.

Ryan Haylett

Notice what that isn't. It isn't a slogan or a revenue target. So, quick wins for this week. One: write your biggest obstacle in a single sentence, and make it a problem, not a goal. If it reads like a goal, try again. Two: count your priorities. If the number is more than two or three, pick which ones you're willing to set aside, out loud.

Dave Rowley

Three: look at your last ten big decisions and ask whether they pulled in the same direction. Where sales, operations, and hiring are working against each other, you've found the friction worth fixing.

Ryan Haylett

The takeaway is this: a goal says where you want to go, and a strategy says what's in the way and what you're going to do about it. If you want help building a smarter, more resilient business, you can learn more at modularity.us.