Strategy starts with identifying changes

Pay attention to this , professor of strategy at UCLA’s Anderson School of Management:

The Quarterly: Last year the Quarterly’s survey on strategic planning found an enormous amount of dissatisfaction among executives. Many of them feel that they are wasting a lot of time on strategic planning. What advice would you give them?

Richard Rumelt: Most corporate strategic plans have little to do with strategy. They are simply three-year or five-year rolling resource budgets and some sort of market share projection. Calling this strategic planning creates false expectations that the exercise will somehow produce a coherent strategy.

Look, plans are essential management tools. Take, for example, a rapidly growing retail chain, which needs a plan to guide property acquisition, construction, training, et cetera. This plan coordinates the deployment of resources—but it’s not strategy. These resource budgets simply cannot deliver what senior managers want: a pathway to substantially higher performance.

There are only two ways to get that. One, you can invent your way to success. Unfortunately, you can’t count on that. The second path is to exploit some change in your environment—in technology, consumer tastes, laws, resource prices, or competitive behavior—and ride that change with quickness and skill. This second path is how most successful companies make it. Changes, however, don’t come along in nice annual packages, so the need for strategy work is episodic, not necessarily annual.

Now, lots of people think the solution to the strategic-planning problem is to inject more strategy into the annual process. But I disagree. I think the annual rolling resource budget should be separate from strategy work. So my basic recommendation is to do two things: avoid the label “strategic plan”—call those budgets “long-term resource plans”—and start a separate, nonannual, opportunity-driven process for strategy work.

The Quarterly: So strategy starts with identifying changes?

Richard Rumelt: Right.

Traditional Strategic planning is dead. The purpose of crafting strategy is not to create a detailed plan for where the company is headed 5-10 years into the future: in today’s fast moving environment, it is impossible to predict that far into the future. The objective of strategy work should be focused around learning by shaping strategy moment by moment, day by day as companies learn from their customers and their competitive environment.

What’s needed is real-time vision, where the strategy cycle starts when someone sees something that others haven’t noticed and quickly translates that insight into action. See how Prof. Rumelt describes what Steve Jobs does:

The Quarterly: So how does a company take a good position?

Richard Rumelt: Well, one big factor is a predatory posture focused on going after changes.

in 1998 I had the chance to talk with Steve Jobs after he’d come back and turned Apple around. I was there to help Telecom Italia try to do a deal with Apple, but after that business was completed I couldn’t help asking a question. “Steve,” I said, “this turnaround at Apple has been impressive. But everything we know about the personal-computer business says that Apple will always have a small niche position. The network externalities are just too strong to upset the de facto “Wintel”3 standard. So what are you trying to do? What’s the longer-term strategy?”

He didn’t agree or disagree with my assessment of the market. He just smiled and said, “I am going to wait for the next big thing.”

Jobs didn’t give me a doorknob-polishing answer. He didn’t say, “We’re cutting costs and we’re making alliances.” He was waiting until the right moment for that predatory leap, which for him was Pixar and then, in an even bigger way, the iPod. That very predatory approach of leaping through the window of opportunity and staying focused on those big wins—not on maintenance activities—is what distinguishes a real entrepreneurial strategy.

This sounds a lot like OODA (Observe, Orient, Decide, Act) as the faster you can learn and accumulate new knowledge from your customers and your environment, make sense of that new knowledge, extract insights and then put them into action you’ll be better positioned to outpace competitors.

I left a great portion of the interview out as I just wanted to draw attention to the fact that when we think about strategy, learning as fast as the world is changing is more important than trying to predict it. I encourage you to , it’s from 2007 but very much relevant.

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