Why a winning strategy starts with a challenge, not an opportunity

No-one likes to be a party-pooper, but here we go. Positive thinking does not work.

There are two problems with an optimistic outlook. First, as Harvard Medical School professor Susan David explains, repressing negative feelings might actually amplify them.

Second, positive thinking rewards us prematurely. New York University professor Gabriele Oettinger warns that without confronting the obstacles we face and planning how to overcome them, we won’t make lasting progress. The alternative she proposes is WOOP, combining Wish and Outcome with Obstacle and Plan. This approach has helped people to become healthier, more socially responsible, and improve their academic performance.

The corporate equivalent to positive thinking is the Big Hairy Audacious Goal. It seduces us with lofty terminology, such as “we will be number global number one” or “we will double our sales”. Aspiring but useless!

In his new book, The Crux: How Leaders Become Strategists, Richard Rumelt makes short shrift of such vagueness. He sets out a process that puts the biggest challenge your company faces at the heart of your strategy: finding the crux, seeking an edge, and avoiding distractions.

The key question for leaders is, where can they win? This puts addressability at the centre of any strategy. As Rumelt acknowledges in his book, this stands in contrast to the approach adopted by many executives.

Strategies are not supposed to map out a broad path for the future. The hard part, that makes a real difference, is turning the broad intent into actions that firms can pursue right now. That requires you to break down challenges into smaller chunks.

Let’s assume that a group of people is trying to do this for Intel. The big challenge is that Moore’s Law is coming to an end and Intel can no longer enjoy the high margins it did as long as Windows-Intel was the de-facto standard for personal computers.

A discussion of this issue is likely to produce a decent list of tough challenges including the rise of AMD, manufacturing problems, a weak position in the mobile market, the continuous struggle to catch up in AI where Nvidia has done well, and the cultural adjustment to move beyond the era of guaranteed dominance.

After a spirited discussion about these challenges, the next step is scoring each of them on a scale of 1-10 to determine how critical a particular challenge is for Intel and whether the company will be able to address the issue in over the next three to four years.

When Rumelt ran through this exercise with a group of five executives in early 2020 the manufacturing issue scored highly on both dimensions. The firm has not been able to solve this issue yet, trying to received subsidies from the US government to produce chips in America.

Identifying the crux is an important first step. Yet, without surmounting it the only satisfaction lies in understanding your organization’s demise. Here asymmetries come into play. What distinguishes you from your competitor? Or put differently, which asymmetries are you able to exploit?

The first asymmetry you could exploit is information. Think of a real estate agent who is well connected to everyone in his community and finds out who wants to sell or buy way before any of his out-of-town competitors.

The second is know-how. Google’s algorithms, combined with its engineers skills in handling big data from maps gives it an edge when it comes to mobility solutions.

Third is a position others cannot occupy. The Nigerian conglomerate Dangote Industries, for example, built strong relationships with successive governments resulting in import duties holding international players at bay.

The fourth source of asymmetry is efficiency, typically based on scale and experience. Tesla has long be haunted by a lack of manufacturing experience. Not too long ago it seemed like the company was simply not able to scale.

Be careful about distractions. The chase of the quarterly earning is an obvious one. Others include the myth that everything needs to flow from a “mission” or confusing management with strategy.

Management is about getting things done, often relying on metrics that help you to determine whether you are meeting your objectives. “A strategy,” Rumelt writes, “is a reasoned argument about the forces at work in a situation and how to deal with them. Don’t let the metrics drown out the thought.”

This excellent new book will turn you into a strategist.

Christian Stadler is Professor of Strategic Management at Warwick Business School, author of Enduring Success, and co-author of Open Strategy. Follow him on Twitter and LinkedIn or visit his website. 

Read the original blog post on his Forbes channel.