Richard P. Rumelt: An interview by Bob Morris

Richard P. Rumelt

Richard P. Rumelt received his doctorate from the Harvard Business School in 1972, having previously earned a Master of Science degree in Electrical Engineering from UC Berkeley. He worked as a systems engineer at the Jet Propulsion Laboratories and served on the faculty of the Harvard Business School. He joined the UCLA faculty in 1976. During 1993-96 he was on long-term leave from UCLA, serving on the faculty at INSEAD, France. At INSEAD, Rumelt headed the Corporate Renewal Initiative, a research-intervention center devoted to the study and practice of corporate transformation. Rumelt was President of the Strategic Management Society in 1995-98. He received the Irwin Prize for his book Strategy, Structure, and Economic Performance. In 1997, he was appointed Telecom Italia Strategy Fellow, a position he held until April 2000. He has won teaching awards at UCLA and received a “best paper prize” in 1997 from the Strategic Management Journal.

Rumelt’s research has centered on corporate diversification strategy and the sources of sustainable advantage to individual business strategies. He occupies the Harry and Elsa Kunin Chair in Business and Society. His published works include Fundamental Issues in Strategy: A Research Agenda co-authored with David Teece and more recently, Good Strategy/Bad Strategy: The Difference and Why It Matters. His current research interests center on corporate strategy and issues of institutional governance. Education: D.B.A. Management, 1972, Harvard University; M.S. Electrical Engineering, 1965, UC Berkeley; and B.S. Electrical Engineering, 1963, UC Berkeley.

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Morris: Before discussing Good Strategy/Bad Strategy, a few general questions. First, to what extent (if any) has your formal training in electrical engineering proven invaluable to your work on strategy.

Rumelt: The gifts of my EE training were many. First there is a capability in mathematics. Second is an appreciation that technical skills are only acquired by drill and practice.  Finally, there is a confidence that I can understand almost all technical issues if I apply myself. That keeps me from shying away from a wide range of problems and settings.

Morris: Most change initiatives either fail or fall far short of original expectations. Why?

Rumelt: Change is difficult and it takes time. It is hard for people to change their own behavior, much less that of others. Change programs normally address attitudes, ideas, and rewards. But the behaviors of people in organizations are also strongly shaped by habits, routines, and social norms. Real change requires new power relationships, new work routines and new habits, not just intent.

Morris: In Leading Change, James O’Toole suggests some of the strongest resistance to change is cultural in nature, the result of what he so aptly characterizes as “the ideology of comfort and the tyranny of custom.” What do you think?

Rumelt: I agree with O’Toole that custom and comfort are impediments to change. However, it is important to recognize that resistance to change is logical as well. The new “change masters” literature seems to take change as the norm. It isn’t. Humans naturally see change as risky because it is risky, just as mutations in genes are mostly destructive. You would not want to go to work were everything changed every week! The phone system, the office assignments, who reports to who, and the whole set of job expectations.

Morris: How best to avoid or overcome such resistance?

Rumelt: You overcome the logical resistance to change by proving that a new approach actually works, usually on a small scale.

Morris: Peter Drucker and Michael Porter have provided many valuable insights. For example, from Drucker: “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.” And now from Porter: “The essence of strategy is choosing what not to do.” What are your own thoughts about all this?

Rumelt: Drucker and Porter are each pointing at vital, though slightly different, aspects of strategy. A good strategy focuses efforts on a target, and that focus can only be achieved by not diffusing energy in other directions—that is the meaning of Porter’s dictum of  “choosing what not to do.” At the same time, a good strategy chooses the right target to focus on, not wasting the focus of energy on a target that cannot be affected or that is unimportant—that is the meaning of Drucker’s distinction between efficiency and effectiveness.

Morris: The percentages vary among recent research studies but they all suggest that, on average, C-level executives spend about 10% of their time discussing strategy on a weekly basis and a substantial majority of employees have no idea what their organization’s strategy is.  How do you explain these rather astonishing statistics?

Rumelt: Many C-level executives use the term to refer to big deals or forward-looking financial goals and plans. Others use it to mean overall “visions” or “missions,” or other corporate slogans. However, a real strategy is a coherent mix of policy and action designed to overcome a significant challenge. So a sensible employee might indeed say that they have no idea what the organization’s strategy is—because it seems to have none. Senior managers’ so-called “strategies” are heavy with aspirations and goals, but light on how resources and strengths will be combined to achieve them.

Morris: In your opinion, who in the given enterprise should be involved in the formulation of its strategy?

Rumelt: Small groups of very senior people. Real strategy is not bottom up because it deals with issues that require unexpected or unusual types action, especially of coordination among units.

Morris: Is it desirable for an organization to pursue more than one strategy at the same time? What do you think?

Rumelt: It depends on the size and complexity of the organization. The US, for example, needs military/defense, economic, and social strategies. A medium-sized business, by contrast, is normally best off focusing its efforts on a single crucial objective.

Morris: What is the single most disruptive misconception about strategy that senior-level executives have?

Rumelt: The single most damaging misconception about strategy is that it is a set of financial performance goals. The so-called “strategies” created by many managements are nothing more than three-to-five year financial performance forecasts. They are then labeled “strategy” and shipped off to the board of directors which goes through the motions of discussing how big the numbers are. Strategy is not your aspirations. Strategy is concerned with how you will arrange your actions and resources to punch through the challenges you face.

Morris: Now please shift your attention to Good Strategy/Bad Strategy. When and why did you decide to write it?

Rumelt: For years I wanted to write a book about strategy. I wanted, especially, to write an honest book about strategy, one that honored the subject’s mystery and difficulty. But it is not that easy to write down what you know. Books on business have become as formula-bound as diet books and their familiar structures and rhythms effortlessly infect the logic and cadences of one’s own writing and thinking. Start to write for managers and fingers begin to tap out stylized chapter titles promising victory and riches: “Strategies of the Winners”  . . . “The Dynamic Path to Profit” . . . “Building a Global Mindset.” Start to write for academics and the structure is the article, not the book, and the academy is interested in what you can prove, or demonstrate, with respect to a currently active scholarly debate: “Resource-Based Competition With Uncertain Resource Extents” . . . . . “Attacking the Endogeneity Problem in Estimates of Size Performance Associations.”  Start to write a textbook for students and one is supposed to produce an even-handed treatment of vast stretches of intellectual terrain that you secretly find boring or believe are fatally wrong-headed: “Evaluating Functional Resources” . . . “SWOT Analysis” . . . “Strategic Incentives and the Balanced Scorecard.”

So some years passed and no book appeared. Then, two things happened. One day in 2006 I began to write a short piece on on strategy as discovery—on the role of insight in strategy. I began with the story of David and Goliath and then wrote about Marshall and Roche’s insight into how to compete with the Soviet Union. I added a section on insights gained during a class discussion of Wal-Mart. I chose not to write from the standard third-person perspective of an all-knowing authority. Rather, I wrote a personal account of how I came to discover certain things and how I have tried to convey them to others. The venue for that article—a volume of invited papers—was cancelled, but I had found a voice, a way to communicate some good part of what I find fascinating about strategy but which is difficult to express within standard forms.

The second breakthrough was working out the concept of “Bad Strategy” for a 2007 conference on national security strategy. That concept gave me a tool for critiquing a broad range of current practice without needing to delve into the technical details of the economics of competition.

Morris: Were there any head-snapping revelations while writing it? Please explain.

Rumelt: One huge revelation was the importance of a good diagnosis. As I worked to explain how to avoid bad strategy, I began to see that one cannot really evaluate or criticize a strategy unless there is a fairly clear statement of the problem the strategy is trying to solve.

Morris: In Part I, you focus on what a good and bad strategy are…and aren’t. For those who have not as yet read the book, what are the defining characteristics of each?

Rumelt: It differs in several ways from many other books on strategy. First, it stresses the importance of insight in developing powerful strategies. People who want a simple set of steps to follow will be disappointed. Second, its concept of strategy is very broad, covering business, non-profit, government, and military situations. It does not define strategy in terms of competitive advantage, growth, or other performance measures, nor does it espouse any one way of analyzing or modeling competitive or other challenges. Instead it defines a strategy as a coordinated design of policy and action and examines a number of the sources of power such designs rely upon. Finally, the book’s arguments and analyses are quite personal and opinionated.

Morris: Is an inappropriate strategy necessarily a “bad” strategy?

Rumelt: A good strategy is not always successful, but even an “inappropriate” strategy may be an actual strategy. A “bad strategy” is one that doesn’t even try to address an important challenge. Instead, it speaks of aspirations, visions of the future, lays out performance goals, or simply lists a bunch of unconnected actions.

Morris: In your opinion, which major corporation best illustrates what a good strategy is and does?

Rumelt: No one company is perfect and all may suffer from change and new competition. Companies with good strategies identify the critical aspects of a situation and focus resources and actions on them. For example, Verizon has led in cellular telephony because it kept its focus on having the best network coverage. Apple has done a great job of exploiting the new mobile technologies and building focused ecosystems around them.

Morris: Please provide two or three examples of a major corporation that has pursued a “bad” strategy and note the inevitable consequences.

Rumelt: At one time Nokia was the leader in mobile phones. A new administration placed a focus on financial performance measures and the consequences have been the company’s obvious loss of position and leadership. Hewlett Packard seems to specialize in grandiose goals that are not backed up by the capabilities or patience to see them through.

Morris: Please explain the process by which a good strategy should be formulated.

Rumelt: That is my next book! A short answer would be unhelpful.

Morris: What is the greatest “natural” advantage of a good strategy?

Rumelt: What I have called the ‘natural advantage’ of good strategy is that it is unusual. Thinkers in competitive strategy have spent a lot of energy on the nature of competitive advantage, but the natural advantage of good strategy is having one—many competitors won’t.

Morris: What is a “proximate objective” and why can it be especially significant?

Rumelt: One of the problems many leaders report is a gap between strategy and execution. Usually this “gap” arises because the so-called “strategy” is a set of financial performance goals, not an approach to overcoming challenges. The two key ways to narrow this gap are to avoid bad strategies that fail to explain how to proceed and to establish a proximate objective—something which can be accomplished and which will open the door to further progress.  The importance lies in having something doable and limited, which can serve as a focus for efforts.

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Richard Rumelt cordially invites you to check out the resources at these websites:

http://www.anderson.ucla.edu/x1700.xml

https://www.mckinseyquarterly.com/Strategys_strategist_An_interview_with_Richard_Rumelt_2039

http://www.amazon.com/Richard-P.-Rumelt/e/B001KIRJP0

 


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