Good strategy or bad?

36307538-3ngbIWhy is strategy such a difficult and misunderstood term? One explanation is given by Richard Rumelt in his book Good Strategy / Bad Strategy published in 2011. As engineers we are usually very action oriented. There is less concern that actions are aligned, that they support one common approach and that they target the now most critical challenge to address. This needs to be inverted. First make an analyses find out and prioritize the now most critical challenge or problem. After that decide what the approach should be to meet the challenge and then think about what actions you need to do to meet the one challenge in focus. As Richard Rumelt puts it: “strategy is essentially problem solving” and “you can’t solve a problem that you have not identified”. May sound simple but this is for some reason quite hard to do. It takes guts to focus on one challenge, but it you do things can move forward faster and more efficiently.

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8 responses to “Good strategy or bad?

  1. What Richard Rumelt talks in his book “Good Strategy Bad Strategy” is that the core content of the concept of strategy is the so called “kernel of a strategy”. For a good strategy it is necessary that based on the “kernel” there is a diagnosis of the current situation, further a creation and identification of a guiding policy for dealing with difficulties a company may face and at last a set of coherent actions to realize the guiding-policy.

    Based on this knowledge lets have look onto KUKA’s strategy. KUKA considers itself as a global leader in industrial robots and automated production solutions mainly operating in the automotive industry. But its current strategy is to diversify the business operations in new markets such as e-commerce, consumer goods or electronics, those sector are characterised by high growth rates and huge earnings potential.

    Diagnosis – what’s going on and where are we right now: high growth rates and huge earning potential in these just mentioned markets. These market look for partners providing them automated solutions. Being aware of the problem that KUKA mainly operated in the automotive industry so far (they want to expand now)

    Guiding Policy: Make use out of the huge amount of know how and skills from automation and industry 4.0 coming from the automotive industry.
    Use and transfer knowledge from one market into the other one and don’t reinvent the wheel.

    Coherent actions: Using especially the newest technology like KUKA’s LBR iiwa and transform it to an multitasking robot suitable for all kind of industries, especially in the just mentioned industries.

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  2. According to Rumelt a common mistake amongst corporations and management is to do financial planning and interpret it as strategy work, leaving out the core elements of what a strategy is, -problem solving. To be able to do this kind of strategy formulation it is key to understand the nature of the problem you are about to solve as well as have a clear picture of the business environment. More in detail Rumelt suggests the Kernel framework to formulate a base for a good strategy which includes three main steps, – a diagnosis, a guiding policty and a coehrent set of actions.
    If we were to adapt the kernel framework on to Wrapp, we could define their ”diagnosis” as the issue to diffuse their service to both corporations and individuals since they as a SAS-company relies on agreements with banks and card holders to be able to provide value to both individuals and the stores/corporations.
    To follow the Kernel framework, the guiding policy could be defined by the idea to keep developing new agreements with banks to be able to get a more widespread base of end-users providing more data to stores/corporations which eventually will create a loop, where banks/credit card-companies will retain or gain even more value by a long term relationship with wrapp.
    A coherent set of actions to follow these two earlier steps could be to further develop the existing relationships with banks/customers and to put a heavy stress on actions to create new customer relations, such as marketing and taking on new business agreements to create more value to their product/service.

    These three pillars of the framework are there to keep the strategy simple and coherent, which in general requires a lot of knowledge about the core business and environment as stated in the first section. This tool/framework could therefore be very useful for a start up phase or business venture to see whether one has enough understand/information or not to be able to continue with the execution succesfully…

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  3. I have chosen to analyse the strategy of Rovio Entertainment, the company behind the mobile app game, Angry Birds. The core strategy of the company is to create entertainment in short rapid segments by intuitive, simple, mobile app games.

    The strategy, most likely, originated by identifying the need midcore individuals have for short 5 min ”vacations”, away from the mundane daily life. For instance, waiting on the bus, taking a smoke or going to the bathroom. By subjecting user to intuitive and fairly simple products, made more accessible by smart phones, Rovio where able to provide customers with these ”vacations”.

    Since Angry Birds where a great success for the company, resources have been focused on expanding the Angry Birds brand to other areas such as movies, merchandise and tv-shows.
    This is a deviation from the original core strategy of the company. However, it is clear that Rovio wants to capitalise on the success of Angry Birds, using a strong brand name to venture into new untested areas. Evidence suggest that this new strategy is working, the Angry Birds movie where number one at the box office in over 50 countries and merchandise sales are strong. However, I would be cautious not do deviate to much from the core strategy. Change is a good thing and it is natural to reshape and change strategies over time but it should be a natural part of the growth and values of the company.

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  4. In Richard Rumelts book “Good strategy/ Bad strategy” he describes “the kernel framework” as something that can be used to create the base for a good strategy. He mentions that good strategy is not something common and that many organisations that think they have a strategy most often just have a set of performance goals or vague aspirations. Financial planning is not strategy, simply put, strategy is essentially problem solving. For problem solving the nature of the challenge must first be defined, you can’t solve a problem that you haven’t identified. Then you grab that problem and try to solve it.

    Rumelts kernel of strategy contains three elements
    1. A diagnosis (the problem is defined and the nature of the challenge is explained)
    2. Guiding-policy (a plan for dealing with the challenge)
    3. A set of coherent actions (designed to carry out the guiding-policy)

    I have choosen to analyse the strategy of the Swedish online-grocery store MatHem.se. They offer home delivery of groceries that you shop in their online site. I think the strategy originates from their diagnosis of this market that most likely led them to the conclusion that people think grocery shopping in a store is a time- and energy-consuming task that could be made more efficient. For their guiding policy I think that they had good timing for entering the market, the market was ready for this kind of change and the support system (internet-use, transportation etc) was there. MatHem.se have chosen to focus on quality in every aspect with high quality products, well-functioning customer service and a large product range. This have created the base from where their coherent actions originate. In the future MatHem.se will need to sustain even larger competition on the online-market which will lead them to a situation where they once again need to define the problem and come up with a strategy that tackles the problem with an increasing competition. Most likely this will lead to a strategy involving some kind of differentiation and more efforts to obtain loyal customers.

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  5. Due to climate change many companies today involve sustainability in their corporate strategies. One of such companies is Volvo Cars where they have implemented a sustainability program called “Omtanke” [1]. In this program Volvo Cars has several targets to minimize their environmental impact such as selling one million electrified vehicles 2025 and to have climate neutral manufacturing operations the same year. In the linked video Stuart Templar, the director of sustainability at Volvo, interestingly says that Volvo Cars recognize this as central to their corporate strategy and key to future success. He says that it is not only a sensible thing to do but also makes commercial sense.

    Connecting to Richard Rumelt’s strategy kernel framework the diagnosis in this case is the increased awareness of climate change in society and consequently also potential customers. For me this makes sense and obviously it’s not only Volvo putting more effort into sustainability but many of their competition as well. Tesla is one example of a company driving this trend among car manufacturers. The guiding policy of Rumelts framework in this case I guess you could say is the targets Volvo Cars have set up to improve their sustainability. In order to achieve this they obviously have to relocate resources e.g. more engineers focusing on electric vehicles etc.

    Needless to say this is only one of Volvo Cars strategies but I thought it was interesting since it’s very up-to-date and a lot is happening in this area at the moment. We don’t know for certain what type of vehicles that will dominate in the future. Today however it looks like electric vehicles will have a bigger part in the future perhaps on the cost of combustion driven vehicles.

    [1] https://www.youtube.com/watch?v=ruS48tmqhA8

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  6. Energeia Asset Management (EAM) is a norwegian solar utility company whose strategy is to run and operate solar powerplants in the most efficient way possible and to receive feed-in-tariffs (FITs) from the government in which they operate. What I admire with this strategy is how EAM can improve the society by providing sustainable power and succesively getting paid by governments to do so. The aligment between EAM and the growing global interest of sustainable electricity generation attracts investors due to the sustainability factor and of course the 20-year revenue contract that are initiated with the policymakers. One important aspect of the strategy is the timing and of which state the industry is at right now. While investment costs are still falling and demand is increasing more than ever, there couldn’t be a better time to make money on the solar industry. The 20 largest investors count for almost 95% of the stockholdings which underscores the attractiveness of green businesses with long term contracts. Rumelt argues that one of the most common mistakes made in businesses is the lack of understanding of the real issues at hand. The Kernel framework that Rumelt suggests includes three steps. First the diagnosis, secondly the guiding policy and lastly a coherent set of actions. I believe however that EAM has gone to great lengths in order to develop a strong kernel strategy (explained above). However, their diagnosis could be seen as the dependency on the relationships with banks and policymakers as they need to have one leg in each pond. Their guiding policy could be defined by their unique know-how in tandem with their cooperation with financial institutions. The coherent set of actions could include their work processes such as due diligence and constant managing of current assets and contacts.

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  7. Extra assignment from the seminar on 5th of May.
    I’m going to analyze the strategy of Securitas, which is a security firm based in Sweden and dominates the Swedish market, but is also present in several other markets across the globe. I chose Securitas because I work there during the summer breaks.
    The strategy of Securitas
    Securitas is a knowledge leader in security. Our core business is integrated security solutions. The main service offering categories are specialized guarding, mobile security services, monitoring, technical solutions and consulting and investigation services. From a broad range of services, we customize offerings that are suited to the individual customer’s needs, in order to deliver the most effective security solutions.
    Securitas strategy as related to the kernel framework
    Diagnosis
    Securitas clearly lacks a statement regarding the outside world in its strategy. There are a lot of statements regarding what the company has to offer but little in way of describing how the outside world affects the company or how the market is challenging Securitas. Securitas is currently enjoying significant profits, while simultaneously dropping market shares in Sweden (mainly due to new competitors and a decline in the market for security guards). Maybe, Securitas lack of a clear diagnosis has led them to focus on the wrong things but the company is still efficient so the revenue stream for now is still sufficient for decent profits.
    Guiding policy
    Just as Securitas lacks a clear diagnosis it also lacks a guiding policy to tackle what the market is demanding of it.
    Coherent set of actions
    Here is where the company salvages its strategy somewhat. In their strategy statement there are several clear-cut actions on how the company should operate. The obvious problem is of course is that without the foundations from a diagnosis and guiding policy, there is not really any foundation from which to evaluate whether these actions are good or bad.
    Summary
    Securitas vision lacks some fundamentals in their strategy, such as a diagnosis of what the market is demanding and a guiding policy for these challenges. A forgiving aspect is that the strategy lacks what Rumelt calls “fluff” and they have a clear set of actions.

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  8. Sdiptech AB is a company with a core focus on deeply niched products and services within the space of urban infrastructure. Market segments historically defined by high barriers of entry, well protected margins and an inherent complexity to both problems and solutions have proven to provide stable cash flows and predictable operations, enabling Sdiptech to pursue a buy-and-build expansion plan. The strategy, however, is now a core part going forward. Signaling external financial targets raises the pressure of growth and Sdiptech has started more actively to pursue acquisitions internationally. This is examplified by purchases of one Croatian and two Austrian companies that clearly complements the current portfolio of competences. 

The problem, therefore, given Rumelt’s framework of three parts, is that Sdiptech needs to expand internationally. The swedish market for companies is large and sufficient for the time being, but given the current trajectory it is reasonable to believe they are actively pursuing international expansion. The challenge is to replicate the current growth path in new geographical markets.

The guiding policy, the second part of the ”strategy kernel framework”, has been adressed by identifying urban infrastructure as a core focus of the company, actively ”reigning in” the possible acquisition candidates through a coherent communicated focus. The guiding policy is thus to focus on companies that enjoys the same types of barriers/benefits currently exploited, but in new markets. In essence; replicate and reproduce.

The set of coherent actions then, the third and last point in Rumelt’s strategic description, is to actively and with some sort of formal regiment, identify, screen, and approach companies on the international scene. The companies bought in croatia and Austria, both active in the elevator segment (one of the historical core niches of Sdiptech) is evidence that this coherency exists and is actively pursued. 

In lieu of Rumelt’s framework, I would argue that Sdiptech has a sound and well managed strategy. They identify their current challenges and are transparent in their ”problems” in order to clearly communicate the way in which they solve them.

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