Excerpt from Good Strategy/Bad Strategy by Richard Rumelt. Pages 45-50.

MISTAKING GOALS FOR STRATEGY

Chad Logan, the CEO of a graphics arts company, introduced himself to me after hearing a talk I gave on self-control and commitment. He asked me to work with his management team on “strategic thinking.’

With offices in a downtown commercial building, Logan’s company provided custom graphics services to magazines, book publishers, advertisers, and corporations. Logan was a college sports hero turned graphics artist who had moved into sales. He was also the nephew of the founder; when the founder died two years before, Logan became the company’s principle owner.

The edge-of-town offices and work spaces were utilitarian; the CEO’s conference room was paneled in teak. Brightly lighted examples of the company’s work hung on the walls and reflected from the surface of the polished conference table.

The business was organized into a large design group and three sales departments: Media sold to magazines and newspapers, Corporate sold to corporations for catalogs and brochures, and Digital sold mainly to Web-based customers.

Logan explained that his overall goal was simple – he called it the “20/20” plan. Revenues were to grow at 20 percent per year and the profit margin was to be 20 percent or higher. “Our overall strategy is set,” he said. “We are going to grow, and grow profitably. My problem is getting everyone aligned for this push. What I need is some coaching for my top people. I want them to be totally up to speed on strategic thinking. want skills they can use tomorrow in a meeting with a client.”

I asked Logan if he had worked out any elements of his strategy other than the growth and margin goals. a He slid a document across the tabletop. It was titled “2005 Strategic Plan.” Mostly, it was a set of projections: revenues, costs, gross profit, and so on. The projections went out four years. In the previous four or five years, the company had held its market share and its after-tax profit margin had been about 12 percent, which is typical for this industry. The projections were based on a 20 percent profit margin and 20 percent per year revenue growth. The first page of the document was labeled “Our Key Strategies:”

OUR KEY STRATEGIES

“We spent about three weeks, going around to everyone, to develop these key strategies,” said Logan. “I believe in them. I believe that we can have a company that we are each proud to be part of and that is worth the effort it takes to win. There is very good buy-in on these key strategies.”

“This 20/20 plan is a very aggressive financial goal,’ I said. “What has to happen for it to be realized?”

Logan tapped the plan with a blunt forefinger. “The thing I learned as a football player is that winning requires strength and skill, but more than anything it requires the will to win – the drive to succeed. The managers and staff in this company have worked hard, and the transition to digital technologies was handled well. But there is a difference between working hard and having your eye on the prize and the will to win. Sure, 20/20 is a stretch, but the secret of success is setting your sights high. We are going to get moving and keep pushing until we get there.”

When I asked Logan “What has to happen?” I was looking for some point of leverage, some reason to believe this fairly quiet company could explode with growth and profit. A strategy is like a lever that magnifies force. Yes, you might be able to drag a giant block of rock across the ground with muscles, ropes, and motivation. But it is wiser to build levers and wheels and then move the rock. I tried again: “Chad, when a company makes the kind of jump in performance your plan envisions, there is usually a key strength you are building on or a change in the industry that opens up new opportunities. Can you clarify what the point of leverage might be here, in your company?”

Logan frowned and pressed his lips together, expressing frustration that I didn’t understand his meaning. He pulled a sheet of paper out of his briefcase and ran a finger under the highlighted text. “This is what Jack Welch says,” he told me. The text read: “We have found that by reaching for what appears to be the impossible, we often actually do the impossible.”

“That’s what we are going to do here,” said Logan.

I didn’t think that Logan’s concept of his 20/20 goal was a useful way to proceed. Strategic objectives should address a specific process or accomplishment, such as halving the time it takes to respond to a customer, or getting work from several Fortune 500 corporations. However, arguing with him at that juncture wouldn’t have been productive. A client has to first agree to engage in a dialogue before a tough back-and-forth can be productive. “All right,” I said. “I see where you are coming from. Give me some time to look over these numbers.”

In truth, I didn’t really need to study the numbers. What I needed was some time to think about my own approach to helping Logan. Although he was well-intentioned, his plan, to me, was all results and no action. In his own mind, he believed in courage, boldness, motivation, and push.”

I met with Chad Logan a few days after our first get-together. I told him that I would explain my point of view and then let him decide whether he wanted to work with me on strategy. I said:

I think you have a lot of ambition, but you don’t have a strategy. I don’t think it would be useful, right now, to work with your managers on strategies for meeting the 20/20 goal.

What I would advise is that you first work to discover the very most promising opportunities for the business. Those opportunities may be internal, fixing bottlenecks and constraints in the way people work, or external. To do this, you should probably pull together a small team of people and take a month to do a review of who your buyers are, who you compete with, and what opportunities exist. It’s normally a good idea to look very closely at what is changing in your business, where you might get a jump on the competition. You should open things up so there are as many useful bits of information on the table as possible. If you want, I can help you structure some of this process and, maybe, help you ask some of the right questions. The end result will be a strategy that is aimed at channeling energy into what seem to be one or two of the most attractive opportunities, where it looks like you can make major inroads or breakthroughs.

I can’t tell you in advance how large such opportunities are, or where they may be. I can’t tell you in advance how fast revenues will grow. Perhaps you will want to add new services, or cut back on doing certain things that don’t make a profit. Perhaps you will find it more promising to focus on grabbing the graphics work that currently goes in-house, rather than to competitors. But, in the end, you should have a very short list of the most important things for the company to do. Then you will have a basis for moving forward. That is what I would do if I were in your shoes.

If you continue down the road you are on you will be counting on motivation to move the company forward. I cannot honestly recommend that as a way forward because business competition is not just a battle of strength and wills; it is also a competition over insights and competencies. My judgment is that motivation, by itself, will not give this company enough of an edge to achieve your goals.

Chad Logan thanked me and, a week later, retained someone else to help him. The new consultant took Logan and his department managers through an exercise he called “Visioning.” The gist of it was the question “How big do you think this company can be?” In the morning they stretched their aspirations from “bigger” to “very much bigger.” Then, in the afternoon, the facilitator challenged them to an even grander vision: “Think twice as big as that,” he pressed. Logan was pleased. I was pleased to be elsewhere engaged.