A colleague of mine, Ana Echeverri, recently pointed me to a fantastic article on strategy from McKinsey, The Perils of Bad Strategy (based on the book Good Strategy/Bad Strategy). The theme of the article is that many organizations believe they have a strategy when they do not, which is particularly true in the social game space. The author (Richard Rumelt) refers to this as Bad Strategy, which is more of a consensus of conflicting demands and interests rather than a good use of choice and focus.
What makes bad strategy?
There are four hallmarks of bad strategy:
- Failure to face the challenge. Rumelt points out that a strategy is a response to a challenge, either a way through a difficulty or an approach to overcoming an obstacle. If you have not defined the challenge, you cannot determine if you have a good or bad strategy. A typical strategy may look to increase market share, lower costs, etc. The problem with a strategy like this is that it neglects real business challenges the company faces. For a social games company, a strategy of increasing DAU and lowering user acquisition costs might miss the fact that the company’s technology base is inferior to competitors and thus its games are just not very good. If you fail to identify and analyze your obstacles, you do not have a real strategy; you have a stretch goal or a budget.
- Mistaking goals for strategy. Many companies’ strategy consists of “increase revenue by X percent and margin by Y percent.” This plan often consists of setting very high goals and pushing to get there without a true strategy to reach the goals. Without a strategy, you may just expend tons of resources to reach an arbitrary goal (that you may or may not reach). Instead, it is the leader’s job to create the conditions that will make the deployment of resources effective. I learned this lesson when I first took over FiveOneNine and set a goal of being a top-five game company without initially creating all the necessary conditions for success.
- Bad strategic objectives. Many companies have ineffective strategies because they have ambiguous or incoherent goals. This could include a long list of things to do that is labeled as a strategy. Instead of focusing on what is important for the company’s success, everything that each interest cares about is rolled into a haphazard collection. Another example of a bad strategic objective is a “blue sky” idea that nobody has a clue how to achieve. What you should be doing is funneling resources into a few (or even one) pivotal objective; accomplishing that objective will lead to a cascade of favorable results.
- Fluff. I think this issue is pretty self-explanatory but a hallmark of bad strategy that I have often seen is superficial abstraction that masks an absence of thought (and usually includes many long words). As Rumelt points out, fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise. Remove the fluff, and you may see your mission of becoming “a world-class cloud-based social gaming enterprise using big data” is actually be a social game company (and thus provides no strategic direction).
How to create good strategy
Richard Rumelt also has several suggestions for how to create good strategy; I say you start by creating a blue ocean framework (a strategic development tool I described in a previous post). It is also very useful to understand what is bad strategy and how to create a truly effective plan. Rumelt provides three useful tools to create good strategy:
- Build a diagnosis, an explanation of the nature of the challenge your company faces. A good diagnosis simplifies the complexity of reality by identifying the critical aspects of the current situation.
- Create a guiding policy, an overall approach to cope with or overcome the obstacles identified in the diagnosis.
- Determine the coherent actions or steps that are coordinated with one another to support successfully pursuing the guiding policy.
If you use the above tools within a blue ocean framework, you are on the path to building a successful game company.
2 thoughts on “The importance of good strategy”
Great post Gig!