This post is related to and carries on the conversation started in the following posts:
Good Strategy and Bad Strategy: What is the kernel of a strategy? (Part I)
Good Strategy Bad Strategy: What is the Kernel of a Strategy (Part II – Diagnosis)
What is a guiding policy?
Let’s start with what it is not. A guiding policy is not concerned with ambition – the desired outcome, the end state, what you wish to accomplish. Arguably it is easy to create a picture of the kind of customer experience you want your organisation to generate say in 12 months. Figuring out which course of action is most likely to get you there is a very different exercise and requires a different type of thinking. Here is how Rumelt puts it in his book Good Strategy/Bad Strategy:
“The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis. It is “guiding” because it channels action in certain directions without defining exactly what shall be done.…Like the guard rails on a highway, the guiding policy directs and constrains action without fully defining its content.”
I once consulted with a financial services company that had aggressive revenue and profit growth targets. Yet its growth – customer base, revenues, profits – had stagnated after a great start. How to generate that growth? Which guiding policy to pursue? The options on the table included: attracting new customers for existing products; coming up with more products e.g. pension plans; moving into new geographical markets; selling more financial products to existing customer base….
The diagnosis showed that on the whole each existing customer held only one financial product. The guiding policy chosen was that of x-selling the existing portfolio of products to the existing customer base. Why? Because: the company had a sizeable customer base; the customers were satisfied and loyal; and research suggested that many of these customers were not aware of the full range of products that the company offered.
A good policy seeks to create/exploit advantage
This brings me to issue of advantage – how a good guiding policy seeks to create/exploit advantage. This is how Rumelt puts it:
“A good guiding policy tackles the obstacles identified in the diagnosis by creating and drawing upon sources of advantage. Indeed, the heart of the matter in strategy is usually advantage. Just as a lever uses mechanical advantage to multiply force, strategic advantage multiplies the effectiveness of resources and/or actions.”
What guiding policy did Howard Schultz put in place to turnaround Starbucks when growth had stalled and the Starbucks brand had lost its former magic? The first part of his guiding policy, as I understand it, was to stop the bleeding: to close stores that were unprofitable and unlikely to be profitable. The second part of his guiding policy (once the first part had been executed) was to focus on getting back to the kind of customer experience that Starbucks generated and to be the ‘third place’ again.
Why did he go down this route? Because many of the people in Starbucks had noticed how the original passion for coffee, the customer, the customer experience had gone out of Starbucks and were up for, even crying out for, bringing it back into Starbucks so that it could be the soul of the brand once more. Put differently, Schultz exploited the passion of his people for the Starbucks and what it stood; when you are instigating change there is no advantage like tapping into the hearts of the people in your organisation.
A good guiding policy itself can be a source of advantage
How? Let’s take a look at Gerstner and his turnaround of IBM. Gerstner came up with the guiding policy of providing customer solutions instead of selling products. This made great sense because it met customer needs and played to IBM strengths – its breadth and depth of expertise in almost all areas of IT. Yet the policy itself “provide customer solutions” created advantage because it replaced ambiguity/uncertainty with clarity about what to do and how to do it. It was the stimulus that got IBM going on the journey of coordinating and concentrating IBM’s vast resources on a specific challenge “provide customer solutions”.
I want to end this post with the words of Richard Rumelt:
- “A guiding policy creates advantage by anticipating the actions and reactions of others,
- by reducing the complexity and ambiguity in the situation,
- by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, and
- by creating policies and actions that are coherent, each building on the other rather than canceling one another out.”
If you have any interest in strategy then I recommend buying Good Strategy Bad Strategy. Alternatively you might want to watch this speech/presentation:
<3 you guys, but please don't forget to spell check the headlines! It's "kernel" not "kernal".
Of course I saw that and I put a typo in my name LOL