Good Strategy Bad Strategy: What is the Kernel of a Strategy (Part II – Diagnosis)

In this post I continue the conversation I started in the last post on the kernel of a ‘good strategy’.  Why?  Because if you are talking about a ‘customer strategy’, a ‘customer experience strategy’, or any other strategy you should know what you are talking about when you talk ‘strategy’.  And because you should know the difference between what passes for strategy (‘bad strategy’) and real strategy (‘good strategy’).

As the following diagram shows the kernel is composed of three strands: Diagnosis; Guiding Policy; and a Set of Coherent Actions.  In this post I want to explore the first strand – Diagnosis – and stress its criticality to generating a ‘good strategy’.

Diagnosis is concerned with the question “What is going on here?”

In my consulting work(as a strategist) a great deal of my time is spent in the following: creating a ‘map of the territory'; and coming up with a diagnosis.   Being an outsider I have to ‘create a map of the territory’ as it is essential to being able to come up with a diagnosis.  So I conduct high level research on the company (history, key players, organisational structure, products, markets, distribution channels, financial performance..), its industry, its competitors etc.

Once I have an adequate (usually high level) ‘map of the territory’ to orient myself I concern myself with the task of Diagnosis.  The diagnosis is always linked to the ‘strategic issue’ that requires a strategy. What might that strategic issue be?  Examples include: Why are we signing up less and less customers through our website?  Why is it that so many customers are leaving us and going to our competitors?  Why is it that our sales folks are so much less effective in selling to our business customers?  Or why is it that there is crisis around the Euro?

Lets make this discussion real through a personal example.  During August holidays my young daughter told us (her parents) that her left wrist was hurting.  It continued to hurt for several days and we could not figure out why it was hurting.  So my wife took her to a doctor.  The doctor asked various questions: when did it start; what were you doing, where does it hurt, what kinds of actions cause it to hurt…. And then he examined her arm: pressing here, pressing there, and observing her reactions.  At the end of this his answer to the question “What is going on here?” was that my daughter was most likely to have as a small fracture in her wrist.  This was later confirmed by the x-rays.

Diagnosis: insight, genuine insight, is of the utmost significance

According to Richard Rumelt in Good Strategy/Bad Strategy:

“An especially insightful diagnosis can transform one’s view of the situation, bringing a radically different perspective to bear.  When a diagnosis classifies the situation as a certain type, it opens access to knowledge about how analogous situations were handled in the past…”

What does an insightful diagnosis look like?  Allow me to share a personal example, again.  My eldest was being disruptive and obnoxious at home but only at home. So I was grappling with the question “What is going on here?”.  I came up with various answers: he eats too much junk food and that is affecting his mood/behaviour; he is bored; we are not being strong/consistent enough in enforcing discipline ……  When I discussed this with my wife she replied: “What is missing is a relationship between you and him!”  It immediately struck me that this was a game changing diagnosis: it opened up avenues that had simply not been present.  And it struck me that it was an accurate and insightful diagnosis: most poor/disruptive behaviour is a result of poor relationships. As a result I ended up with a completely different guiding policy and this triggered a radically different set of coherent actions.

Do you want examples of especially insightful diagnosis that transformed a view of the situation at hand?  You will find them (Apple, IBM) towards/at the end of this post.

Diagnosis: what constitutes a good diagnosis?

It is not always possible to come up with an insightful, game changing, diagnosis.  Sometimes we just have to settle for a good diagnosis. What constitutes a good diagnosis?  A good diagnosis according to Rumelt:

  • links facts into a pattern and at a minimum names/classifies the situation into a certain type;
  • replaces the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects and thus enables/encourages more attention to be paid to some issues/feature and less to others;
  • “does more than explain a situation, it also defines a domain of action” that is to say it is actionable, it identifies one or more levers that can be pulled; and
  • is explicit and thus permits an independent person to evaluate the strategy (diagnosis, guiding policy, set of coherent actions).

Diagnosis: both a hypothesis and a decision of utmost significance

The real world is complex there are so many actors/variables that interact and are interdependent.  Put differently, challenges that really matter and which face companies/organisations/governments are ill-structured.  That is to say it is not obvious how to define the problem (the situation at hand) nor is there an obvious/sound list of guiding policies or actions.  And the linkage between actions and outcomes are not clear.  This means any diagnosis and every diagnosis in an ill-structured situation is an educated guess.

It also means the a diagnosis is a decision – a decision of substantial importance. Why?  Because the diagnosis shapes the future: the guiding policy, the set of coherent actions, and the outcomes that result.   As Rumelt says:

“In business, most deep strategic changes are brought about by a change in diagnosis – a change in the definition of a company’s situation.”

Are you wondering what he is talking about and pointing out?  Then I draw your attention to:

  • Steve Jobs who changed the diagnosis and thus did the opposite of what the experts advised – sell Apple, license the software – when he took the helm at the almost bankrupt Apple;
  • Lou Gerstner who changed the diagnosed and how he did the opposite of what experts were advising – break IBM up into seperate/distinct businesses; and
  • Stepen Eloph who has shifted Nokia from independence to being reliant on Microsoft and its operating software for smartphones.

I will continue the conversation in the next post and explore the second element within the kernel of a strategy: the Guiding Policy.

Posted on September 17, 2012, in Customer Strategy, Leadership / Change / Transformation and tagged , , , , , , . Bookmark the permalink. 2 Comments.

  1. Maz, I enjoyed the article, and take the point about diagnosis providing insight, but how do you know when a diagnosis is good or provides genuine insight?

    I guess everybody who has ever come up with a good (or for that matter poor) diagnosis has always thought it provided genuine insight. So they are blind to the point you make.

    James

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  2. Hello James

    Great point.

    Ultimately a diagnosis is at best an educated guess in ill-structured situation (the majority of situations) where there are many variables at play interacting/influencing one another. And where, perhaps, the most important variables are hidden.

    The fact is that we celebrate Gerstner and Jobs because they got it right. If things had not worked out as they have worked out then they would have been lampooned or forgotten.

    In the final analysis, the future is simply not predictable though we are bewitched with the notion that we can predict the future.

    Yet, given that we wish to act, we have to come up with a diagnosis.

    Maz

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