What is a business strategy, and what is just a list of goals?

A business strategy is a short argument in three parts: the main obstacle, named; a chosen way around it, including what you deliberately don’t do; and a few actions that support each other. A sales target tells you what result you want, and a list of initiatives tells you what to work on. Neither tells you what is blocking you and how you will get around it.

Four hallmarks of bad strategy

In Good Strategy Bad Strategy, Richard Rumelt lists four hallmarks of bad strategy: inflated words posing as deep thought, no named problem, confusing goals with strategy, and intermediate goals that miss the heart of the matter or cannot be carried out. Without a named problem, you can’t judge a plan or improve it.

You can see this in his conversation with the CEO of a company whose entire plan was called “20/20”: twenty percent growth a year and a margin of at least twenty percent. Rumelt asked what had to happen to get there. He heard about the will to win. A few days later, he told the CEO that he had plenty of ambition but no strategy, because the plan described only results, with no actions.

The second common form is a long list of tasks after an all-day planning meeting, labeled “strategies” or “goals.” In Rumelt’s view, that is a to-do list. It comes from avoiding choice: strategy requires focus, and focus means setting some goals aside. Lafley and Martin call this the “do-it-all” trap: everything is a priority and nobody crosses anything off.

Three parts without which there is no strategy

Rumelt calls the core of a strategy its kernel. It has three elements:

• a diagnosis, which simplifies the situation and points to what is critical in it; a good diagnosis is about something you can influence;
• a guiding policy, meaning your overall approach to that obstacle; Rumelt compares it to guardrails along a road, which direct and limit traffic but don’t tell you exactly how to drive;
• coherent actions: decisions about people, money and rules that support each other instead of competing for the same resources.

In Playing to Win, A.G. Lafley and Roger L. Martin describe strategy as five linked choices and treat two of them as its heart: where you play (which customers, what products, which channels and regions) and how you win there. On the second question, following Michael Porter, they see two answers: lower costs than the competition, or an offer the customer values clearly more, at similar costs. They advise writing down what the business will not do, too. In a small business, they write, one such cascade of choices is enough, and it fits on one page.

Example: a stone workshop that takes every job

Take a hypothetical stone workshop with twelve people. The owner has a “strategy for next year”: revenue up 20%, a better margin, an online store, moving into stairs and facades, better customer service, a new website. The numbers are fictional. Every point sounds reasonable, but the document has no obstacle and no choice.

With a strategy kernel, the same business could write this:

• diagnosis: we take every job, from headstones to windowsills, so every few days we reset the machines for a different stone and a different thickness, deadlines slip, and small orders take up whole days of our installers’ time;
• policy: we make kitchen and bathroom countertops for customers sent to us by kitchen studios and interior designers; we don’t make headstones, stairs or single windowsills;
• where we play and how we win: kitchen studios and designers within driving range of our installers; we win with deadlines we keep and installation that needs no fixing, at costs close to the competition’s;
• actions: a few types of stone and two thicknesses in stock, which cuts machine changeover time; one person runs the schedule and the contact with the studios; a minimum order value, below which we say no.

The actions interlock: fewer types of stone mean shorter downtime and more reliable deadlines, and the deadlines are watched by the person who talks to the studios. The customer who wants one windowsill loses out. I take that as a good sign, because a choice has been made. The 20% target can stay at the bottom of the page, as the result of these actions.

Before the owner signs off on it, Lafley and Martin suggest a question: what would need to be true for this choice to be a good one? For example: kitchen studios in the area sell enough kitchens with stone countertops, and the installation date matters more to them than price. You test the condition that is hardest to believe first, even if only in a few conversations with kitchen studios.

A one-page test: strategy or list of goals?

Take your current document and answer “yes” or “no” to each question.

1. Does it open with a named obstacle?
2. Is that obstacle about something you can influence?
3. Does it say where you play: which customers, what needs, what channel, what region?
4. Is it clear how you win: with lower costs, or with something the customer pays more for?
5. Are there at least two things you deliberately don’t do?
6. Are there a few actions, each supporting at least one other?
7. After reading it, does an employee know what they will do differently on Monday?
8. Does the numerical target come at the end, as the result of the actions?

My rule: a “no” on question 1 or 5 means a list of goals, even if the rest comes out well. You can give the test to AI along with your document and ask for the sentences that fail it, each one quoted. The choice of direction stays with you.

When it doesn’t work

• the partners disagree on direction: one page won’t paper over that disagreement, so talk it through between you first;
• you have no facts about your customers: the diagnosis will be guesswork, so start with conversations;
• the business has several distinct lines of business: each one needs its own page;
• the page doesn’t prove that customers will pay; only tests of the weakest conditions will show that.

For tomorrow

Print out your current “strategy” and underline every sentence that is a goal or a wish rather than an obstacle, a choice or an action.

Read next: how to make decisions without complete data · an offer the customer won’t compare on price alone · how to find the bottleneck in your business

Business X-ray in 5 minutes

How this text was written: the research, the choice of sources and the final version are mine. AI helped me prepare a draft; I checked every fact, and I am responsible for this text. — Maciej Chmura

Sources

• Richard Rumelt, Good Strategy Bad Strategy: The Difference and Why It Matters, ch. 3 “Bad Strategy”, ch. 4 “Why So Much Bad Strategy?”, ch. 5 “The Kernel of Good Strategy”.
• A.G. Lafley, Roger L. Martin, Playing to Win: How Strategy Really Works, ch. 1 “Strategy Is Choice”, ch. 4 “How to Win”, ch. 8 “Shorten Your Odds”, Conclusion “The Endless Pursuit of Winning”.