Leadership

Leadership, Strategy and the Elephant in the Room

Good leaders develop great strategy.  But what is great strategy?  The Skinny Professor just sent me a wonderful article “Bad Strategy” from McKinsey Quarterly (free membership) that explains the ways that strategy can go wrong.

One of the four factors in bad strategy, according to Richard Rumelt, is failure to face a problem. We’ve all been there.  The elephant in the room, that everyone knows about, but no one is willing to address, because the solutions are just too painful.

I once worked for a food manufacturer that was in deep financial distress. The problem was two-fold.  Both plants were producing significantly under capacity and to add insult to injury, the union contracts were too rich and too inflexible to make any money.  Each plant produced very different products which required different skills and equipment. The only solution was to rationalize production into a single plant.  The solution we pursued?  Try to increase sales in a highly price competitive market.

Of course it didn’t work.  So, instead, we bought a competitor. As you can imagine, this merely meant we had production spread across three plants instead of two.  While our economics were better in the plant we bought, it still didn’t solve the underlying over capacity in our system.

In our case, ignoring the obvious problem was driven by the desire to build a business, to fix the problem in what was perceived as a positive way (adding sales) instead of a negative way (closing a plant).  But the bottom line was that we were not willing to make the tough call.

I’ve noticed this behaviour with my students as well. I teach a case about a business failure in which the lead characters are in deep business trouble.  The students have to decide what to do next.  Almost universally, the students want to fix the problem by offering new products, services or increasing sales in some way.  Not one of them ever suggests that it is time to close the business.

Great leadership is about facing the problems that challenge our closely held beliefs face on, no matter how hard it is.

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