The ill-structured problem

I am reading Richard Rumelt’s Good Strategy/Bad Strategy. It provides a really useful set of insights on strategic thinking but falls short on “what do I next?” kind of action steps. Well, that is the part where we strategists come in I guess.

Good Strategy Bad Strategy: The Difference and Why It Matters

A good summary of his idea is the McKinsey article “The Perils of Bad Strategy”.

He makes a very good point about maximising profit as a goal in his book.

An economist would tell her that she should take actions that maximise profit, a technically correct but useless piece of advice. In the economics textbook it is simple: choose the rate of output Q that provides the biggest gap between revenue and cost. In the real world, however, “maximise profit” is an ill-structured problem. (emphasis mine)

This is a really good way to think about it. Its a goal, not a strategy and its a bad one. It’s ill-structured. The same can be said about “maximizing shareholder value”. These goals do not help in anyway to understand the challenge or diagnosis as he says, provide a guiding policy nor help in creating a coherent set of actions.


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