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It was a cool November day in 1966. Secretary of Defense Robert McNamara arrived to give a brief address at the Harvard Business School. He was a “whiz kid” who had taught at the Business School, served in the US Air Force during World War II, been the president of Ford, and been picked by President Kennedy to be the secretary of defense. At that moment, in 1966, McNamara was in the middle of the ramp-up of the war in Vietnam.
I stood with a small crowd just outside the auditorium in Baker Library, listening to his amplified comments. I remember his key argument. It was one he made elsewhere as well. His point was simple: “As a technology, management has rapidly developed in the last thirty years. We now know how to manage anything—the Ford Motor Company, the Catholic Church, or the Department of Defense. You break the overall objective into parts which can be measured. You put someone in charge of each part and measure their progress, holding them accountable for results.”
I have never forgotten the claim that “we now know how to manage anything.” McNamara’s formula was a form of management by objectives. You establish measurable goals and track progress along those dimensions. At the time he spoke in 1966, McNamara was supporting General William Westmoreland in a goal of killing more Vietcong and North Vietnamese than they could replace.
It turned out that the North could and did replace troops faster than the United States could kill them. The dogged pursuit of this goal turned the American public against the war. Writing thirty-years later in 1995, McNamara said: “Looking back, I clearly erred by not forcing—then or later, in either Saigon or Washington—a knock-down, drag-out debate over the loose assumptions, unasked questions, and thin analyses underlying our military strategy in Vietnam. . . . I doubt I will ever fully understand why I did not do so.”
Given the political and value constraints, there was very likely no strategy solution in Vietnam. Managing by measuring progress didn’t work. The “progress” led into a trap—a war of attrition and combat of wills. McNamara’s dilemma in Vietnam is a vivid illustration that management work and strategy work are two different things. A collection of goals or metrics is not a strategy. A strategy is a reasoned argument about the forces at work in a situation and how to deal with them. Don’t let the metrics drown out thought.
Clark Clifford, who replaced McNamara as secretary of defense, wrote this about him: “In reforming the Pentagon, his talents had served him well, but . . . Vietnam was not a management problem, it was a war. . . . [T]his man, who was probably our greatest minister of defense, was not well suited to manage a war—yet this was precisely what was required by the circumstances.”
Robert McNamara was a very skilled manager. But his failure at strategy work put a scar on our society that lives on today.
A few years ago, a phone call was an apt reminder of McNamara’s Harvard speech. The voice on the telephone was an executive at a large financial services company. She was asking if I would be willing to design and teach two sessions on strategy for a new senior-level executive program. When I asked about the purpose of the program, she said, “We have the marketing and finance sections of the program covered. What we want from the strategy sessions is a focus on driving results.” I demurred and suggested someone else for the assignment. “Driving results” is important, but it is not strategy work. McNamara worked hard to drive results in Vietnam, but, as we’ve seen, he did not have a strategy.
Motivating and measuring performance is the vital heartbeat of organizations that “keeps the trains running on time.” You cannot improve most operations without measuring efficiency. To better the customer experience, you need to know what is happening. How long does it take to install our software on a client’s system? Having a concrete goal can be a powerful motivating device. “Get some exercise each day” is vague. “Thirty minutes a day on the treadmill” is concrete and more likely to be followed.
It would be a simpler world if all one had to do to achieve great purpose was to get people to hit their targets. Leaders would just set or negotiate higher and higher targets every year and “drive results” to their achievement. In that simpler world there would be no need for strategy. But “driving results,” as McNamara discovered, is management work, not strategy work.
Strategy work defines the goals and objectives to be sought. Good strategy work begins with recognizing a challenge and in understanding the difficulties in overcoming it. Good strategy work produces policies, actions, goals and objectives.
Management work—accomplishing given objectives—is often called execution. It is a popular trope to argue that execution is much more important than strategy. Rosabeth Moss Kanter wrote, “The game is won on the playing field. When a strategy looks brilliant, it’s because of the quality of execution.” She is not correct. Success is the outcome of both good strategy and good execution. If either fails, things don’t work out. They are both important. The issue is not relative importance, but that they are different. Strategy and management are different kinds of work. “Driving results” in the absence of a clear strategy is putting the cart before the horse.
METHODS OF MANAGEMENT
In 1954 Peter Drucker set out to describe the new world of managers managing other managers. His influential 1954 book, The Practice of Management, tried to systematize the task of managing a modern complex organization having layers of managers. He eschewed the older model of the manager directing work by giving orders. With managers managing other managers, he taught that each manager’s objective had to be set in an informed negotiation, considering the limitations and opportunities of the situation. People, he held, should understand why certain objectives were important. The system became what is now called “management by objectives.”
Drucker’s “management by objectives” soon became systematized as a formal goal-setting process—essentially a negotiation over budgets and goals, together with top-down information about overall purpose. This system of management is now fairly universal. Most modern organizations run to the drumbeat of quantifiable targets.
The current approach to this is called the Balanced Scorecard, a system popularized by Robert Kaplan and David P. Norton. This system divides goals into four categories: financial, customer, internal process and learning innovation. A significant improvement over simple budget goals, the Balanced Scorecard is currently in use in many large firms. Kaplan and Norton explain that “any changes made at the annual strategy-planning meeting get translated into the company’s strategy map and Balanced Scorecard.” This makes it clear that the Balanced Scorecard is a management work tool, designed to manage, implement or help execute a strategy.
DELKHA: The Difference Between Management and Strategy
In 2010 I received a call from Felicia Kha, who wanted help with “tying strategy to the Balanced Scorecard.” Her mother had started their business as a trading company linking Vietnam to Singapore and the United States. By 2010 the company had expanded into supplying many mechanical and electrical components for computers (personal, business, and servers). Its stock traded on the Singapore exchange. DelKha had stayed away from active electronic components like motherboards and instead focused on power supplies, boxes, connectors, wiring harnesses, and cooling components, manufacturing cooling fans that were used for computer cases, CPU cooling, and video-card cooling. Most other components were sourced from a variety of suppliers in Asia.
Felicia Kha had pleasant offices in San Francisco overlooking the bay. On her office wall hung a nicely printed Balanced Scorecard, shown in Figure 14 without the colorful artwork and minus the numerical targets.
Felicia explained that she liked the scorecard idea. The point was to have a balanced set of objectives instead of just a budget. She said, “Our people need to believe that if they do their jobs well, everything will work out.” Her difficulty was declining prices and slowing unit sales.
The larger problem was that was that PCs, in general, were topping out. Laptops were still selling fairly well, but most were built by integrated manufacturers who either made or sourced components directly. And with pads and smartphones booming, the future did not look bright for a PC component trader and maker. Felicia was concerned that the company would not survive the rising crush.
DelKha’s Balanced Scorecard, together with the more detailed operating information and budgets, had kept the company on track. It was a reasonable system of management, but what Felicia needed in 2010 was strategy work, and statements of mission and basic goals were not helpful.
We formed a strategy working group of five and began to meet regularly, first focusing on the challenge of DelKha’s declining fortunes. We started by looking at her customers’ problems. What challenges did PC makers face? Felicia answered that “these guys are some of the most sophisticated buyers in the world. Guys like Dell and HP [Hewlett-Packard] carry almost no inventory and can assemble a computer to order in less than an hour.” She went on to say that Sony monitors were drop-shipped direct to business customers. “These guys don’t need anything from us except low prices and on-time delivery,” she continued. Overall, their business problems were slowing demand and margins being squeezed by competition with each other.
The head of sales offered that there were makers who specialized in the PC-gamer segment. Those companies had a demand for higher-quality components, especially high-power cooling systems. Everyone felt that even if DelKha could find a way to enter, that would still be a niche business.
At a subsequent meeting, one senior manager suggested that plenty of customers outside of the PC business had supply-chain problems. They had not developed the sophistication of Dell, HP, and so on. Could DelKha help them solve their problems? There was a good discussion about becoming a supply-chain adviser and manager for non-PC companies. The obstacle in that direction was that DelKha’s skills and knowledge were limited to PC components. Felicia committed to using her network of Vietnamese American businesspeople to seek out a potential customer. Two other executives would also sound out people they knew.
A month later, the networking had not indicated opportunity in supply-chain advice or management. There were existing firms doing this with better depth than DelKha. What did turn up was a potential customer for DelKha’s brushless cooling-fan motors.
The potential customer, ‘FlyKo,’ wanted a high-power brushless fan for a flying drone. The French company Parrott had just released the first Wi-Fi based consumer drone, and it was a big hit. FlyKo sold a line of radio-controlled (R/C) model airplanes and wanted to make an even better radio-controlled drone that could fly well beyond the range of Wi-Fi.
DelKha bought a Parrott drone, and we brought the head of fan engineering into the strategy group and discussed the challenge. He was excited by the idea and thought that DelKha could meet or even beat the performance of the Parrott fans.
In a traditional motor, the electricity sent to the central rotating element had copper contacts through which the current passed via carbon “brushes.” On a brushless motor, there were no brush contacts, just an air gap. The sequence and timing of the magnetic fields was managed by a microprocessor timing the feed of DC electric power to coils.
DelKha put together a task force to work with FlyKo. The DelKha engineers were able to deliver the fan, and FlyKo built a prototype drone. Unfortunately, its inventory of regular R/C airplanes was not selling, and FlyKo had to invoke Chapter 11 bankruptcy.
The strategy team at DelKha liked the idea of building on the company’s brushless-fan abilities. There were surely other customers whose problems could be solved by DelKha. Felicia decided to buy the now fire-sale-priced radio and electronics assets of FlyKo for $100,000. A key FlyKo engineer began to work for DelKha as a consultant.
With this new capability in place, the senior executives realized that their challenge had changed. Three months ago, the critical challenge seemed to be the declining PC industry. Now it had become taking a position in the growing brushless-motor industry. Brushless motors were being used in robotics, medical tools, and drones and would, we hoped, be used in cordless power tools.
DelKha’s first successful consumer product was an R/C model car produced in partnership with a toy company. It was much simpler to operate than a flying device. Distributed through toy outlets, it was quiet yet had amazing range and speed. Clubs formed to race against each other in parking lots on Sundays.
Focusing on solving customers’ problems, DelKha next built a very high-powered yet quiet fan for a company making portable vacuum cleaners. Again, the combination of cordless battery power and the quiet yet potent brushless motor helped make the customer’s product a success.
By 2014 DelKha was an established player in the high-performance brushless-motor industry. Its stock had quintupled in value, and its employee count had quadrupled.
DelKha’s strategy quest had started by looking first at the seemingly mortal challenge of the declining PC-parts business. We then began to look at the challenges of others that had some connection to its skills and knowledge. There were false starts in supply-chain services and airborne drones. Yet a new business did emerge based on its brushless-fan capabilities.
In 2019 DelKha’s Balanced Scorecard looked very different than it did nine years before. There was now much more emphasis on innovative engineering and on motor-performance parameters. Its own distribution and partner relationships got much more attention. It remained a useful management tool, though with very different goals and KPIs.
Still, in DelKha’s strategy quest, the scorecard had not been helpful. Its use is in managing a business. It was not much help when the challenge is not a failure of efficiency in current operations; it did not help in redefining the business or in building a new business. If you are under the illusion that strategy is about pushing people to meet top management’s goals, then stick to your scorecard. But good strategy work is not management work. You need both—just don’t confuse one with the other.