Good Strategy/Bad Strategy: The difference and why it matters

by Richard P. Rumelt

Sloan’s product policy is an example of design, of order imposed on chaos. Making such a policy work takes more than a plan on a piece of paper. Each quarter, each year, each decade, corporate leadership must work to maintain the coherence of the design. Without constant attention, the design decays. Without active maintenance, the lines demarking products become blurred, and coherence is lost. If the company is fully decentralized, this blurring of boundaries is bound to happen and the original design, based on brands defined around price ranges, becomes buried under a clutter of new products. For example, executives running the Chevrolet division knew that they could increase the Chevrolet division’s sales and profit by offering some higher-priced models. This move might take some business away from Chrysler; it would also take business away from Pontiac and Oldsmobile. Conversely, executives running the Pontiac division saw that they could increase their division’s revenues if they offered some lower-priced models, so they pushed in that direction. Like a parent who must resist fourteen-year-olds’ pushing for beer at the party, corporate management’s job is to resist these imprecations and preserve the design. If the design becomes obsolete, management’s job is to create a new way of coordinating efforts so that the competitive energy is directed outward instead of inward.