“A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them.” — Richard P. Rumelt
“Good Strategy, Bad Strategy” is a business book written by Richard P. Rumelt, a renowned strategy scholar.
The book explores the concept of strategy and differentiates between effective, “good” strategies and ineffective, “bad” strategies commonly found in organizations.
One-Sentence Summary of Good Strategy, Bad Strategy
Craft effective strategies by identifying critical challenges, developing guiding policies, and taking coherent actions, while exposing the flaws of ineffective and superficial approaches often mistaken for true strategy.
What Good Strategy Looks Like
Good strategy identifies the pivot points that multiple the effectiveness of effort.
“Good strategy almost always looks this simple and obvious and does not take a thick deck of PowerPoint slides to explain.
It does not pop out of some “strategic management” tool, matrix, chart, triangle, or fill-in-the-blank scheme.
Instead, a talented leader identifies one or two critical issues in the situation–the pivot points that can multiply the effectiveness of effort–and then focuses and concentrates action and resources on them.”
A Good Strategy Achieves a Competitive Punch
A good strategy addresses and tackles the challenges through focused actions.
“A good strategy does more than urge us forward toward a goal or vision.
A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them.
And the greater the challenge, the more a good strategy focuses and coordinates efforts to achieve a powerful competitive punch or problem-solving effect.
Unfortunately, good strategy is the exception, not the rule.”
A Bad Strategy Ignores the Power of Choice
Bad strategy embraces broad goals, ambitions, vision and values at the expense of tough choices that address the real challenges.
“Bad strategy tends to skip over pesky details such as problems.
It ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests.
Like a quarterback whose only advice to teammates is ‘Let’s win,’ bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values.
Each of these elements is, of course, an important part of human life.
But, by themselves, they are not substitutes for the hard work of strategy.”
Strategy is How, Why, and Where to Apply Leadership
Strategy is a useful concept when you use it to mean figuring out how, why, and where to apply your leadership. It’s not useful when strategy is overloaded to mean success or ambition.
“Further confusion is created by equating strategy with success or with ambition.
This was my problem with the Web-services CEO who claimed ‘Strategy is never quitting until you win.’
This sort of mismash of pop culture, motivational slogans, and business speak is, unfortunately, increasingly common. It short-circuits real inventiveness and fails to distinguish among different senior-level management tasks and virtues.
Strategy cannot be a useful concept if it is a synonym for success.
Nor can it be a useful tool if it is confused with ambition, determination, inspirational leadership, and innovation.
Ambition is drive and zeal to excel. Determination is commitment and grit. Innovation is the discovery and engineering of new ways to do things. Inspirational leadership motivates people to sacrifice for their own and the common good.
And strategy, responsive to innovation and ambition, selects the path, identifying how, why, and where leadership and determination are to be applied.”
A Good Strategy Includes a Set of Coherent Actions
A strategy without action is wheel spinning. A good strategy provides a set of coherent actions, not implementation details.
“Many people assume that a strategy is a big-picture overall direction, divorced from any specific action.
But defining strategy as broad concepts, thereby leaving out action, creates a wide chasm between ‘strategy’ and ‘implementation.’
If you accept this chasm, most strategy work becomes wheel spinning. Indeed, this is the most common complaint about ‘strategy.’
Echoing many others, one top executive told me, ‘We have a sophisticated strategy process, but there is a huge problem of execution. We almost always fall short of the goals we set for ourselves.’
If you have followed my line of argument, you can see the reason for this complaint. A good strategy includes a set of coherent actions.
They are not ‘implementation’ details; they are the punch in the strategy. A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.”
Two Incredibly Important Natural Sources of Strengths
The real strength of a strategy is to create strength through coherent design. By reframing situations, you can create new patterns of strengths and weaknesses.
“There are advantages due to being a first mover: scale, scope, network effects, reputation, patents, brands, and hundreds more.
None of these are logically wrong, and each can be important.
Yet this whole midlevel framework misses two huge, incredibly important natural sources of strength:
- Having a coherent strategy–one that coordinates policies and actions. A good strategy doesn’t just draw on existing strength; it creates strength through the coherence of its design. Most organizations of any size don’t do this. Rather they pursue multiple objectives that are unconnected with one another or, worse, that conflict with one another.
- The creation of new strengths through subtle shifts in viewpoint. An insightful reframing of a competitive situation can create whole new patterns of advantage and weakness. The most powerful strategies arise from such game-changing insights.”
Too Many Strategies are Goals, Buzzwords or Wishful Thinking
In the book, Rumelt argues that many so-called “strategies” are, in fact, a collection of goals, buzzwords, or wishful thinking, lacking a coherent and actionable plan to achieve a competitive advantage.
He emphasizes the importance of a clear and straightforward strategy that identifies the critical challenges faced by an organization and outlines a unique approach to overcoming those challenges.
The Kernel of a Good Strategy
The author introduces the concept of the “kernel of a good strategy,” which consists of three essential elements:
- a diagnosis
- a guiding policy
- a set of coherent actions
A proper diagnosis involves identifying the root causes of the organization’s problems and challenges.
A guiding policy outlines the approach to address these challenges effectively.
Coherent actions are the steps and initiatives that align with the guiding policy and lead to the achievement of strategic objectives.
Focus on Decisive Actions Over Generic or Superficial Plans
Rumelt provides numerous real-world case studies to illustrate the difference between good and bad strategies.
He emphasizes the importance of focusing on the core issues and applying decisive actions to overcome obstacles rather than relying on generic or superficial plans.
Think Critically and Understand the Principles of Good Strategy
The book challenges conventional thinking on strategy and encourages readers to think critically, take a deeper look at their organizations, and develop effective strategies that provide a competitive edge.
By understanding the principles of good strategy, readers can navigate complex business landscapes more effectively and drive their organizations toward success.
All Good Strategy Follows from a Careful Definition of the Challenge
Effective strategy shares a consistent framework and form. It emerges from a precise articulation of the core challenge at hand.
It’s forward-thinking, foreseeing and preparing for real-world hurdles.
It’s devoid of unnecessary complexities. Instead, it crafts purposeful policies, focusing resources and efforts on navigating and conquering those challenges.
“DARPA’s strategy is more than a general direction. It includes specific policies that guide its everyday actions.
For example, it retains program managers for only four to six years to limit empire building and to bring in fresh talent.
The expectation is that a new program manager will be willing to challenge the idea and work of predecessors.
In addition, DARPA has a very limited investment in overhead and physical facilities in order to prevent entrenched interests from thwarting progress in new directions.
These policies are based on a realistic appraisal of the obstacles to innovation.
They are a far cry from vague aspirations such as ‘retain the best talent’ and ‘maintain a culture of innovation.'”
The Leader’s Job is to Create the Conditions that Make One Last Push Effective
This passage contrasts the importance of motivation with the necessity of competent leadership and strategy. Using the historical context of the Battle of Passchendaele, a tragic event during World War I where many soldiers were killed, the author emphasizes that the failure wasn’t due to the soldiers’ lack of motivation but rather the absence of effective strategic leadership.
“Many Europeans, by contrast, hear the echo of the ‘one last push’ at Passchendaele.
There, the slaughtered troops did not suffer from a lack of motivation.
They suffered from a lack of competent strategic leadership.
Motivation is an essential part of life and success, and a leader may justly ask for ‘one last push,’ but the leader’s job is more than that.
The job of the leader is to create the conditions that will make the push effective, to have a strategy worthy of the effort called upon.”
In essence, while motivation is crucial for any endeavor, it’s not enough on its own. A leader’s primary responsibility isn’t just to inspire or ask for more effort but to ensure that there’s a sound strategy in place.
This strategy should be deserving of the sacrifices and efforts of those they lead. The leader must create conditions where the efforts (or “push”) of their team can lead to tangible, positive outcomes. Without a clear, effective strategy, even the most motivated individuals can find their efforts wasted or misdirected.
Where Business Growth Comes From
To optimize and grow your business, first identify the most promising opportunities, whether they’re internal processes or external market factors.
Assemble a focused team to analyze your buyers, competitors, and potential opportunities, paying special attention to evolving aspects of your industry.
Structure this exploration, to ensure you target the most impactful areas for significant advancements.
“What I would advise is that you first work to discover the very most promising opportunities for the business.
Those opportunities may be internal, fixing bottlenecks and constraints in the way people work, or external.
To do this, you should probably pull together a small team of people and take a month to do a review of who your buyers are, who you compete with, and what opportunities exist.
It’s normally a good idea to look very closely at what is changing in your business, where you might get a jump on the competition.
You should open things up so there are as many useful bits of information on the table as possible.
If you want, I can help you structure some of this process and, maybe, help you ask some of the right questions.
The end result will be a strategy that is aimed at channeling energy into what seem to be one or two of the most attractive opportunities, where it looks like you can make major inroads or breakthroughs.”
Business Competition is a Competition Over Insights and Competencies
Rumelt emphasizes that merely relying on motivation isn’t sufficient for business success. Business competition revolves around insights and competencies, not just strength and will.
Solely depending on motivation won’t provide the necessary edge to meet company objectives.
“If you continue down the road you are on you will be counting on motivation to move the company forward.
I cannot honestly recommend that as a way forward because business competition is not just a battle of strength and wills; it is also a competition over insights and competencies.
My judgment is that motivation, by itself, will not give this company enough of an edge to achieve your goals.”
Why Business Leaders are Frustrated with “Strategic Planning”
Business leaders recognize the importance of having a strategy but often find the strategic planning process unsatisfactory.
This discontent arises because many “strategic plans” are merely extended budgets paired with market share forecasts.
Labeling such budgets as “strategic plans” misleads individuals into expecting a well-defined strategy.
“Business leaders know their organizations should have a strategy. Yet many express frustration with the whole process of strategic planning.
The reason for this dissatisfaction is that most corporate strategic plans are simply three-year or five-year rolling budgets combined with market share projections.
Calling a rolling budget of this type a ‘strategic plan’ gives people false expectations that the exercise will somehow result in a coherent strategy.”
The Kernel of Good Strategy
Rumself posits that the essence of a strategy comprises three core elements: a clear diagnosis identifying the challenge, a guiding policy outlining the approach to tackle said challenge, and a set of coordinated actions to execute that policy.
He emphasizes that this “kernel” is the fundamental core of a strategy, devoid of the complexities often associated with strategic jargon.
While other components like visions and goals play a role, they are secondary to the strategy’s central trio of diagnosis, policy, and actions.
According to Rumself, the kernel of a strategy contains three elements:
- A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical.
- A guiding policy for dealing with the challenge. This is an overall approach chose to cope with or overcome obstacles identified in the diagnosis.
- A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing guiding policy.
The “kernel” offers a streamlined approach to strategy, sidestepping the intricacies of terms like visions and objectives. It doesn’t pigeonhole strategies into specific business tiers. Essentially, it’s about clarity and simplicity in strategic thinking.
“The kernel is not based on any one concept of advantage.
It does not require one to sort through legalistic gibberish about the differences between visions, missions, goals, strategies, objectives, and tactics.
It does not split strategies into corporate, business, and product levels.
It is very straightforward.”
The “kernel” represents the fundamental essence of a strategy, focusing on its core components. While visions, goals, and other elements play roles in shaping and communicating strategy, they’re secondary to the kernel’s primary trio: a clear diagnosis, a guiding policy, and coordinated actions to address challenges.
“I call this combination of three elements the kernel to emphasize that it is the bare-bones center of a strategy–the hard nut at the core of the concept.
It leaves out visions, hierarchies of goals and objectives, references to time span or scope, and ideas about adaptation and change. All of these are supporting players.
They represent ways of thinking about strategy, stimulating the creation of strategies, energizing groups of people, denoting specific sources of advantage, communicating, summarizing, and analyzing strategies, and so on.
The core content of a strategy is a diagnosis of a guiding policy for dealing with the critical difficulties, and a set of coherent actions.”
Businesses Change When the Diagnosis Changes
Diagnosis in business simplifies the complexity of reality into a story that highlights its crucial aspects, aiding in problem-solving. A shift in this strategic diagnosis often leads to profound changes in a company’s direction and actions.
Rumelt shares the following key insights about diagnosing a business situation:
- Diagnosis is a judgment about the meaning of facts.
- The diagnosis for the situation should replace the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects. This simplified model of reality allows one to make sense of the situation and engage in further problem solving.
- Furthermore, a good strategic diagnosis does more than explain a situation–it also defines a domain of action. Whereas a social scientist seeks a diagnosis that best predicts outcomes, good strategy ends to be based on the diagnosis promising leverage over outcomes.
- A diagnosis is generally denoted by metaphor, analogy, or reference to a diagnosis or framework that has already gained acceptance.
- In business, most deep strategic changes are brought about by a change in diagnosis–a change in the definition of the company’s situation.
Rumelt shows how diagnosis is a judgment of the meaning of facts through an example with Starbucks:
“At Starbucks, one executive might diagnose this challenging situation as ‘a problem in managing expectations.’ Another might diagnose it as ‘a search for new growth platforms’.
A thirst might diagnose it as ‘an eroding competitive advantage.’
None of these viewpoints is, by itself, an action, but each suggests a range of things that might be done and sets aside other classes of action as less relevant to the challenge.
Importantly, none of these diagnoses can be proven to be correct–each is a judgment about which issue is preeminent.
Hence, diagnosis is a judgment about the meanings of facts.”
Good Strategy Magnifies the Effectiveness of Action
A good strategy amplifies action effectiveness by skillfully leveraging power, whether through immediate tactical moves or long-term capability development.
“In very general terms, a good strategy works by harnessing power and applying it where it will have the greatest effect.
In the short term, this may mean attacking a problem or rival with adroit combinations of policy, actions, and resources.
In the longer term, it may involve cleverly using policies and resource commitment to develop capabilites that will be of value in future contests.
In either case, a ‘good strategy’ is an approach that magnifies the effectiveness of actions by finding and using sources of power. “
What it Means to “Focus”
“Focus” in competitive strategy refers to the strategic coordination of policies to amplify power and its precise application to the most effective target.
“This particular pattern–attacking a segment of the market with a business system supplying more value to that segment than the other players can–is called focus.
Here the word ‘focus’ has two meanings.
First, it denotes the coordinatin of policies that produce extra power through their itneracting and overlapping effects.
Second, it denotes the application of power to the right target.”
This meaning of ‘focus’ was introduced by Michael Porter in his book Competitive Strategy.
Most Complex Organizations Don’t Focus
Rumelt suggests that while successful businesses often have a clear strategic logic, many large organizations lack focus, spreading their resources thin across various goals without excelling in any.
“‘Is it always this way?’ a student asks me. ‘If you do the work, can you find the real strategic logic of every business?’
‘No,’ I reply, ‘not for every business. If the business is really successful, then there is usually a good strategic logic behind that success, be it hidden or not.
But the truth is that many companies, especially large complex companies, don’t really have strategies. Ath the core, strategy is about focus, and most complex organizations don’t focus their resources.
Instead, they pursue multiple goals at once, not concentrating enough resources to achieve a breakthrough in any of them.'”
Thinking Like a Strategist
Strategic thinking involves introspection and understanding your thought processes, likening strategy to a scientific hypothesis that requires both logical and empirical validation.
Rumelt emphasizes the importance of self-awareness in strategy formulation, noting that leaders often overlook their internal cognitive processes, even though much of human thought occurs unintentionally.
Thinking about thinking can help you create better strategies.
Rumelt shares 3 keys to thinking about your thinking to create better strategies:
- There’s an analogy between a strategy and a scientific hypothesis. Each is an inductive leap that must be subjected to both logical and empirical tests before you can ascertain its validity.
- You can use techniques to expand the scope of your thinking about strategy and subject your ideas to deeper criticism.
- Sharpen your sensitivity to the need to form an independent judgment about important issues.
“In creating strategy, it is often important to take on the viewpoints of others, seeing how the situation looks to a rival or customer.
Advice to do this is both often given and taken.
Yet this advice skips over what is possibly the most useful shifts in viewpoint:
Thinking about your own thinking.
Our intententions do not fully control our thoughts. We come acutely aware of this when we are unable to suppress undesired rumninations about risk, disease, and death.
A great deal of human thought is not intentional–it just happens.
Once consequence is that leaders often generate ideas and strategies without paying attention to their internal process of creation and testing.”
Get the Book
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