Table of Contents
What is “Good Strategy Bad Strategy”?
“Good Strategy Bad Strategy” is a book written by Richard P. Rumelt, a prominent scholar and professor of strategy at the UCLA Anderson School of Management. The book was published in 2011 and has received considerable attention for its insights into the nature of effective strategic thinking and planning.
In the book, Rumelt argues that there is often confusion and misunderstanding about what constitutes a “good” strategy, and he seeks to clarify this by outlining the characteristics of effective strategy and contrasting them with common strategic mistakes. He introduces the concept of “bad strategy” as strategies that are overly vague, focused on wishful thinking, or fail to address the fundamental challenges a company or organization faces.
Rumelt identifies several key components of good strategy, which include:
- Diagnosis: A good strategy starts with a clear and honest assessment of the current situation, identifying the critical challenges and issues that must be addressed.
- Guiding Policy: A strategy should provide a clear, overarching policy or approach for addressing the challenges identified in the diagnosis.
- Coherent Actions: Effective strategies involve a set of concrete actions and initiatives that are aligned with the guiding policy and designed to overcome the challenges.
- Focus: A good strategy is focused and avoids spreading resources and attention too thin. It prioritizes a limited number of key objectives. The book also emphasizes the importance of leadership in crafting and implementing good strategy and suggests that bad strategy often stems from a lack of discipline, a failure to make hard choices, or a tendency to avoid the difficult work of defining a clear and specific strategy.
Part I: Good and Bad Strategy
Effective strategy is the linchpin of success in any endeavor, whether it’s in the realm of business, the military, or even one’s personal life. Part 1 provides a foundational understanding of good and bad strategy through key concepts and real-world examples. It underscores the significance of surprising one’s competitors, discovering hidden power, recognizing bad strategy, addressing the origins of bad strategy, and embracing the kernel of good strategy. These insights are invaluable for anyone seeking to navigate the complex landscape of strategy, where the difference between success and failure often hinges on the clarity and efficacy of the chosen approach.
- The Element of Surprise: One of the central tenets of good strategy, as articulated in Chapter 1, is that it should be unexpected. In essence, a good strategy challenges the status quo and surprises competitors, rendering them unprepared and off-guard. A striking illustration of this concept is the resurrection of Apple under the visionary leadership of Steve Jobs. Jobs took the helm when Apple was on the brink of failure, and instead of adhering to conventional industry norms, he introduced groundbreaking products such as the iPod, iPhone, and iPad. These unexpected innovations not only revived Apple but also transformed the entire technology landscape. The takeaway here is that good strategy often involves thinking outside the box and embracing the element of surprise.
- Discovering Hidden Power: Chapter 2 emphasizes the importance of discovering power within a strategy. This concept revolves around the notion that effective strategies capitalize on strengths and advantages that may not be readily apparent. The quintessential example here is Wal-Mart’s supply chain efficiency. By meticulously streamlining the movement of goods and reducing costs, Wal-Mart became a global retail giant. What made this strategy exceptional was not just selling products at low prices but rather the discovery and leverage of their hidden power in supply chain management. It’s a reminder that sometimes, the most potent strategies are the ones that harness latent strengths.
- Identifying Bad Strategy: Chapter 3 brings to light the telltale signs of bad strategy. Bad strategies are often marked by vague goals, empty slogans, and a lack of concrete plans. The U.S. national security strategy provides an illuminating example of this concept. In this case, slogans and rhetoric were mistaken for a comprehensive plan, resulting in an ineffective strategy that failed to address the underlying problems. The story of Chad Logan’s “20/20 Plan” serves as another illustration, as it mistakes the setting of goals for developing a coherent strategy, a common pitfall. The key takeaway here is that recognizing the hallmarks of bad strategy is essential for avoiding strategic pitfalls.
- The Origins of Bad Strategy: Chapter 4 delves into the reasons behind the proliferation of bad strategy. It unveils how charisma, the desire for transformational leadership, and the influence of certain philosophical trends have given rise to strategies devoid of substance. An example of the impact of charismatic leadership is seen in leaders who rely on their magnetic personalities rather than well-defined strategies. The concept of transformational leadership, while powerful, sometimes leads to fill-in-the-blanks template-style strategies, which lack the depth required for success. This chapter underscores the need for clear and substantial strategies that transcend charisma and templates.
- The Kernel of Good Strategy: Chapter 5 introduces the concept of the “kernel” of a good strategy. This kernel consists of three essential elements: a clear diagnosis of the problem, a guiding policy to address the problem, and a set of coherent actions to execute the policy. To illustrate the importance of the kernel, the chapter applies this framework to several real-world cases. For instance, it diagnoses the challenges faced by Starbucks, K–12 schools, the Soviet challenge, and IBM, providing insight into guiding policies at Wells Fargo, IBM, and the European Business Group. The key lesson here is that a well-defined kernel forms the bedrock of a successful strategy.
Part II: Sources of Power
Part 2 offers an exploration of key concepts in strategic thinking and execution. It emphasizes the importance of leveraging strengths, setting proximate objectives, understanding chain-link systems, using design, and maintaining focus. These concepts, accompanied by practical examples, provide valuable guidance for those seeking to excel in strategic planning and implementation. By understanding and applying these principles, individuals and organizations can craft more effective strategies and achieve superior outcomes in their chosen domains.
- Using Leverage: Chapter 6, introduces the concept of leveraging sources of power in strategy. This idea underscores the importance of identifying and exploiting strengths or advantages that can be leveraged for maximum impact. An illustrative example is the success of Toyota’s just-in-time manufacturing system. By minimizing inventory and implementing a highly efficient production process, Toyota achieved a competitive advantage. It wasn’t just about building cars; it was about doing so efficiently and with minimal waste. Similarly, in a different context, insurgents in Iraq leveraged their local knowledge and relationships to gain an upper hand against a more powerful adversary. The key lesson here is that effective strategies often hinge on the skillful use of leverage.
- Proximate Objectives: Chapter 7, focuses on the importance of breaking down strategic goals into immediate and manageable objectives. Proximate objectives serve as the stepping stones between high-level vision and concrete actions. The Apollo Moon landing mission of the 1960s provides a striking example. President John F. Kennedy’s grand vision was to “land a man on the Moon and return him safely to Earth.” This vision was translated into a series of proximate objectives, such as developing the Saturn V rocket and conducting successful lunar orbit missions. By setting and achieving these smaller, more attainable goals, NASA ultimately realized its ambitious vision. The takeaway here is that breaking down a grand vision into manageable steps is a key to success.
- Chain-Link Systems: Chapter 8, highlights the interconnected nature of various elements within a system and the potential for bottlenecks or breakdowns. The Challenger space shuttle disaster serves as a somber example of a chain-link system failure. The disaster occurred due to the failure of O-rings, seemingly insignificant components in the shuttle’s solid rocket boosters. However, the failure of these small parts led to the catastrophic destruction of the shuttle. This tragic event underscores how a minor issue within a complex system can lead to catastrophic consequences. The key takeaway is that understanding and addressing vulnerabilities in a chain-link system are crucial for effective strategy.
- Using Design: Chapter 9, emphasizes the role of design in strategy. It draws a parallel between the military tactics of Hannibal, the Carthaginian general who defeated the Roman army in 216 B.C., and the design-type strategy of BMW. Hannibal’s success was rooted in his ability to anticipate the movements of the Roman legions and create a coordinated design of action in time and space. BMW’s design-type strategy, on the other hand, centers on providing a specific driving experience. BMW vehicles are not merely cars; they are meticulously designed to offer a unique driving feel. The key message here is that effective strategy often involves designing actions and processes with a clear purpose.
- Focus: Chapter 10, explores the critical importance of concentration in strategy. It showcases the case of Crown Cork & Seal, a packaging company. Initially, the company pursued unfocused growth, trying to expand in various directions. However, this scattered approach nearly led to the company’s downfall. It was only when they shifted their strategy to focus on a specific market segment, in this case, bottle caps, that they achieved sustainable success. This example underlines that strategic focus is often the key to achieving remarkable results.
- Growth: Chapter 11, examines the concept of growth as a strategic goal. It emphasizes that growth should not be pursued blindly, but rather, it should be healthy and sustainable. The case of Crown Cork & Seal provides a compelling example. The company initially pursued growth at any cost, nearly sinking due to its aggressive expansion. However, healthy growth came when the company focused on a specific market segment and managed its expansion carefully. This chapter reminds us that growth should be a strategic choice rather than a mere aspiration, and it should align with the organization’s capabilities and objectives.
- Using Advantage: Chapter 12 revisits the concept of using advantage, emphasizing its critical role in both business and military strategy. The example of Stewart and Lynda Resnick, serial entrepreneurs behind The Wonderful Company, illustrates the power of using advantage. The Resnicks recognized lucrative opportunities and applied their experience to create successful businesses in various sectors, including POM Wonderful, Fiji Water, and Wonderful Pistachios. Their ability to spot opportunities and maximize their advantages highlights the strategic significance of leveraging one’s strengths across different ventures. This chapter underscores that competitive advantage can be a potent source of success in a wide range of contexts.
- Using Dynamics: Chapter 13 further explores the concept of using dynamics in strategy. It highlights the need to understand and capitalize on the ever-changing dynamics of the environment in which an organization operates. An illustrative example is the rise of Cisco Systems in the technology industry. Cisco recognized the fundamental shifts brought about by the rise of the internet and the increasing importance of networking. By riding three interlinked waves of change, Cisco positioned itself as a dominant player in the networking space. This chapter demonstrates that effective strategies are rooted in an awareness of dynamic shifts and the ability to adapt and capitalize on them.
- Inertia and Entropy: Chapter 14 deepens the discussion about inertia and entropy within the context of strategy. Inertia refers to an organization’s resistance to change and its tendency to maintain existing routines, even when they are no longer effective. An example of inertia is seen in the airline industry, particularly at Continental Airlines. In the face of industry changes and the emergence of low-cost carriers, Continental initially clung to outdated routines and processes, leading to suboptimal performance. On the other hand, entropy describes a state of disorder and decline within an organization. GM’s decline over the years serves as a poignant example of entropy. The company’s size and complexity contributed to internal inefficiencies, leading to a slow but steady deterioration in its competitive position. The chapter highlights the need for strategic leaders to recognize and combat both inertia and entropy within their organizations. Overcoming inertia involves fostering a culture of adaptability, while managing entropy requires vigilance in maintaining efficiency and order.
- Putting It All Together: Chapter 15 wraps up Part 2 by illustrating how various strategic concepts intersect to drive success. The rise of Nvidia, a company specializing in graphics processing units (GPUs), offers a remarkable example of putting these concepts into practice. Nvidia, once a lesser-known player, jumped to dominance by riding a wave of change in the gaming industry, using a design-type strategy. When the gaming industry experienced a shift, Nvidia pivoted and devised a new strategy, emphasizing faster release cycles and building relationships with key players like Dell. This chapter underscores how strategic success often results from the orchestration of different concepts and the ability to adapt to changing circumstances.
Part III: Thinking Like a Strategist
In conclusion, Part 3 offers a deep dive into the science of strategy, the cognitive tools necessary for effective thinking, and the importance of maintaining objectivity and foresight. These chapters provide a robust framework for strategic decision-making, enabling strategists to formulate sound hypotheses, use thinking tools, and remain objective and resilient in the face of challenges. By embracing these concepts, individuals and organizations can develop and execute more effective strategies in a constantly evolving world.
- The Science of Strategy Chapter 16, delves into the scientific underpinnings of effective strategic thinking. Rumelt emphasizes the need for a structured and systematic approach to strategy. Here, strategic thinking is presented as a dynamic process involving hypotheses, anomalies, and critical analysis.
- a. Hypotheses and Anomalies: Rumelt underscores the role of hypotheses in strategic thinking. Just like in the scientific method, formulating hypotheses allows strategists to make educated guesses about the future. To illustrate this, consider the case of Amazon. Jeff Bezos, Amazon’s founder, hypothesized that the internet would fundamentally change retail. He initiated Amazon as an online bookstore, but his hypothesis extended beyond books. Over time, Amazon expanded into a wide range of products and services, capitalizing on the anomaly of a rapidly growing e-commerce market.
- b. Critical Analysis: Rumelt emphasizes the importance of critical analysis in testing hypotheses and evaluating the soundness of a strategy. For instance, during the development of the iPhone, Apple conducted critical analyses of consumer needs, technological possibilities, and the competition. This led to a groundbreaking product that revolutionized the smartphone industry.
- Using Your Head Chapter 17, explores the cognitive tools necessary for effective strategic thinking. Rumelt outlines how being a strategist involves being less myopic than your undeliberative self. It introduces several mental tools that facilitate better decision-making.
- a. Thinking Tools: One of the thinking tools presented is the kernel of good strategy, which includes a clear diagnosis of the problem, a guiding policy, and a set of coherent actions. Take the example of Apple under Steve Jobs. He diagnosed the problem as the need for innovative and user-friendly technology, formulated a guiding policy to create sleek and user-friendly products, and executed it with a set of coherent actions, leading to the development of the iPod, iPhone, and iPad.
- b. Mind Tools: Rumelt introduces four fundamental mind tools: the kernel, problem-solution, create-destroy, and the panel of experts. In the context of a problem-solution tool, consider the case of SpaceX. Elon Musk identified the problem of high launch costs and unreliable space transportation. His solution was to create reusable rockets, significantly reducing the cost of space travel.
- Chapter 18: Keeping Your Head explores the challenges of maintaining strategic objectivity and foresight. It delves into the concepts of independence, doubt, and resilience.
- a. Independence: Rumelt discusses the importance of being independent in one’s thinking without crossing the line into eccentricity. For example, when Kurt Gödel challenged conventional mathematical thinking with his incompleteness theorems, he was seen as eccentric by some. Yet, his independence led to groundbreaking advances in mathematics.
- b. Doubt: Rumelt suggests that doubting without becoming a curmudgeon is crucial for strategic thinking. Consider the example of the 2008 financial crisis. Many experts were overly confident in the stability of the financial system, but a handful of skeptics, like Michael Burry, saw the signs of impending disaster and took appropriate actions to protect their investments. c. Resilience: Maintaining resilience is key to strategic thinking. An example is the response to the Johnstown Flood in 1889. After the disaster, the city’s residents demonstrated resilience in rebuilding their community, taking the lessons learned from the flood to improve the town’s safety measures.
- “The Art of Strategy” by Avinash K. Dixit and Barry J. Nalebuff: This book offers a comprehensive overview of strategic thinking, decision-making, and game theory in a business context.
- “Blue Ocean Strategy” by W. Chan Kim and Renée Mauborgne: It explores the concept of creating uncontested market spaces, known as “Blue Oceans,” rather than competing in crowded, “Red Ocean” markets.
- “Thinking, Fast and Slow” by Daniel Kahneman: While not strictly a book on strategy, it delves into the cognitive processes that influence decision-making, offering insights into human behavior and the biases that can affect strategic thinking.
- “The Lean Startup” by Eric Ries: This book focuses on strategies for creating and managing successful startups by emphasizing experimentation, iterative development, and validated learning.
- “Good to Great” by Jim Collins: It explores what makes some companies go from being merely good to becoming great and how leadership and strategy play a crucial role in this transformation.
- “Competitive Strategy” by Michael E. Porter: Michael Porter is renowned for his work on competitive strategy. This book provides a framework for analyzing competitive forces and creating strategies to gain a competitive edge.
- “The Innovator’s Dilemma” by Clayton Christensen:Focusing on innovation and disruptive technologies, this book examines why successful companies often fail to innovate and how they can overcome this dilemma.
- “Start with Why” by Simon Sinek: Sinek discusses the importance of starting with a clear sense of “why” before developing the “how” and “what” of a strategy or business plan.
- “Made to Stick” by Chip Heath and Dan Heath: This book explores the art of crafting memorable and impactful messages, an essential skill for effective communication and strategic implementation.
- “Thinking Strategically” by Avinash K. Dixit and Barry J. Nalebuff: This book applies game theory principles to strategic thinking, helping readers understand and make better decisions in various situations. These books cover a range of topics related to strategy, leadership, and decision-making, and they offer valuable insights and frameworks for individuals and organizations looking to improve their strategic thinking and execution.