Book: “Good Strategy Bad Strategy: The Difference and Why It Matters” by Richard Rumelt

“Good Strategy Bad Strategy: The Difference and Why It Matters” by Richard Rumelt is an insightful read about what a good (and bad) strategy is. It goes into the details of the good strategy contents and how to create one providing numerous examples to support the arguments.

The author is considered to be one of the world’s most influential thinkers on strategy and management. He is one of the founders of the resource-based view of strategy, a perspective that breaks with the market-power tradition, explaining performance in terms of unique specialized resources.

The book has three chapters:

  1. Good and Bad Strategy.
  2. Sources of Power.
  3. Thinking Like a Strategist.

I found the first chapter to be very powerful and insightful. Most of the notes I took are from there. The other two chapters seemed to be a bit disconnected from the first one. They were also rather dry which made for a slower read on my end. In any case, I thought the book was really great overall.

Below is my collection of notes for easy reference.

Good and Bad Strategy

What is Strategy?

  • Strategy is a cohesive response to an important challenge. Unlike a stand-alone decision or a goal, a strategy is a coherent set of analyses, concepts, policies, arguments, and actions that respond to a high-stakes challenge.
  • Strategy is about how an organization will move forward. Doing strategy is figuring out how to advance the organization’s interests.
  • Strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy.

What Strategy is Not?

  • Strategy is not a synonym for success.
  • Strategy is not ambition, determination, inspirational leadership, and innovation.
  • Working on a strategy is not the same as goal setting.
  • If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.
  • A long list of “things to do,” often mislabeled as “strategies” or “objectives,” is not a strategy. It is just a list of things to do. Such lists usually grow out of planning meetings in which a wide variety of stakeholders make suggestions as to things they would like to see done.

What is Good Strategy?

  • A good strategy almost always looks simple and obvious and does not take a thick deck of PowerPoint slides to explain.
  • The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.
  • A good strategy recognizes the nature of the challenge and offers a way of surmounting it.
  • 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.
  • A good strategy includes a set of coherent actions. They are not “implementation” details; they are the punch in the strategy.
  • Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organization does not do as it is about what it does.
  • Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.
  • The purpose of a good strategy is to offer a potentially achievable way of surmounting a key challenge. If the leader’s strategic objectives are just as difficult to accomplish as the original challenge, there has been little value added by the strategy.
  • The essential difficulty in creating strategy is not logical; it is choice itself. The strategy does not eliminate scarcity and its consequence—the necessity of choice. Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others.
  • Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.
  • Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it.
  • In very general terms, a good strategy works by harnessing the power and applying it where it will have the greatest effect.

What is Bad Strategy?

  • 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.
  • Bad strategy is not simply the absence of good strategy.
  • To detect a bad strategy, look for one or more of its four major hallmarks:
    • Fluff – a form of gibberish masquerading as strategic concepts or arguments. It uses “Sunday” words (words that are inflated and unnecessarily abstruse) and apparently esoteric concepts to create the illusion of high-level thinking.
    • Failure to face the challenge – bad strategy fails to recognize or define the challenge. When you cannot define the challenge, you cannot evaluate a strategy or improve it.
    • Mistaking goals for strategy – many bad strategies are just statements of desire rather than plans for overcoming obstacles.
    • Bad strategic objectives – a strategic objective is set by a leader as a means to an end. Strategic objectives are “bad” when they fail to address critical issues or when they are impracticable.
  • Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impracticable. It uses high-sounding words and phrases to hide these failings.
  • When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance.
  • Not miscalculation, bad strategy is the active avoidance of the hard work of crafting a good strategy.
  • One common reason for choosing avoidance is the pain or difficulty of choice. When leaders are unwilling or unable to make choices among competing values and parties, bad strategy is the consequence.
  • A second pathway to bad strategy is the siren song of template-style strategy—filling in the blanks with vision, mission, values, and strategies. This path offers a one-size-fits-all substitute for the hard work of analysis and coordinated action.
  • The third pathway to bad strategy is New Thought—the belief that all you need to succeed is a positive mental attitude.

Components of Good Strategy

A good strategy has an essential logical structure that the author calls the kernel.

The kernel of a strategy contains three elements:

  1. Diagnosis.
  2. Guiding Policy.
  3. Coherent Action.

Diagnosis – 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.

Guiding Policy – specifies the approach to dealing with the obstacles called out in the diagnosis. It is like a signpost, marking the direction forward but not defining the details of the trip.

Coherent Action – are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.

A good strategy may consist of more than the kernel, but if the kernel is absent or misshapen, then there is a serious problem.

The kernel 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 Diagnosis

A great deal of strategy work is trying to figure out what is going on. Not just deciding what to do, but the more fundamental problem of comprehending the situation.

At a minimum, a diagnosis names or classifies the situation, linking facts into patterns and suggesting that more attention be paid to some issues and less to others.

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.

The Guiding Policy

The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis.

Like the guardrails on a highway, the guiding policy directs and constrains action without fully defining its content.

Good guiding policies are not goals or visions or images of desirable end states. Rather, they define a method of grappling with the situation and ruling out a vast array of possible actions.

This “vision” communicates an ambition, but it is not a strategy or a guiding policy because there is no information about how this ambition will be accomplished.

A good guiding policy tackles the obstacles identified in the diagnosis by creating or drawing upon sources of advantage. Indeed, the heart of the matter in strategy is usually advantage. A good guiding policy itself can be a source of advantage.

A guiding policy creates advantage by anticipating the actions and reactions of others, by reducing the complexity and ambiguity in the situation, by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, and by creating policies and actions that are coherent, each building on the other rather than canceling one another out.

Coherent Action

Many people call the guiding policy “the strategy” and stop there. This is a mistake. Strategy is about action, about doing something. The kernel of a strategy must contain action.

The actions within the kernel of strategy should be coherent. That is, the resource deployments, policies, and maneuvers that are undertaken should be consistent and coordinated.

Strategic coordination, or coherence, is not ad hoc mutual adjustment. It is coherence imposed on a system by policy and design.

Author: Julia Amosova

Engineering Manager - WooCommerce, Automattic

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