A summary of “Good Strategy / Bad Strategy” by Richard P. Rumelt — Part 1
When I first read ‘Good Strategy Bad Strategy,’ it left me wanting. Revisiting it years later and armed with more experience, I discovered a newfound appreciation for its clarity on the essence of strategy. I now better understand why it's said to be a foundational read.
The summary covers this and more in the following two parts:
- Part 1: Good Strategy, Bad Strategy (Part I) — this post
- Part 2: Sources of Power (Part II) and Thinking like a Strategist (Part III)
Good and Bad Strategy (Part I)
Rumelt vividly describes strategy as a multifaceted discipline intertwining problem-solving, decision-making, and leadership.
Central to his narrative is the task of discovering pivotal factors in any situation, surmounting challenges, and being responsive to the ambition and innovation within the market. At the heart of effective leadership lies the ability to identify the most significant obstacles to progress and orchestrate “a coherent set of actions” to overcome them.
In the quest for the right course of action, Rumelt emphasizes the critical need to discern strengths (for example, scale or network effects) from weaknesses. Yet, amid numerous alternatives, selecting a path demands careful navigation. Essential to success is outlining achievable objectives and steering clear of blind conformity to trends or crowd mentality. Strategy, therefore, prompts the questions: “What should we do?” and, crucially, “Can we do it?”
Good strategy
According to Rumelt, is…
- more than state a goal or vision that acknowledges the challenges faced and provides an approach to overcoming them.
- leveraging a kernel consisting of three parts: a thorough diagnosis, guiding policies, and coherent actions
- tabbing into two natural sources of strength: Coherence, a strategy that coordinates policies and actions, creating strength through the coherence of its design. And a shift in viewpoint, for example, reframing a competitive situation.
- focused on one or a few pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.
- offering an achievable way of surmounting a key challenge, delving into the reasons behind it rather than merely stating it.
- combining leadership with strategy makes it easier to overcome inertia and motivates both action and self-sacrifice.
Coherence and focus
A good example of coherence and focus is when Steve Jobs rejoined Apple in 1997, where he drastically reduced efforts and reoriented the company to survive until their next big innovation, the iPod and iPhone. Jobs’ strategy addressed various industry challenges through a coherent and concentrated set of actions, including cutting down on projects, product lines, distributors, and other distractions. He remained attuned to the sources of success and technology barriers within the industry, ready to leverage the next wave of opportunities as they arose. The main takeaway from this is Steve’s ability to reject various actions and interests, knowing what not to do alongside what to prioritize, best exemplified by his following quote describing focus:
“… It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.”
Shift in viewpoints
The concept involves gaining insights into new strengths and weaknesses and uncovering hidden opportunities. It’s about discovering imbalances between resources and revealing latent strengths while breaking from conventional thinking. This is exemplified in the book by Walmart’s shift to a network-based management system, leading to improved logistics and reduced stock. A strategic shift that underscores the importance of a holistic implementation of actions rather than selective adoption of actions from other competitors.
Bad strategy
Many companies either lack a sound strategy or possess an ineffective one, which…
- is often characterized by a neglect of crucial problem details, a lack of focus, and attempts to accommodate conflicting demands.
- arises in companies with conflicting goals and scattered resources, resulting in a laundry list of desired outcomes without coordinated action.
- tends to employ fluff, using buzzwords and inflated sentences instead of genuine analysis, which can be annoying to read.
- fails to define challenges that lead to vague goals or wish lists without addressing the real obstacles.
- mistakes goals for strategy, prioritizing desires over addressing real problems, and formulating inadequate objectives.
- focuses more on goals than actionable policies, often masking this with lofty language.
Goals, objectives, and why so much bad strategy?
At the beginning of the book, Rumelt debunks the myth of template-style strategy, which starts with a mission or vision and then breaks it down into lofty goals that aren’t actionable.
He distinguishes between goals and objectives: goals are values and desires that act as constraints, narrowing down the playing field, typically describing what to achieve without specifying how. On the other hand, objectives are operational targets that provide short-term guidance toward the overarching goal, transform goals into actionable steps focusing on desires or challenges rather than values, and are immediate and close in time. The book uses the United States as an example to illustrate these concepts. For instance, the US has goals such as freedom, justice, peace, and security. The strategy then transforms these goals into coherent and actionable objectives, bridging the long and short term. For example, after 9/11, a derived objective might have been “Defeating the Taliban and rebuilding decaying infrastructure”.
“A leader’s most important job is creating and constantly adjusting this strategic bridge between goals and objectives”.
Crafting goals and objectives makes it easier to say no to the infinite list of things one could do, given that opportunity costs occur on all levels when crafting and adapting a strategy. Thus, they must be based on rigor, meaning research, evidence, and deep analytical thought. Leaders that resort to template-style strategies rely solely on charismatic leadership and a set Mission, Vision, and Values format. This type of approach tends to thrive as it often avoids the rigor of genuine analytical work, sidestepping difficult questions and decisions.
A notable perspective on this template approach underscores the necessity of uncovering a unique competitive advantage that differentiates oneself from the competition, often forgotten when following this approach, also reflected by Jack Welch’s famous quote on the “aha” moment:”
“If you don’t have a competitive advantage, don’t compete!”.
While charismatic leadership aids in rallying groups and implementing changes, it can’t substitute for a comprehensive strategy. A strategy with context or, as Rumelt says, with a kernel.
The Kernel
The best way to overcome a bad strategy is to fill in the gaps by creating the context for a proper strategy implementation. Good strategy represents coherent action supported by a well-structured argument and at least comprises of the following three parts, together referred to as the Kernel.
Diagnosis
A diagnosis asks, “What’s going on here?”. It defines and explains the nature and structure of the challenge. A great diagnosis simplifies the complexity of a challenge and highlights its critical aspects. It asks, “What’s important in the situation?” and what is not?
So, it requires you to think and judge the meaning of facts. The result should be a simplified story that steers your attention in the right direction and makes it easier to engage in problem-solving. Hence, a good diagnosis defines not just the situation but the domain of action.
Guiding policy
A guiding policy creates leverage or advantage; it outlines how to address the obstacles identified in the diagnosis and anticipates the actions of others (competitors, regulatory,…).
A great policy channels actions in certain directions without defining what shall be done and by “drawing upon sources of advantage”.
“Like guardrails on a highway, it directs and constrains action without fully defining it…”. A guiding policy multiplies the effectiveness of resources.
For example, Wells Fargo's vision was to satisfy their customers' financial needs and help them succeed financially. It narrowed it further down to being a premier provider of financial services in every one of its markets and “to be known as one of America’s greatest companies.” Therefore, to build on its strong brand, its guiding policy was to use its network effects of cross-selling. This means the more the company can sell to its customers, the more they would know about them, which information would again help to create and upsell new products.
Coherent actions
A set of coherent actions implements the guiding policy. As a condition, any such policy must provide enough clarity to bring concepts down to actions, and any actions must acknowledge the necessity of sacrifices. Since you can’t have it all, do everything at once. Exactly these sacrifices are what lead to organizational changes rather than market obstacles.
At this point, strategy is about deciding what is truly important and focusing your resources and actions on that objective. For this, actions must be coherent, meaning resource deployments, policies, and maneuvers must be consistent and coordinated. Or, as Rumelt writes: “Coordination provides the most basic leverage or advantage in strategy”. The ones that aren’t coordinated are either in conflict with each other or trying to achieve unrelated challenges. Another interesting lesson here is that one should only coordinate by way of a proximate objective, so by feasible ones. And that while coordination is important, it should be kept to “only the essential amount of coordination.”.
Conclusions
My main takeaways
- Essence of Strategy: Good strategy extends beyond mere goals or visions. It confronts significant challenges and employs a strategic kernel comprising diagnosis, guiding policies, and coherent actions to overcome them. Following the approach of defining a kernel provides a structured approach to strategy formulation and implementation.
- Key Components of Good Strategy: Good strategy taps into natural sources of strength, focusing on pivotal objectives with achievable goals, combining leadership with strategy, and motivating action.
A good strategy tans into two natural sources of strength. Coherence and Focus mean the power to reject distractions and prioritize key objectives. Shift in Viewpoints means the importance of breaking from conventional thinking and implementing holistic strategic shifts. - Identifying Bad Strategy: Bad strategy neglects crucial problem details, lacks focus, and relies on buzzwords rather than genuine analysis. It stops at goals, which is why Rumelt emphasizes the importance of transforming goals into actionable objectives, bridging the gap between long-term aspirations and short-term guidance.
Part 2 and more?
Continue with Part 2 if you’re interested in:
- “ Sources of power” (Part II of the book) and
- “Thinking like a Strategist” (Part III of the book).
