Good Strategy, Bad Strategy by Richard Rumelt

Summary

  1. 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-blanks scheme. Instead, a talented leader identifies the 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 strategy is like a lever that magnifies force. Some fundamental sources of power used in good strategies: leverage, proximate objectives, chain-link systems, design, focus, growth, advantage, dynamics, inertia, and entropy.

Key Takeaways

  1. 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 leader’s most important responsibility is identifying the biggest challenges to forward progress and devising a coherent approach to overcoming them.
  2. A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them.
  3. Strategy is about how an organization will move forward. Doing strategy is figuring out how to advance the organization’s interests.
  4. The most basic idea of strategy is the application of strength against weakness. Or, if you prefer, strength applied to the most promising opportunity.
  5. 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.
  6. 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.
  7. Good strategy is unexpected
  8. 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.
  9. Half of what alert participants learn in a strategy exercise is to consider the competition even when no one tells you to do it in advance. Looking just at the actions of a winning firm, you see only part of the picture. Whenever an organization succeeds greatly, there is also, at the same time, either blocked or failed competition.
  10. Copying elements of its strategy piecemeal, there will be little benefit. A competitor would have to adopt the whole design, not just a part of it.
  11. The hidden power of Wal-Mart’s strategy came from a shift in perspective. Lacking that perspective, Kmart saw Wal-Mart like Goliath saw David—smaller and less experienced in the big leagues. The network replaced the store. A regional network of 150 stores serves a population of millions! Walton didn’t break the conventional wisdom; he broke the old definition of a store.
  12. Having a true competitive strategy meant engaging in actions that imposed exorbitant costs on the other side.
  13. To detect a bad strategy, look for one or more of its four major hallmarks:
    1. Fluff.
    2. Failure to face the challenge.
    3. Mistaking goals for strategy.
    4. Bad strategic objectives.
  14. A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity—a flurry of fluff masking an absence of substance.
  15. A leader’s most important job is creating and constantly adjusting this strategic bridge between goals and objectives.
  16. The second form of bad strategic objectives is one that is “blue sky.” A good strategy defines a critical challenge. What is more, it builds a bridge between that challenge and action, between desire and immediate objectives that lie within grasp.
  17. Bad strategy is vacuous and superficial, has internal contradictions, and doesn’t define or address the problem. Bad strategy generates a feeling of dull annoyance when you have to listen to it or read it.
  18. Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others. There is difficult psychological, political, and organizational work in saying “no” to whole worlds of hopes, dreams, and aspirations.
  19. Good strategy is coherent action backed up by an argument, an effective mixture of thought and action with a basic underlying structure I call the kernel. The kernel of a strategy contains three elements:
    1. A diagnosis that defines or explains the nature of the challenge.
    2. A guiding policy for dealing with the challenge.     
    3. A set of coherent actions that are designed to carry out the guiding policy.
  20. John gave me a sidelong look and said, “It looks to me as if there is really only one question you are asking in each case. That question is ‘What’s going on here?’ ” John’s comment was something I had never heard said explicitly, but it was instantly and obviously correct. 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.
  21. Furthermore, a good strategic diagnosis does more than explain a situation—it also defines a domain of action.
  22. Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it. 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. Just as a lever uses mechanical advantage to multiply force, strategic advantage multiplies the effectiveness of resources and/or actions. The coordination of action provides the most basic source of leverage or advantage available in strategy. A strategy coordinates action to address a specific challenge.
  23. The idea that coordination, by itself, can be a source of advantage is a very deep principle. It is often underappreciated because people tend to think of coordination in terms of continuing mutual adjustments among agents. Strategic coordination, or coherence, is not ad hoc mutual adjustment. It is coherence imposed on a system by policy and design.
  24. Folly is the direct pursuit of happiness and beauty. —GEORGE BERNARD SHAW
  25. One of a leader’s most powerful tools is the creation of a good proximate objective—one that is close enough at hand to be feasible. Proximate objectives not only cascade down hierarchies; they cascade in time.
  26. IKEA teaches us that in building sustained strategic advantage, talented leaders seek to create constellations of activities that are chain-linked. This adds extra effectiveness to the strategy and makes competitive imitation difficult. What is especially fascinating is that both excellence and being stuck are reflections of chain-link logic.
  27. When someone says “Managers are decision makers,” they are not talking about master strategists, for a master strategist is a designer.
  28. At 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.”
  29. Increasing value requires a strategy for progress on at least one of four different fronts: deepening advantages, broadening the extent of advantages, creating higher demand for advantaged products or services, or strengthening the isolating mechanisms that block easy replication and imitation by competitors.
  30. Follow the story of Nvidia and you will clearly see the kernel of a good strategy at work: diagnosis, guiding policy, and coherent action. You will also glimpse almost every building block of good strategy: intelligent anticipation, a guiding policy that reduced complexity, the power of design, focus, using advantage, riding a dynamic wave of change, and the important role played by the inertia and disarray of rivals.
  31. A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment. As results appear, good leaders learn more about what does and doesn’t work and adjust their strategies accordingly.
  32. Joe Santos’s comments imply that incumbents had difficulty understanding Starbucks because it was vertically integrated—because it roasted, branded, and served its own coffee in its own company restaurants. Starbucks did not vertically integrate to purposefully confuse the competition. It did so in order to be able to mutually adjust multiple elements of its business and to capture the information generated by each element of its business operations.
  33. To guide your own thinking in strategy work, you must cultivate three essential skills or habits.
    1. First, you must have a variety of tools for fighting your own myopia and for guiding your own attention.
    2. Second, you must develop the ability to question your own judgment. If your reasoning cannot withstand a vigorous attack, your strategy cannot be expected to stand in the face of real competition.
    3. Third, you must cultivate the habit of making and recording judgments so that you can improve.

What I got out of it

  1. Good strategy is simple. Good strategy is unexpected. Good strategy focuses on a small handful of critical factors and helps outline a path forward – it defines a domain of action. Good strategy creates exorbitant costs and ultimately blocks the competition. Good strategy is coherent and “chain-linked”