Good Strategy/Bad Strategy (2019) is a book that teaches the defining elements of strategy, how to avoid the all too common pitfalls around strategy, and how come up with good and effective strategies.
- A strategy is a cohesive response to a certain challenge
- Strategy is the single most important task of leaders
- Good strategy has 3 elements. It starts with analysis of situation, strenghts and opportunities, then sets a high-level guiding policy, and follows up with a set of cohesive actions
- Good strategy requires knowledge and expertise because it’s an hypothesis of what will work
About the Author:
Richard Rumelt is an American professor of Management at the University of California. He joined the school in 1976 from Harvard Business School.
A 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 in response to an important challenge.
Doing strategy is figuring out how to advance the organization’s interests, and how to move forward with it.
The Confusion Around “Strategy”
The author says that “strategy” has become a buzzword and is continuously misused and misunderstood.
It has nothing to do with ambition, “leadership“, competition, or goals etc.
The most common confusion is probably between goals and strategy.
To give you an example, the USA may have the “goals” of freedom, justice, peace, security, and happiness.
The strategy is to transform those goals into a coherent set of actionable strategies -ie.: defeat the Taliban, rebuild a decaying infrastructure, etc. etc.-.
Now, before we move to good strategy, let’s first understand what’s bad strategy:
What’s Bad Strategy
Elements of bad strategy include:
- Fluff, with buzzwords and abstruse expression that create unneeded complexity and the illusion of high-level thinking
- Failure to face the challenge, because you if you cannot define the challenge, you cannot develop a strategy for it, evaluate that strategy, and improve it.
Without defining and analyzing the obstacles, you have not a strategy, but either a stretch goal, a budget, or a list of things you wish would happen
- Mistaking goals for strategy, such as statements of desires, rather than plans on overcoming obstacles. Especially poor when it’s a long list, when it’s uncoordinated, and when there is no action plan connected to them
- Bad strategic objective, such as when they’re impractical, or fail to address critical issues
- Confusing strategic objectives for final goals: stategic objectives are a means to an end, or “subgoals”. Sort of “intermediary steps” to achieving the bigger or final results
- Not focusing effort on a few key areas of maximum leverage
- Pursue too many demands and interests, sometimes conflicting ones, and thus losing the power that comes from coordination
Please not that not having a good strategy is a bad strategy in itself.
Bad strategy crowds out good one like bad weeds.
Examples of bad strategies
A major bank “strategy” says:
Our fundamental strategy is one of customer-centric intermediation
“Intermediation” is a “smart sounding” word for what any bank does.
“Customer centric” could mean that the bank offers higher deposit rates, but their products don’t really differentiate themselves that way.
So this is pure fluff. Remove the fluff, and what this really says is “Our bank’s fundamental strategy is being a bank.”
The Elements of Good Strategy
The author an essential logical structure that I call the kernel.
The kernel includes:
- Diagnosis to understand the situation, the obstacles, the opportunities
- Guiding policy: the high-level approach to dealing with the obstacles. It’s like a signpost, marks the direction forward, without getting lost in the details
- Coherent action: coordinated policies, resource commitments, and actions to carry out the guiding policy
Become An Expert
In any competitive or complex environment, there cannot be a “surefire strategy” guaranteed to work.
That is because, explains the author, any strategy is like a scientific hypothesis.
So as much as a scientist cannot ome up with a “surefire hipothesis certain to be true” without testing it, so nobody can come up with a certain strategy sure to succeed.
What does help though is having expertise.
A good scientist with a solid grasp of all the previous research is a lot more likely to come up with a good hipothesys than a clueless random individual.
Similarly, an expert in a certain field is more likely to come up with a strategy that is likely to work. Even just an “educated guess” is a lot better than a shot in the dark.
Good Strategy Is Simple
After introducing a simple-sounding example in the introduction, the author says:
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.
How To Come Up With A Strategy
Tte core of strategy work is always the same, and it’s simply this:
Discover the critical factors in a situation and design a way of coordinating and focusing actions to deal with those factors.
See a strategy as a lever to magnify force.
The author says that when it comes to choosing effective strategiest, the most basic is to apply strength against weakness.
In a slightly more refined way, that would mean to apply your best resources , to the most promising opportunity.
Understanding your strengths and under which conditions they exist is also part of strategic thinking. As it is when and how to “press” those strengths to get the best results.
In terms of steps:
- Run a good diagnosis to understand the situation, the obstacles, the opportunities
- Come up with a guiding policy: the high-level approach to dealing with the obstacles. It’s like a signpost, marks the direction forward, without getting lost in the details
- Set the “sub-goals” (strategic objectives)
- Set the more detailed plan (coherent action): coordinated policies, resource commitments, and actions to carry out the guiding policy
- Specificate proximate objectives, something that is “close enough” to be prgamatic, visible to all, and achievable
To help you set up the best strategy:
- Anticipation: in ever changing systems or competitive environments, it’s important to add insights into how the environment may change, or what others may do in response to your own actions (game theory may help)
- Coordinate actions: make sure you have a coherent strategy that coordinates actions, creating a new strength by the very nature of its coordinated effort.
Coordination is “coherence imposed on a system by policy and design”
- Come up with new viewpoints and reframes from troubles to challenges and opportunities, to create mental strength
- Say no to whatever lies outside your strategy. Some of those opportunities may be good and add value, but good strategy focus on the biggest and feasible opportunities.
The Leader’s Strategic Job
We often focus on charisma, power, or personality-related traits when it comes to leaders.
Instead, says the author, the most effective leaders are great strategists.
A leader’s most important responsibility is identifying the biggest challenges to forward progress and devising a coherent approach to overcoming them.
The leader most important job is to creating and constantly adjusting the bridge between goals and the strategy, and strategic objectives that will deliver on those goals.
Example of a leader who confuses “motivation” for “strategy”
There is a really good case study about a CEO former football player who confuses stretch goals and motivation for effective strategy.
Among the “key strategies of his organization, there were “20% growth every year, 20% margins, a culture of commitment, foster an honest and open work environment. work to support the broader community in which we operate, etc.
Author: This 20/20 plan is a very aggressive financial goal,” I said. “What has to happen for it to be realized?
CEO: The thing I learned as a football player is that winning requires strength and skill, but more than anything it requires the will to win—the drive to succeed. (…) We are going to get moving and keep pushing until we get there.
Author: Chad, when a company makes the kind of jump in performance your plan envisions, there is usually a key strength you are building on or a change in the industry that opens up new opportunities. Can you clarify what the point of leverage might be here, in your company?
CEO: (expressing frustration, pe pulled a sheet of paper out of his briefcase and reading the highlighted text) This is what Jack Welch says: “We have found that by reaching for what appears to be the impossible, we often actually do the impossible.” “That’s what we are going to do here
Typical case of a CEO who was hired more because he acted the part and because he was an alpha male, than a truly effective leader.
Then, to make it even more obviously ridiculous, the author describes the consultant the CEO ended up hiring:
The new consultant took Logan and his department managers through an exercise he called “Visioning.” The gist of it was the question “How big do you think this company can be?” In the morning they stretched their aspirations from “bigger” to “very much bigger.” Then, in the afternoon, the facilitator challenged them to an even grander vision: “Think twice as big as that,” he pressed. Logan was pleased. I was pleased to be elsewhere engaged.
- If you’re needing to change but struggling to change, ask yourself: what would a brand new management do? Then do that…
Good example from Intel:
Losing more and more money, senior management engaged in endless debates about what to do. Grove recalls the turning point in 1985 when he gloomily asked Intel’s chairman, Gordon Moore, “If we got kicked out and the board brought in a new CEO, what do you think he would do?”
Moore immediately replied, “He would get us out of memories.” Grove recalls that he went numb and then finally said, “Why shouldn’t you and I walk out the door, come back and do it ourselves?”
- Learn from upstarts, not from bigger incumbents
Bigger older firms are still reaping the benefits from the seeds that were sown a long time before.
It’s possible they’re not doing thigns right today, but that they did them in the past.
Instead, the upcoming smaller businesses who are growign and eating away at marke share are likely doing things right, right now.
Says the author:
Its important lesson is that we should learn design-type strategy from an upstart’s early conquests rather than from the mature company’s posturing. Study how Bill Gates outsmarted the giant IBM or how Nucor became a leader in the declining steel industry and you will learn design-type strategy. Study Microsoft today and you will see a mature giant, reaping the benefits of past victories but just as tied to its installed base and a rich mix of conflicting initiatives and standards as was IBM in 1985.
On choosing good strategists as leaders:
The only remedy is for us to demand more from those who lead. More than charisma and vision, we must demand good strategy.
On the importance of saying “no” and focusing on the highest leverage actions:
Strategy is at least as much about what an organization does not do as it is about what it does.
On random goals or list of things to do mislabeled as “strategy” or “strategic objectives”:
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. Rather than focus on a few important items, the group sweeps the whole day’s collection into the “strategic plan.” Then, in recognition that it is a dog’s dinner, the label “long-term” is added so that none of them need be done today.
On “new thought” and “thinking things into reality”:
I do not know whether meditation and other inward journeys perfect the human soul. But I do know that believing that rays come out of your head and change the physical world, and that by thinking only of success you can become a success, are forms of psychosis and cannot be recommended as approaches to management or strategy.
All analysis starts with the consideration of what may happen, including unwelcome events. I would not care to fly in an aircraft designed by people who focused only on an image of a flying airplane and never considered modes of failure.
On the “noise” of most management books written about success stories:
It is also human nature to associate current profit with recent actions, even though it should be evident that current plenty is the harvest of planting seasons long past.
When the profits roll in, leaders will point to their every action with pride. Books will be written recommending that others immediately adopt the successful firm’s dress code, its vacation policy, its suggestion-box policies, and its method of allocating parking spaces. Of course, these connections are specious.
On the dangers of “fluff motivation” against reality:
When war broke out in 1914, jubilant crowds jammed the streets of cities, and young men hurled hats in the air as they marched off to prove themselves. The philosophy of the age, most fervently adopted by the French, was that willpower, spirit, morale, élan, and aggressiveness were the keys to success.
For three years, generals flung highly motivated men at fortified machine-gun emplacements, only to see see tens of thousands, then hundreds of thousands, shredded to mincemeat to gain a mile of useless ground.
Some tangential topics, for example the off-topic on biases, or the otherwise valid criticism of “new thought”. may have been briefer.
- Simple and to the point
- Very practical
- Great examples
- Great wake up call against “empty motivation” that doesn’t rely on solid strategy
- Great wake up call against “new thoughts” of wishing into reality, rather than developing good strategies to achieving them. It shares our same opinions on books such as Think and Grow Rich, The Science of Getting Rich, The Seven Spiritual Laws of Success, and The Secret
Good Strategy/Bad Strategy is a fantastic book on how to channel effort to maximize results (ie.: “strategizing”).
I also enjoyed the many real life examples of what’s “strategy” and what’s not, on what’s good strategy, and what’s not.
Examples and case studies always help solidify the principles.
Overall, we can most certainly recommend Good Strategy/Bad Strategy.