Good Strategy, Bad Strategy by Richard Rumelt

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This book is an excellent primer on its full title: Good Strategy, Bad Strategy: The Difference, and Why It Matters. As somebody who generally had an intuitive feel for strategy throughout my career, and has had difficulty trying to explain how to see what I see, I appreciated Rumelt’s systematic explanation, and will definitely be recommending this book to people who ask how they can learn to be more strategic.

Rumelt starts by stating that “A good strategy has coherence, coordinating actions, policies, and resources so as to accomplish an important end.” This is very different than what often gets called strategy these days, which is setting arbitrary goals (e.g. “we want 100% y/y revenue growth!”) and hoping to achieve them. Without putting in the thought “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.” In particular, without a set of coherent actions designed to achieve the objective, the strategy will fail in implementation.

Rumelt’s emphasis on coherence as a key quality of a good strategy reminds me of Patrick Lencioni’s book The Advantage, where Lencioni identified such consistency as the single greatest advantage any company can achieve, “when its management, operations, strategy, and culture fit together and make sense”. It also reflects my own thinking these days on the value of creating organizational alignment to achieve that coherence.

He later lays out what he calls the kernel, or key components, of a good strategy:

  • “A diagnosis of the situation at hand”. In other words, identifying the critical aspects of the situation that lead to risk or opportunity, and the obstacles that might come up in addressing the situation.
  • “The creation or identification of a guiding policy for dealing with the critical difficulties.” This is what is often called a strategy, but without the diagnosis/identification of the risk or opportunity the strategy is designed to address, the policy is arbitrary, and doesn’t guide the next step:
  • “A set of coherent actions that are designed to accomplish the guiding policy.”

This seems relatively straightforward, so why is bad strategy so prevalent? Rumelt’s answer: “bad strategy is the active avoidance of the hard work of crafting a good strategy.” In particular, “the essential difficulty in creating strategy is not logical; it is choice itself. 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.”

In other words, good strategy involves making a choice, a commitment to go down one path and not another. As he writes, “strategy is primarily about deciding what is truly important and focusing resources and action on that objective.” But with that choice comes accountability, and many leaders would rather avoid the choice (and the possibility of being wrong) even if that inaction leads to a worse outcome.

Part 2 of the book is describing various sources of power that a company can draw upon in developing a strategy. As “Marshall and Roche expressed in 1976: use your relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you.” This part was less interesting to me, but might be helpful as different frameworks a leader could use to examine their situation e.g. focus, growth, design, changing global dynamics, inertia and entropy, etc.

I particularly liked his perspective that “a master strategist is a designer” in that “many effective strategies are more designs than decisions—are more constructed than chosen”. This also shows up in his description that “many leaders announce ambitious goals without resolving a good chunk of ambiguity about the specific obstacles to be overcome”. But a strategic leader treats this as a design problem, and absorbs “a large part of that complexity and ambiguity, passing on to the organization a simpler problem – one that is solvable”, which he calls a “proximate objective”.

As somebody who was trained as a scientist, I also appreciated his framing of strategy as science: “A new strategy is, in the language of science, a hypothesis, an educated prediction of how the world works, 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. The ultimate worth of a strategy is determined by its success, not its acceptability.”

Lastly, he says the biggest challenge with being “strategic” is “being less myopic than your undeliberative self.” In other words, it’s too easy to get caught up in one’s own perspective and not rigorously test your assumptions. His prescription:

  • “First, you must have a variety of tools for fighting your own myopia and for guiding your own attention.
  • 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.
  • Third, you must cultivate the habit of making and recording judgments so that you can improve.” (Farnam Street describes how to keep such a decision journal)

While this summary provides a brief overview of what I consider to be the highlights of the book, I recommend reading the whole thing if you would like to develop your strategic thinking. It’s a quick read, and I enjoyed the stories that he shares throughout the book from his strategy consulting practice.

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