[Book 21] Good Strategy Bad Strategy by Richard Rumelt

Good Strategy Bad Strategy will guide you in developing a sound business strategy. Richard emphasizes the importance of focusing strategy on a few key objectives that lead to a cascade of favorable outcomes. This is in contrast to bad strategies that attempt to accomplish too much through fragmented initiatives. The optimal structure of a strategy lies in its kernel, which provides a simplified diagnosis of the issue, proposes an approach to solve it, and lists mutually reinforcing actions to accomplish it. Strategies with reinforcing components that strengthen the whole, such as Apple’s ecosystem of products, are ideal because they are challenging for competitors to replicate. This book has helped me formulate sound strategies by giving me a framework to clarify my thinking and align objectives to the broader enterprise strategy.

You should read this book if you…

• want a great understand of what constitutes good vs bad business strategy
• want help distilling what’s truly important in complex situations
• seek clarity on how to compete (or not) in your business’s market

Additional Information

Year Published: 2011
Book Ranking (from 1-10): 9 – Excellent – Broad and very well articulated insights
Ease of Read (from 1-5): 3 – Average

Key Highlights

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
2) 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. Most organizations of any size don’t do this. Rather, they pursue multiple objectives that are unconnected with one another or, worse, that conflict with one another
3) 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
4) To detect a bad strategy, look for one or more of its four major hallmarks: 1) Fluff. Fluff is 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. 2) 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. 3) Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles 4) 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
5) 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. One form of bad strategic objectives occurs when there is a scrambled mess of things to accomplish—a “dog’s dinner” of strategic objectives
6) 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. There is difficult psychological, political, and organizational work in saying “no” to whole worlds of hopes, dreams, and aspirations
7) The kernel of a strategy contains three elements: A diagnosis that 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. A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis. A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy
8) An economist would tell her that she should take actions that maximize profit, a technically correct but useless piece of advice. In the economics textbook it is simple: choose the rate of output Q that provides the biggest gap between revenue and cost. In the real world, however, “maximize profit” is not a helpful prescription, because the challenge of making, or maximizing, profit is an ill-structured problem. Even in a corner grocery store, there are hundreds or thousands of possible adjustments one can make, and millions in a business of any size—the complexity of the situation can be overwhelming
9) Phyllis’s insight that “the engineers can’t work without a specification” applies to most organized human effort. Like the Surveyor design teams, every organization faces a situation where the full complexity and ambiguity of the situation is daunting. An important duty of any leader is to absorb a large part of that complexity and ambiguity, passing on to the organization a simpler problem—one that is solvable
10) Today, as then, many effective strategies are more designs than decisions—are more constructed than chosen. In these cases, doing strategy is more like designing a high-performance aircraft than deciding which forklift truck to buy or how large to build a new factory
11) This particular pattern—attacking a segment of the market with a business system supplying more value to that segment than the other players can—is called focus. Here, the word “focus” has two meanings. First, it denotes the coordination of policies that produces extra power through their interacting and overlapping effects. Second, it denotes the application of that power to the right target
12) Healthy growth is not engineered. It is the outcome of growing demand for special capabilities or of expanded or extended capabilities. It is the outcome of a firm having superior products and skills. It is the reward for successful innovation, cleverness, efficiency, and creativity. This kind of growth is not just an industry phenomenon. It normally shows up as a gain in market share that is simultaneous with a superior rate of profit
13) Start by defining advantage in terms of surplus—the gap between buyer value and cost. Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both
14) Successful strategies often owe a great deal to the inertia and inefficiency of rivals. For example, Netflix pushed past the now-bankrupt Blockbuster because the latter could not, or would not, abandon its focus on retail stores. Despite having a large early lead in mobile phone operating systems, Microsoft’s slowness in improving this software provided a huge opening for competitors, an opening through which Apple and Google quickly moved. Understanding the inertia of rivals may be just as vital as understanding your own strengths. An organization’s greatest challenge may not be external threats or opportunities, but instead the effects of entropy and inertia. In such a situation, organizational renewal becomes a priority. Transforming a complex organization is an intensely strategic challenge. Leaders must diagnose the causes and effects of entropy and inertia, create a sensible guiding policy for effecting change, and design a set of coherent actions designed to alter routines, culture, and the structure of power and influence
15) The first step in breaking organizational culture inertia is simplification. This helps to eliminate the complex routines, processes, and hidden bargains among units that mask waste and inefficiency. Strip out excess layers of administration and halt nonessential operations—sell them off, close them down, spin them off, or outsource the services. Coordinating committees and a myriad of complex initiatives need to be disbanded. The simpler structure will begin to illuminate obsolete units, inefficiency, and simple bad behavior that was hidden from sight by complex overlays of administration and self-interest
16) Note that, in general, if you have a “me-too” product, you prefer fragmented retail buyers. On the other hand, if you have a better product, a powerful buyer such as Dell can help it see the light of day
17) Where does scientific knowledge come from? You know the process. A good scientist pushes to the edge of knowledge and then reaches beyond, forming a conjecture—a hypothesis—about how things work in that unknown territory. If the scientist avoids the edge, working with what is already well known and established, life will be comfortable, but there will be neither fame nor honor. In the same way, a good business strategy deals with the edge between the known and the unknown. Again, it is competition with others that pushes us to edges of knowledge. Only there are found the opportunities to keep ahead of rivals. There is no avoiding it. That uneasy sense of ambiguity you feel is real. It is the scent of opportunity
18) Carnegie’s benefit was not from the list itself. It came from actually constructing the list. The idea that people have goals and automatically chase after them like some kind of homing missile is plain wrong. The human mind is finite, its cognitive resources limited. Attention, like a flashlight beam, illuminates one subject only to darken another. When we attend to one set of issues, we lose sight of another
19) In strategy work, knowledge is necessary but not sufficient. There are many people with deep knowledge or experience who are poor at strategy. To guide your own thinking in strategy work, you must cultivate three essential skills or habits. 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