Book Information

Author: Richard Rumelt

Title: Good Strategy Bad Strategy: The Difference and Why It Matters

Published Year: 2011

Notes

• The core of strategy work is always the same: discovering the critial factors in a situation and designing a way of coordinating and focusing actions to deal with those actions.
• In short, a good strategy contains three elements: a diagnosis, a guiding policy, and coherent action.

Good Strategy

• A good strategy draw on existing strength.
• A good strategy creates strength through the coherence of its design.
• A good strategy requires you to be 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.
• A 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.
• The purpose of a good strategy is to offer a potentially achievable way of surmounting a key challenge.
• Good strategy is coherent action backed up by an argument, an effective mixture of thought and action with a basic underlying structure.
• Three elements of good strategy
  • A diagnosis that defines or explains the nature of the challenge.
    • A good diagnosis simplifies the often overwhelming complexity or reality by identifying certain aspects of the situation as critical.
    • 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.
  • 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.
    • Good strategy is not just "what" you are trying to do. It is also "why" and "how" you are doing it.
  • 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.
    • Strategy is about action, about doing something.
    • Strategy is primarily about deciding what is truly important and focusing resources and action on that objective. It is a hard discipline because focusing on one thing slights another.

Bad strategy

• How to detect a bad strategy
  • Fluff. A form of gibberish pretending as strategic concepts or arguments.
  • 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.
  • Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles.
  • 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.
• Why so many bad strategy
  • The unwillingness or inability to choose. Strategy involves focus and, therefore, choice. And choice means setting aside some goals in favor of others. When this hard work is not done, weak amorphous strategy is the result.
  • Template-style strategy. Where we use templates to define strategy. Most of the time it is surrounded by empty rhetoric and bad examples.
  • New thought. The doctrine that one can impose one's visions and desires on the world by the force of thought alone. Its acceptance displaces critical thinking and good strategy.

Sources of Power

• Using leverages. In general strategic leverage arises from mixture of anticipation, insight into what is most pivotal or critical in a situation, and making a concentrated application of effort.
• Proximate objectives. An objective that is close enough at hand to be feasible.
• Chain-link systems. A system has a chain-link logic when its performance is limited by its weakest subunit or link.
• Using design. Configuration of resources and actions that yields an advantage in a challenging situation.
• Focus. 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.
• Growth. When you have superior products and skills, it is the reward for successful innovation, cleverness, efficieny and creativity. However, growth can sometime be engineered (for instance via acquisition) and this might not be the best idea.
• Competitive advantage. In real rivalry, there are an uncountable number of assymmetries. It is the leader's job to identify which asymmetries are critical that can be turned into advantages.
• Dynamics. They are the result of a myriad of shifts and advances in technology, cost, competition, politics, and buyer perceptions. This changes are mostly beyond the control of any one organization. These are some guideposts to aid you to see into the fog of change:
  • Rising fixed-costs.
  • Deregulation.
  • Predictable biases.
  • Incumbent response.
  • Attractor states.
• Inertia. Organization's unwillingness or inability to adapt to changing circumstances. Even with change programs running at full throttle, it can take many years to alter a large company's basic functioning.
• Entropy. With the passage of organizations start deteriorating.

Thinking like a strategist

• Good strategy is built on functional knowledge about what works, what doesn't, and why. Generally available functional knowledge is essential, but because it is available to all, it can rarely be decisive. The most precious functional knowledge is proprietary, available only to your organization.
• Strategy is a hyphothesis. Not a wild theory, but an educated judgment.
• In a changing world, a good strategy must have an entrepreneurial component. That is, it must embody some ideas or insights into new combinations of resources for dealing with new risks and oppotunities.
• Being strategic is being less shortsighted than others. You must perceive and take into account what others do not, be they colleagues or rivals. This does not mean you can pretend you can see the future. You must work with the facts on the ground, not the vague outlines of the distant future.
• Three essentials skills or habits:
  • You must have a variety of tools for fighting your own myopia and for guiding your own attention.
  • 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.
  • You should be making and recording judgments so that you can improve.
• Several technique to jog your minds
  • The kernel, three essential components: a diagnosis of the situation, the choide of an overall guiding policy, and the design of coherent action.
  • Problem-Solution, identify the difficulties and obstacles before you come up with solutions.
  • Create-Destroy, create more than one strategy, destroy any existing alternatives if they don't stand up to scrutinies.
    • Create virtual panel of experts. People whose judgments you value.
  • Practice judgments.
• Good strategy grows out of an independent and careful assessment of the situation, harnessing individual insight to carefull crafted purpose. Bad strategy follows the crowd, substituting popular slogans for insights.
• Beware of social herding (where we mimic others people behaviour without understanding) and inside view (where we think we are different and special).
• An important virtue of a good leader is putting the situation in perspective and having cool-minded judgment.