Good Strategy Bad Strategy: The Difference and Why it Matters – Richard Rumelt

Good Strategy/Bad Strategy by Rumelt, Richard (ebook)

A uniquely distinguishable book from its normal run of the mill compatriots, “Good Strategy Bad Strategy” by Richard Rumelt, makes for some refreshing as well as ambivalent reading. While the author by juxtaposing real life examples and management theory, rivetingly differentiates good strategic making capabilities from the bad ones, the reader at the end is still left ruminating on the one differentiating element that separates strategy from other routinely employed measures such as vision, long term and short range planning etc. Rumelt bemoans the fact that the experts and the unsuspecting alike seem to be perpetually yoked to certain misconceptions when it comes to strategy. Such misconceptions lead to unintended consequences for both the executives as well as their corporations.

So what according to this reputed and renowned Harry and Elsa Kunin Emeritus Professor of Business & Society at the University of California, Los Angeles Anderson School of Management, are the attributes of a good strategy and the pitfalls of a bad strategy? Let us dive deep into the world of paradoxical decision making:

A good strategy according to Rumelt has the following three “kernels”:

  • Diagnosis
  • Guiding Policy and
  • Coherent Action

Rumelt’s solution and definition of a proper strategy is one that confines within its nub the ‘discovery of critical factors in a situation, and designing a way of coordinating and focusing actions to deal with those factors.’ Thus the first step in any good strategy is to identify and candidly acknowledge the existence of a problem. The second step is to chalk out a guiding policy to address the problem and finally, employ a set of coherent action steps that overcome the seemingly insurmountable obstacles in an implementable, rational, cohesive and logical manner. These were the kernels that enabled Steve Jobs to bring Apple back from the brink when the company had lost sight of its priorities and focus, and aided and abetted General Norman Schwarzkopf to pull off the impossible in the Iraqi war which had, at the outset forecast some terrible loss of lives for the US and Coalition Forces. “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. The second natural advantage of many good strategies comes from insight into new sources of strength and weakness. Looking at things from a different or fresh perspective can reveal new realms of advantage and opportunity as well as weakness and threat.”

So is there something called a bad strategy?

As Rumelt informs his readers, Bad strategy does not mean an absence of good strategy. A bad strategy is emblematic of specific misconceptions and leadership dysfunctions. Rumelt argues that there are four inimitable “hallmarks” characterizing a bad strategy:

  • Fluff: A form of gibberish masquerading as strategic concepts or arguments.
  • Failure to face a challenge
  • Mistaking goals for strategy; and
  • Bad strategic objectives where strategic objectives are set by leaders as a means to an end.

Rumelt illustrates the example of fluff by taking recourse to an excerpt from an internal strategy memoranda of a reputed international bank. “Our fundamental strategy is one of customer-centric intermediation.” According to Rumelt, “The Sunday word “intermediation” means that the company accepts deposits and then lends them to others. In other words, it is a bank. The buzz phrase “customer-centric” could mean that the bank competes by offering depositors and lenders better terms or better service.”

Rumelt also warns his reader on the perils of falling prey to a ‘template style strategic planning.’ More often than not strategies are a concomitant of a template that determines what a “strategy” should look like. Being an imprecise concept, leaders have this understandable tendency to adopt a tenuous template that is amenable to easy and uncomplicated “filling in.” These templates then double up as “strategy documents.” Thus, a plethora of vision and mission statements, corporate values and of course, overall holistic strategies.

Sources of Power

Part II of “Good Strategy Bad Strategy, titled “Sources of power” dwells into the various practical strategic approaches and their advantageous application. Some of the most common means of such application, according to Rumelt are:

  • Using Leverage
  • Proximate Objectives
  • Chain-link Systems
  • Using Design
  • Focus
  • Growth
  • Using Advantages
  • Using Dynamics
  • Inertia and Entropy

The complete inability of Blockbuster to perceive the threats posed by Netflix that ultimately led to the former becoming bankrupt or Microsoft’s pedestrian response despite having a large early lead in mobile phone operating systems, that accorded a gigantic  opening for Apple and Google represent classic illustrations of the Inertia and Entropy facets.

The concept of proximate objectives simply means focusing on an objective that is close enough at hand to be feasible, i.e. proximate. For instance, while the first moon landing has been eulogized unrelentingly, many miss out on the fact that in the year 1969, the objective of landing a man on the move was already a proximate objective. This was mainly due to the fact that President John F. Kennedy realised the requisite technology and science was within arm’s length and it was just a matter of allocating, focusing, and coordinating resources in a systematic fashion.

Similarly, a system has chain-link logic when its performance is limited by its weakest link. This implies that every department is dependent on other departments and any inefficiency in one department will adversely impact the overall performance of the entire system. For example, IKEA designs its own furniture, constructs its own stores, and does not outsource even its supply chain. This is a perfect example of a chain-linked system. IKEA will be rendered vulnerable if even one link in its chain underperforms.

Rumelt rounds off the discussion on the Sources of Power and their harnessing to achieve comparable and industry advantage by elaborating on the strategy adopted by Nvidia, the computer graphics entity that dominated the market for 3D graphics.

While Rumelt’s book is definitely one of its kind, the author could have devoted more time to drive home the quintessential elements that constitute strategy thereby differentiating the term from a whole horde of confusing and mimicking management jargons.

2 thoughts on “Good Strategy Bad Strategy: The Difference and Why it Matters – Richard Rumelt

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.