Strategy has become a word that is thrown around a lot in business circles. But what is strategy, really? More importantly, is there a difference between good strategy and bad strategy?
The author of the book, Good Strategy Bad Strategy, Richard Rumelt, thinks there are many differences and that they have far different outcomes. He contends that strategy is often used as a synonym for ambition, vision, leadership or planning and as a result, examples of good strategy are hard to find.
“We have become so accustomed to strategy as exhortation that we hardly blink an eye when a leader spouts slogans and announces high-sounding goals, calling the mixture a strategy,” he wrote. “Simply being ambitious is not a strategy.”
Instead, he argues that strategy should consist of identifying critical issues and focusing actions and resources on them. Rumelt first explains why lofty statements of hoped for market growth or an overall direction with no specific action are not good strategy. He then explains step-by-step what he considers the essential elements of good strategy.
Bad Strategy
The book identifies three common paths to bad strategy that should be avoided. First is the unwillingness or inability to choose between competing values or parties. “Strategy involves focus and, therefore, choice,” Rumelt wrote. “And choice means setting aside some goals in favor of others. When this hard work is not done, weak amorphous strategy is the result.” Consider, for example, a pallet company that has just bought its first grinder. One of the co-owners wants to focus on creating a new mulch product line marketed to landscapers and homeowners. The other co-owner, however, envisions selling to local biomass conversion facilities. If they try to do both instead of choosing just one, not only will their marketing lack focus, but they also run the risk of not being able to provide a reliable supply for either market and end up with no real strategy for maximizing the potential new source of revenue.
The second path to bad strategy is template-style strategies. Many consultants and books provide fill-in-the-blanks formulas which include vision, mission statements, and values and are labeled strategy planning. “This path offers a one-size-fits-all substitute for the hard work of analysis and coordinated action,” Rumelt wrote. He contends that the result of many template-style strategies is nothing more than the obvious beings stated as if it is a decisive
insight.
The third path to bad strategy that the book describes is “new thought.” This is the idea that all that is needed to accomplish something is a positive attitude. This can lead to bad strategy because it avoids considering negative side effects or failure and, subsequently, does not allow for the development of plans to avoid them.
The Kernel of Strategy
The basic underlying structure of good strategy, which Rumelt refers to as the “kernel,” includes three elements:
1. A “diagnosis” which defines the challenge
2. A “guiding policy” for dealing with the challenge
3. A set of “coherent actions” designed to carry out the guiding policy
Rumelt explains how these work together with the example of an organization where the challenge to growth has been diagnosed as outdated routines, bureaucracy and lack of cooperation across units. The guiding policy for dealing with this challenge would involve reorganization and renewal. The coherent actions that would carry this out include changes in people, power, and procedures.
The diagnosis is important for several reasons. First, it is the fundamental step of figuring out what is going on – which is what a great deal of strategy work is. Second, it focuses attention on more specific issues and can even bring an entirely new perspective to the situation.
“A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical,” Rumelt wrote.
For example, if a sawmill is having trouble finishing orders on time, the management should ask why. By taking the time to diagnose the problem, they might realize that it is not slow workers, but rather products bottle-necking at the kilns. If they do not take the time to look at all aspects of the issue and just assume the problem is employees that work too slow, they could overlook the actual problem. In addition, including the diagnosis within the strategy allows the rest of the strategy to be evaluated and adjusted as the situation changes.
The guiding policy is an overall approach to deal with obstacles identified in the diagnosis. This is what many people actually refer to as strategy. The purpose of a guiding policy is to keep actions and resource allocations consistent and coherent and prevent them from canceling each other out.
“Good guiding policies are not goals or visions or images of desirable end states. Rather, they define a method of grappling with the situation and ruling out a vast array of possible actions,” Rumelt explained.
Coherent actions are what accomplish the guiding policy. Actions must be included in the strategy because that is what strategy is about – doing something. Though it does not need to detail every action that will be taken, it should provide enough clarity to bring ideas down to earth. When these actions are coordinated they work together and can be more effective. “To have punch, actions should coordinate and build upon one another, focusing organizational energy,” he wrote. “Strategic actions that are not coherent are either in conflict with one another or taken in pursuit of unrelated challenges.”
Sources of Power
A great deal of the book is dedicated to discussing what Rumelt calls “sources of power.” These are actions, resources or policies whose effects can be magnified when properly applied. There are multiple sources of power and the author only discusses a handful that he believes can be more generally applied. The following is only an overview of some of those discussed in the book.
• Proximate Objectives: A proximate objective removes some of the ambiguity and complexity of a challenge by naming a target that can actually be solved. “One of a leader’s most powerful tools is the creation of a good proximate objective – one that is close enough at hand to be feasible,” Rumelt wrote. “A proximate objective names a target that the organization can reasonably be expected to hit, even overwhelm.” By presenting one solvable task at a time, managers can remove some of the intimidation of solving a full challenge.
• Chain-link Systems: A company has a chain-link system when its performance is limited by its weakest subunit, or “link.” Because a chain is only as strong as its weakest link, improvements in one area may be prevented from improving the company’s overall performance by other areas which also need improvement. For example, producing better quality pallets would be pointless if the sales team did not understand their capabilities enough to sell them. As a result, any improvement may seem like a waste of resources. To improve chain-link systems, bottlenecks must be corrected and there must be a willingness to absorb short-term losses as each link is improved.
• Design: A design-type strategy refers to configuring resources and actions to yield an advantage in a challenge. “It is often said that a strategy is a choice or a decision. The words ‘choice’ and ‘decision’ evoke an image of someone considering a list of alternatives and then selecting one,” Rumelt wrote. “The problem with this view…is that you are rarely handed a clear set of alternatives. He argues that efficient strategies are more designs than decisions. They must be built while considering how each aspect affects the others. When a strategy is designed to tightly integrate resources and actions, more can be accomplished than if strategy is viewed as a series of either/or choices.
• Dynamics: One of the ways to use dynamics as a source of power is taking advantage of a wave of change. The result of advances in technology and shifts in costs, competition, and buyer perception, waves of change cannot be controlled by any one company. However, they can upset existing competitive positions, strengthen or weaken existing leaders, and create new advantages. “You exploit a wave of change by understanding the likely evolution of the landscape and then channeling resources and innovation toward positions that will become high ground – become valuable and defensible – as the dynamics play out,” Rumelt wrote. One of the recent waves of change seen in the forest products industry is the rising demand for certified wood products. Companies that saw this wave at the beginning have gained an advantage by being able to offer certified products to customers that demand it.
Due to an abundance of real-life examples, Good Strategy Bad Strategy is not only easy to read, it is also easy to understand and see how the ideas presented work. Whether you are thinking about creating your company’s first strategy, evaluating an existing strategy, or looking for new ideas, this book reveals the flaws in many modern approaches to strategy that should be avoided and explains the critical components of crafting a good strategy.
Top Quotes from Good Strategy Bad Strategy
• “The core of strategy 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.”
• “A good strategy does more than urge us forward toward a goal or vision. A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them.”
• “Bad strategy tends to skip over pesky details such as problems. It ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Like a quarterback whose only advice to teammates is ‘Let’s win,’ bad strategy covers up its failures to guide by embracing the languages of broad goals, ambition, vision, and values.”
• “When you speak of ‘strategy,’ you should not be simply marking the pay grade of the decision maker. Rather, the term ‘strategy’ should mean a cohesive response to an important challenge. Unlike a stand-alone decision or goal, a strategy is a coherent set of analyses, concepts, policies, arguments, and actions that respond to a high-stakes challenge.”
• “Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impractical. It uses high-sounding words and phrases to hide these failings.”
• “When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are what are the reasons for the under performance.”
• “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.”
• “Good strategy grows out of an independent and careful assessment of the situation, harnessing individual insight to carefully crafted purpose. Bad strategy follows the crowd, substituting popular slogans for insight.”
— Richard Rumelt
