Strategic blunders are common, even among some of the world’s largest organizations. Leaders often mistake their own decisions for the true drivers of success, leading to misguided strategies. Richard Rumelt’s book “Good Strategy, Bad Strategy” provides essential insights into the components of effective strategy and the pitfalls of poor strategic planning.
The Core of Good Strategy
At its heart, a good strategy answers three fundamental questions: why (diagnosis of the problem), what (guiding policy), and how (actionable objectives). Richard Rumelt refers to this as the “kernel” of good strategy. Let’s delve into the key insights and principles that distinguish good strategy from bad strategy, as articulated by Rumelt.
1. Diagnosis of the Problem
A comprehensive diagnosis identifies the critical issues that must be addressed. It goes beyond superficial observations to uncover the root causes of challenges. For instance, diagnosing market trends, internal inefficiencies, or competitive pressures can provide the foundation for an effective strategy.
2. Guiding Policy
A good guiding policy addresses the diagnosed problems by leveraging existing strengths or creating new ones. It sets a clear direction and framework for decision-making. Importantly, it is not merely a lofty vision but a practical and actionable plan.
3. Coherent Actions
Actions must align with the guiding policy and be coherent. This means that each action point should complement and reinforce the others, creating a cohesive strategy. Without coherent actions, even the best plans can falter.
Key Insights from “Good Strategy, Bad Strategy”
1. Simple Yet Profound Questions
Good strategy answers simple yet profound questions: why, what, and how. This clarity of thought is crucial for effective strategic planning.
2. Creating Advantage
A guiding policy should create an advantage by addressing obstacles identified during diagnosis. This advantage could be competitive, but it doesn’t always have to be. For non-profits or public policies, the advantage might lie in operational efficiency or impact.
3. Importance of Action Points
Action points are critical. Without clear, actionable steps, even the best strategy will fail. For example, in the Iraq War, General David Petraeus implemented a coherent strategy to counter insurgency, which had not been previously considered.
4. Avoiding Bad Objectives
Two main types of bad strategic objectives are prevalent: “dog’s-dinner” objectives, a scattered mix of goals, and “blue-sky” objectives, which are unrealistic and lack actionable steps.
5. Analogies to Medicine
Strategy can be likened to a doctor’s approach: diagnosing the disease (problem), determining a therapeutic approach (guiding policy), and prescribing treatment (coherent actions).
6. Coordination Across Functions
Effective strategy requires coordination across different functions and knowledge bases within an organization. This integration is essential for success.
7. Misleading Perceptions of Brilliant Strategy
Often, what appears to be brilliant strategy is merely sound, simple action based on established principles. For example, General Schwarzkopf’s strategy in Operation Desert Storm was straightforward and grounded in military doctrine.
8. Coherent Strategy and New Strengths
A coherent strategy aligns objectives and creates new strengths through innovative thinking. For instance, viewing a competitive situation from a new perspective can uncover unique opportunities.
9. David vs. Goliath
The story of David and Goliath illustrates that perceived weaknesses can be strengths in certain situations. Strategic insight often lies in recognizing and leveraging these hidden strengths.
10. Proximate Objectives
Proximate objectives are realistic, short-term goals that keep strategy grounded and achievable. As complexity increases, these objectives become even more critical.
11. Hallmarks of Bad Strategy
Four major hallmarks of bad strategy include fluff (gibberish disguised as strategy), failure to face challenges, mistaking goals for strategy, and bad strategic objectives.
12. Chain-Link Systems
Organizations often function as chain-link systems, where performance is limited by the weakest link. Identifying and strengthening these weak links is crucial for overall success.
13. Strategic Design
Designing a strategy is more like creating a high-performance aircraft than making simple decisions. It requires creativity, focus, and a deep understanding of the environment.
14. Focused Strategy
Focused strategy means coherent policies that support each other and are directed toward achieving specific goals. Crown Cork & Seal’s success is a prime example of focused strategy.
15. Growth Fetishization
Pursuing growth for its own sake can be detrimental. Crown Cork & Seal’s decline under a new CEO who prioritized growth over profitability exemplifies this pitfall.
16. Inertia and Entropy
Organizational inertia and entropy are significant barriers to change. Understanding these forces is crucial for strategic planning.
17. Problem-Solution Approach
Approaching strategy with a problem-solution mindset simplifies the process and ensures that actions are focused on solving specific challenges.
18. Leverage
Strategic leverage involves focusing resources on pivotal objectives at the right moment. This requires anticipation, identifying pivot points, and concentrating efforts.
19. Proactive Leadership
Effective leaders anticipate challenges and opportunities, pivot strategically, and maintain focus. Jen-Hsun Huang’s leadership at Nvidia exemplifies proactive, strategic management.
20. Summary
Useless ‘strategy’ often pervades organizations because true strategy requires hard work and precise execution. Good strategy involves diagnosing problems, formulating guiding policies, and implementing coherent actions. It is not a result of chance but a product of thoughtful, well-coordinated efforts.
Practical Applications of Good Strategy
Diagnosis
Diagnosing problems requires a thorough analysis of internal and external factors. This includes market trends, competitor behavior, and internal capabilities. Accurate diagnosis sets the stage for effective strategic planning.
Guiding Policy
Formulating a guiding policy involves creating a clear, actionable plan that addresses diagnosed problems. This policy should leverage existing strengths and create new ones, providing a framework for decision-making.
Coherent Actions
Implementing coherent actions means aligning every step with the guiding policy. Each action should reinforce the overall strategy, creating a cohesive and effective plan.
Real-World Examples of Good and Bad Strategy
Steve Jobs and Apple
When Steve Jobs returned to Apple, he made necessary cuts, simplified processes, and waited for the right moment to innovate. His focused, action-oriented strategy turned Apple into a market leader.
Walmart vs. Kmart
Walmart’s success lies in the coherence of its strategy, which integrates logistics, pricing, and customer service. In contrast, Kmart’s failure to adapt and integrate its strategy led to its decline.
Nvidia’s Rise
Nvidia’s focused strategy on 3D-graphics chips, guided by clear objectives and coherent actions, allowed it to outperform competitors like Intel and Silicon Graphics.
Crown Cork & Seal
Crown Cork & Seal’s focused strategy on retaining bargaining power through adaptable policies enabled it to succeed despite its smaller size and higher costs compared to competitors.
Common Pitfalls in Strategic Planning
Failure to Choose
Strategic decisions are inherently difficult, and the unwillingness or inability to choose can lead to bad strategy. Leaders must make tough decisions to guide their organizations effectively.
Template Strategy
Relying on template-style strategies, such as generic vision and mission statements, without substantive action plans, results in ineffective strategy.
Law-of-Attraction Thinking
Shallow motivational mantras, rooted in quasi-religious thought, can replace genuine strategic planning, leading to poor outcomes.
Implementing the Kernel of Good Strategy
Diagnosis
Identify the critical issues facing your organization. This involves thorough research and analysis to uncover the root causes of challenges.
Guiding Policy
Develop a clear, actionable plan that addresses the diagnosed problems. This plan should leverage your organization’s strengths and provide a framework for decision-making.
Coherent Actions
Ensure that every action aligns with the guiding policy. Each step should reinforce the overall strategy, creating a cohesive and effective plan.
FAQs
What is the primary difference between good strategy and bad strategy according to Richard Rumelt?
Richard Rumelt highlights that good strategy involves a clear diagnosis of the problem, a guiding policy that addresses this problem, and coherent actions that implement the policy. In contrast, bad strategy often lacks these components and includes vague goals, fluff, and a failure to address real challenges.
Why do leaders often mistake setting goals for having a strategy?
Leaders frequently conflate goals with strategy because goals are easy to define and communicate, whereas a true strategy requires deep analysis, clear planning, and coherent action steps. Goals alone do not provide the roadmap needed to achieve them.
How can organizational inertia and entropy affect strategic planning?
Organizational inertia and entropy refer to the resistance to change and the natural decline into disorder over time. These factors can prevent an organization from adapting to new challenges or opportunities, making it difficult to implement effective strategies.
What role does a ‘guiding policy’ play in a successful strategy?
A guiding policy sets the stage for focused action by providing a clear framework for decision-making. It addresses the diagnosed problem and leverages the organization’s strengths to create a competitive advantage.
Can you provide an example of a company that successfully implemented a focused strategy?
Nvidia is an example of a company that successfully implemented a focused strategy. By concentrating on 3D-graphics chips and aligning its resources and actions with this focus, Nvidia was able to outperform larger competitors like Intel.
Why is it important for strategic objectives to be coherent and actionable?
Coherent and actionable objectives ensure that every action taken by the organization reinforces the overall strategy. This alignment prevents wasted efforts and resources, creating a unified approach to achieving strategic goals.
How did Steve Jobs’ return to Apple exemplify good strategic planning?
Upon returning to Apple, Steve Jobs made necessary cuts, simplified the product lineup, and focused on creating innovative products. His strategic approach was clear, focused, and action-oriented, which eventually led to Apple’s resurgence as a market leader.
What are the common pitfalls that lead to bad strategy in organizations?
Common pitfalls include the inability to make tough decisions, reliance on template-style strategies, and the influence of shallow motivational thinking. These factors prevent the development of a coherent and effective strategic plan.
How can organizations avoid the trap of ‘fluff’ in their strategic planning?
Organizations can avoid ‘fluff’ by focusing on clear, actionable objectives and avoiding vague, jargon-filled statements. A good strategy should be grounded in reality, addressing real challenges with practical solutions.
What is the importance of proximate objectives in strategic planning?
Proximate objectives are realistic, short-term goals that are within reach. They provide a clear path forward and help maintain momentum, especially in complex and dynamic situations where long-term goals might be too uncertain.
In Conclusion
Good strategy is the result of thoughtful analysis, clear planning, and coherent actions. By following the principles outlined in Richard Rumelt’s “Good Strategy, Bad Strategy,” organizations can avoid common pitfalls and develop effective strategies that lead to success. Leaders must be willing to diagnose problems accurately, formulate guiding policies that leverage strengths, and implement coherent actions that reinforce their strategic goals. With these principles in mind, organizations can navigate the complexities of strategic planning and achieve long-term success.
