Book SummaryGood Strategy Bad Strategy, by Richard Rumelt

1-Page Summary1-Page Book Summary of Good Strategy Bad Strategy

Good strategy is essentially the effective application of strength against weakness; strength applied either to your own organization’s weakness, to fix it, or to your rival’s weakness, to give you a competitive edge. Good strategy recognizes the true nature of challenges and finds ways to overcome them. Bad strategy leaves you blind to your organization’s challenges and chases unattainable goals without a workable plan.

Richard Rumelt is one of the world’s foremost thinkers on strategy, having guided organizations ranging from small, entrepreneurial start-ups to large, multinational conglomerates, as well as several governments and the U.S. Department of Defense. In Good Strategy Bad Strategy, he lays out the essential components of good strategy and the faulty thinking behind bad strategy. He also describes specific and measurable techniques for designing a strong, focused strategy that gives your organization the best chance of success.

The Two Truths of Strategy

To properly understand strategy, we must start by exploring two fundamental truths underpinning strong strategy:

1) Just Having a Strategy Is a Strategy

Remarkably, simply having a strategy is a strategy. Most organizations operate reactively to challenges on a day-to-day basis, having only a fuzzy outline of long-term goals that they mistakenly call “strategy.” Thus, when an organization has a well-thought-out and specific strategy, it has an advantage over its competitors simply because it is better prepared for the challenges that face all rivals in an industry.

Apple’s turnaround under Steve Jobs in the late 1990s illustrates this advantage. By the time Jobs returned to the company as CEO in September 1997, Apple was losing market share to Microsoft and was heading for failure. Within a year, Jobs had turned the company around by cutting Apple back to a simplified, small, strong core and eliminating anything that didn’t serve that core. In doing so, he identified the fundamental problem of the company—it was unfocused—and then developed a coordinated set of actions to address that problem. He was able to turn the company around by instituting a clear, explicit strategy instead of merely, as his predecessor had done, trying a bit of this and a bit of that.

2) A Good Strategy Uses Hidden Strengths

Above all else, good strategy leverages strength against weakness, especially, if possible, an unexpected strength against an unknown weakness, taking your competition by surprise. The success of Walmart illustrates this technique. In the 1970s and 1980s, Walmart was a small, regional store while the industry leader, KMart, was large, national, and well-established. Everyone saw KMart’s size and its decentralized structure as strengths, but Walmart recognized those traits as weaknesses, because they prevented the company from responding quickly to competitive challenges. When Walmart proved how efficient a centralized, networked hub controlling its various locations could be, KMart’s size and its ingrained individualized culture prevented it from reorganizing into a similarly networked structure. In 1990, Walmart surpassed KMart in size.

Bad Strategy

Now that we’ve explored a bit of what makes good strategy, let’s look at what makes bad strategy. Bad strategy is not simply the absence of any strategy, nor is it good strategy that has failed. Rather, it is poorly-thought-out strategy that’s based on misconceptions and misguided leadership.

There are four elements of bad strategy and three influences that cause it.

The Four Elements of Bad Strategy

Bad strategy has four characteristics:

1. Fluff: Bad strategy relies on unnecessarily grandiose phrasing and vocabulary to create an illusion of expertise.
2. Failure to identify the challenge: Bad strategy does not properly define the specific challenge the organization faces. When you don’t explicitly name the problem, you can’t properly address it.
3. Conflation of goals with strategy: Bad strategy focuses on profit or performance goals instead of methods to overcome challenges.
4. Misguided strategic objectives: Bad strategy fails to narrow down its scope, instead trying to focus on too many objectives. It also chooses unrealistically ambitious objectives but does not provide useful guidance on how to achieve them.

The Three Causes of Bad Strategy

Now that we’ve defined bad strategy, let’s explore what causes people to create bad strategy. There are three primary reasons behind bad strategy:

1. The inability to choose between competing values and priorities: Often, complex organizations don’t want to choose among the various and diverse interests within their operations to develop a focused, targeted strategy that concentrates resources into one specialty. For example, Digital Equipment Company was a computing pioneer whose CEO couldn’t reconcile the competing priorities of three of its top executives. Instead of choosing one priority and focusing on that, the CEO tried to incorporate all three competing visions and ended up with an unfocused strategy. The company floundered and eventually was acquired by rival Compaq.
2. The lure of strategy-by-template: Strategy writers will sometimes turn to template-style tools with generic prompts designed to ease the process of designing strategy. Unfortunately, these prompts encourage vague statements of goals and ambitions, rather than clear analyses of challenges and solutions. You’ll often see them in business plans or annual reports, with fill-in-the-blank sections like the following:
   • Vision: Where do you see your company in the future? (Here, strategy writers often use words like “the best” or “most profitable.”)
   • Mission: What is your purpose? (This often sounds lofty, mentioning “passion” and “innovation.”)
   • Values: What are your company’s values? (These are typically non-controversial values; think...

Good Strategy Bad Strategy Summary Introduction

Good strategy is the effective application of strength against weakness; strength applied either to your own organization’s weakness, to fix it, or to your rival’s weakness, to give you a competitive edge. Good strategy recognizes the true nature of challenges and finds ways to overcome them. Bad strategy leaves you blind to your organization’s challenges and chases unattainable goals without a workable plan. Unfortunately, many people misunderstand what makes good strategy and end up publishing vague statements of lofty but directionless goals instead of actionable, focused plans that will propel their organization to success.

Richard...

Good Strategy Bad Strategy Summary Part 1: What Makes Good and Bad Strategy | Chapter 1: Good Strategy

In this chapter, we’ll examine two primary truths about good strategy:

• Just having a strategy is a good strategy.
• A good strategy uses hidden strengths.

We’ll then examine the kernel at the heart of any good strategy, which has three elements:

• Diagnosis: the challenges the organization faces
• Guiding policy: the approach to solving those challenges
• Coherent action: coordinated policies, resource commitments, and actions plans for the guiding policy

Just Having a Strategy Is a Strategy

The first truth about strategy is that remarkably, simply having a strategy is a strategy. Most organizations operate reactively to challenges on a day-to-day basis, having only a fuzzy outline of long-term goals that they mistakenly call “strategy.” Often, leaders find it difficult to articulate their organization’s strategy beyond vague plans like “make alliances” or “set strategic goals.”

Interestingly, leaders can often identify the strategy of their competitors more easily than their own. This is especially true if their competitors are market leaders. They can see that a window of opportunity opened and their competitors took advantage of it better than...

Shortform Exercise: Identify Strengths and Weaknesses

Good strategy is often most effective when it reveals unexpected strengths in your own organization and unknown weaknesses in your competition, and pits the first against the second.

What are your organization’s obvious strengths (the ones that are easily identified to outside observers, or the ones you might list in a company description)? What are some hidden strengths of your organization? (Think about strengths that insiders would notice more easily than outsiders—for instance, logistical efficiencies or unique policies that might give you an edge over your competitors.)

Good Strategy Bad Strategy Summary Chapter 2: The Elements and Causes of Bad Strategy

Now that we’ve explored a bit of what makes good strategy, let’s look at what makes bad strategy. In this chapter, we’ll examine four elements that can create misguided strategy:

1. Fluff: Bad strategy relies on unnecessarily grandiose phrasing and vocabulary to create an illusion of expertise.
2. Failure to identify the challenge: Bad strategy does not properly define the specific challenge the organization faces. When you don’t explicitly name the problem, you can’t properly address it.
3. Conflation of goals with strategy: Bad strategy focuses on profit or performance goals instead of methods to overcome challenges.
4. Misguided strategic objectives: Bad strategy tries to focus on too many objectives. It also chooses unrealistically ambitious objectives but does not provide useful guidance on how to achieve them.

We’ll also look at some forces driving the creation of so much bad strategy today, focusing on three causes:

1. The inability to choose between priorities
2. The lure of strategy-by-template
3. The false promise of positive thinking

The Four Elements of Bad Strategy

Bad strategy is not simply the absence of any strategy, nor is it...

Good Strategy Bad Strategy Summary Part 2: Strategies Behind Good Strategy | Chapter 3: Using Your Strengths

We’ve now explored what makes good strategy as well as what makes bad strategy. In the following chapters, we’ll look more closely into the specific things you can do to develop good strategy. These include:

• Using your strengths (leveraging your strengths and pressing your advantages)
• Looking for internal weaknesses (including weak links, inertia, and entropy)
• Choose the right goals and objectives (narrow your focus, choose feasible objectives, and don’t chase growth)
• Treat your strategy like a design
• Anticipate change

We’ll then look at Nvidia’s strategy as a case study of how to successfully put all of these actions together.

When crafting good strategy, start by identifying your strengths and figuring out how you can use them to increase your competitive advantages. You can do this by leveraging your strengths onto one pivot point, and by pressing your advantages by increasing them, broadening their influence, or increasing demand for them. These concepts are explored further below.

Leverage Your Strengths

One way to develop good strategy is to look for how you can leverage your strengths. In the same way that a lever...

Good Strategy Bad Strategy Summary Chapter 4: Look for Internal Weaknesses

When crafting good strategy, you must not only focus on your strengths, but you must also be aware of your weaknesses. These weaknesses might be a weak link in your operations (a department that’s not functioning properly or a product that’s bleeding profits) or it may be the development of organizational inertia or entropy (stasis or disorganization). This chapter will explore these ideas further.

Watch for Weak Links

When planning your organization’s strategy, focus not only on your opponent’s weakness but also on your own. Think of your organization as a chain; the chain as a whole isn’t strong if it has an internal weakness—a weak link—that might one day break it. Examine your organization for such a weakness, and once you’ve identified it, focus on strengthening that.

If you don’t focus on your weakness, not only will you leave yourself vulnerable to future failure, but additionally, focusing resources on already-strong areas may actually make your organization weaker. Strengthening already-strong links while neglecting weak ones will divert resources from where they’re needed most to an area that will not ultimately earn you a high return on investment: Adding...

Good Strategy Bad Strategy Summary Chapter 5: Choose the Right Goals and Objectives

When creating your strategy, choose one or two narrow goals and don’t be distracted by other goals that will only serve to spread your resources and focus. Don’t mistake growth as a goal: Growth is a sign of a healthy company but it’s not a strategic goal in and of itself.

Then, choose feasible objectives that you can reasonably expect to achieve in pursuit of your goal.

These concepts are explored in the following sections.

Narrow Your Focus

At its heart, good strategy is about focus: A leader must identify one or two critical goals for her organization and then come up with a plan to direct actions and resources at these goals, to the exclusion of other, less-critical goals that might distract from this focus. By limiting her strategy’s focus, she increases the likelihood of reaching those goals, rather than trying to take on too much.

Strategic focus works in two directions: internally and externally. To focus your efforts internally, get rid of policies and aims that don’t support your primary goal. To focus your efforts externally, direct them at a specific, defined target. Often, a company will accomplish this by narrowing its target market down to a smaller...

Shortform Exercise: Create Feasible Objectives

A good strategy will focus on achievable, realistic objectives that enable it to reach its larger, more overarching goals.

Name one long-term goal of your organization. (Be as specific as possible; avoid general statements like “long-term success” and focus more on a specific way your organization can differentiate itself in the marketplace or something specific that it can accomplish.)

Good Strategy Bad Strategy Summary Chapter 6: Treat Your Strategy Like a Design

A good strategy is a well-integrated, tight design made up of parts (divisions, resources, initiatives, and so on) working together to form a coherent whole. Good performance is the result of a clever strategy design efficiently harnessing an organization’s resources and capabilities to produce a competitive advantage.

Think of strategy design as building a car: While any collection of car parts can be pieced together to form a drivable vehicle, a recognizably branded car is more than simply the sum of its parts. Its pieces are purposefully chosen to carry out a specific design, just as the pieces of a strategy should work together to achieve a specific objective.

Strategy must be designed with two points of view in mind: your customer and your competitor. You must design the strategy not only with the preferences of your customer in mind, but also with the capabilities of your competitor accounted for, so that you can offer something that capitalizes on your strengths in relation to theirs.

Then, in the same way that designs need to be continually tweaked to ensure that all parts are working together properly and that the overall vision offers something unique, **strategy...

Good Strategy Bad Strategy Summary Chapter 7: Anticipate Change

In planning your strategy to position your organization so that competitors will have an uphill battle overtaking it, anticipate fundamental shifts in the landscape and exploit them before others do. Fundamental changes to an existing industry structure can upend existing competitive dynamics and create valuable opportunities for those who are tuned in and ready to exploit them.

Fundamental changes come from many sources:

• Rising resource costs often trigger change, leading to consolidation when only large competitors with economies of scale can afford the higher charges. For example, when color film was introduced, smaller firms that couldn’t afford the research and development they needed to keep up with consumer standards were forced out of the market, and the industry consolidated around a few large players like Kodak and Fuji.
• Deregulation also triggers change. When a government changes the rules for industries like aviation or banking—allowing new competitors and removing price protections, for example—the competitive terrain shifts and opens up opportunities for those who are alert to them. (Companies who enter these markets can do very well, because...

Shortform Exercise: Anticipate Change

Fundamental changes come from a variety of sources including rising costs, deregulation, changes in technology, and changing buyer preferences.

What are some possible changes facing your industry in the next few years?

Good Strategy Bad Strategy Summary Chapter 8: Putting It Together With a Case Study of Nvidia

The trajectory of the 3-D graphics chip company Nvidia illustrates how an organization can use many of the above concepts to craft good strategy and propel itself to success.

Nvidia was formed in 1993 by three executives from other computer-development companies and quickly rose in prominence, ultimately surpassing the more established industry firms and becoming the dominant designer of 3-D graphics chips. To do so, it developed a solid, clear strategy that incorporated many of the techniques discussed here:

• It made an insightful diagnosis of the challenges facing it. Nvidia saw that although there was a lot of buzz about the possibilities of multimedia, the multimedia industry had no standardized technology: Not every computer was compatible with multimedia technologies such as audio and video cards. Thus, a company trying to build a presence in the field would have trouble interacting with a wide variety of users. Nvidia itself wasn’t a large enough company to impose its own standards, so its founders recognized that they couldn’t be competitive in multimedia. They saw that the better bet would be to focus their efforts on developing 3-D graphics chips for...

Good Strategy Bad Strategy Summary Part 3: Strategic Thinking | Chapter 9: How to Think Like a Strategist

Now that we’ve examined a variety of elements that go into the making of good strategy, let’s look at techniques and approaches you can use to incorporate these elements into your own strategic planning. There are three general guidelines you can adopt that will help clarify your thinking:

1. Think like a scientist.
2. Think like an analyst.
3. Avoid common faulty biases.

We’ll explore each of these guidelines in the following sections.

Think Like a Scientist

One approach to developing good strategies is to use the scientific method. The method involves a researcher testing a hypothesis—a prediction of how the world works—by observing if it holds up to experimentation in real life. A strategy is a type of hypothesis, and as strategists, we must measure its value by examining its success in practice—testing if our customers react to a price change as we are hoping, for example.

Often, a hypothesis starts with an “anomaly,” or something that grabs your attention because it represents a difference between what you observe and what you expect. In the world of science this might mean questioning why snow doesn’t melt as fast as you’d expect it to when the...

Shortform Exercise: Make a List of Challenges

The process of crafting good strategy often starts with the basic exercise of making a list of the most important things for your organization to address in the near future.

Make a list of the top challenges facing your organization. This can be a list of just a few things or it can be a dozen.

Shortform Exercise: Put Together a Mental Panel of Critiquers

To avoid becoming committed to a decision that may not be the best choice, test it out by “vetting” it through a mental panel of critiquers made up of people you know well and whose opinions you value.

Make a list of three to five people whose opinions you trust and who have distinctive personalities and views on the world. (Think of people whose reactions you’d be able to predict if you asked for their opinions on world events or business decisions.)