Book Review, Analysis and Quotes: Good Strategy Bad Strategy by Richard Rumelt.
Having recently listened to Good Strategy, Bad Strategy by Richard Rumelt on Audible I am reminded by why it is considered one of the best books on thinking strategically. Not surprisingly it’s a top 10 best seller on Amazon in Strategy and Competition and is widely recommended as a must read for leaders and CEOs.
One thing I particularly like about the book, is that it can be applied very widely. Many books on strategy are, perhaps unsurprisingly, specifically focussed on business and competitive advantage (such as the seminal work by Michael E. Porter). Rumelt, in contrast, develops a strategic theory and approach that spans sectors and can be applied to pretty much anything in life. At the same time it is not as complex as Game Theory or as hard to apply.
The author has an academic background but he combines his analytic analysis with practical application and writes in a clear and engaging way. In the book Rumelt clearly defines what he means by both good and bad strategy and then illustrates both with insightful examples. His strategic approach is to assess the situation and provide coordinated action to overcome challenges. This is reflected in his approach to the book as within the pages he assesses bad strategy and gives actions to assist the development of good strategy. In essence the method is very simple, and this simplicity is another one of the books strengths.
Book Summary, Quotes and Analysis
Essentially Rumelt defines strategy as a coherent response to a challenge based on insight.
“A strategy coordinates action to address a specific challenge.”
This definition slightly differs from the norm. A usual definition, as found in the Oxford Dictionary, might read: “A plan of action designed to achieve a long-term or overall goal” (2019)
Between the definitions there is commonality on coordinated action but Rumelt emphasises the need to overcome challenges, rather than considering timeframe, in his definition. This is important as he describes what he considers to be either ‘good’ or ‘bad’.
Part 1: Good and Bad Strategy
In Part 1 Rumelt outlines what he means by good and bad strategy and discusses why, in his view, there is a lack of the good. At the end of the section he presents his theory of creating good strategy.
In the book good strategic design is described thus:
“A good strategy defines a critical challenge. What is more, it builds a bridge between that challenge and action, between desire and immediate objectives that lie within grasp.”
Whereas a bad stratagem is explained as:
“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 impracticable. It uses high-sounding words and phrases to hide these failings.”
This type of stratagem is described as a “dog’s dinner of strategic objectives” and full of “fluff”. Fluff a string of complex sounding words “masking an absence of substance.” On closer inspection, fluffy words and strategies do not actually amount to anything.
One problem highlighted is that poor planning often stems from a focus on vision and values statements (which as also often fluff) without acknowledging the situation or actions needed to progress. This I would agree to, but I also still believe that vision and values statements are very important (when done well) to help inspire action and give a framework for decision making.
Poor strategists also fail to identify and overcome challenges:
“Bad strategy may actively avoid analyzing obstacles because a leader believes that negative thoughts get in the way. Leaders may create bad strategy by mistakenly treating strategy work as an exercise in goal setting rather than problem solving. Or they may avoid hard choices because they do not wish to offend anyone—generating a bad strategy that tries to cover all the bases rather than focus resources and actions.”
Again, this is something I would agree with. The emphasis on situational analysis (identifying the challenges and opportunities) is key to the Strategic Framework in the Right Questions approach to ensure that there is not vision without an overarching plan.
The Kernel of Good Strategy
The core thesis in summed up in chapter 5 in this way:
“The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.”
Firstly Rumelt outlines the importance of situational analysis. He argues that the key question to situational awareness, and therefore crucial to effective strategic thinking, is: what’s going on?
The opportunity is this: “The big ‘aha’ to gain sustainable competitive advantage—in other words, a significant, meaningful insight about how to win.”
Then, in Rumelt’s words:
“To obtain higher performance, leaders must identify the critical obstacles to forward progress and then develop a coherent approach to overcoming them.”
The author does not suggest any particular approaches, apart from using good questions, to do the situational analysis. I think that the SWOT analysis – although being so well known it is often scorned – can be a really useful tool to help accomplish this stage.
Once this diagnosis has taken place the next step is to create a guiding policy. A guiding policy is about coordinating and focussing action.
“The core of strategy work 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.”
The third part is about coherent action. Rumelt states:
“Many people call the guiding policy “the strategy” and stop there. This is a mistake. Strategy is about action, about doing something. The kernel of a strategy must contain action.”
There is an interesting comparison to make between Rumelt’s kernel and John Boyd’s decision cycle, the OODA loop. Rumelt has approached a process from a strategic and longer-term view, Boyd from a tactical view, based on the quick decisions needed by fighter pilots, but the overlap in terms of decision making is obvious. The Diagnosis of Rumelt’s approach relates to Observation and Orientation in Boyd’s model. Subsequently Guiding Policy can be seen as equivalent to the Decision stage of the loop. The similarity of Coherent Action to Action is self-explanatory.
Part 2: Sources of Power
The next section, Sources of Power, outlines practical strategic approaches and how they can be applied. The principles expounds are:
- Using Leverage
- Proximate Objectives
- Chain-link Systems
- Using Design
- Using Advantages
- Using Dynamics
- Inertia and Entropy
In the final chapter of the section, Putting it Together, Rumelt applies his own theory and ‘sources of power’ to the case study of Nvidia, the computer company who rode the curve in demand for 3D graphics in their surge to success.
I have included some comment below on the chapters and concepts I found most helpful.
“A strategy is like a lever that magnifies force.”
He describes strategic leverage as the having the following:
- Insight as to where to apply
- Focussed application
In this idea he somewhat unifies the approach to strategic thinking across the corporate and military or political spheres:
“The most basic idea of strategy is the application of strength against weakness. Or, if you prefer, strength applied to the most promising opportunity.”
The idea of leverage links nicely to the concept of focus, which is another chapter that had key insights. As Rumelt notes:
“Strategy is mainly about focus.” And “the deeper meaning of focus—a concentration and coordination of action and resources that creates an advantage.”
Focussing resources, be that time, money, people or anything else is key. Many so-called strategies actually just spread resources thinly across an organisation in an uncoordinated way. This might maintain operations but it does not seize an opportunity, press an advantage or create growth.
The concept of growth is important, but growth is not strategy in itself: “(The CEO’s) “Grow by 50 percent” is classic poor strategy. It is the kind of nonsense that passes for strategy in too many companies. First, he was setting a goal, not designing a way to deal with his company’s challenge. Second, growth is the outcome of a successful strategy,”
Inertia and Entropy
Growth can bring it’s own challenges, as seen in the chapter on inertia and entropy as large organisations frequently suffer from negative sides of these inertia.
The downside of focussing resources to one part of an organisation is that some other parts of the same organisation will have less. I have found that effecting change in large, institutional organisations, there is considerable inertia that limits the speed of change.
Most of the most damaging things can be internal departments competing due to their fear of losing out. This undermines the focussed application of resources. To overcome this you need to crisis and sense of urgency that Kotter states that you need to lead change (1996). As Rumelt points out:
“Strategies focus resources, energy, and attention on some objectives rather than others. Unless collective ruin is imminent, a change in strategy will make some people worse off. Hence, there will be powerful forces opposed to almost any change in strategy. This is the fate of many strategy initiatives in large organizations.”
Achieving coordinated action is the key. When a large organisation is pulling together in the same direction you get the positives or inertia – a momentum that is hard to stop.
Part 3: Thinking like a Strategist
The final part of the book takes the approach from ‘doing’ to a way of ‘being’. Developing a stratagem is a process but being a strategist encompasses a way of thinking.
An element of that thinking is being alive to opportunity:
“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 opportunities.”
There is a science to thinking strategically, but the art of strategy comes through experience (Dixit, Nalebuff: 2008) and applying knowledge gained through lessons and mistakes.
“A hallmark of true expertise and insight is making a complex subject understandable.”
In this sense Rumelt shows his true expertise as a strategist as his book makes the subject matter clear and easy to digest.
The simple concept of the kernel of a strategy and the three elements of: a diagnosis, a guiding policy, and coherent action, sum up his approach and provide a useful model for those wanting to develop strategy or think strategically.
To that end Good Strategy Bad Strategy should be on every leaders’ reading list. Leadership, strategy and decision-making are all intrinsically linked and any reading and research into one will aid the others.
For further reading or listening you can check out these resources:
Boyd, J R. (1995) The Essence of Winning and Losing, 28 June 1995 a five slide set by Boyd.
Dixit A K and Nalebuff B J (2008) The Art of Strategy, W W Norton and Company
Kotter, J P (1996) Leading Change, Boston: Harvard Business School Press
Oxford (2019) Lexico, Dictionary, https://www.lexico.com/en
Porter, M E. (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitor, New York: Free Press