Business: Good Strategy, Bad Strategy - Richard Rumelt


May 19th, 2021

42 mins 29 secs

Season 5

Your Hosts

About this Episode

Good strategy, bad strategy: The difference, and why it matters

By Richard Rumelt

Key insights

  • Strategy =/= ambitious goal setting, vision, charisma

Around the 60’s, many authors started ascribing leader’s success to their vision, combined with their charisma. This has resulted in a lot of bad strategy, based on ambitious goal setting. Example: 20/20 plan - 20% growth with 20% profit margin.

Often a goal or a vision can be a perfectly fine starting point for a strategy. However, the strategy itself must include precise information on how these goals will actually be achieved.

Example: warzone

  • Every good strategy has the same foundation: a diagnosis, a guiding policy and a set of coherent actions

Diagnosis: What is the challenge to be overcome? Often requires focus on critical elements to simplify complex realities

A guiding policy is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis. Like the guardrails on a highway, the guiding policy directs and constrains action in certain directions without defining exactly what shall be done.

A set of coherent actions dictate how the guiding policy will be carried out. The actions should be coherent, meaning the use of resources, policies, and maneuvers that are undertaken should be coordinated and support each other (not fight each other, or be independent from one another).

A good strategy demands that you make a choice, based on your diagnosis (strengths, weaknesses). Example: Bonsai

Good strategy vs bad strategy
-Good strategy identifies the key challenge to overcome. Bad strategy fails to identify the nature of the challenge.
-Good strategy includes actions to take to overcome the challenge. Actions are not “implementation” details
-Good strategy is designed to be coherent – all the actions an organization takes should reinforce and support each other. Leaders must do this deliberately and coordinate action across departments. Bad strategy is just a list of “priorities” that don’t support each other, at best, or actively conflict with each other, undermine each other, and fight for resources, at worst.

Good strategy is about focusing and coordinating efforts to achieve an outcome, which necessarily means saying “No” to some goals, initiatives, and people.

  • Developing a strategy is not a one-time-exercise.

The only constant in any situation is change. Your action points, and maybe even your strategy will need to adapt to this change. Change can come from technology, industry trends or competitors. Next to adapting to change, it is also possible to use change to your advantage.

Example: The author once asked Steve Jobs how he was going to compete against the Win-tel standard in the personal computer industry. His answer was - ‘I’m not going to, I’m going to wait for the next big thing in the tech industry, and take it’.

  • A good strategy maximises your competitive advantage by limiting your rivals’ opportunities and maximising your resources.

  • Approach strategy like science, start with a hypothesis and continue to test your hypotheses.

  • Once in a while, it pays off to stop doing and reflect on your priorities, example: interview of the CEO.