Good Strategy, Bad Strategy:
The Difference and Why It Matters
by Richard P. Rumelt
2011’s most original addition to the strategy bookshelf was Richard P. Rumelt’s Good Strategy, Bad Strategy: The Difference and Why It Matters. Rumelt is a long-time strategy professor at UCLA, and before that at Harvard Business School, where he wrote a landmark work of scholarship and empirical rigour, Strategy, Structure, and Economic Performance (Harvard University Press, 1974), which was based on his prize-winning doctoral dissertation.
This book, however, takes a decidedly different tone. It is informal and personal, sprinkled with anecdotes and opinions, which are often contrarian. It is as if Rumelt decided, after years of scholarly restraint, to write a book that laid out exactly what he had learned and observed over the past four decades.
It is also a wide-ranging exploration, moving from business to politics to aerospace to the military, from the ancient to the modern, from diversified public corporations to family businesses, that places strategy in a broad context.
Candour and simplicity
Unlike the many authors of business books and articles who use elaborate phrases and neologisms, Rumelt prefers candour and simplicity at every turn – beginning with the title.
Duke Ellington was once asked to define jazz, and he famously replied: “There are only two kinds of music. Good music, and the other kind.” He felt no need to complicate matters with lots of theory and abstract concepts, and Rumelt clearly feels the same way about corporate strategy.
Rumelt urges us to set aside fine-grained distinctions and unnecessary complications, in order to focus on the simplest distinction of all – good and bad. He has seen so much bad thinking about strategy that this basic dichotomy is important. It’s a way to remind us that for all the efforts we make to complicate things, good strategy is not all that complicated. If we can just avoid bad thinking and foolishness, we’re much of the way there.
What are the elements of bad strategy? Rumelt points to four:
- the failure to face the challenge
- mistaking goals for strategy
- bad strategic objectives
At its root, bad strategy reflects an inability to think clearly and to make sound choices based on analysis. The author dismisses those who would substitute wishful thinking for careful analysis, epitomised in his opinion of the New Thought movement, which goes back to the 1800s but has surfaced more recently as the power of positive thinking and banishing negative thoughts.
Shared visions of success cannot be the basis of strategy, says Rumelt, because “all analysis starts with the consideration of what may happen, including unwelcome events. I would not care to fly in an airplane designed by people who focused only on an image of a flying airplane and never considered models of failure.”
Regarding vision and mission statements, Rumelt finds that they represent a “class of verbiage [that] is the mutant offspring of charismatic, then transformational, leadership. In reality, these are the flat-footed attempts of organisation men to turn the magic of personal charisma into a bureaucratic concept – charisma-in-a-can.”
So what is good strategy? It requires three things: a diagnosis that defines the challenge; a guiding policy for dealing with the challenge, and a set of coherent actions designed to carry out that policy. To help navigate the way forward, Rumelt offers numerous “guideposts”:
- vigilance about escalating fixed costs
- awareness of transitions caused by deregulation
- predictable biases in forecasting that draw on behavioural economics, and
- anticipation of incumbent responses.
Sound strategic decisions are not enough, however; execution is essential, too. “Strategy is about action, about doing something. The kernel of a strategy must contain action,” writes Rumelt. “To have punch, actions should coordinate and build upon one another, focusing organisational energy.”
Good strategy calls for effective management and concerted efforts to combat entropy. It calls for the discipline needed to identify low performers and raise the level of overall performance. One “cannot fully understand the value of the daily work of managers unless one accepts the general tendency of unmanaged human structures to become less ordered, less focused, and more blurred around the edges”, writes Rumelt.
He admires Alfred P. Sloan of General Motors Company, who insisted on a rigorous review to analyse performance and take action, writing: “Sloan’s product policy is an example of design, of order imposed on chaos. Making such a policy work takes more than a plan on a piece of paper. Each quarter, each year, each decade, corporate leadership must work to maintain the coherence of the design.”
A liberating message
Anyone hoping for a simple formula for strategic success will be disappointed. But in fact the message of Good Strategy, Bad Strategy is liberating. It reminds us that strategy need not be complicated. It’s not rocket science. And furthermore, you can spot the nonsense, simplify, and clarify.
“A good strategy is, in the end, a hypothesis about what will work. Not a wild theory, but an educated judgment,” concludes Rumelt. “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 insights.”