Good Strategy Bad Strategy: The Difference and Why It Matters

by Richard P. Rumelt

When price competition took hold, these subsidies diminished fairly quickly, but the newly deregulated players chased what used to be the more profitable segments long after the differential vanished. This happened because of the inertia in corporate routines and mental maps of the terrain, and because of poor cost data. In fact, highly regulated companies do not know their own costs—they will have developed complex systems to justify their costs and prices, systems that hide their real costs even from themselves. It takes years for a formerly regulated company, or a former monopolist, to wring excess staff expense and other costs out of its system and to stop its accountants from making arbitrary allocations of overhead expenses to activities and products. In the meantime, these mental and accounting biases mean that such companies can be expected to wind down some product lines that are actually profitable and continue to invest in some products and activities that offer no real returns.