Good Strategy Bad Strategy: The Difference and Why It Matters

by Richard P. Rumelt

One example of good strategy in which you can see the coordinated elements of design is the U.S. heavy-truck business. Daimler AG is the market-share leader (38 percent). It got that large by buying Ford’s troubled heavy-truck business in 1977. The next largest producer is Paccar (25 percent), followed by Volvo (20 percent), and then Navistar (16 percent). Plumb in the middle of a low-growth, mature, very competitive industry, Paccar nevertheless turns in a solid performance. Its return on equity over the past twenty years has averaged 16 percent, compared with an average return of 12 percent earned by its competitors. Even more important, Paccar’s profits have been remarkably stable in an industry plagued by strong upswings and downswings in demand. Paccar has not lost money since 1939, and its profit roll continues despite the recession of 2008–9. The driving element in Paccar’s strategy is quality, with its Kenworth and Peterbilt brands widely recognized as the highest-quality trucks made in North America. Paccar has received J. D. Power awards for its heavy trucks and for its service. The company prices accordingly, maintaining its strong market position despite premium prices. How can you sell a truck at a premium price? In theory it is simple—your trucks have to run better and last longer so that the owner’s cost to operate the truck is lower.