Good Strategy Bad Strategy: The Difference and Why It Matters

by Richard P. Rumelt

increasing value requires a strategy for progress on at least one of four different fronts: deepening advantages, broadening the extent of advantages, creating higher demand for advantaged products or services, or strengthening the isolating mechanisms that block easy replication and imitation by competitors.

guidepost demarks an industry transition induced by escalating fixed costs. The second calls out a transition created by deregulation. The third highlights predictable biases in forecasting. A fourth marks the need to properly assess incumbent response to change. And the fifth guidepost is the concept of an attractor state.

In business, inertia is an organization’s unwillingness or inability to adapt to changing circumstances.

Similarly, weakly managed organizations tend to become less organized and focused. Entropy makes it necessary for leaders to constantly work on maintaining an organization’s purpose, form, and methods even if there are no changes in strategy or competition.

Leaders must diagnose the causes and effects of entropy and inertia, create a sensible guiding policy for effecting change, and design a set of coherent actions designed to alter routines, culture, and the structure of power and influence.

“grow by 50 percent” is classic bad 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, and attempts to engineer growth are exercises in magical thinking. In this case, the growth SGI engineered was accomplished by rolling up a number of other firms whose workstation strategies had also run out of steam.

process of learning—hypothesis, data, anomaly, new hypothesis, data, and so on—is called scientific induction and is a critical element of every successful business.

“Let’s start with what you are trying to accomplish here. What is the purpose of the Advanced Structures division?”

ask about his experiences in trying to combine these skills or to jointly sell these capabilities. I ask about the competition. I ask about his division’s competitive strengths and its weaknesses. I ask him to describe the most difficult management issues he faces.

benefit was not from the list itself. It came from actually constructing the list. The idea that people have goals and automatically chase after them like some kind of homing missile is plain wrong.

For some it is recognizing advantage; for others it is understanding industry structure. For some it is identifying important trends; for others it is erecting barriers to imitation. Yet, there is a more fundamental challenge common to all contexts.

Create-Destroy

“What is wrong with this approach to the situation? What would you do in this case?”