Good Strategy Bad Strategy: The Difference and Why It Matters

by Richard P. Rumelt

Instead, a talented leader identifies the one or two critical issues in the situation—the pivot points that can multiply the effectiveness of effort—and then focuses and concentrates action and resources on them.

The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.

A leader’s most important responsibility is identifying the biggest challenges to forward progress and devising a coherent approach to overcoming them.

A good strategy recognizes the nature of the challenge and offers a way of surmounting it.

There were numerous high-sounding goals—freedom, democracy, reconstruction, security—but no coherent strategy for dealing with the insurgency. The change came in 2007. Having just written the Army/Marine Corps Counterinsurgency Field Manual, General David Petraeus was sent to Iraq, along with five additional brigades of troops. But more than the extra soldiers, Petraeus was armed with an actual strategy. His idea was that one could combat an insurgency as long as the large preponderance of civilians supported a legitimate government. The trick was to shift the military’s focus from making patrols to protecting the populace. A populace that was not in fear of insurgent retaliation would provide the information necessary to isolate and combat the insurgent minority.

Bad strategy tends to skip over pesky details such as problems. It ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Like a quarterback whose only advice to teammates is “Let’s win,” bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values.

Many organizations, most of the time, don’t have this. Instead, they have multiple goals and initiatives that symbolize progress, but no coherent approach to accomplishing that progress other than “spend more and try harder.”

Of course you have to cut back and simplify to your core to climb out of a financial nosedive.

The power of Jobs’s strategy came from directly tackling the fundamental problem with a focused and coordinated set of actions. He did not announce ambitious revenue or profit goals; he did not indulge in messianic visions of the future. And he did not just cut in a blind ax-wielding frenzy—he redesigned the whole business logic around a simplified product line sold through a limited set of outlets.

My interview plan was simple: I asked each executive to identify the leading competitor in their business. I asked how that company had become the leader—evoking

They were making alliances, they were doing 360-degree feedback, they were looking for foreign markets, they were setting challenging strategic goals, they were moving software into firmware, they were enabling Internet updates of firmware, and so on. They had each told me the formula for success in the 1990s electronics industry—take a good position quickly when a new window of opportunity opens—but none said that was their focus or even mentioned it as part of their strategy.

Instead, he was actually focused on the sources of and barriers to success in his industry—recognizing the next window of opportunity, the next set of forces he could harness to his advantage, and then having the quickness and cleverness to pounce on it quickly like a perfect predator.

The best answer to this puzzle is that the real surprise was that such a pure and focused strategy was actually implemented. Most complex organizations spread rather than concentrate resources, acting to placate and pay off internal and external interests. Thus, we are surprised when a complex organization, such as Apple or the U.S. Army, actually focuses its actions. Not because of secrecy, but because good strategy itself is unexpected.

Schwarzkopf had to suppress the ambitions and desires of the air force, marines, various army units, each coalition partner, and the political leadership in Washington. For example, the U.S. Army’s best light infantry—the Eighty-Second Airborne—was tasked with providing support to French armor and infantry, an assignment its leadership protested. Eight thousand U.S. Marines waited on ships to land on the beaches of Kuwait City, but did not. It was a diversion. Air force commanders wanted to demonstrate the value of strategic bombing—they believed that the war could be won by air attacks on Baghdad—and had to be forced against strenuous protest to divert their resources to fully support the land offensive. Secretary of Defense Dick Cheney wanted the mission accomplished with a smaller force and detailed an alternative plan of attack.

Having conflicting goals, dedicating resources to unconnected targets, and accommodating incompatible interests are the luxuries of the rich and powerful, but they make for bad strategy. Despite this, most organizations will not create focused strategies. Instead, they will generate laundry lists of desirable outcomes and, at the same time, ignore the need for genuine competence in coordinating and focusing their resources. Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organization does not do as it is about what it does.

Half of what alert participants learn in a strategy exercise is to consider the competition even when no one tells you to do it in advance.

Many competitors do not have much of a design, shaping each of their elements around some imagined “best practice” form. Others will have more coherence but will have aimed their designs at different purposes. In either case, such competitors will have difficulty in dealing with Wal-Mart. Copying elements of its strategy piecemeal, there will be little benefit. A competitor would have to adopt the whole design, not just a part of it.

A regional network of 150 stores serves a population of millions! Walton didn’t break the conventional wisdom; he broke the old definition of a store.

When you understand that Walton redefined the notion of “store,” your view of how Wal-Mart’s policies fit together undergoes a subtle shift. You begin to see the interdependencies among location decisions. Store locations express the economics of the network, not just the pull of demand. You also see the balance of power at Wal-Mart. The individual store has little negotiating power—its options are limited. Most crucially, the network, not the store, became Wal-Mart’s basic unit of management.

the doctrine of decentralization, that each kettle should sit on its own bottom. Kmart had long adhered to this doctrine, giving each store manager authority to choose product lines, pick vendors, and set prices. After all, we are told that decentralization is a good thing. But the oft-forgotten cost of decentralization is lost coordination across units.

Decentralization often requires coordination across nodes

Stores that do not share detailed information about what works and what does not cannot benefit from one another’s learning.

most important, it argued that having a true competitive strategy meant engaging in actions that imposed exorbitant costs on the other side. In particular, it recommended investing in technologies that were expensive to counter and where the counters did not add to Soviet offensive capabilities.

the terrible simplicity of the discovery of hidden power in a situation.

use your relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you.

Fluff. Fluff is a form of gibberish masquerading as strategic concepts or arguments. It uses “Sunday” words (words that are inflated and unnecessarily abstruse) and apparently esoteric concepts to create the illusion of high-level thinking. Failure to face the challenge. Bad strategy fails to recognize or define the challenge. When you cannot define the challenge, you cannot evaluate a strategy or improve it. Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles. Bad strategic objectives. A strategic objective is set by a leader as a means to an end. Strategic objectives are “bad” when they fail to address critical issues or when they are impracticable.

Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impracticable. It uses high-sounding words and phrases to hide these failings.

A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity—a flurry of fluff masking an absence of substance.

A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy.

The overall “strategy” was to increase the company’s market share in each market, cut costs in each business, and thereby ramp up revenue and profit.

If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.

The current fill-in-the-blanks template starts with a statement of “vision,” then a “mission statement” or a list of “core values,” then a list of “strategic goals,” then for each goal a list of “strategies,” and then, finally, a list of “initiatives.” (Template-style strategy is explored further in chapter 4, “Why So Much Bad Strategy?”)

Here is DARPA’s own statement of a fundamental problem its strategy addresses: A basic challenge for any military research organization is matching military problems with technological opportunities, including the new operational concepts those technologies make possible. Parts of this challenge are extremely difficult because: (1) some military problems have no easy or obvious technical solutions; and (2) some emerging technologies may have far-reaching military consequences that are still unclear. DARPA focuses its investments on this “DARPA-hard” niche—a set of technical challenges that, if solved, will be of enormous benefit to U.S. national security, even if the risk of technical failure is high.7

DARPA’s strategy is more than a general direction. It includes specific policies that guide its everyday actions. For example, it retains program managers for only four to six years to limit empire building and to bring in fresh talent. The expectation is that a new program manager will be willing to challenge the ideas and work of predecessors.

DARPA’s surprising strategy has a shape and structure common to all good strategy. It follows from a careful definition of the challenge. It anticipates the real-world difficulties to be overcome. It eschews fluff. It creates policies that concentrate resources and actions on surmounting those difficulties.

A strategy is like a lever that magnifies force. Yes, you might be able to drag a giant block of rock across the ground with muscles, ropes, and motivation. But it is wiser to build levers and wheels and then move the rock. I tried again: “Chad, when a company makes the kind of jump in performance your plan envisions, there is usually a key strength you are building on or a change in the industry that opens up new opportunities. Can you clarify what the point of leverage might be here, in your company?”

Strategic objectives should address a specific process or accomplishment, such as halving the time it takes to respond to a customer, or getting work from several Fortune 500 corporations.

said. “I see where you are coming from. Give me some time to look over these numbers.” In truth, I didn’t really need to study the numbers. What I needed was some time to think about my own approach to helping Logan.

The job of the leader is also to create the conditions that will make that push effective, to have a strategy worthy of the effort called upon.

work to discover the very most promising opportunities for the business. Those opportunities may be internal, fixing bottlenecks and constraints in the way people work, or external. To do this, you should probably pull together a small team of people and take a month to do a review of who your buyers are, who you compete with, and what opportunities exist. It’s normally a good idea to look very closely at what is changing in your business, where you might get a jump on the competition. You should open things up so there are as many useful bits of information on the table as possible. If you want, I can help you structure some of this process and, maybe, help you ask some of the right questions. The end result will be a strategy that is aimed at channeling energy into what seem to be one or two of the most attractive opportunities, where it looks like you can make major inroads or breakthroughs.

business competition is not just a battle of strength and wills; it is also a competition over insights and competencies.

To obtain higher performance, leaders must identify the critical obstacles to forward progress and then develop a coherent approach to overcoming them. This may require product innovation, or new approaches to distribution, or a change in organizational structure. Or it may exploit insights into the implications of changes in the environment—in technology, consumer tastes, laws, resource prices, or competitive behavior. The leader’s responsibility is to decide which of these pathways will be the most fruitful and design a way to marshal the organization’s knowledge, resources, and energy to that end. Importantly, opportunities, challenges, and changes don’t come along in nice annual packages. The need for true strategy work is episodic, not necessarily annual.

If you are a midlevel manager, your boss sets your goals. Or, if you work in an enlightened company, you and your boss negotiate over your goals. In either setting, it is natural to think of strategies as actions designed to accomplish specific goals. However, taking this way of thinking into a top-level position is a mistake. Being a general manager, CEO, president, or other top-level leader means having more power and being less constrained. Effective senior leaders don’t chase arbitrary goals. Rather, they decide which general goals should be pursued. And they design the subgoals that various pieces of the organization work toward. Indeed, the cutting edge of any strategy is the set of strategic objectives (subgoals) it lays out. One of the challenges of being a leader is mastering this shift from having others define your goals to being the architect of the organization’s purposes and objectives.

to use the word “goal” to express overall values and desires and to use the word “objective” to denote specific operational targets. Thus, the United States may have “goals” of freedom, justice, peace, security, and happiness. It is strategy which transforms these vague overall goals into a coherent set of actionable objectives—defeat the Taliban and rebuild a decaying infrastructure. A leader’s most important job is creating and constantly adjusting this strategic bridge between goals and objectives.

The recent rapid growth of Whole Foods was putting increasing pressure on the local specialty shops that had been Chen Brothers’ target market. Accordingly, management was formulating a new strategy of linking together small local food producers under a common brand that could be sold through Whole Foods. This change in strategy had no impact on the company’s overall goals, but clearly meant a radical restructuring of its current strategic objectives.

“Whole Foods” team that combined production, marketing, advertising, distribution, and financial expertise. The team was entirely focused on the objective of making Chen Brothers’ most distinctive new product a national account at Whole Foods. Once that was accomplished, further objectives concerning other products, shelf space, and market share would be set. Chen Brothers did not fall into the trap of believing that strategy is a grand vision or a set of financial goals. Instead, management had skillfully designed a “way forward” that concentrated corporate attention on one or two important objectives. Once accomplished, new opportunities would open up and more ambitious objectives could be set.

Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes. One form of bad strategic objectives occurs when there is a scrambled mess of things to accomplish—a “dog’s dinner” of strategic objectives. A long list of “things to do,” often mislabeled as “strategies” or “objectives,” is not a strategy. It is just a list of things to do. Such lists usually grow out of planning meetings in which a wide variety of stakeholders make suggestions as to things they would like to see done. Rather than focus on a few important items, the group sweeps the whole day’s collection into the “strategic plan.” Then, in recognition that it is a dog’s dinner, the label “long-term” is added so that none of them need be done today.

The second form of bad strategic objectives is one that is “blue sky.” A good strategy defines a critical challenge. What is more, it builds a bridge between that challenge and action, between desire and immediate objectives that lie within grasp. Thus, the objectives a good strategy sets should stand a good chance of being accomplished, given existing resources and competence. (See the discussion of proximate objectives in chapter 7.) By contrast, a blue-sky objective is usually a simple restatement of the desired state of affairs or of the challenge. It skips over the annoying fact that no one has a clue as to how to get there.

The purpose of good strategy is to offer a potentially achievable way of surmounting a key challenge. If the leader’s strategic objectives are just as difficult to accomplish as the original challenge, there has been little value added by the strategy.

When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance. Unless leadership offers a theory of why things haven’t worked in the past, or why the challenge is difficult, it is hard to generate good strategy.

Bad strategy flourishes because it floats above analysis, logic, and choice, held aloft by the hot hope that one can avoid dealing with these tricky fundamentals and the difficulties of mastering them.