Good Strategy/Bad Strategy: The difference and why it matters

by Richard P. Rumelt

For centuries, mathematicians believed that within any axiomatic system—such as geometry, arithmetic, or algebra—every statement was either true or false. In 1931, Viennese mathematician Kurt Gödel proved that this intuition was wrong. He showed that sufficiently complex logical systems are “incomplete.” That is, they contain statements and propositions that cannot be judged true or false within the logic of the system. To judge their truth one most look beyond the system to outside knowledge.4 I believe this idea applies, metaphorically, to human systems. Specifically, when executives and experts invest and manage solely based on recent stock market signals, the flow of information from corporate investment decisions to traders to stock prices and then back to corporate decisions becomes a closed circle. The “axiom” of market accuracy anchors the circle’s center. In the fiber-optic business, this closure was sealed because analysts measured “growth” by looking at increases in installed capacity. Within that closed system, a question such as “Are transatlantic cables an overcapacity commodity business?” became what Kurt Gödel would call an un-decidable proposition. To answer this question one would have to look outside the closed system and make an independent estimate of the situation.