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

by Richard P. Rumelt

The diagnosis for the situation should replace the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects. This simplified model of reality allows one to make sense of the situation and engage in further problem solving. Furthermore, a good strategic diagnosis does more than explain a situation—it also defines a domain of action. Whereas a social scientist seeks a diagnosis that best predicts outcomes, good strategy tends to be based on the diagnosis promising leverage over outcomes. For instance, we know from research that K–12 student performance is better explained by social class and culture than by expenditures per student or class size, but that knowledge does not lead to many useful policy prescriptions. A very different strategic diagnosis has been provided by my UCLA colleague Bill Ouchi. His book Making Schools Work diagnoses the challenge of school performance as one of organization rather than as one of class, culture, funding, or curriculum design.3 Decentralized schools, he argues, perform better. Now, whether the organization of a school system explains most of the variations in school performance is not actually critical. What is critical, and what makes his diagnosis useful to policy makers, is that organization explains some part of school performance and that, unlike culture or social class, organization is something that can be addressed with policy.