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

by Richard P. Rumelt

There is social herding. When we don’t know about something, it may be sensible to look at the behavior of others, assuming that at least some of them know things that we do not. But if everyone else is doing the same, then this process of mutual calibration can result in all the members of a group undertaking uninformed actions or believing that the “other guy” is paying attention to fundamentals. 5. Finally, there is the inside view, a label given by Nobel laureate Daniel Kahneman and coauthor Dan Lovallo to the tendency to ignore related pertinent data—to believe that “this case is different.”7 The fourth and fifth problems—social herding and the inside view—deserve special attention, especially with regard to the 2008 financial crisis. An important virtue of a good leader is putting the situation in perspective and having cool-minded judgment. Both virtues help mitigate the bias inherent in social herding and the inside view. The inside view describes the fact that people tend to see themselves, their group, their project, their company, or their nation as special and different. Thus, for example, many people are aware of today’s outside-view statistic that talking on a cell phone while driving increases your accident risk by a factor of five—about the same as being drunk. But the inside view of the situation is “I am a good driver; those statistics don’t apply to me.” Similarly, we know that although most new restaurants fail, each entrepreneur thinks his or her new r...