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

by Richard P. Rumelt

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 good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them.

To begin the journey toward clarity, it is helpful to recognize that the words “strategy” and “strategic” are often sloppily used to mark decisions made by the highest-level officials.

good strategy includes a set of coherent actions. They are not “implementation” details; they are the punch in the strategy. A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.

The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.

A good strategy doesn’t just draw on existing strength; it creates strength through the coherence of its design. Most organizations of any size don’t do this. Rather, they pursue multiple objectives that are unconnected with one another or, worse, that conflict with one another.

Not because of secrecy, but because good strategy itself is unexpected.

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.

Behind almost all of these forces and events lay the indirect competitive logic that Marshall and Roche expressed in 1976: use your relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you

To detect a bad strategy, look for one or more of its four major hallmarks: • Fluff. Fluff

Failure to face the challenge.

Mistaking goals for strategy.

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.

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.

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.

(that is, these sorts of broad “goals” work like the rules of football in that they rule out a great many actions without specifying what the team should actually do).

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.

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.

Strategy involves focus and, therefore, choice.

As in the law, disciplined conflict calls forth stronger evidence and reasoning.

But the essential difficulty in creating strategy is not logical; it is choice itself. Strategy does not eliminate scarcity and its consequence—the necessity of choice.

Peter Drucker, one of the foremost thinkers about management, said, “Effective leadership doesn’t depend on charisma. Dwight Eisenhower, George Marshall, and Harry Truman were singularly effective leaders, yet none possessed any more charisma than a dead mackerel.… Charisma does not by itself guarantee effectiveness as a leader.”

I do know that believing that rays come out of your head and change the physical world, and that by thinking only of success you can become a success, are forms of psychosis and cannot be recommended as approaches to management or strategy.

The kernel of a strategy contains three elements: 1. A diagnosis that defines or explains the nature of the challenge.

A guiding policy for dealing with the challenge.

set of coherent actions that are designed to carry out the guiding policy.

great deal of strategy work is trying to figure out what is going on. Not just deciding what to do, but the more fundamental problem of comprehending the situation.

Hence, diagnosis is a judgment about the meanings of facts.

Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it.

There was no way to establish that this particular guiding policy was the only good one, or the best one. But, absent a good guiding policy, there is no principle of action to follow.

General Georges F. Doriot. The INSEAD library holds a bronze statue of Doriot inscribed with his observation “Without action, the world would still be an idea.”

based system. And you want new Pan-European initiatives. Now, you can use a shoe to hammer a nail, but it will take a long time. Don’t you need a different tool for this task?

Indeed, we always hope that a brilliant insight or very clever design will allow us to accomplish several apparently conflicting objectives with a single stroke, and occasionally we are vouchsafed this kind of deliverance.

But decentralized decision making cannot do everything.

In the short term, this may mean attacking a problem or rival with adroit combinations of policy, actions, and resources. In the longer term, it may involve cleverly using policies and resource commitments to develop capabilities that will be of value in future contests.

Phyllis’s insight that “the engineers can’t work without a specification” applies to most organized human effort. Like the Surveyor design teams, every organization faces a situation where the full complexity and ambiguity of the situation is daunting. An important duty of any leader is to absorb a large part of that complexity and ambiguity, passing on to the organization a simpler problem—one that is solvable.

A system has a chain-link logic when its performance is limited by its weakest subunit, or “link.” When there is a weak link, a chain is not made stronger by strengthening the other links.

Chain-link systems can be changed and made excellent. It takes insight into the key bottlenecks.

turning around a chain-link system requires direct leadership and design. Conversely, the excellence achieved by a well-managed chain-link system is difficult to replicate.

Companies that excel at product development and improvement carefully study the attitudes, decisions, and feelings of buyers. They develop a special empathy for customers and anticipate problems before they occur.

Treating strategy like a problem in deduction assumes that anything worth knowing is already known—that only computation is required.

In England, coffeehouses developed a unique culture, far different from that of taverns. In coffeehouses, a penny would buy a table for the day, with entrance permitted to anyone with good clothes. Instead of inebriated revelry, or morose self-reflection, coffeehouses stimulated energetic talk and debate. Books and newspapers were available there, and many people used coffeehouses as their postal addresses.

event, even experienced professionals exhibit predictable biases. For example, people tend to place more weight on vivid examples than on broad statistical evidence.

you cannot perform this kind of clean “decision” analysis. It is too complex, too ill-structured. Thus, the most experienced executives are actually the quickest to sense that a real strategic situation is impervious to so-called decision analysis. They know that dealing with a strategy situation is, in the end, all about making good judgments. So, they make a judgment call.

In strategy work, knowledge is necessary but not sufficient.

In my own case, I rely on outside help—I invoke a virtual panel of experts that I carry around in my mind. This panel of experts is a collection of people whose judgments I value. I use an internal mental dialogue with them to both critique my own ideas and stimulate new ones.

Being independent without being eccentric and doubting without being a curmudgeon are some of the most difficult things a person can do.

There was what I call the smooth-sailing fallacy, where people assume that a lack of recent tremors and storms means that there is no risk.

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.”