Good Strategy, Bad Strategy

Dec 21 2021
Richard P. Rumelt

This was another good read for the end of 2021.

Many designers talk about wanting to become more strategic or be involved in more strategic work, but after reading this I get the impression most of us don't know what we mean when we say that.

Paired with Thinking in Systems, this book should give designers a solid foundation and new vocabulary to higher-altitude discussions and projects.


The main argument on the book is that when most people talk about strategy, or being strategic, they are only using pretty words without much substance.

The author argues that a good strategy is a set of coordinated actions aimed at solving a particular challenge.

  • Goal-setting, vision, mission, ambition, leadership, planning — none of these are a strategy. Strategy is discovering the critical factors in a situation (honestly acknowledging what is difficult about the situation) and designing a way of coordinating and focusing actions to deal with those factors.
  • Strategy is a leader's main job: identifying the top critical issues on the path forward and devising a solution.
  • Strategy is about how. It must include a set of coherent actions, not only goals, intentions or inspiration.

Good strategy

  • Good strategy requires focus.
    • It is very rare that organizations commit to only one or two most important things. Instead, most have an infinite list or priorities that fight for resources.
    • Good strategy harnesses power and applies it where it will have the greatest effect.
  • It requires painful choices.
    • Saying no to things that seem important.
    • Strategy is scarcity's child. This is why small startups usually have an integrated, cohesive strategy, while big corporations with plenty of resources only have generic goals.
    • It will make some people worse off.
    • Universal buy in is a sign of absence of choice.
  • It is creative, not deducted.
    • There's no obvious right answer to a strategic problem. Strategy can't be computed from known facts.
    • A good strategy is an act of creation, an informed bet by the organization's leader based on analysis, insight, and judgement.
    • It is a hypothesis that needs scrutiny and testing.

Bad strategy

  • Bad strategy is fluff: full of jargon and buzzwords that just state the obvious.
  • It fails to diagnose and face the challenge.
  • It's not the same as no strategy, or a strategy that didn't win: it's actively trying to impress others without really devising a cohesive plan.
  • It is short on policy, and long on goals.
  • Too many goals, no focus.

Leadership vs. Strategy

  • Leadership and strategy are not the same thing.
    • Leadership is about inspiring others and empowering them to do their work. It's about making people feel good about the personal sacrifices they're making. It's about keeping them together through change.
    • Strategy is about figuring out which purposes are worth pursuing.

The kernel of a good strategy

The author organizes a good strategy in 3 main attributes, called a kernel:

1. Diagnosis

  • Clearly identifying the top issues.
  • Simplify the complexity of the problem into a simple story.
  • It is also a judgement about the meaning of facts: there's not always a correct diagnosis.

2. Guiding policy

  • An approach, a signpost, explaining how to overcome the challenge but without defining the actual steps.
  • It channels resources in certain directions.
  • It rules out other approaches.
  • It draws upon advantage.

3. Coherent actions

  • Commitments to what is actually going to be done in order to achieve the strategy's goals.
  • Actions are usually coordinated with each other, not independent or contradictory. They're focused in achieving the biggest punch possible.

Sources of power

This section focuses on how a strategy may harness power against the challenge at hand.

  1. Leverage
    • Anticipation: predicting things before others can see them.
    • Pivot point: an imbalance of power in the situation
    • Concentration: focusing the punch in one place.
  2. Proximate objectives
    • Creating a goal that is proximate enough to be achievable. (This goes against other popular advice to that if you're hitting your goals, they're not ambitious enough.)
    • Resolving ambiguity: it's a leader's responsibility to identify the ambiguity and get rid of it. To make the hard choices (me: and take responsibility for the risk) so that your team can focus on delivering against the choice you made.
    • Ask yourself: if I could only have 1 objective, and it needs to be feasible, what would it be?
    • Hierarchy of objectives: proximate objectives often lead into bigger, more ambitious ones.
  3. Chain-link systems
    • A system sometimes has a link that limits the performance of others. This lower-performing link leads to quality-matching, where all other links narrow their performance goals to match the lowest of the system.
      • In chain-link systems that are stuck, incremental improvement in one link does not lead to increased performance in the others (eg. better equipment doesn't solve for unskilled workers.)
    • The solution to get unstuck is to identify the bottlenecks and act on all of them in a coordinated, focused manner.
    • When a chain-linked system achieves excellence, it is hard to replicate, because competitors would need to act on all the links that make it work at the same time.
  4. Growth
    • Many organizations think that growth by itself is a strategic advantage. Acquisitions are a symptom of this mindset.
    • Growth, according to the author, should be reserved as the outcome of growing demands for special capabilities, or expanded capabilities. It should be the reward for a company's superior skills, not engineered or inflated.
    • Growth is created by deepening your advantages, broadening the extent of your advantages, creating higher demand for them, or strengthening isolating mechanisms that block you from being replicated.
  5. Advantage
    • Advantage is a surplus: the gap between buyer value and cost.
      • Deepening your advantage means increasing the gap by either increasing value to buyers, or decreasing cost.
      • Broadening advantage means bringing know-how into new fields and new competitions. It is about looking at the skills, and what they could accomplish in other scenarios.
      • You can also create higher demand (eg. invest in research that proves your product is good for people).
      • Another strategy is using isolating mechanisms: making it hard or impossible for others to copy what you do (patents, culture).
  6. Using dynamics
    • Waves of change often can be harnessed to create strategic advantage.
    • Pivotal change happens less often than people like to think. (the last 50 years have had less impact on people's lives than the 50 years prior). Being aware of this helps a leader be less distracted by noise and identify real change opportunities.
    • When change is happening, most people focus on the immediate results, symptoms, and products that are spurred. A leader should try to understand the underlying forces behind the derivatives and second-order effects being noticed by everyone else.
    • Understanding change is hard. Fortunately, a leader does not to be 100% correct about it. It just needs to be more correct than the competition.
  7. Using inertia
    • Inertial is often a source of competitive advantage. Older organizations take long to react and change their ways, opening the playing field for more agile organizations.
    • To combat inertia:
      • Simplify: eliminate complex processes, routines, strip out excessive layers. Sell, close, or get rid of entire parts of the org. Complexity hides inefficiency.
      • Break apart coalitions: fragmenting teams may help realign accountability and weed out toxic coalitions.
      • Replacing the unit's leaders is often a good way of changing the group's norms and routines.
      • One the simplified organization is working well, it's ok to go back and add layers of coordination again.
    • Ask yourself:

    If we brought in a new CEO, what would he/she do to turn this problem around?

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