Richard Rumelt’s Good Strategy Bad Strategy is rated as one of the top strategy books. The reason I picked it up is I have often wondered what is an honest working man’s definition of “strategy” and whether it just something MBA students and suits call “a plan”. After having made fun of this innocuous buzzword for years, I finally thought about learning a bit more about it (perhaps only to up my game at making fun of people who “strategize”).
I have to admit I was also interested in attaining a little distance from day to day tasks and looking at my larger “plans” in totality and explore if there was indeed something to a “strategy”. The long and short of it is, yes there is.
Strategy is acknowledging all the problems and then formulating action plans to counter them. In that regards it is a plan, yes, but more than a set of goals and tasks. It has to acknowledge the problems and then offer a path to the goals. The book expands on this by first differentiating a good and a bad strategy.
A bad strategy is a mix of fluff, goals and no real guiding path to those goals. Most of what we see around us is bad strategy. These are top 4 signals that what you have is a bad strategy.
This is not an exhaustive list but it does cover a lot of ground in spotting a bad strategy. The reason most of what we see around us is bad is mostly because people want to avoid the pain of concocting a better one. People generally pick up template style strategy and fill in their goals. Bad strategy comes from avoiding the effort of aligning different ideas coming from different teams, leaders and departments. It comes from a lack of choosing and picking options and reasoning. It is extremely easy for people to say lets do X and Y and Z, rather than reason their way to focus on one or two.
Finally, merely believing in success is not a strategy. Books like Think and Grow Rich or The Secret harp on this point of how “thoughts become things”. This is collectively called The New Thought movement and has been around since the 1850s. There’s nothing new about this and while there is merit in positive psychology, one cannot call it a strategy.
According to Rumelt, the kernel of a good strategy is 3 things
1. Diagnosis – that calls out the various issues and problems that a business or company has
2. Guiding policy – that elucidate the various approaches to handle the described problems
3. Coherent actions – tactics like feasibility, actions, budgeting, etc
There are various examples of good strategy in the book (the case of Nvidia and how it reimagined its business using a great strategy is described in some detail). A simplistic example is that of a store owner who wants to improve profitability. He goes about strategizing using the good strategy kernel in the following way.
Diagnosis – I am not profitabile because some user segments are unprofitable while some are Guiding policy – I should focus on only the profitable segment
Actions – anything required to actually focus on those customers like prioritising their needs over others, changing store timings to suit them, hiring staff that speak their lingo, etc.
A good strategy is also about exploiting hidden powers that one might have. The next section describes the various kinds of powers one can leverage to strategize effectively.
1. Leverage – anticipation of how others would react and insight into what is most critical in a situation and then applying the right force in concentrated areas for maximum impact.
2. Proximate objective – keep a big but feasible goal helps propel focus and energy. Leaders need to remove ambiguity, remove known obstacles and create the right options to move forward to achieve the objective. The Lunar lander plan was built with limited knowledge. Nobody really knew that much about the lunar surface so an equivalent surface on Earth was found and it was decided that the lander be built for that. This proximate objective gave a sense of direction and test bed for the project.
3. Chain link systems – A system is as weak as its weakest link. In such a scenario, making the other elements stronger doesn’t make the system strong. IKEA is a great example of how having unique elements that work in tandem and are chained together is a great competitive advantage. Copying one element doesn’t necessarily give anyone any advantage and some of those elements only work if the whole chain is available to leverage it.
4. Design – a greatly orchestrated complicated movement (like how Hannibal won against the Romans at Cannae), can be a matter of great competitive advantage. The more complicated a system is with respect to its end value to the user, the harder it is to replicate. The more moving parts a system has and more those parts interact with each other, the more the system becomes resilient to competition.
5. Focus – a particular use case, a customer segment, seasonal demand etc. Focus generates competitive advantages.
6. Growth – growing to a particular size allows one to make sizeable investments that others cannot.
7. Advantages come from asymmetries between competitors. Competitive advantage is not always the same as high profitability. Sometimes something can be unique and more interesting to you (based on your unique conditions) as opposed to the same thing in the hands of another.
All in all this is a book I will visit from time to time to uncover hidden insights. I hope to read more similar books that aid in taking a more top down approach to business.
I run a startup called Harmonize. We are hiring and if you’re looking for an exciting startup journey, please write to jobs@harmonizehq.com. Apart from this blog, I tweet about startup life and practical wisdom in books.