I came across a senior executive a few months ago, let’s call him “Bob”, who talked me through his startup’s strategy. In short, Bob showed me three ‘strategic pillars’ for the business. Each pillar contained a load of specific products and initiatives. When I asked Bob about the strategic challenges that his business was looking to tackle, I got a blank stare in return. My explaining the need for having clear business and product strategies unfortunately didn’t seem to resonate much with Bob …
This experience prompted me to read “Good Strategy. Bad Strategy” which was first published by Richard Rumelt in 2011. Two main questions drove me to pick up a copy of “Good Strategy. Bad Strategy”:
- Is this going to be yet another strategy book, with lots of buzz words but little tangible content!?
- How can I clearly articulate what constitutes a good strategy and what makes a bad one?
Ultimately, I want to improve the way in which I take people like Bob on a ‘strategic journey’, helping them to convert their goals into proper strategies. “Good Strategy. Bad Strategy” definitely delivered on this objective. Firstly, it paints a good picture of the problem space surrounding strategy. The first part of the book is all about common misconceptions about strategy and explaining ‘why’ there’s so much bad strategy around. Secondly, the book then outlines what is needed to create good strategies, explaining what goes into the “kernel” of good strategy.
“Good Strategy. Bad Strategy” starts off listing some of the hallmarks of bad strategy:
- Fluff – Fluff is a form of gibberish masquerading as strategic concepts or arguments. For example, I believe that terms like “seamless” or multi-channel have become so overused that they have lost a lot of meaning.
- Failure to face the challenge – Bad strategy fails to recognise or define the challenge that a company is facing. Bob’s strategy was a good example in this regard. His strategy provided a number of solutions without the underlying strategic problems or challenges they were intended to resolve.
- Mistaking goals for strategy – Many bad strategies are just statements of desires rather than plans for overcoming obstacles. For example, phrases such as “entering new markets” or “becoming the leading [fill in any sector of your choice here]” leave me wondering “why?”. These high level goals fail to highlighting specific strategic obstacles or opportunities a business is facing.
- Bad strategic objectives – A strategic objective is set by a leader as a means to an end. As Rumelt explains, “strategic objectives are “bad” when they fail to address critical issues or when they are impracticable.” For example, if the strategic objective is “to become a world leading furniture maker”, I’d argue that this is a vision statement and not a strategy. A related strategy would describe some of the key challenges to overcome in order to achieve the vision. Rumelt goes one step further by arguing that Google’s “vision mission strategy” template often misses the mark, as he feels it doesn’t cover true analysis of the challenges and opportunities ahead.
In short, in “Good Strategy. Bad Strategy” Rumelt makes the point that most strategies fail to acknowledge the key obstacles or problems companies need to overcome. I see an analogy with the need to engage in a constant obstacle race, and businesses competing to overcome certain hurdles first.
So why is “bad” strategy such a common theme across so many businesses!?
The primary reason, as Rumelt highlights, is that bad strategy trumps analysis, logic and choice, with people hoping that they can avoid these often gnarly fundamentals and any issues in overcoming them. Rumelt stresses that “good strategy is very hard work”. I agree with this sentiment completely, as I’ve seen first hand that it can feel easier – in the short term at least – to ignore what’s happening or what could happen. Similarly, making strategic choices and deciding on tradeoffs is often very tricky and painful.
Rumelt describes the structure that underlies a good strategy as a ‘kernel’. The kernel of a strategy contains three elements:
- A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical.
- A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.
- A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy.
In essence, the kernel forms the bare bones skeleton of a strategy. Aspects such as visions, hierarchies of goals and objectives or timeframes are typically left out of the kernel. These aspects are treated as support layers instead.
Coming to a diagnosis is about, putting it simply, understanding what’s going on. For example, as soon as Bob and I started exploring the situation that his business was in, we came to the conclusion that it was operating in a market close to reaching saturation point. As Rumelt points out, “an explicit diagnosis permits one to evaluate the rest of the strategy.” In addition, by turning the diagnosis into critical part of the strategy, the rest of the strategy can be revisited as and when circumstances change.
The guiding policy
The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis. The guiding policy doesn’t commit to a specific set of actions. Instead, it rules out a number of actions and suggests an overarching method to deal with the situation as described in the diagnosis. For example, one’s guiding policy could be to focus on improving the lifetime value of existing customers as opposed to acquiring more new customers that conduct one-off transactions.
Rumelt points out a common mistake people often tend to make by calling the guiding policy a “strategy” and subsequently stop there. Strategy is all about taking action to overcome obstacles or seize opportunities. This doesn’t mean that you need to outline every single proposed action in its finest detail, but at least provide sufficient clarity to help make certain concepts more realistic and tangible.
I felt that thinking about the kernel of strategy makes it easier to then figure out some of the strategy’s support layers:
- Taking a strong position and creating options – Rumelt disagrees with strategic thinkers that feel that in uncertain and dynamic environments, companies do well to plan ahead as much as possible. In contrast, Rumelt argues, the more dynamic and uncertain the situation the more proximate a strategic objective should be. He cites President Kennedy announcing the US’ ambition to land a person on the moon by the end of the 1960s as a good example of a proximate goal. Despite not knowing exactly how or when the US could land a person on the moon, the US had done enough research and testing for President Kennedy to feel confident about taking a strong position (i.e. committing to the first moon landing) and to exploring various options to get there.
- Hierarchies of objectives – In organisations of any size, high-level proximate objectives create goals for lower-level units, which, in turn, create their own proximate objectives, and so on and so forth. I really like Rumelt’s related point about proximate objectives cascading and adjusting over time, as it does justice to the uncertain and dynamic nature of most of today’s market environments.
Main learning point: “Good Strategy. Bad Strategy” is a great book for anyone slightly at loss where to begin when it comes to creating or evaluating a strategy. In the “kernel of strategy”, the book offers a very useful structure to underpin every (good) strategy.
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One response to ““Good Strategy. Bad Strategy” (Book Review)”
[…] the great recommendation by Richard Rumelt – author of “Good Strategy, Bad Strategy” – encouraged me to pick up “How To Be Strategic”. This book came out in October […]