Customer Reviews

Good Strategy Bad Strategy: The Difference and Why It Matters

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Rumelt's 'Good Strategy Bad Strategy' provides an excellent framework for understanding the difference between good and bad strategies. The material benefits greatly by his inclusion of good and bad strategy examples. Rumelt begins by pointing out that developing and implementing a strategy is the central task of a leader. Strategy, however, does not equate to buzzwords, values, slogans, or financial goals. Good strategy applies power where it will do the greatest good. Most organizations don't have a strategy, let alone a good one.

Good strategy almost always looks simple and obvious, and is built around one or two critical issues. Bad strategy tends to skip over problems. Strategy is about how an organization will move forward. The purpose of Rumelt's book is to clarify the differences between good and bad strategy, and help readers create good strategy. A good strategy is coherent; most organizations pursue multiple objectives that are unconnected with each other, or even conflict with each other. One way to begin is by identifying the leading competitor and asking how that company became that leader, then segueing into how one's own company could also become a leader. (My preference is more direct - ask significant/target customers for advice on how one could substantially increase business volume with them.)

Steve Jobs' turnaround of Apple in 1996 began by shrinking the firm to a scale and scope appropriate for the niche producer it was at the time (4% of the total market). Jobs got Microsoft to invest $150 million in Apple and develop new Microsoft Office software for Apple to deflect Gates' worries over antitrust prosecution. Jobs also cut the number of desktop models from 15 to 1 (too confusing), the number of portable and handhelds to one, cut out all printers and other peripherals, cut development engineers and software development, cut distributors and 5 of its 6 national retailers (part of the rationale for too many models), moved manufacturing to Taiwan, began selling direct via a Web site, and waited for 'the next big thing.' Two years later came the iPod, then online music, and later the iPhone. (Actually, except for the waiting for 'the next big thing,' the previous list consists of 'actions,' not strategy.)

WalMart provides another good strategy example. It contravened the conventional wisdom that a full-line discount store needs a population base of at least 100,000 and replaced it with a network of 150 stores/distribution center that used bar codes, JIT delivery, cross-docking, bringing vendors' shipments into the centers on back-hauls, paying low wages, satellite-based IT and shared data with vendors, and management providing fast follow-up, shared learning, and a more centralized structure (eg. purchasing). Meanwhile, KMart sat and let WalMart run largely unopposed in its rural areas - Rumelt states that when a firm runs away with a market it usually is partly due to competitors sleeping. Blockbuster's sleeping while Netflix developed is another example.

International Harvester was once the 4th largest U.S. corporation. It's '79 'Corporate Strategic Plan' provides an example of poor strategy. The 'plan' was to increase market share, cut costs, and build revenue and profits. The plan, however, ignored its inefficient production caused by union rules and adverse labor relations - something not curable by simply buying new equipment. Administrative overheads were improved, but a 6-month strike got no concessions for IH and the company collapsed.

Rumelt makes the point that under-performance is a result - the true challenges (areas to focus on) are the reasons for the under-performance. (Otherwise one is left with Deming's criticized 'management by exhortation.')

Continuing, Rumelt states that the most common pathways to bad strategy are: 1)the belief that all you need to succeed is a positive attitude, 2)a filling in the blanks approach vision, mission, values, strategies, 3)leaders unwilling to make choices among competing parties - often due to internal political conflict involving status gains and losses.

Charismatic leadership has nothing in common with good strategy. Jack Welch - "If you don't have a competitive advantage, don't compete." (Get out of the business.)

Peter Senge's 'shared vision' explanation for Ford and Apple's success is nonsense - reality is their successes were due to the special genius of a very few.

Three steps to strategy. 1)Diagnosis defines/explains the challenge. 2)Guiding policy is the overall approach to over come the identified obstacles - such policy is especially good if it draws upon sources of competitive advantage. 3)Coherent actions are steps that work together to accomplish the guiding policy.

Rumelt then uses education to illustrate, though has difficulty doing so. He begins by stating (correctly) that cultural and socio-economic differences are the primary determinants of pupil achievement. He then incorrectly states that these are not useful policy determinants - reality is that American students would do much better emulating their Asian peers. Given that incorrect premise Rumelt then postulates that since evidence shows school performance is positively associated with decentralization, it should be the focus of policy because it can be changed - regardless of whether organization structure explains most variation in school performance. That's nonsense - standing the Pareto Principle on its head.

Continuing, Gerstner came to a flounder IBM when microprocessors were replacing big-iron, IBM was providing end-to-end computing solutions, and new vendors were fragmented (chips, memory, hard disks, software, operating systems). The thinking when Gerstner entered was that IBM should be split up. Instead, Gerstner returned to providing integrated solutions - this time around customer solutions rather than IBM mainframe hardware platforms. Another example - Wells Fargo has pursued a strategy of large breadth/scope, allowing cross-selling. (Also Citicorp.) Selecting the appropriate customer segment to focus on (eg. busy professionals, or students) is an important strategy component (Drucker's emphasis on 'What businesses are you NOT in?') guiding subsequent decisions with coherence (eg. 'yes' to a 2nd checkout line at the busy 5 P.M. hour, 'yes' to more parking, 'yes' to quality almost ready-to-eat foods instead of snacks, 'no' to late hours.)

Ford in 2000 found itself torn between a policy of 'scale economies' and brand premiums (acquisition of Volvo, Jaguar). It attempted consistency through designing Volvo and Jaguar to use a shared frame - satisfying nobody.

No firm has strength in all areas. Likely conflict - evolving from a fast new-product development firm to one with low mass-production costs. Growth through acquisition usually involves paying too much (25% premium, plus fees). Vertical integration creates mismatches of scale economies and is more easily accomplished via contract.

Bottom-Line: Rumelt's 'Good Strategy Bad Strategy' provides a good overview of the topic, aided by examples. However, it would be stronger yet with less verbiage and more focused discussion on the strengths/weaknesses of popular generic strategies - eg. economies of scale and scope (eg. G.M. suffered from too many similar car lines and models), M&A, vertical integration, price wars - especially with assymetric warfare, and the importance of a sustainable competitive advantage.

I got hooked picking this book up in the airport. Really punchy start showing how most companies dont get past the Vision and Mission and actually tackle what strategy really is. Using some big name brand examples and personal anecdotes Richards explains his framework for really crafing a strategy 1. diagnosis of the issue 2 a chosen policy/pathway to deal with the issue that may include making hard decisions 3 analysis turned into reality by a coherent set of actions.

I thought the book then lost its way a little, with the middle of the book having some very long examples that often didnt explicity demonstrate the application of the new framework but instead showed that much of Michael Porters tools for analysing 'competitive advantage' still hold true which is good news!

The last couple of chapters on 'putting it together' and 'keeping your head' lacked a strond sense of summary to me and I didnt come away with a strong memory the framework, or any handy new 'tool kit' or set 'heurisitics' for making sure that I would be doing Good rather than Bad strategy. The framework was there, but it was up in the front chapters and it really only all came together for me when I compiled my main highlighted sections and margin notes into a 1-page summary (that I then write into the front cover page so I can refresh and review my work books quickly) . I reckon the book structure could have benefitted from the old 3 part framework of "tell 'em what your gonna tell 'em, tell 'em, tell 'em what ya told 'em" = Introduction, Main Body, Conclusion

worth a read for someone involved in business strategy simply to get all the anecdotes and experience that Richard has amassed but you might need to work a little harder than necessary to consolidate the 'take home messages from the book'

Based on the glowing reviews, I bought and read this book with great anticipation. As I read the first several chapters, I kept thinking, "Boy, this is going to be really good." The frequency of my highlighting corroborated that. Then, after Chapter 5, The Kernel of a Good Strategy, I expectantly plunged forward thinking the author was finally going to parse his strategy model and give examples -- good and bad -- in which strategy makers had departed from his model. Instead, chapters meandered through "fluffy" (to use one of the author's pejoratives) notions like "proximate objectives" and "chain link systems" and "using dynamics" and "inertia and entropy". Where is this going, I asked? Alas, nowhere. The author had lost his way, my highlighting tailed off to nothing, and I struggled to finish -- which I've just done.

Beyond the promise of those first few chapters, the rest of the book is a brain dump of disjointed concepts, jargon, and not a few self-serving examples of consulting engagements in which Dr. Rumelt's strategic insight was put on conspicuous display.

To employ a technique he recommended in his expository on the Tivo case: I wondered what motivated all of these surplus chapters. The only conclusion I could come to was that Rumelt had sufficient material to write about five chapters, but not much more.

In "about the author" in the end of the book it says that prof. Rumelt is one of the most influential thinkers in the area of strategy. What a shame he has not made more noise earlier. His first book seems quite theoretical but then this one is a gem.

There are parts that I would probably have edited out as they are not to the point. That distracts a bit from the main story about strategy. That main story should be obligatory reading: it is important to know where you are (diagnosis), it is somewhat important where you want to end up but it is crucial to define how to get going in the direction of your goals and what you will do about the problems that are there to be resolved. Ignoring the problems, as Rumelt points out, is not a lack of positive thinking but plain lack of prudent and realistic planning. Reading the part on "give it one last push" will show the danger of confusing optimism with being blind sided.

The attack on "fluff", politically correct statements that if de-constructed, as Rumelt does with a very sharp pen, are nothing more than vapid feel good statements is worth the book's price and the time spend reading it. Reading how a cumbersome statement of a bank's strategy is reduced to "this bank wants to be a bank" is amusing if it weren't sad.

Clients that I worked with during my consulting years almost always had the issues pointed out in the book: lofty goals but no clear thinking on the barriers that have to be bridged to get there and even less a plan that acknowledges the barriers. And not just employees are needing clearer strategies, people in general expect from their leaders clarity of direction exemplified by what I once read on the wall of a government building in latin-america: "For a captain without a clear course there are no favorable winds".

Current political grandstanding discussions in the capital of a major country show the danger of locking in to goals without thinking through the problems that need addressing to have any chance of success.

Highly recommended reading to create clarity about strategy.

I am not a strategy specialist. I run a small business and am currently co-chair of a study task force appointed to deal with issues facing our local (UMC) church. Over the years I have looked at a number of books about business planning and strategy and have found interesting things but have always felt that they were written for someone who had to "sound smart" in some meeting or presentation.

I was visiting my brother's house and started reading his copy of Good Strategy/Bad Strategy one evening. I stayed up until 3 a.m. to finish it. There is a wealth of practical wisdom here that is presented without jargon and with a nice garnish of wit.

At first I assumed the "bad strategy" concept would apply to big companies and that I could breeze through it. But, as I got ahold of the argument, I began to see bad strategy all around me. It's there in state government, in the school system, in town planning, at a park where I am a trustee, and, of course, in Washington D.C. This idea has been a real eye-opener to me and I hope that it reaches a wide audience. The benefit is not just to strategy experts, but to ordinary people who need a way of understanding what is right and wrong with the institutions around them.

Even more than the "bad strategy" idea, I found the author's approach invigorating and empowering. Dr. Rumelt doesn't tell you what to do to make a good strategy. Instead, he says that it is the product of insight. In addition, he tells us that a strategy can't be "proven" to be correct. It is simply a good guess ("hypothesis") about what will work. (I sort-of always knew this, but couldn't articulate it in the face of so much expert blather about the best way to plan.) But, he then explains ways of thinking that help generate insight. A strategy is the solution to a problem, he says, so work very hard on defining and understanding the problem. Your insights about strategy will grow with your understanding of the challenge being faced. A strategy is not just about the future, he tells us, which means that we need to set a proximate objective, one that we can focus on getting done now. The proximate objective should be a task, not some performance goal. A good strategy, he explains, concentrates energy where it will have the most effect.

Good Strategy/Bad Strategy has had an immediate effect on our parish study group. I saw that we were building what the book terms a "dog's dinner" strategy and that we needed to focus on a critical "proximate objective." Dr. Rumelt, gives examples, but wisely doesn't tell you much about what your objective should be. Instead, he suggests that the group seek to discover the one thing, the one task, that is doable and which, when accomplished, would make the most difference. No fancy charts or diagrams, just a big WOW!

As the title of this review correctly indicates, Richard Rumelt is convinced (and I agree) that a good strategy can provides both a timely head's up to imminent challenges and guidance when preparing to respond effectively to them. With surgical skill and (to my delight) a light touch, he explains what a good strategy is. In fact, he also explains what is and isn't a strategy, good or bad. Moreover, he cites dozens of real-world examples to illustrate which strategies succeed, which fail, and why. Both good and bad strategies are a result of a process so Rumelt correctly examines both good and bad processes, each of which involves a sequence of decisions. Thus a good strategy is the result of a process of correct decisions; a bad strategy is the result of a process of incorrect decisions.

One of Rumelt's valuable insights suggests that a decision is correct if (huge IF) it is appropriate to the given needs, interests, resources, and objectives. This is what Peter Drucker had in mind (in 1963) when observing, "There is surely nothing quite so useless as doing with great efficiency what should not be done at all." Many years later, Michael Porter made essentially the same point when suggesting that "the essence of strategy is choosing what not to do." Rumelt's purpose in the book is to awaken his reader "to the dramatic differences between good strategy and bad strategy and to give [his reader] a leg up toward crafting good strategies." Rumelt nails the "what," devoting most of his attention to the "how" and "why."

Here is a partial list of the real-world situations that Rumelt rigorously examines:

o How Steve Jobs saved Apple
o General Schwarzkopf's strategy in Desert Storm
o Discovering Wal-Mart's secret
o How blue-sky objectives miss the mark
o Pivot points at 7-Eleven and the Brandenburg Gate

Note: More about "pivot points' later

o Why Kennedy's goal of landing on the moon was a proximate and strategic objective
o How Hannibal defeated the Roman army in 216 B.C.
o What bricklaying teaches us about deepening advantage
o Deduction is enough only if you know everything worth knowing
o The worst industry structure imaginable

These and other mini-case studies reveal why strategy is, like a scientific hypothesis, "an educated prediction of how the world works. The ultimate worth of a strategy is determined by its success, not its acceptability to a council of philosophers or a board of editors. Good strategy work is necessarily empirical and pragmatic. Especially in business, whatever grand notions a person may have about the products or services the world might need, or about human behavior, or about how organizations should be managed, what does not actually `work' cannot long endure." Amen.

With regard to "pivot points," they magnify impact of an effort. "It is a natural or created imbalance in a situation, a place where a relatively small adjustment can unleash much larger pent-up forces." For example, in the business world, a strategic thinker "senses such imbalances in pent-up demand that has yet to be fulfilled or in a robust competence developed in one context that can be applied to good effect in another." In my opinion, pivot points seem to be first cousins to Michael Kami's trigger points, Andy Grove's inflection points, and Malcolm Gladwell's tipping points. Obviously, a good strategy takes full advantage of every opportunity that pivot points offer.

Those who share my high regard for this brilliant book are urged to check out Walter Kiechel III's The Lords of Strategy: The Secret Intellectual History of the New Corporate World.

Let me first give you my impression of the author: Dick Rumelt is a very smart guy and knows the domain of strategic management inside out. In comparison to most academics, he does not write a lot. However, almost everything he writes is novel and very thoughtful. Rumelt doesn't like to make small contributions to existing research streams and he doesn't write book after book with fluff. He wants to make novel, unique contributions. Rumelt is probably an introvert personality type (and/or a bit lazy) and would definitely get more traction on his ideas if he was a bit more visible in the academic environment (or if he wrote this book earlier).

In today's crowded market for management books it would be quite easy to dismiss this book. The text has few illustrations. The publisher is not well known. Unknown author. A lot of non-business examples. Not terribly well organised. Some intro sections seems cut and pasted (but only the intro - never the meat). Based on my positive opinion of the author, I would urge potential reader to digest this book in a more detailed way than customary. You will find nuggets of useful information that will advance your thinking. His comment about the transatlantic broadband capacity in the late 90s, is one such example. It would have made you money in the stock market. His framing makes it sound like a really safe bet. His discussion of the Crown Cork & Seal (familiar to many professors as well as MBA students) is another insightful example. Rumelt obviously approves of a structured approach, but he leaves numbers and models to other people to write about (even though he could have pushed slightly more in that direction). Rumelt is instead trying to go to the core of strategy. When the analysis is done, what is a good and a bad strategy.

One important point: I think this book should be read only after you have gained familiarity with the strategic management literature. So first you should read a textbook (unfortunately no really good one exists!) and/or a collection of 20-30 Harvard Business Review articles. Or better, you already have a number of years of practice trying to formulate strategy. Then you are ready for this book. You need to think about what the author is saying and how it matters to you. You need to be a bit philosophically bent. If you are too practical you won't like the book. Clearly, educators should read this book too. Strategic management is about deep thinking, not war stories. Most of the examples are 10-30 years back in time. The lessons are still valid, but if you want the latest examples, this book is also not for you.

Finally, the biggest weakness with this book is that it is written in a very discursive and somewhat meandering manner. Concepts are not really defined upfront in a clear way and sometimes the explanations seem a bit ad hoc. So expect to spend some time really understanding the material even if you have knowledge of the field.

Have patience!

I'd make this book a required reading next time I teach Strategy. The author has been called a "strategy's strategist" .. I can see why.

Most of all I liked the parts where it separates what strategy isn't, from what it is. Some excerpts I agree 200% with:
- Like a quarterback whose only advice to teammates is 'Lets win', bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision and values

- executives who complain about 'execution' problems have usually confused strategy with goal setting.

- Strategy cannot be a useful concept if it is a synonym for success. Nor can it be a useful too if it is confused with ambition, determination, inspirational leadership and innovation

- The kernel of a strategy contains three elements: a diagnosis, a guiding policy and coherent action
- Guiding because it channels action in certain directions without defining exactly what shall be done.

- .... mistakenly treating strategy work as an exercise in goal setting rather than problem solving.

- A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge

- 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

- 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

- What one feasible objective, when accomplished, would make the biggest difference?

- In a chess game ..... for the most part, the aim of a move is to find positions for one's pieces that (a) increase their mobility...... and (b) impose certain relatively stable patters on the board that induce enduring strength for oneself and eduring weakness for the opponent.

- At the core, strategy is about focus, and most complex organizations don't focus their resources. Instead they pursue multiple goals at once, not concentrating enough resources to achieve a breakthrough in any of them.

- Healthy growth is not engineered. It is the outcome of growing demand for special capabilities or of expanded or extended capabilities.

The year's best and most original addition to the strategy bookshelf is Richard P. Rumelt's Good Strategy, Bad Strategy: The Difference and Why It Matters. Rumelt is a longtime strategy professor at UCLA, and before that at Harvard Business School, where he wrote a landmark work of scholarship and empirical rigor, Strategy, Structure, and Economic Performance (Harvard University Press, 1974), which was based on his prize-winning doctoral dissertation.

This book, however, takes a decidedly different tone. It is informal and personal, sprinkled with anecdotes and opinions, which are often contrarian. It is as if Rumelt decided, after years of scholarly restraint, to write a book that laid out exactly what he has learned and observed over the last four decades. It is also a wide-ranging exploration, moving from business to politics to aerospace to the military, from the ancient to the modern, from diversified public corporations to family businesses, that places strategy in a broad context.

Unlike the many authors of business books and articles who use elaborate phrases and neologisms, Rumelt prefers candor and simplicity at every turn -- beginning with the title. Duke Ellington was once asked to define jazz, and he famously replied: "There are only two kinds of music. Good music, and the other kind." He felt no need to complicate matters with lots of theory and abstract concepts, and Rumelt clearly feels the same way about corporate strategy. Rumelt urges us to set aside fine-grained distinctions and unnecessary complications, in order to focus on the simplest distinction of all -- good and bad. He has seen so much bad thinking about strategy that this basic dichotomy is important. It's a way to remind us that for all the efforts we make to complicate things, good strategy is not all that complicated. If we can just avoid bad thinking and foolishness, we're much of the way there.

What are the elements of bad strategy? Rumelt points to four: the failure to face the challenge, mistaking goals for strategy, bad strategic objectives, and "fluff." At its root, bad strategy reflects an inability to think clearly and to make sound choices based on analysis. The author dismisses those who would substitute wishful thinking for careful analysis, epitomized in his opinion of the New Thought movement, which goes back to the 1800s, but more recently has surfaced as the power of positive thinking and banishing negative thoughts. Shared visions of success cannot be the basis of strategy, says Rumelt, because "all analysis starts with the consideration of what may happen, including unwelcome events. I would not care to fly in an airplane designed by people who focused only on an image of a flying airplane and never considered models of failure." Regarding vision and mission statements, Rumelt finds that they represent a "class of verbiage [that] is the mutant offspring of charismatic, then transformational, leadership. In reality, these are the flat-footed attempts of organization men to turn the magic of personal charisma into a bureaucratic concept --charisma-in-a-can."

So what is good strategy? It requires three things: a diagnosis that defines the challenge; a guiding policy for dealing with the challenge, and a set of coherent actions designed to carry out that policy. To help navigate the way forward, Rumelt offers numerous "guideposts": vigilance about escalating fixed costs, awareness of transitions caused by deregulation, predictable biases in forecasting that draw on behavioral economics, and anticipation of incumbent responses. Sound strategic decisions are not enough, however; execution is essential, too. "Strategy is about action, about doing something. The kernel of a strategy must contain action," writes Rumelt. "To have punch, actions should coordinate and build upon one another, focusing organizational energy."

Good strategy calls for effective management and concerted efforts to combat entropy. It calls for the discipline needed to identify low performers and raise the level of overall performance. One "cannot fully understand the value of the daily work of managers unless one accepts the general tendency of unmanaged human structures to become less ordered, less focused, and more blurred around the edges," writes Rumelt. He admires Alfred P. Sloan of General Motors Company, who insisted on a rigorous review to analyze performance and take action, writing, "Sloan's product policy is an example of design, of order imposed on chaos. Making such a policy work takes more than a plan on a piece of paper. Each quarter, each year, each decade, corporate leadership must work to maintain the coherence of the design."

Anyone hoping for a simple formula for strategic success will be disappointed. But in fact the message of Good Strategy, Bad Strategy is liberating. It reminds us that strategy need not be complicated. It's not rocket science. And furthermore, you can spot the nonsense, simplify, and clarify. "A good strategy is, in the end, a hypothesis about what will work. Not a wild theory, but an educated judgment," concludes Rumelt. "Good strategy grows out of an independent and careful assessment of the situation, harnessing individual insight to carefully crafted purpose. Bad strategy follows the crowd, substituting popular slogans for insights."

I have an MBA from Northwestern and have a quantitative background. What I took away from MBA strategy were techniques for analyzing cost advantages, how different segments of customers valued the same product differently, and how to price with both customers and competitors in mind. It was a sound economic framework and I continue to use it as the basis of strategy analysis.

At Northwestern I had read some of Prof. Rumelt's research and I know that he has been a master of economic modeling and analysis. Yet, this book contains hardly a speck of economic analysis. As I read it, that was the author's intent. He has presented a way of thinking about strategy that jumps outside the economics box and applies to all sorts of situations. Good Strategy/Bad Strategy opened my eyes to a very different way of looking at strategy. It provides a badly needed perspective.

One of the sections I liked the most was on "Dynamics." Prof. Rumelt doesn't just lecture the reader about the importance of change, he takes you through his own step-by-step understanding of what was changing in the mid-1990s as microelectronics and the Internet upset the applecart for so many players. I found it extremely helpful for an astute observer to explain how he gradually came to understand what was happening. Not by using some amazing analytical tools, but by continually asking questions and testing the answers he got back. Some reviewers may find this first-person way of writing egotistical, but I found it honest and extremely informative.

The other section I really liked was "Using Design." Here, Prof. Rumelt argues that when the elements of a strategy fit together very tightly, there is more competitive punch, but a loss of flexibility. When the challenge is very high, you need that punch. When it is lower, a more general and more flexible approach may be better. This is the kind of thinking that is both logical and totally missing from my economics-based training. It is a great point that has made me a better strategist.

One last point is that Good Strategy/Bad Strategy is not just about good and bad strategy. It covers the "good/bad" issue but goes much further. In some ways, it is like getting about ten books on strategy for the price of one.