- Hardcover: 336 pages
- Publisher: Crown Business; 31625th edition (July 19, 2011)
- Language: English
- ISBN-10: 0307886239
- ISBN-13: 978-0307886231
- Product Dimensions: 6.6 x 1 x 9.5 inches
- Shipping Weight: 1.2 pounds (View shipping rates and policies)
- Average Customer Review: 4.6 out of 5 stars See all reviews (233 customer reviews)
- Amazon Best Sellers Rank: #18,679 in Books (See Top 100 in Books)
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Good Strategy Bad Strategy: The Difference and Why It Matters Hardcover – Deckle Edge, July 19, 2011
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Clears out the mumbo jumbo and muddled thinking underlying too many strategies and provides a clear way to create and implement a powerful action-oriented strategy for the real world
Developing and implementing a strategy is the central task of a leader, whether the CEO at a Fortune 100 company, an entrepreneur, a church pastor, the head of a school, or a government official. Richard Rumelt shows that there has been a growing and unfortunate tendency to equate Mom-and-apple-pie values, fluffy packages of buzzwords, motivational slogans, and financial goals with “strategy.” He debunks these elements of “bad strategy” and awakens an understanding of the power of a “good strategy.”
A good strategy is a specific and coherent response to—and approach for overcoming—the obstacles to progress. A good strategy works by harnessing and applying power where it will have the greatest effect in challenges as varied as putting a man on the moon, fighting a war, launching a new product, responding to changing market dynamics, starting a charter school, or setting up a government program. Rumelt’s
nine sources of power—ranging from using leverage to effectively focusing on growth—are eye-opening yet pragmatic tools that can be put to work on Monday morning.
Surprisingly, a good strategy is often unexpected because most organizations don’t have one. Instead, they have “visions,” mistake financial goals for strategy,
and pursue a “dog’s dinner” of conflicting policies and actions.
Rumelt argues that the heart of a good strategy is insight—into the true nature of the situation, into the hidden power in a situation, and into an appropriate response. He shows you how insight can be cultivated with a wide variety of tools for guiding your
Good Strategy/Bad Strategy uses fascinating examples from business, nonprofit, and military affairs to bring its original and pragmatic ideas to life. The detailed examples range from Apple to General Motors, from the two Iraq wars to Afghanistan, from a small local market to Wal-Mart, from Nvidia to Silicon Graphics, from the Getty Trust to the Los Angeles Unified School District, from Cisco Systems to Paccar, and from Global Crossing to the 2007–08 financial crisis.
Reflecting an astonishing grasp and integration of economics, finance, technology, history, and the brilliance and foibles of the human character, Good Strategy/Bad Strategy stems from Rumelt’s decades of digging beyond the superficial to address hard questions with honesty and integrity.
Amazon Exclusive: Walter Kiechel Reviews Good Strategy Bad Strategy
Walter Kiechel is the author of The Lords of Strategy. Until January 2003, Kiechel served as editorial director of HBP and senior vice president in charge of its publishing division, with responsibility for the Harvard Business Review; HBS Press, the company's book-publishing arm; the newsletter unit (which he helped start in 1996) as well as HBP’s video, reprints, and conference businesses
Considering the source, this is a shocking book. For over 40 years Richard Rumelt has made distinguished contributions to the field of strategy, in his theorizing, teaching, and consulting. Now comes the deponent to tell us that what purports to be strategy at most organizations, not just companies but not-for-profits and governments as well, hardly merits the name. Instead it represents what he calls "bad strategy"--a list of blue-sky goals, perhaps, or a fluff-and-buzzword infected "vision" everybody is supposed to share.
Refreshing stuff this, seeing the corporate emperor revealed not in his imagined suit of armor but rather in something resembling a diaphanous clown suit. Rumelt drives the point home with a simple explanation for why most organizations can't do "good strategy": the real McCoy requires making choices, feeding a few promising beasties while goring the oxen of others at the management table.
But the jeremiad, fun as it is--and it is fun, Rumelt has a good time punching holes in the afflatus of bad strategy--isn't my favorite part of the book. That would be the second section, with the slightly daunting title "Sources of Power." To be useful to a practitioner, a book on strategy needs not only a straightforward framework but also a certain craftiness, a set of ideas that prompt the reader to think "What a neat idea" or "How clever of them." Rumelt has the clear, elegant framework in what he calls the "kernel"--a diagnosis explaining the nature of the challenge, a guiding policy for dealing with it, coherent actions for carrying out the policy.
In "Sources of Power," though, he goes deeper than the merely crafty to identify potential levers of for strategic advantage--proximate objectives, design, and focus, among others--that transcend the purely economic. Repeatedly he demonstrates how to think down through the apparent challenge, with questions and then questions of those questions, to get at what can be the bedrock of a good strategy.
In a final section on thinking like a strategist, we get a sense of what a delight it must be to sit in Rumelt's classroom, or with him on a consulting assignment, as he leads us through the best kind of Socratic dialogue to appreciate the kinds of blinders or mass psychology that can pose the final barriers to our forging clear-eyed strategy.
If you want to make strategy, or be an informed part of the ever-evolving conversation around the subject, you will need to read this book. My bet is that you'll enjoy the experience. --Walter Kiechel
"The most interesting business book of 2011." --Financial Times
“So much that’s said and written about strategy is – from my point of view – complete junk, that I get excited when I hear someone focusing on strategy in a coherent and useful way...A very good book.” --Forbes
“The year’s best and most original addition to the strategy bookshelf." --Strategy+Business
"The whole middle section, about sources of power, is valuable—particularly the explication of the limitations and nuances of competitive advantage.” --Inc
"Clearly written, thoughtful...This book is painful therapy but a necessary read nonetheless." --Washington Times
"Represents the latest thinking in strategy and is peppered with many current real world examples. Good Strategy/Bad Strategy has much to offer and has every chance of becoming a business classic.” --Management Today
"Drawing on a wealth of examples, Rumelt identifies the critical features that distinguish powerful strategies from wimpy ones—and offers a cache of advice on how to build a strategy that is actually worthy of the name. If you're certain your company is already poised to out-perform its rivals and out-run the future, don't buy this book. If, on the other hand, you have a sliver of doubt, pick it up pronto!”
--Gary Hamel, co-author of Competing for the Future
“..Brilliant … a milestone in both the theory and practice of strategy. … Vivid examples from the contemporary business world and global history that clearly show how to recognize the good, reject the bad, and make good strategy a living force in your organization.” --John Stopford, Chairman TLP International, Professor Emeritus, London Business School
“… Penetrating insights provide new and powerful ways for leaders to tackle the obstacles they face. The concepts of "the kernel" and "the proximate objective" are blockbusters. This is the new must-have book for everyone who leads an organization in business, government, or in-between.”--Robert A. Eckert, chairman and CEO of Mattel
“…. Richly illustrated and persuasively argued … the playbook for anybody in a leadership position who must think and act strategically. “ --Michael Useem, Professor of Management at the Wharton School, University of Pennsylvania, and author of The Leadership Moment
“… Rumelt writes with great verve and pulls no punches as he pinpoints such strategy "sins" as fluff, blue sky objectives, and not facing the problem.”--James Roche, former Secretary of the Air Force and president of Electronic Sensors & Systems, Northrop Grumman.
“This is the first book on strategy I have read that I have found difficult to put down.--John Kay, London Business School
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Top Customer Reviews
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.
Good strategy arises from good theory. Rumelt has contributed a plethora of ground-breaking papers to the strategy literature over the past forty years. It began with his Harvard dissertation, 'Strategy, Structure, and Economic Performance', which was later published by the Harvard B-School Press. Even after nearly four decades, it remains the definitive empirical work on diversification, good and bad. An important finding of that book is counterintuitive: that vertical integration (think major oil companies or investor-owned electric utilities) is an uneconomic way to grow. The ignoramuses in economics that masquerade as talking heads on network news programs would have us believe that vertical integration is a true bogeyman. Hogwash. The data don't support that view, not for a minute, and Rumelt blew the whistle on that myth.
His new book is another seminal contribution. He weaves theory and his own considerable consulting experience (both with business and with government) into a coherent and highly readable essay about the formulation of strategy. One of the best--and, I suspect, most underrated--contributions of the book is its enumeration of what makes for 'bad strategy'. Beginning the chapter with that name (p. 32), Rumelt cites four primary contributors, any one of which will do the job:
1. "Fluff. Fluff is a form of gibberish masquerading as strategic concepts or arguments. It uses 'Sunday' words (words that are inflated and unnecessarily abstruse) and apparently esoteric concepts to create the illusion of high-level thinking.
2. "Failure to face the challenge. Bad strategy fails to recognize or define the challenge. When you cannot define the challenge, you cannot evaluate a strategy or improve it." [WDM note: He deals with defining the challenge in Chapter 5, 'The Kernel of Good Strategy.']
3. "Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles.
4. "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."
As other reviewers have noted, the 'new' new thing in this book is the 'strategy kernel'. He defines its three constituent parts as follows:
1. a 'Diagnosis' the defines the nature of the problem;
2. a 'Guiding Policy' for determining whether an idea for dealing with the problem holds water; and
3. 'Coherent Actions' that implement the guiding policy.
My pithy description of the kernel might make it sound trivial. Trust me: it's not. It's deep, mind-bending stuff. We have used it in our practice to reshape my own contribution to the literature, 'Value Maps: Valuation Tools That Unlock Business Wealth' (Wiley, 2010). Rumelt's 'kernel' is now the underlying foundation of each value map we prepare for a client.
But there's more, much more, to Rumelt's book than the kernel. Along the way, he offers up the four components of 'bad strategy': fluff; failing to face the problem; mistaking goals for strategy (take that, Strategic Planners!); and lousy strategic objectives. These may sound like common sense, but they're not. And Rumelt's explication of them is riveting.
He devotes a lengthy chapter to one of the most interesting new aspects in strategy: design thinking. He calls today's master strategist a 'master designer'. He notes that contemporary strategy is not about decision-making. It's about design. He contrasts how Xerox blew its dominance of plain-paper copiers with Paccar's high performance in a low-growth domain. Xerox had plain-paper copiers to itself and then rested on its laurels; I'll bet Coach Jim Harbaugh of the San Francisco 49ers can relate to that. So can Nokia. So can Blackberry (nee Research In Motion). Any coach of a top-rated college football team will attest that it's a lot easier to become #1 than it is to remain #1. The same thing is true in business, only its 'players' aren't on a four-year cycle. (Somehow Rumelt did not mention the serial inability of Xerox to commercialize trailblazing innovations created at its PARC [Palo Alto Research Center] facility: the mouse, the graphical-user interface (the forerunner of Windows), the WYSIWIG text editor, Ethernet networks, and the laser printer. Paccar was lower-profile and just kept on keepin' on, as they say down South. My description doesn't do this chapter justice, so be sure to give it the time and attention it deserves.
The highlight of the last chapter in the book is the 'five intertwined errors in human judgment' that gave us the following disasters: the 2008 financial collapse, the Hindenburg, the Johnstown flood, Katrina, and the BP Gulf oil spill. That commingled quintet comprises:
1. 'engineering overreach' - systems whose defects designers didn't understand until it was too late;
2. the 'smooth-sailing fallacy' - 'the assumption that a lack of recent tremors and storms means there is no risk';
3. 'risk-seeking incentives' - Rumelt notes that the bail-outs of New York City (1975), Continental Illinois Bank (1984), and Long-Term Capital Management (1998) served to encourage people to take huge risks because, if the risks paid off, they got fabulously wealthy, and if they didn't, society stomached the loss. 'Privatize the gain, socialize the loss'. Others would call such policy 'moral hazard';
4. 'social herding' - wherein everyone is doing more or less the same thing, so it seems normal, mutually self-reinforcing, and risk-free. . .until the bottom falls out; and
5. what Rumelt labels 'the inside view' - he cites the fact that talking on one's cell phone while driving multiplies the likelihood of an accident by 5 times, yet drivers do it anyway, secure in the misbegotten belief that those sobering statistics 'don't apply to me because I'm a good driver'.
This is a well-written and powerful book. Each time I've read it, I've learned and spotted insights that I hadn't picked up on before. I think that makes it accurate to say that Richard Rumelt is a man of great wisdom. It just takes some of us a while to pick up on such wisdom because we encounter it so seldom.