Rumelt says…

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What Makes Good Strategy, What Makes Bad Strategy

What was so great about this book?

I’ve just read Good Strategy Bad Strategy: The Difference and Why it Matters by Richard P. Rumelt. It’s a small book that you can read in a few hours. It’s clear and simple, real world, and honest.

This book frees you from the ‘cascading’ ‘avalanche’ of:

  • Values
  • Mission
  • Vision
  • Strategies
  • Objectives
  • Goals
  • KPIs

Good strategy is rare. Most companies just have performance goals but no strategy to achieve them. Or they have fluffy aspirations.

Signs of bad strategy:

  • Avoids identifying the company’s core problem
  • Makes no hard choices, pushes those onto others
  • Has no focus, company ends up with conflicting goals
  • Is a list of outcomes (even big, hairy, audacious ones)
  • Does not build on the competence and cumulative learning of the organization
  • A ‘cascading’ ‘avalanche’ of fluffy Values, Mission, Vision, Strategy, Objectives, and Goals

What is good strategy?

  • “It comes from top management identifying the problem and setting a path to addressing it.”
  • “A coherent strategy can become a source of competitive advantage.”
  • “The application of the scientific method.”
  • “Presses where you have an advantage.”
  • “Strength applied to the most promising opportunity.”
  • “Good strategy has an objective that is close enough to be feasible.”

Three components of good strategy

  • Diagnosis – Identifies the core challenge the company is facing
  • Choice – Decides the direction the company will take and what direction it will stop moving in
  • Action – Determines big picture actions to move in that direction, keeping the company focused

More thoughts on strategy

  • Strength – Takes advantage of an existing strength, but reorganizes or redirects it in a coherent direction
  • Choice – Makes a choice to focus energy and resources in that direction, to the determent of other choices
  • Losers – Since good strategy must make a choice, a sign of good strategy is that there will be losers in an organization, areas where the company will retreat and pull back resources
  • Beware of a “No losers” “strategy”, it is not
  • Strategy is about testing and refining your hypothesis
  • Based on scientific method of developing a hypothesis, running your test, honestly interpreting your results, re-testing with modifications
  • Another author, Dr. W. Edwards Deming, called this the PDSA cycle – Plan, Do, Study, Act
  • The objective should make a big difference and will likely address a limiting factor
  • It should be able to help a company lay out, step-by-step what actions to take, what goals to shoot for
  • Think outside of your organization from the customer and the competitors’ position
  • Good strategy often simple, but takes time

Competitive success and wealth creation

  • The joint outcome of the quality of an organization’s accumulated resources and its coordinated action
  • By strengthening a competitive advantage or by increasing the demand for the scarce resources supporting it

To wrap up, the parts to good strategy:

  • Diagnosis
  • Choice (Author calls this guiding principles)
  • Action (Author calls this coherent action)

Learn more about good strategy:

Good Strategy Bad Strategy: The Difference and Why it Matters, by Richard P. Rumelt

Transform Your Business with Dr.Deming’s 14 Points, by Andrew Stotz, PhD, CFA

Article by Dr. Andrew Stotz