Review: Good Strategy Bad Strategy by Richard P. Rumelt

An important read for any leader. I thought I knew what strategy was before reading this book, but I was wrong. It’s embarrassing to say it, but I realized that, before this book, I had never properly defined a strategy as a 1st class concept: I had defined missions, visions, objectives, goals, projects, milestones, tasks, designs, processes, and much else, but none of these are the same as a strategy.

That insight alone makes this book worth reading. The book has some drawbacks—it’s way longer than it needs to be, it goes off on weird tangents at times, the author can be a bit arrogant—but at the end of the day, it does a wonderful job of making you aware of what strategy is, what strategy isn’t, why it’s important, and how to define it.

Here are some of my key takeaways:

Bad strategy

Here are the four major hallmarks you can use to detect a bad strategy:

• Fluff: Bad strategy often includes a bunch of inflated words, esoteric concepts, and other gibberish glued together to create the illusion of high-level thinking.

• Failure to face the challenge: Bad strategy fails to define or recognize the challenge. If you don’t know the exact challenge you’re facing, you can’t evaluate or improve your strategy. In fact, if you fail to identify and analyze the obstacles, you don’t have a strategy at all; all you have is a stretch goal, a budget, or a list of things you wish would happen.

• Mistaking goals for strategy: A list of statements of desire—a list of TODOs, goals, objectives, or OKRs—is not a strategy. A strategy must specify a clear plan for overcoming obstacles to get to some desired end state and not just the hope of getting to that end state.

• Bad strategic objectives: A strategic objective is bad if it fails to address critical issues or is impracticable. A particularly common example is a “blue sky objective,” where it sounds like a strategy, but is really just a statement of some desired outcome, and no one has a clue how to achieve it. If the strategic objectives are more or less just as hard to achieve as solving the original challenge, then the strategy hasn’t added any value. Good strategic objectives should make it clearer what needs to be done, and they should feel achievable.

The challenge

The first step in defining a strategy is to identify the challenge you’re facing. That is, what problem are you trying to solve?

It is critical to define this explicitly and in writing. Otherwise, if you don’t know what problem you’re solving, you can’t formulate a clear strategy to solve it.

Note that you’ll often need to analyze the challenges and dig down deep to get to the true underlying challenges. For example, if you define “our company is performing poorly” as the challenge, that will set you up for an ineffective strategy, as “poor performance” is a result of some other underlying challenges. Only by identifying those underlying challenges can you come up with an effective strategy: e.g., the underlying challenges may be that your employees lack the skills they need or your sales cycles are too slow or your marketing isn’t reaching the right customers.

The kernel of a good strategy

Once you know the challenge you’re facing, you can device a strategy to solve it. A good strategy consists of three elements:

1. Diagnosis: an explanation of the problems (the challenge) you’re facing. This is the “why.” If the challenge is a list of symptoms, the diagnosis is like a doctor telling you what specific disease or malady you have. A good diagnosis does more than explain the situation: it also defines the domain of action. That is, it explains the situation in such a way that you can actually do something about it! For example, if the challenge is poor performance on exams in high school, a diagnosis like “this is due to socioeconomic issues” is not useful, as most schools can’t do anything about that; but a diagnosis like “the curriculum is not organized correctly” is better, as you can define a policy to address that, as explained in the next step.

2. Guiding policy: a high-level approach for dealing with the diagnosis. This is the “how.” If the diagnosis tells you what disease you have, the guiding policy tells you what treament regiment you’ll use to cure it. Good guiding policies aren’t goals or visions of desirable end states; they define a method for grappling with the situation, guiding your actions in certain specific directions, and, perhaps even more importantly, ruling out a vast array of possible actions. However, there is a balance here: you want enough guidance to point you in a specific direction, but not so much as to define exactly what should be done. You’re looking for guard rails on a highway, which direct and constrain actions, without fully determining their content.

3. Coherent actions: the specific steps to carry out the guiding policy. The word “coherent” is important: this is not a random list of steps, but a coordinated set of steps that are designed to work together and build on each other and your advantages to create leverage. If the guiding policy tells you the high level approach, the coherent actions tell you to take this medicine twice per day, avoid these foods, do this exercise, and so on.

A concrete example

Stephanie owns a grocery store. She wants to grow the business and is trying to figure out how. Setting a goal like “maximize profit” isn’t useful here, as even in a “simple” grocery store example, there are thousands of possible options. Should she raise prices? Lower prices? Hire more friendly staff? Stock a specific type of food?

Here’s how she might go through the process in this book to define a strategy:

• The challenge: how to draw customers away from her main competitor, a local supermarket which is open 24/7 and offers lower prices.
• The diagnosis: Her potential customers are people who live near by and most of them fall into one of two buckets: price-sensitive students or time-sensitive professionals.
• Guiding policy: Target the busy professional who has little time to cook.
• Coherent actions: Add a second checkout stand; add more parking spaces; add more healthy, pre-made meals; etc.

A strategy is about limiting choices

A good strategy not only tells you what you will do, but, perhaps even more importantly, it tells you what you will not do. For every one thing that your strategy lets you say “yes” to, there are a hundred other things that you now have to say “no” to. Notice how in the supermarket example, we went from thousands of different options, to just a handful.

This is a good thing. Every organization faces challenges that are full of complexity and ambiguity, and it can be daunting. A common mistake many leaders make is to set ambitious goals and hope that alone gets people to try harder. But in most cases, people are already trying hard, so all this does is give them goals they don’t know how to achieve, and make them feel like they are failing despite all the effort.

One of the most important duties of a leader is to absorb a large part of the complexity and ambiguity of the situation and to pass on to your organization a problem that is much simpler, and much more solvable. So as a leader, you can set a big, ambitious goal, but you also need to take on the responsibility—and the blame if things go wrong—of identifying just which parts of the entire problem space are critical (via the diagnosis and guiding policy), and you then set proximate goals for the team. Proximate goals are those that move you in the direction of the guiding policy, that reduce ambiguity, and feel achievable. This makes life better for everyone in the organization, as now they know what to focus on, they get to work on problems they can actually solve, and ultimately, they can succeed at the goals you’ve set for them.

A few more tips on coming up with a strategy

Most of the insights above come from just the first few chapters in the book. The rest of the book has more fluff and tangents—including a really strange rant about economic boom and bust cycles—with a few useful tips scattered here and there:

• Flush out multiple options. When faced with a complex problem, most people go with the first idea or insight that pops into their head. However, precisely in these sorts of complex situations, the first idea is rarely the best. Resist the impulse and instead, flush out multiple options, compare them, and pick the best one.

• Use a panel of experts. Come up with a panel of experts in your mind, where each expert is a simulation of people from your real life who have expertise in specific topics: e.g., an expert on design; an expert on pricing; an expert in engineering; etc. Imagine going up to each of them in turn and asking them to evaluate your strategy. What would they say? Use their critiques to find weaknesses in your strategy and use that as a driver to come up with even more options.

Rating: 4 stars