Book notes: Good strategy, bad strategy by Richard Rumelt

A very interesting book on buisness strategy. It focuses on what makes a strategy and how to distiguish the good from the bad. I would recommend it for anyone involved in running a buiness who would benifit from a framework for thinking about strategy. Some of the best stuff in the book is going in to detail about why a strategy is bad and how organizations end up choosing bad strategies. If you’ve worked in certain organizitions you may find this uncorfortably close to home(or just quite funny).
“My strategy is to win.” this is a common example of bad strategy, the problem is, it is not a strategy, it is an goal. A strategy should define how to achieve an goal. Executives who complain about a strategy failing because of execution problems have also confused strategy with goal setting. A good strategy should be achievable and define the steps to achieve a goal.
A strategy has 3 components:
  1. Diagnosis: This is the challenge we are facing. Should replace the overwheling complixity of reality with soemthing the gets to the heart of the issue faced.
  2. Guiding principle: An approach to facing the problem laid out in the diagnosis.
  3. Coherent action: A set of actions to take to achieve your goals.
Good strategy is as much about what you are not going to do as what you are. By definition focussing on one area means deciding you are not going to focus on something else. Good strategy focuses your strengths on your oppenents weaknesses. What is the area in which you can win? How can you move the conflict there?
4 Marks of bad strategy
  1. Fluff – Example of a real world banks strategy: “Our fundemental strategy is one of customer-centric intermediation” translated means “Our fundemental strategy is being a bank”
  2. Failure to define challenge – International Harvester had a detailed strategic plan borken up into 5 keys sections around how to increases revenue and reduce costs in each LOB. But the real problem was¬† it had half the profit of it’s compeitiors because of it’s terrible labour relations and archiac company rules. After implementation the plan worked for a while before internal labour relationtion started to pull the company apart, there was a 6 month strike and then the company had to be borken up and sold.
  3. Mistaken for goals: “My strategy is to win”.
  4. Wrong¬† objectives: Either because they don’t lead to good outcomes are are unachievable.
The reason there is so much bad strategy is because decisions are hard. Good strategy requires choosing one option over another.
Often bad strategy comes from trying to please everyone politically.
Bad strategy can also come from New thought, the desire to not consider any negativity and have everyone thinking the same way.
Good strategies:
Strategy is visible as a coordinated action impossed on a system. It is an exercise in centralized power used to overcome the natural workings of a system. This coordination is unnatural in the sense that it would not occur without the hand of strategy.
Attacking a segment of the market with a buisness system supplying more value to that segment than competitors is called focus. A concentration and coordination that creates an advantage.
It has become an article of almost munquestioned faith that growth is a good thing. The problem with growth by aquisition is you normally over pay by about 25% for a public company. Unless you can buy the competition for less than they are worth or add more valur to the target, you will be making a loss.
Improvement is not a natural process. Bricklayers had been laying bricks for 1000s of years with no improvement in efficiency before Frank Gilbreth studied the process and was able to double the productivity by moving the pallets to chest hieght so the bricklayers didn’t have to stoop and adding movable scaffolds. Incentives alone are not enough. The details of a process must be re-examined and assumptions challenged.
Broadening competitive advantage means expanding an existing advantage into new areas. Expansions based on knowledge/expertease based advantage is not used up by the exapnasion, and may even be enhanced by it. But extention based on brand/relationship/reputation may be dilluted or damaged by careless expansion.
An example is Disney did not diluting their brand by expanding there movies outside of there traditional animated movies.
All things succub to entorpy, most of a mangement consultants job is undoing entropy. An example is General motors. There numbers of cars lines they had expanded to 12 with many competeting with each other for the same market. The simple solution was to massively scale back the number.
3 habits of good strategy thinking
  1. Have a variety of tools for fighting myopia and guiding attention.
  2. Develop the ability to question your own judgement.
  3. Cultivate the habit of recording judgements so you can improve.