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Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished

Good Strategy, Bad Strategy

Good Strategy, Bad Strategy

by Richard P. Rumelt

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4.15K reads

Good and Bad Strategy

  • Strategy is the application of strength against weakness.
  • Strategy creates new strengths through subtle shifts in viewpoint.
  • Most organizations have multiple conflicting objectives that amount to little more than spending more and try harder.
  • They spread resources...

Success isn’t just about what your organization does, it’s also about blocked or failed competition

For example, in setting cold war strategy, it made little sense to match Soviet capabilities. The best method was to build on our strengths in ways that were aimed at their weaknesses.

...

  • Fluff: Unnecessarily long words
  • Failure to face or define the challenge
  • Mistaking goals for strategy. You can’t just state your desires, you need to plan to overcome obstacles.
  • Bad strategic objectives. Good ones are means to an end, bad ones fail to address key issue...

  • Good strategies focus on one or two objectives, bad ones sweep together 143 items on a to-do list that encompasses the wish list of every department or constituency in your company
  • A simple statement of the goal with no attention to how it will be achieved or the difficulties of achi...

Good Objectives

  • Dividing customers into three tiers based on importance and setting specific objectives for each tier, like maximizing prime shelf space with the top tier and getting some shelf space with the bottom tier
  • Linking small stores together to maximize their purchasing power and fight ba...

A bad strategy isn’t miscalculation, it’s avoiding the hard work of crafting a good strategy. Good strategy means making priority choices.

Sources of bad strategy:

  • Avoiding choices
  • Vision templates
  • New Thought: The Power of Positive Thinking

  • Opting for all the options on the table or a consensus with something for everyone means that nobody sharpens their arguments or analysis.
  • Major choices involve reshaping the firm. You can only reshape in one way.
  • Scarcity creates a need to focus, focus is the core of the str...

Sources of Bad Strategy: Vision Templates

  • These are a company vision that inspires people to change and empowers people to accomplish that vision
  • All this inspiration isn’t the same as making choices to focus on the right objectives; therefore it shouldn’t be confused with strategy

This is the idea that positive thoughts help you achieve outcomes. Examples include The Power of Positive Thinking, Tony Robbins, Christian Science.

Success doesn’t come from New Thought. Ford didn’t have a unique vision of building a car for the masses nor was his vision particularly share...

  • The kernel of a good strategy has three components:
  • The diagnosis that explains the challenge and highlights its most important aspects
  • Guiding policy that forms the overall approach to overcome the obstacle
  • Coherent actions that reinforce each other to accomplish the...

Sources of Power

A good strategy works by harnessing power and applying it where it will have the greatest effect.

The fundamental sources of power:

  • Leverage
  • Proximate objectives
  • Chain-link systems
  • Design
  • Focus
  • Growth
  • Advantage
  • Dyn...

Consider the habits, preferences, and policies of others together with inertias and constraints on change

Focus on the predictable downstream effects of changes that have taken place

Example: Toyota built hybrid engines because they foresaw that higher oil prices would create dema...

Pivot points magnify the effects of focused energy; a small adjustment can unleash pent up energy.

In Japan, customers want variety, so they have hundreds of food varieties that constantly change.

In China, customers want service, so their stores are spotless.

  • Returns to concentration happen when focusing on fewer things generates large payoffs.
  • Threshold effects are in evidence when you need to hit a certain critical mass to see a return.
  • In advertising, companies often “pulse” ads so they overcome thresholds any one moment.

Proximate Objectives

A proximate objective names a target that the organization can hit or even overwhelm

Example: Engineers can’t work without a specification, so set something determinate as a goal even if you’re not exactly sure what you need.

The US decided that the space race was about...

Systems have a chain-link logic when performance is limited by the weakest subunit or link.

Improving a single link does not improve the results of the system as a whole unless the weakest link is improved

Merely creating more pressure for higher profits wouldn’t solve the problem bec...

  • Many good strategies today are more designs than decisions, in other words, you’re building something not making a choice.
  • In design problems, getting the right combination of elements that complement each other produces massive gains, being slightly off imposes massive costs.

Focus is attacking a segment of the market with a system supplying more value to that part of the market than anyone else can.

To find a company’s focus, look at its distinctive policies and ask what all of those policies are aimed at.

Many large companies have no strategy and no focu...

  • Growth by acquisition usually results in paying too much
  • Healthy growth is a response to demand for special capabilities
  • It should be accompanied by superior profits

Advantages

  • Advantages are rooted in differences with opponents
  • Identify which differences are most important and maximize their impact
  • Press where you have the advantage, avoid situations where you don’t

Interesting advantages are ones that you can increase with strateg...

  • They either deliver lower cost or greater perceived value
  • Advantages are often particular to a context, such as a location or a buyer persona
  • Sustained advantages have to be hard to duplicate; as with a network effect or a brand

  • Exploit a wave of change by seeing its effects before others do
  • Waves of change are exogenous: They occur because of reasons outside your company
  • Most industries are stable most of the time; without change, there may be few strategic opportunities
  • Look for a present e...

  • Rising fixed costs
  • Deregulation
  • Biases in forecasting
  • Assessing incumbent responses to change
  • Attractor states, the future evolution of an industry based on the drive for overall efficiency

Airline deregulation: Even after deregulation ended, airlines used the same rules of thumb they’d used during the period of regulation

  • Assumptions like “we’ll always make 12% return on capital” may be baked into decision processes but no longer apply in the new environ...

Even after AT&T lost its position as a regulated monopoly, its old non-competitive routines stayed in place even after management wanted to shift the company to a competitive footing

Fix this by simplifying the organizational structure. This will illuminate the inefficienci...

  • Good strategies are hypotheses about what will work.
  • Strategy is inductive, not deductive. You don’t already know all the basic principles you need in order to solve the problem.
  • Hypotheses may arise from intuition. The best can be tested without excessive investment.

  • Focus on the intersection between the important and the actionable.
  • Rise above myopic focus on immediate needs.
  • Make a list of the ten most important things you can do and start at the top. Not a to-do list, a priority list.
  • Priority lists are helpful because we don’t...

The Kernel of Good Strategy

  • Problem-solution: force yourself to tie your action to a diagnosis by framing strategic analysis in the form of problem-solution
  • Create-Destroy: Force yourself to question prior judgments by actively trying to destroy your initial intuitions

To generate a strategy, one must put aside the comfort and security of pure deduction and launch into the murkier waters of induction, analogy, judgment, and insight.

Thinking it through can be done by using one or more of the following approaches:

  • Engage a panel of exper...

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