Good Strategy - Bad Strategy - Book Review
1 September 2015
Dr. Moria Levy
"Good Strategy - Bad Strategy: The Difference and Why It Matters" is an exceptional, some might even say groundbreaking, book authored by Richard Rumelt in 2011. Rumelt, an academic firmly grounded in the practical realm, is a lecturer at UCLA and an industry consultant.
Rumelt challenges the conventional approach to strategy formulation, which often involves outlining a vision, purpose, goals, and courses of action and labeling them as a strategy, hoping to achieve favorable outcomes. He also questions the common practice of devising a new strategy every year. According to him, a strategy should be meticulously planned when there is a need for non-standard change. A strategy should be laser-focused, practical, and, most importantly, capable of driving meaningful change.
The book's central chapters revolve around the following key areas:
Background: Identifying Flawed Strategies
Core Elements of Good Strategy:
a. Analysis of the Existing Situation
b. Modulating Policies
c. Consistent Application
In conclusion, I must admit that this book significantly transformed my thought process, a rare occurrence. I highly recommend it to anyone seeking a fresh strategy development and implementation perspective.
Background: Identifying Flawed Strategies
Rumelt contends that good strategies are more of an exception than the norm within organizations. The underlying issue appears to be a blind adherence to the sequential stages of vision, purpose, goals, and modes of action without clear guidance. In essence, the crux of the matter primarily boils down to one of two things:
Inconsistent (incoherent) strategies - where there's a lack of coordination between goals or a failure to align proposed goals with appropriate courses of action.
Strategies that fail to create new strengths need a fresh perspective on existing strengths and offer an effective means to cultivate new ones, which are essential for achieving substantial change compared to the status quo.
Rumelt highlights four telltale signs that may indicate the presence of an ineffective strategy within an organization:
A bloated strategy with excessive use of lofty terms and phrases that sound impressive but lack substance.
A strategy that fails to address the actual challenges confronting the organization.
A strategy that comprises a mere collection of goals, essentially a list of wishes, without a concrete action plan to navigate the obstacles on the path to success.
A strategy geared towards non-critical or impractical goals.
It's important to note, as Rumelt suggests that strategy should not be confused with other significant activities, such as:
An annual provisioning plan
Brainstorming or strategic thinking sessions
Checklists or topics to be prioritized
Vague, overly ambitious goals with no actionable plan for attainment.
The reasons behind these misguided strategies can be multifaceted. They often arise because organizations lack the knowledge of alternative approaches, because managers are hesitant to make tough choices and instead try to accommodate all needs because suggesting the right course of action can entail organizational costs, because it's easier to mimic textbook strategies or those from other sources, and because leadership and positive thinking, while valuable, do not constitute a comprehensive strategy for realization.
Core Elements of Good Strategy:
Analysis of the Existing Situation
The foundational cornerstone of any effective strategy lies in meticulously analyzing the current situation while approaching it with a fresh perspective. Such a novel viewpoint has the potential to illuminate an organization's strengths and opportunities, as well as its weaknesses and threats. This new perspective isn't about uncovering profound human wisdom; instead, it revolves around the redefinition of the elements in question. A classic example is how Wal-Mart redefined the very concept of a store when it pioneered its chain of stores. Richard Rumelt does not dismiss the traditional method of analysis, which entails assessing strengths and weaknesses while seeking opportunities and threats; instead, he advocates its use to reevaluate reality and harness organizational strengths to create a new competitive advantage.
Crucially, it's imperative to identify the organization's challenges, meticulously dissect their structures and origins, and subsequently outline alternative courses of action. Rumelt underscores that these challenges are only sometimes straightforward, and many are internal rather than market-oriented. This is despite the common belief that we possess an intimate understanding of ourselves and our organization's situation.
A pivotal component of analyzing the current situation lies in the identification of opportunities, whether they are of an internal or external nature. Opportunities represent significant potential for establishing a competitive edge, and accurately pinpointing them is pivotal in initiating a pertinent strategic process.
The analysis of the current situation only culminates with understanding challenges and opportunities; it also necessitates the delineation of a sphere of action. It's crucial to generate a range of distinct alternative courses of action and thoroughly discuss their respective advantages and disadvantages. The objective is not only to create an advantage for oneself but also to craft an advantage that proves challenging for others to negate or replicate over time. How can one achieve such a difficult-to-copy advantage, as exemplified by IKEA?
Pursuing excellence in execution.
Forming a combination of elements that cannot be replicated by singularly focusing on one of them.
Cultivating a multitude of specialties that enable excellence in the amalgamation of these elements ensures that no single specialization can be effortlessly replicated.
A sound strategy is centered around a specific, focused objective or accomplishment one aims to achieve, such as securing contracts from leading companies in the economy as determined by a defined index.
The guiding policy outlines the approach that will facilitate overcoming obstacles in pursuing this objective. While it should not be merely a list of goals or a vision for the field of action, an organized methodology and defined actions are essential for addressing the current situation and working towards the desired outcome. The policy naturally leverages the organization's strengths but should recognize potential challenges and risks, as previously defined.
The guiding policy takes shape by assessing anticipated reactions and counter-reactions to the planned actions. This assessment sharpens the proposed policy, which comprises a series of actions the organization must implement. Rather than relying solely on general principles, these actions should focus on what is most crucial and critical, avoiding overexpansion that could dilute the organization's focus. Ensuring the proposed actions are coherent and form an organized approach is vital. Coordination may be required to achieve this coherence, and it's an investment worth making, provided it is reasonable.
Simplicity, clarity, and conciseness are critical to the policy's success. In line with Richard Rumelt's perspective, a leader's role is to simplify and define the problem effectively to guide the organization more efficiently towards its objectives.
The app should adhere to the following principles:
Intentional Planning: It must be carefully planned and not left to chance.
Orchestration: It should operate like a well-synchronized orchestra rather than a disjointed collection of unrelated activities.
Leveraging Relative Advantages: The app should capitalize on the organization's relative strengths, recognizing areas of weakness where pushing forward may not be the best approach. In such cases, it's more prudent to relinquish certain efforts and concentrate on areas where change can be effectively instigated.
Data-Driven Iteration: Gathering data and information throughout the implementation process is crucial. This data should be thoroughly analyzed to enhance and refine the chosen strategy. It should be fine-tuned to generate a response that propels the organization forward most efficiently and advantageously.
Recommendations and Highlights
When Selecting the Scope for Change:
Opt for a domain that harnesses and builds upon the organization's inherent capabilities while seizing new opportunities.
Base your choice on evaluating the potential outcomes of proposed actions and how you'll adapt accordingly. Never place unwavering trust in a static market.
Focus, Focus, Focus – managers should know when to decline further offers and excessive proposals. Preparing a written list of options from which to choose can aid in selecting a more crucial and pivotal area for the organization rather than impulsively selecting the first option that comes to mind.
A robust strategy should rely on the organization's existing capabilities, which can take one of four forms:
- Strengthening an existing competitive advantage within the organization.
- Expanding the influence of the organization's competitive edge.
- Creating heightened market demand for an area where the organization holds a competitive advantage.
- Reinforcing mechanisms that deter the replication of the existing competitive advantage.
5. Where to begin? Start by asking questions. Sometimes, seeking an outsider's perspective or emulating one can provide an accurate reflection of the organization's current state.
Motivating the Organization to Embrace Change:
Allocate managerial resources in favor of employees and create conditions that maximize the effectiveness of their efforts.
Be vigilant of organizational inertia and the challenge of breaking free from comfort zones. Recognize the strength of persistence and invest resources in overcoming it, often through proposals that simplify processes, making them appealing to employees and the organization. This may sometimes involve replacing or repositioning individuals who resist change.
Guard against the natural inclination of all organizations to become increasingly entrenched over time (as indicated by the second law of thermodynamics, which states that entropy in a closed system can never decrease). Organizations become less effective over time unless proactive measures disrupt this pattern.
Embrace dynamism. Developing and implementing a good strategy as a one-time effort is beneficial, but in today's fast-paced reality, any advantage can only be sustained for a limited duration.
Recognize that there's no one-size-fits-all recipe for formulating and executing a successful strategy. However, the methods mentioned above provide guidance and help chart the path toward achieving the desired strategy.
Only lose hope if everything goes perfectly. What matters is consistently making more correct decisions than your competitors over time.