Good Strategy/ Bad Strategy Book Summary

Book Summary

15 min

Audio available

Brief Summary

In Good Strategy/Bad Strategy, Richard Rumelt explains the basic elements of strategy and how they are employed. Through examples of well-known companies who successfully implemented Good Strategies (and a few who fell for bad ones), the basic building blocks and science of strategy is illustrated.

About the Author

Richard Rumelt is the Harry and Elsa Kunin Emeritus Professor of Business & Society at the University of California, Los Angeles Anderson School of Management. He joined the school in 1976 from Harvard Business School. The Economist named him as one of the 25 most influential people in management and corporate practices, and McKinsey Quarterly called Rumelt the “strategy’s strategist.”

Topics

Management & Leadership

Good Strategy/ Bad Strategy Book Summary Preview

What You’ll Learn

The definition of strategy
What are the building blocks of strategy?
Which corporations set good examples of strategic approaches to business
The importance of being focused
How strategy is like science

Who This is For

Business executives and entrepreneurs
Business management students
Anyone curious about how successful companies beat out the competition

Key Insights

With a focus on what makes Good Strategy, Richard Rumelt teaches the basic elements for business success, beginning with understanding the difference between strategy and goals. The kernel of strategy is made up of three parts: diagnosis, guiding policy, and coherent actions. With these basic building blocks, the science of strategy can be employed, paying attention to balance, leverage, and keeping the high ground above the competitors.

What Strategy is and What it Isn’t

Let’s begin with what strategy isn’t… it’s not goal setting. A graphic arts company cited their 2005 Key Strategy to be, “20 percent revenue increase and a 20 percent profit margin.” But a goal (or vision) is an idea that stands alone. Without an action plan, it is not a strategy.

Strategy is a set of ideas that include an action plan to achieve those goals. The place to start is setting goals, but to qualify for the term “strategy” there must be detailed information on how the goals will be achieved.

While goals can often be mistaken for strategies, motivational slogans and buzzwords also get misinterpreted to be strategies. This is especially true in the absence of clear, simple verbiage. Considered “fluff,” superficially restating the obvious with buzzwords comes across as high-level planning, but is really just a façade. One example of this is the “strategy” employed by a bank that offers “customer-centric intermediation.” This sounds highfalutin, but since “intermediation” just means taking and lending money, and “customer-centric” means they serve their customers, all their strategy is really saying is that they are a bank! And since there are no actionable plans, this is actually not a strategy.

Failure to face the challenge is another weak spot in strategic planning, meaning not properly identifying your company’s main problem. Bad strategic objectives are only seeing serious problems as irritants and not addressing them directly or at all. Sometimes leaders believe that focusing on difficult issues is just negative thinking, but problems can’t be solved if they aren’t identified.

The Building Blocks of Good Strategy

All strategies will appear different as they are tailored to meet unique needs. But there is a common component to any successful strategy. It’s something called “the kernel” and is made of three different parts. The first two are labeled the diagnosis and guiding policy.

Diagnosis is really just analyzing the complexity of a company’s circumstances while the guiding policy lays out the plan to address the diagnosis. For example, in 1993, IBM was in decline. The marketing strategy of offering complete computers was antiquated as the industry was moving towards a more fragmented approach of selling individual computer parts.

Rather than altering to this fragmentation, the CEO created another diagnosis. He chose not to fragment the departments, but instead to centralize and become the...