This is a summary review of Good Strategy, Bad Strategy containing key details about the book.
What is Good Strategy, Bad Strategy About?
The book helps readers to recognise and avoid the elements of bad strategy and adopt good, action-oriented strategies that honestly acknowledge the challenges being faced and offer straightforward approaches to overcoming them. It claims that strategy should not be equated with ambition, leadership, vision or planning; rather, it is coherent action backed by an argument.
Who is the Author of Good Strategy, Bad Strategy?
Richard Post Rumelt is a bestselling author. He 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.
What are key takeaways from Good Strategy, Bad Strategy?
Takeaway #1: Ditch the Ambiguity
Strategies are often confused with goals and visions. Imagine this. McDonalds states their main strategy is to increase their daily net sales. Is this a good strategy likely to succeed? It’s not, because it doesn’t have a plan on how it will be achieved. A plan is what sets strategies aside from goals, it gives you a clear idea of what is necessary for success.
One common downfall is that people use too much fluff. They use fluffy language, rather than simple, easy to understand words. The job role “Transparency Enhancement Facilitator” sounds incredibly technical until you break it down. Transparency means see-through (aka windows), transparency enhancement means making things clearer (aka cleaning). Facilitator means someone who makes this happen. So, all together now! ‘Transparency Enhancement Facilitator’ means window cleaner. We must remove the fluff and replace it with a straight-forward, coherent plan.
Takeaway #2: Building the Foundation
Strategies will never be the same, as they’re specific to your aims. But they require the same framework: the kernel.
The kernel is what makes strategies successful. It has three parts: Diagnosis, Guiding policy, and Set of coherent actions.
The diagnosis takes a complex situation and investigates it. The guiding policy then specifies what’s going to be done about it. The set of coherent actions then, quite simply, puts your plan into action.
So, for example, a 21-year-old student walks into the Doctor’s, showing symptoms: Temperature of 40°C, Vomiting, Headache, and a rash that isn’t fading. The doctor recognises the symptoms as Meningitis. The diagnosis. The Doctor tells the patient “We’re going to start a course of antibiotics, and keep you in for fluids and oxygen if necessary.” This is the guiding policy. The Doctor then keeps the patient in hospital, and gives them antibiotics and fluids straight into a vein, and keeps the oxygen on hand if necessary. This is the set of coherent actions.
One mistake people make with the kernel is having contradictions between their actions and guiding policy.
An example of this comes from Kodak. They’d completed a report on likely future trends, and diagnosed that they needed to create the digital camera. They came up with a plan of how to develop this - this was their guiding policy. In 1975, they invented the digital camera. However, when it came to releasing this, management didn’t believe changing their strategy was necessary. So, they held onto the digital camera for 10 years. By 2012, Kodak had lost 75% of their value and filed for bankruptcy. They completed the first two stages, but failed at the action stage. Their actions weren’t synonymous with their diagnosis and guiding policy.
Takeaway #3: Pick Your Priorities
If you could choose, would you choose not to choose? If we can avoid it, we like to avoid making choices.
However, successful strategies require choices. They require prioritization. What’s most important? Focus on that.
Take Natura Brasil. Humans have become increasingly concerned with looking after the planet. The beauty industry uses lots of harsh chemicals, and complaints of side effects from these more than doubled in 2015-2016. Natura developed a sustainable business to tackle this. They give their suppliers in the Amazon education and improve environmental action in their area. So far, they have preserved 635,000 acres of Amazonian rainforest.
They prioritized natural products and looking after the environment, stepping away from harsh chemicals. As a result, they formed a niche clientele of those concerned with preserving the environment.
With choices often come consequences. Another area of your business may take a hit. But if you persevere, you can overcome this. Even when everyone is opposing you.
Lego had to adapt to strong opposition. Founded in 1932, Lego started out making wooden toys and simple plastic building blocks. They continued their original idea (why fix what’s not broken?), but suffered from over-innovation and almost hit bankruptcy in 2003. Others were providing new and improved technology which left Lego’s old ideas behind.
To resurrect the business, they changed direction. They collaborated with other successful brands, such as Harry Potter and Star Wars, and launched a series of movies. They overcame opposing forces, and renewed their company.
Takeaway #4: It’s All About Leverage
So, you’ve got your strategy. How do you use this to tackle competition?
The key is: leverage. Your strategy must give you leverage over the companies you compete against.
The trick is always being one step ahead. You see a gap in the market and snatch it up before others can.
An example is Iceland. They’re the most renewable country, with almost 100% of their energy consumption coming from renewable energy. They were first motivated to invest in renewables due to the price of fossil fuels. This made them ahead of the game. Now, fossil fuels are beginning to dwindle, and everyone is rapidly investing in renewables. Iceland has the advantage. They can now share their knowledge. They’re participating in geothermal projects in over 50 countries. Because they are a step ahead, their knowledge is now helping to fund their economy.
To be one step ahead, you must know the central pivot point of your market. Understanding this helps you to understand how to succeed.
When Netflix first started in 1997, they posted DVDs in the mail. But shortly after, DVDs began showing up on the internet, reducing Netfix’s business. Their central pivot point became fast availability. They began to stream content online. They experimented with this for 10 years. Today, Netflix is a huge company. They honed in on the pivot point. They gained the advantage, and made their billions.
Takeaway #5: Balancing Act
To instill good strategies, you must identify whether you have the resources to carry out the strategy, and whether it fits with your current situation. The actions need to fit with your present circumstances, and work together to give you the best possible advantage. After this, you’re well on your way to a faultless strategy.
One example of a flawless strategy is The Battle of Austerlitz (1805). Napoleon’s 68,000 troops were sure to lose against the 90,000 opposing troops. Napoleon, by making his right side weaker, fooled his Austro-Russian opposition to attack him on this side. He had planned this, as he knew this would overextend his rivals. He waited until he was sure his allies had followed his plan, and then he launched a carefully planned counterattack, leading to their victory.
Carefully planned strategies, where you take into account your resources and current situation, can help you to succeed when the chances are slim.
In other words, the most effective strategies are not those with the most resources, but those that recognise their limited resources and identify their potential actions based off of these.
Takeaway #6: Look out for the second-order effects
Business is constantly in flux; it changes day to day. Embracing these shifts rather than avoiding them is an art. Generally, the main changes are predictable. So, these won’t offer anyone an advantage. What’s key is to look out for the second-order effects.
For example, 2002 brought about the first phone with a built-in camera. Most people could see the impact of this – no need for compact cameras when you already have one on your phone. However, the development of this feature brought second-order effects that people could not have predicted. Although the cameras on phones are now very good, there are lots of things they cannot do. Companies like Canon and Nikon developed cameras that had features that smartphones didn’t. Now, they can be used underwater and dropped with little to no damage. The interchangeability of lenses means you can capture a range of subjects with different effects – telephoto, ultra-wide-angle, macro, etc. As smartphones have progressed, so have cameras. This has meant that cameras still hold the upper hand in picture quality.
Smartphone development enabled the identification of second-order effects: the demand for camera features that smartphones don’t provide. This allowed camera companies to be a step ahead, constantly improving features that weren’t present or were lacking on smartphones. Therefore, by recognizing the subtle second-order effects, you can fill a niche gap in the market, and your company can succeed. But you must be adaptable.
Takeaway #7: Limit Their Success to Maximise Yours
There are two key elements involved in manifesting good strategies: 1) Competitive advantage, 2) Isolation mechanisms.
Competitive advantage is effectively more for less. for example, more value, less cost than your rivals. We do this by using isolation mechanisms. This is about giving you more by taking theirs. You limit their opportunities.
Take Amazon. They have many isolation mechanisms that work together to ensure their competitive advantage: Brand name, Company’s customer service, Fast delivery, Prime Video, Prime Music, Amazon Echo, Kindle. This long list of things that Amazon provides makes it incredibly difficult for other companies to get their foot in the door. They have top class products, but also provide practically faultless customer service. This guarantees that customers will continue to purchase their products. It also means that competitors would have to provide the same service for less money, which is no mean feat.
You can also create higher demand for your product or business to gain competitive advantage.
One example of those that do this extremely well are pharmaceutical companies. They spend twice as much on marketing as they do on the research and development of their medications. The variety between products is getting smaller and smaller, so they preempt what will be needed. They identify and anticipate the customers’ needs, and then they provide solutions. Additionally, marketing the products they develop increases people’s awareness of the illnesses the medications treat. This makes people more likely to identify these symptoms in themselves, and increases the likelihood that they will purchase this particular brand in the store.
Takeaway #8: strategizing requires science
To become a successful strategist, you need to think about your planned actions, and the potential impact of your actions, both the good and the bad.
Instagram began as Burbn. It was a location-based app for whisky drinkers. Kevin Systrom, the founder of Burbn, noticed that people weren’t sharing their location on the app, they were sharing photos. Systrom, along with others, developed a hypothesis that people would benefit more from an app where you can just upload photos, and like and comment on them.
They changed the pivot point to ‘communication with images.’ They removed all features other than uploading photos, commenting and liking them. They called it Instagram as it was similar to an instant telegram. 25,000 people signed up in one day. Through honing their app by adapting to the consumers’ demand, Instagram now has more than a billion monthly users. They had a hypothesis, they tested it, and adapted it to the market.
In other words, strategizing requires science: coming up with a plausible hypothesis, and testing it.
Takeaway #9: Don’t be sucked into optimism bias
Generally, we hide behind optimism bias. This is the common ‘it won’t happen to me’ belief. The belief that we’re more likely to encounter good scenarios, and less likely to encounter bad.
Optimism bias explains why so many people still smoke. The evidence for the health consequences of smoking are clear and well-know, yet around 500,000 people still suffer smoking-related deaths every year.
Optimism bias can also be called the inside view. We don’t learn from others’ mistakes.
Edward Smith, Captain of the Titanic, followed the inside view. He famously said: “I cannot imagine any condition which could cause a ship to founder…Modern shipbuilding has gone beyond that.” The Titanic was believed unsinkable. This was why the Titanic had only twenty lifeboats onboard (with capacity for 1,176 passengers). They felt more would be unnecessary, and would clutter the boat deck. This inside view caused the death of 1,500 of the 2,223 passengers aboard the Titanic when it sank.
We must instead take the outside view. We need to overcome this idea that our experience is so different from that of everyone else.
Think about why other people have failed in similar situations. If an outside view was taken on the Titanic, they would not have believed it unsinkable. They would have taken note of the warning signs from RMS Olympic:
- September 20, 1911: Collided with Hawke, the Royal Navy cruiser, leaving a large hole in her side.
- February 24, 1912: Collided with the Grand Banks off Newfoundland and lost a propeller blade.
They would have understood the fragility of being in a metal container in the middle of the ocean, and taken more lifeboats.
Strategies for success require learning from others’ experiences.
The key takeaway: Don’t be sucked into optimism bias. Take note of previous events, and don’t copy their mistakes.
- Print length: 320 Pages
- Audiobook: 11 hrs and 49 mins
- Genre: Business, Nonfiction, Management
What are the chapters in Good Strategy, Bad Strategy?
1: Good and bad strategy
2: Sources of power
3: Thinking like a strategist
What are some of the main summary points from the book?
Here are some key summary points from the book:
- Good strategy is not just a plan or a goal; it involves identifying and understanding the core challenges and opportunities in a given situation.
- A good strategy includes a clear diagnosis of the current situation, a guiding policy, and coherent actions that align with the policy.
Bad strategy often lacks a deep understanding of the situation and relies on generic, wishful thinking or vague aspirations.
- A key element of good strategy is the ability to identify and focus on the most critical issues rather than spreading resources too thin.
- Good strategy requires making choices and setting priorities, acknowledging that resources are limited and trade-offs are necessary.
- Effective strategy involves creating a "kernel" that contains the central elements of the strategy and provides a clear and compelling explanation of how the organization will achieve its goals.
- Good strategy involves leveraging and building on an organization's unique strengths and capabilities rather than chasing trends or imitating competitors.
- A good strategy takes into account both the external environment and the internal capabilities and limitations of the organization.
- Bad strategy often manifests as a collection of buzzwords, slogans, or lofty statements without a clear roadmap for achieving the desired outcomes.
- Good strategy requires ongoing monitoring and adaptation as the situation evolves, with the flexibility to adjust tactics while staying true to the overall guiding policy.
What are good quotes from Good Strategy, Bad Strategy?
“It is hard to show your skill as a sailor when there is no wind.”
"A strategy is like a lever that magnifies force.”
"A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity—a flurry of fluff masking an absence of substance.”
"Bad strategy is long on goals and short on policy or action."
“Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.” (Meaning)
― Richard P. Rumelt, Good Strategy, Bad Strategy Quotes
What do critics say?
Here's what one of the prominent reviewers had to say about the book: "Represents the latest thinking in strategy and is peppered with many current real world examples. Good Strategy/Bad Strategy has much to offer and has every chance of becoming a business classic.” — Management Today
* The summary points above have been concluded from the book and other public sources. The editor of this summary review made every effort to maintain information accuracy, including any published quotes, chapters, or takeaways
Tal Gur is an author, founder, and impact-driven entrepreneur at heart. After trading his daily grind for a life of his own daring design, he spent a decade pursuing 100 major life goals around the globe. His journey and most recent book, The Art of Fully Living, has led him to found Elevate Society.