I switched my last hour of the day routine last January. After reading a few tales to the kids, instead of lying on the sofa and checking the mobile phone with tv noise in the background, I go directly to my bedroom. This behaviour lets me get up earlier to do some sport (mostly go for a run) and, more importantly related to this post, reading about 30 minutes before falling asleep.
I am usually tired so I choose an enjoyable novel («Project Hail Mary» by Andy Weir or «The Alaska Sanders Affair» by Joël Dicker have been some of the best ones) but, some days, I feel a bit of extra energy and I prefer something from the endless work related pile of books as this «Good Strategy / Bad Strategy. The difference and why it matters» by Richard Rumelt.
Strategy: How to create and implement a powerful, action-oriented strategy that gets results.
The sentence above is the headline on the back cover and it summarises the main idea of this book. Rumelt defines what is good and bad strategy, how to feed the good strategy with different sources of power, and proposes a method to help you to analyse your environment and try ideas that may (or may not) work. Let’s see how to do that.
What is strategy?
According to Rumelt, strategy is «strength applied to the most promising opportunity”.
It has coherence and coordinates policies and actions, as well as implying the creation of new strengths through shifts in viewpoint. Strategy is as much about what to do as what not to.
Identify what is good and bad strategy
Let’s move ahead. What is a GOOD strategy? It is unexpected, defined by new sources of power / weakness and has the kernel defined. On the other hand, a BAD strategy has fluff, there is no change, it has plans and desires (but no goals) or bad strategic goals.
Ok… but if it is so clear, why does a BAD strategy exist? In Rumelt’s opinion, there are a few factors:
- A high inability to choose: management only takes action in limited situations… but it may be too late by then
- Templates/models are followed with no adaptation or real evaluation
- Beliefs in a New Thought (positive and “mystic” thoughts) which will improve the situation although it does not cope with the real situation.
A method for a good strategy: the kernel
Rumelt’s method to handle a strategy definition is set up as «coherent action backed up by an argument, an effective mixture of thought and action with a basic underlying structure I call the kernel.” Three key points define it:
- A diagnosis which defines or explains the nature of the challenge. The diagnosis simplifies and clarifies the situation.
- A guiding-policy for dealing with the challenge. A good policy looks for sources of advantage.
- A set of coherent-actions that are designed to carry out the guiding-policy and overcome the challenge
Feed the strategy. 9 sources of power.
“A good strategy is an approach that magnifies the effectiveness of actions by finding and using sources of power”. So Rumelt describes a number of them
The ability to focus energy on a pivotal objective to produce outsized results and a cascade of favourable objectives.
Getty Trust chose a wide range of art-related activities (instead of only art) for investing to get a large and visible difference.
Objectives that are feasible, even if, slightly out of reach (several points here in common with OKRs ). They should be clear (to resolve complex situations and avoid ambiguity), have a well-defined position (to provide specific actions in the short term) and progressive (walk > run > run 10K > run a marathon)
The Apollo Space Program goal was to land on the Moon within a decade (clear and specific). Several intermediate steps were achieved before the final goal.
A system should be measured by the weakness of the weakest part. A good approach breaks the system down into parts, identifying constraints which cannot be solved, and seeking excellence in other parts of the process, focusing obviously on the weakest at the first stage.
Ikea and how difficult it is for any competitor to be good at furniture production, distribution, marketing, store management, etc.
How your service or product design defines your results. Simplifying improves direct results but it has consequences: less flexibility, less power… it does not work in very complex and challenging environments (you will not win an F1 race with standard components).
Paccar trucks are more expensive but widely recognised as the highest quality trucks made in North America. Paccar’s buyers know the purchase is a “better” choice in the long term.
Identify and attack a niche better than rivals because focus (coordination of policies that produce extra power through their interacting and overlapping effects) is an infinite loop. With the application of that power to the right goals, you will get new extra power and effects.
The can manufacturer Crown has been focused on a part of the market (companies which need small amounts of orders), that one where the company can be more valuable for its clients and where it is more profitable.
Growth is not always the solution although it is the «magic» word. Growth is the reward (good products, innovation, creativity, efficiency…) and it cannot be «created».
Crown tried to grow through acquisitions, paying too much and obtaining less than it was expected because of the lack of a coherent strategy with the existing business.
Nobody has an advantage at everything. As an example, small size may be a great advantage for several situations and a disadvantage for other ones. Try to exploit the situations where you can take advantage of them.
Disney wanted to increase their range of movies taking advantage of its brand (its most valuable asset). They fixed a policy of “No bad language”, “No uncomfortable sexual situations” and “No gratuitous violence” as guidelines (common values in all their previous films), and the result was Pirates of the Caribbean, National Treasure and Narnia stories.
The first has a relevant position so waves of change (quite difficult to identify them) should be exploited. The more common types that we can find are; rise of fixed cost, deregulation, predictable biases, incumbent response, and attractor state.
Cisco Systems took advantage of the rise of the microprocessor and the critical importance of software (first wave), the rise of corporate networking (second wave), IP protocol (third wave) and the rise of public internet (fourth wave).
Inertia and Entropy
Inertia means inability to adapt to change.
Entropy is the tendency of a system to become more disordered over time. It must always be managed to minimise it (it happens sometimes just by inertia).
Each brand of General Motors was targeted at a specific market segment. After several years, almost the same vehicles were sold under different brands and models, increasing the internal competition.
Apply it. Think like a strategist
Rumelt is clear: the best knowledge to build a good strategy is the one available only to your company.
We should use a hypothesis as a method. Each new strategy is a hypothesis and its implementation is an experiment. Test, get results, learn what works (and what doesn’t), and adjust your strategy accordingly.
Some methods which may help us:
- List with the most important and actionable points (things to do, not things to worry about): It forces you to think about the situation and prioritise.
- Amplify the perspective / Think outside the box: the same problem / situation may be solved from different points of view. Our tendency is to follow the first idea, without careful consideration.
- Use the kernel method: A diagnosis, guiding policy, and set of coherent actions.
- Problem – Solution: Identify the problems you are trying to solve and determine how to do it. From “what” to “how”.
- Create-destroy: Develop new alternatives to identify how to destroy the main ones. It is difficult to question our own ideas so it is important to be helped by colleagues (or at least, think about how they would solve that issue).
But keeping your head
Quite difficult. There is a fine line between genius and mad scientist.
There are frequent errors in judgment that may be identified:
- Engineering overreach: systems whose failure modes and consequences exceeded their ability to comprehend or analyse.
- Smooth-sailing fallacy: when lack of recent failures make people overconfident.
- Risk-seeking incentives: you win if things go well and there is no punishment if things go badly.
- Social herding: do you follow the crowd without asking questions?
- Inside view: “this situation is different” ignoring relevant data.
My two cents about Good Strategy / Bad Strategy. The difference and why it matters
How many «Good Strategy / Bad Strategy» books have been sold? I guess not too many because Rumelt does not give you any magic recipe based on 7 steps to take your company or project to the moon.
I do not know your opinion, but I am sceptical with any advice presented whether in a book, blogpost or consultancy services which promises the holy grail following a standard pattern, the best practices, reusing a framework and so on. Many years in the trenches, I guess.
So why did I like this book? Because Rumelt does not give you any guide about how to solve issues. Instead, he focuses on teaching you how to find “high impact” issues which deserve to be solved (not an easy point, as it is analysed in the book). After that, and using your knowledge and the scientific method, test an uncertain solution to try to solve it.
Yes, the last part where he explains how to think like a strategist is a bit unstructured, with several jumps between ideas, anecdotes and personal experiences but I think I was able to catch the essence.
In addition, throughout the book, Rumelt provides varied examples from all types of company, including different historical periods and even from the military. Although he describes some Apple situations (I have a bias against these examples because I think no other company may be compared with Apple, which is a very exceptional case), the chapter on Nvidia perfectly exemplifies how strategy determines the future of a company.
A good read if you would like to define a strategy for your company, product or team. It is true that, not being the CEO, many times you will not be able to take all strategic decisions but I think this book may help you to define how to deal with many of your challenges.