Takeaways from Good Strategy Bad Strategy

Richard Rumelt's book is a classic on strategy. Here is what I find most interesting from my read

“The first natural advantage of good strategy arises because other organizations often don’t have one. And because they don’t expect you to have one, either.”

This book came highly recommended ever since I wanted to deep dive into strategy. For someone that is new to this world - this book can establish good strategy foundations. 

Here are some of my takeaways from the book —

What is Good Strategy?

So what exactly is good strategy? Well, according to Rumelt, a good strategy has an essential logical structure which he defines as the Kernel —

The Kernel of a Good Strategy

“A good strategy has an essential logical structure that I call the kernel. The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.”

Diagnosis requires facing the challenges head on. Often, there is a tendency in an organization to avoid facing the challenges, and to avoid solving the complexity. However, it is crucially important to simplify at this stage and get to the crux of the problem areas. 

When the challenge is significant, good strategy gets more focused and coordinates efforts to achieve a powerful competitive punch or problem-solving effect.

The guiding policy is the overall approach to overcome the obstacles listed in the previous step.

And finally, there needs to be a set of coherent actions that executes on the guiding policy. Rumelt mentions that coherency is often an underlooked aspect of strategy that can hold deep value for organizations. Strategic coordination is not an adhoc mutual adjustment, instead — it is a design of how actions and resources within an organization will be combined.

What is Bad Strategy?

Rumelt defines bad strategy to have a life and logic of its own that is built on mistaken foundations. 
It tends to skip over details, and doesn’t attempt to resolve complexity. 
It ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. 

Strategy is Beyond Competitive Advantage

If you’ve read any literature on Strategy, you’d realize that a lot of the emphasis is on competitive advantage. But Rumelt states that while competitive advantage is important, it's not the only value generation method. Increasing value requires a strategy to progress on at least one of four different fronts— 

1. Deepening advantages

2. Broadening the extent of advantages

3. Creating higher demand for advantaged products or services

4. Strengthening the isolating mechanisms that block easy replication and imitation by competitors. 
   

The Role of Leadership in Strategy

No surprise that leadership plays an important role in organization strategy. But my crucial takeaway was the emphasis that strategy is as much about what an organization does not do as it is about what it does. 

What leaders must overcome is the difficulty to eliminate choice of actions. To overcome  psychological, political, and organizational work in saying“no” to whole worlds of hopes, dreams, and aspirations. 

“When a strategy works, we tend to remember what was accomplished, not the possibilities that were painfully set aside.”

A big role of leaders is to absorb organizational complexity and passing on to the organization a simpler problem. 

“To take responsibility is more than a willingness to accept the blame. It is setting proximate objectives and handing the organization a problem it can actually solve.”

The challenge of organizational inertia

Which brings us to the next takeaway — how can organizational inertia be tackled? Some of the greatest challenges that companies face are not external, but are instead from within. 

Rumelt highlights two steps to breakdown organizational inertia — 

• “The first step in breaking organizational culture inertia is simplification. This helps to eliminate the complex routines, processes, and hidden bargains among units that mask waste and inefficiency.”

• “After the first round of simplification, it may be necessary to fragment the operating units. This will be the case when units do not need to work in close coordination—when they are basically separable. Such fragmentation breaks political coalitions, cuts the comfort of cross—subsidies, and exposes a larger number of smaller units to leadership’s scrutiny of their operations and performance.”
  

How to Evaluate Strategy

Rumelt mentions that there are three essential skills to breakdown strategy. 

1. Have a variety of tools to examine the bigger picture and to guide your own attention to the intricate details. It is important to do your own analysis. A strategy is not necessarily what the CEO intended. Sometimes, its hidden, misstated, or unknowingly being executed. 

2. Develop the ability to question your own judgment. If your reasoning cannot withstand a vigorous attack, your strategy cannot be expected to stand in the face of real competition.

3. Cultivate the habit of making and recording judgments. This should be later examined to improve your skills. By committing to a judgment, you increase the probability of disagreeing with some of the assessment of others and thereby increase the change of learning something new. 

Strategy Role Models

And finally — have a virtual panel of your role models always at your disposal to check your assumptions, and decision making. 

“Learning from others can be more than simply listening to them, watching them, or reading what they write. When you build your own panel of experts you go one step farther, trying to shape your understanding of their teachings into a virtual personality. When it works, it does so because we humans have built—in software for understanding other humans, software that is more expert at recognizing and recalling personalities than at almost anything else.”