"Good strategy Bad strategy" book summary
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Why do so many organizations get strategy wrong? Even some of the world’s biggest organizations do strategy poorly, and incorrectly credit their success to their personal decision-making skill. Leaders often do what makes them feel good, whether it helps their company or not.
We read the book Good Strategy, Bad Strategy by Richard Rumelt and will break down the key insights between good and bad strategy. The “kernel” of good strategy contains three main components: diagnosis of a problem; an appropriate guiding policy; and a set of coherent actions. If each stage isn’t treated carefully, bad strategy is inevitable.
UCLA professor Richard Rumelt was previously described by McKinsey Quarterly as a ‘Strategy’s Strategist’. In his book, Rumlet dispels business myths and offers invaluable wisdom from his years in academia and business. Rumelt believes that at its core, strategy is the identification of critical factors in a situation plus the skilfully designed, coordinated actions to deal with said factors. It requires awareness of one’s resources and capabilities, and a sharp understanding of one’s industry and its surrounding space.
Rumelt wrote that half of what MBA students learn in a strategy exercise is to consider the competition in advance, even when no one tells you to.
For example, Kmart filed for bankruptcy in 2002. The company’s failure was notable as it focused on international expansion throughout the ‘70s and ‘80s and ignored Walmart’s innovations in logistics and its growing dominance of small-town discounting.
Rumelt had his students theorize on why Walmart did so well. Was it the company’s computerised warehousing and trucking system, its lack of a union, or low admin expenses? But if it’s success was so simple, how come its competitors didn’t copy its formula?
For instance, Walmart had barcode scanners at checkout in the early ‘80s, but Kmart also had barcode scanners. The real difference between Kmart and Walmart was a coherence of total strategy. The network, not the store, became Walmart’s basic unit of management.
This coherence of structure, policy, and actions made Walmart so difficult to compete with. Competitors would have to integrate the entire design of Walmart’s strategy to emulate its success. This coherence of strategy protects its advantage.
A good strategy does more than provide a goal or vision — it honestly acknowledges the challenges the company faced and provides an approach to overcome them with action points.
For example the 3D-graphics chip designer Nvidia had a rapid rise to the top of the 3D-graphics market, and passed seemingly stronger firms like Intel. Since Jen-Hsun Huang became the CEO of Nvidia in 1999, the company’s shares increased 21-fold and outperformed Apple over the next decade. Nvidia’s explosion is an example of outstanding strategy, based on Rumelt’s ‘kernel’ approach.
First, the company diagnosed a problem: 3D-graphics cards were the future of computing, given the almost infinite demand for graphics improvement that came from PC gaming.
Its guiding policy was the shift from a holistic multi-media approach to a focus on improved graphics for PCs by developing superior GPUs. Last, its action points were coherent and focused. Nvidia first established three separate development teams. Then it reduced the chance of delays in production and design through heavy investments in specific design simulation processes. Finally, it reduced process delays with the development of a unified driver architecture. All Nvidia chips would use the same downloadable driver software, making everything run more smoothly at all stages for both Nvidia and its customers.
Growing at a rate of about 67% per year from 2001 to 2007, Nvidia circumnavigated the design and production bottlenecks faced by companies like Intel. Despite having a similar growth rate, Intel had the effects of its performance increases dulled by process issues. Meanwhile, Nvidia won consumers over with more frequent, top-tier, GPUs. Where competitors spread themselves too thin, Nvidia’s strategy was intuitive, focused, and well executed.
Execs can similarly utilize strategic leverage, or the focus of attention and resources at the right moment onto a pivotal objective. To use strategic leverage: 1) anticipate challenges and opportunities with analysis of competitor competitor behavior and market forces; 2) utilize pivot points to base strategic focus on your organization’s sources of strength; and 3) concentrate resources toward said points.
Between 1980 and 2008, General Motors suffered from what Rumelt called chain-link problems. In a chain-link system, performance is limited by the weakest link in the chain. The chain is not made stronger by strengthening the other links if there is a weak link.
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