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What Makes Good Strategy, What Makes Bad Strategy

Watch the video with Andrew Stotz or read a summary of it below.

Rumelt says…

What Makes Good Strategy, What Makes Bad #Strategy

What was so great about this book?

I’ve just read Good Strategy Bad Strategy: The Difference and Why it Matters by Richard P. Rumelt. It’s a small book that you can read in a few hours. It’s clear and simple, real world, and honest.

This book frees you from the ‘cascading’ ‘avalanche’ of:

  • Values
  • Mission
  • Vision
  • Strategies
  • Objectives
  • Goals
  • KPIs

Good strategy is rare. Most companies just have performance goals but no strategy to achieve them. Or they have fluffy aspirations.

Signs of bad strategy:

  • Avoids identifying the company’s core problem
  • Makes no hard choices, pushes those onto others
  • Has no focus, company ends up with conflicting goals
  • Is a list of outcomes (even big, hairy, audacious ones)
  • Does not build on the competence and cumulative learning of the organization
  • A ‘cascading’ ‘avalanche’ of fluffy Values, Mission, Vision, Strategy, Objectives, and Goals

What is good strategy?

  • “It comes from top management identifying the problem and setting a path to addressing it.”
  • “A coherent strategy can become a source of competitive advantage.”
  • “The application of the scientific method.”
  • “Presses where you have an advantage.”
  • “Strength applied to the most promising opportunity.”
  • “Good strategy has an objective that is close enough to be feasible.”

Three components of good strategy

  • Diagnosis – Identifies the core challenge the company is facing
  • Choice – Decides the direction the company will take and what direction it will stop moving in
  • Action – Determines big picture actions to move in that direction, keeping the company focused

More thoughts on strategy

  • Strength – Takes advantage of an existing strength, but reorganizes or redirects it in a coherent direction
  • Choice – Makes a choice to focus energy and resources in that direction, to the determent of other choices
  • Losers – Since good strategy must make a choice, a sign of good strategy is that there will be losers in an organization, areas where the company will retreat and pull back resources
  • Beware of a “No losers” “strategy”, it is not
  • Strategy is about testing and refining your hypothesis
  • Based on scientific method of developing a hypothesis, running your test, honestly interpreting your results, re-testing with modifications
  • Another author, Dr. W. Edwards Deming, called this the PDSA cycle – Plan, Do, Study, Act
  • The objective should make a big difference and will likely address a limiting factor
  • It should be able to help a company lay out, step-by-step what actions to take, what goals to shoot for
  • Think outside of your organization from the customer and the competitors’ position
  • Good strategy often simple, but takes time

Competitive success and wealth creation

  • The joint outcome of the quality of an organization’s accumulated resources and its coordinated action
  • By strengthening a competitive advantage or by increasing the demand for the scarce resources supporting it

To wrap up, the parts to good strategy:

  • Diagnosis
  • Choice (Author calls this guiding principles)
  • Action (Author calls this coherent action)


Learn more about good strategy:

Good Strategy Bad Strategy: The Difference and Why it Matters, by Richard P. Rumelt

Transform Your Business with Dr.Deming’s 14 Points, by Andrew Stotz, PhD, CFA


DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.