‘Good Strategy / Bad Strategy’
by Richard Rumelt
Over the last 3 years, 3 different entrepreneurial coaching clients have each recommended this book to me, one of them summarised her biggest insight from reading the book as follows ….
“Until I read this book, I thought I knew what a business strategy was, I realise now, that like many other business leaders, that clearly I did not, and this meant I did not previously have a meaningful strategy to achieve my business outcomes.”
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Upon reading this book, I believe that you probably be will be left in little doubt that ‘Strategy’ is one of the most important, yet one of the most poorly understood and most mis-applied concepts not only in business, but in all areas of life.
Richard Rumelt is a highly accomplished strategy consultant who, during his long career has brushed shoulders with some of the world’s most prominent business leaders, people like Steve Jobs to name just one. Whilst much of the author’s experience is with larger businesses, the principles he teaches in this book are largely applicable to a business or organisation of any size and in fact many of the ‘good strategy’ principles are applicable to life in general.
For example, one of my entrepreneurial clients had a great strategy that enabled her to grow her business, however, on a call where we were discussing her family relationship challenges, it became apparent that she did not have a clear strategy to address this challenge. The principles and ensuing benefits of having a clear and effective strategy are applicable across all areas of life, not just business.
This book goes very deep into what makes a strategy effective or not and the consequences of having a poor strategy are almost always very costly.
“So, what is a ‘Good Business Strategy’?”
An effective approach to address this question is to summaries what a ‘Good Business Strategy’ is NOT!
1- It is NOT the description of a vision or a set of objectives or goals!
This is the most common mistake made by many business leaders, for example “Our strategy is to win 20 percent customers in the market!” this is an objective NOT a strategy.
2- Strategy is NOT about being motivated or inspired to do something. For example “Our strategy is to make a difference to people’s lives.” This may be ‘an inspiring purpose’ for a business, however it is NOT a strategy.
3- A stated Good Strategy will NOT have ‘Fluff1”. Fluff is the use of abstract, complex, or unnecessary words that lack substance.
4- A good Strategy clearly defines ‘the challenges’ being addressed, and the actions and processes that need to be executed to deal with these challenges.
5- A good strategy has well-chosen strategic objectives, as a strategy can only be as effective as the objectives it is pursuing.
In summary all ‘good strategies’ have 3 critical elements
- Diagnosis
- Guiding policies
- Accountable Actions
For you to have a ‘good strategy’ for your business, it is essential that firstly, your strategy includes all 3 of these elements and secondly that you are doing all 3 of these elements effectively.
Going back to my client who had successfully applied this approach to her business, she applied the same principles to her family relationship issues at home. She was able to transform these relationship challenges by more clearly diagnosing the cause of these issues, then agreeing some ‘accountable actions and behaviours’ with some mutually agreed ‘guiding policies.
Much of the book drills into details of each of these 3 elements helping you to understand more clearly how to create a good / effective strategy by:
- Diagnosis
Effective diagnosis of the ‘highest priority’ challenges, opportunities and outcomes. - Guiding Policies
Effective Guiding Policies. An ‘as simple as possible’ approach of what to do and not do! - Accountable Actions
Effectively identifying, agreeing, and implementing the highest priority actions and behaviours
In the context of these 3 elements the author summarises the following characteristics of ‘Good Strategy v Bad Strategy’
Good Strategy Characteristics:
- Short and simple words
- Has real world substance
- Focused and directional
Action orientated - Identifies cultural issues
- Engages all people in a co-ordinated manor
- Flexible
- Clear management guidelines
Conversely,
‘Bad Strategies’ have the following characteristics:
- Complex, long winded and abstract words
- Abstract concepts
- Lacks clear direction
- Lacks clear actions and behaviours
- Ignores culture
- Delegates instead of broad engagement
- None or unclear management guidelines
The book is full of many interesting real-world stories of both ‘good strategies’ and ‘bad strategies’ where the principles and characteristics of ‘good strategy’ are either found or not found.
Inertia and Entropy
One of my favourite chapters out of the 18 chapters in this book, is call ‘Inertia and Entropy’ which addresses 2 issues that I encounter regularly as a transformational coach and mentor.
To use a metaphor in the same way a person can be ‘fat, flabby and unfit, so can a business.
A famous example of a business that lost out due to their inertia and entropy are Blockbuster Videos whose systemic routine and culture around high street shops prevented them from leveraging the internet leaving Netflix to surpass them and eventually Blockbuster Videos went bust.
Entropy is a word from the science of thermodynamics, and in this context is about ‘energy that is unavailable to do work, due to disorder’. So, for example, this could be a person sitting on a couch eating a bad of nachos watching toxic news on the television, instead of going for a walk or a run in nature. Such ‘disorder’ can be found in businesses.
With regards to ‘inertia’ the author uses the metaphor of an oil super-tanker at sea, even with it’s engines on full reverse it can take over 1 mile to come to a stop.
Inertia is where a business is unwilling or unable to adapt to changes required by changes in the outside world, just like the oil tankers, the bigger a business the more inertia there is to overcome.
Entropy always increases in an isolated physical system,
Inertia and Entropy are both about resistance to a change in motion, a ‘good strategy’ will clearly identify where there is inertia and entropy that needs to be overcome.
- Established routines
- Established Culture
- Inertia by proxy (Established structures of power and influence)
If you are a small business or organisation typically you will have less inertia and entropy to overcome if you wish to implement significant changes. In essence smaller businesses will usually be more adaptable than bigger businesses, however, regardless of whether you are seeking to champion transformation in a big business, a small business or at a personal individual level, having a clear, coherent ‘good strategy’ is an essential ingredient!