Strategy is one of those business terms that is critical to understand but difficult to define. This ambiguity makes it hard to distinguish what makes up a good or bad strategy.
Fortunately for entrepreneurs, Professor Richard Rumelt’s book, Good Strategy/Bad Strategy, does an incredible job of defining the various elements of strategy and laying out the foundation for establishing a good strategy while avoiding a bad one. This book has been an influential part of my entrepreneurial path over the years, so I had to make it the cornerstone of this piece.
So let’s begin — and to do that, we must first start with what Rumelt calls the kernels of strategy. Because for you to set yourself up with a successful strategy, you must understand what lies at the heart of strategy.
The Kernels of Good Strategy
The basic underlying structure of a good strategy is as follows:
Part of developing a sound strategy is understanding how to leverage your resources to achieve results. To do this, and to do it successfully, you have to understand the challenges facing your organization. Ask yourself: What’s important? What’s not? This will hone your focus on diagnosing what’s most critical and then lead you down the path of figuring out how you can approach and address each challenge. If your diagnosis isn’t clear, your path to action won’t be either, so it’s important to get the diagnosis right.
Your diagnosis will inform your strategy. The purpose of a guiding policy is that it helps you establish your intentions so you can focus your attention in the right direction. There will be so many options available to you to begin setting your action plan, so you need to ensure you’re pursuing the path that makes the most sense for your goals. When you follow your policy and adapt your organization, you set yourself up for success.
Coherent Action Plan
Strategy without action is nothing, just as action without strategy is futile. Your diagnosis should inform your guiding policy, and then your guiding policy should help you develop steps to accomplish your goal. These steps should be clear and concise, but they won’t always be easy. The difficult part of strategy is that it comes with tough choices, but you must have the discipline to see these steps through to the very end.
Good Strategy vs. Bad Strategy
Before we explore the elements of good strategy vs. bad strategy, it’s essential to understand the difference between them. Where a good strategy honestly acknowledges challenges and offers ways to overcome them, a bad strategy overlooks problems and creates aimless ambitions. So now, let’s take a deeper dive.
At the heart of a good strategy are the following elements:
- Leverage your strengths: A leader’s strategic leverage comes from their ability to anticipate predictions that point them in the right direction, pivot when small adjustments are necessary, and concentrate their efforts on fewer objectives to be more impactful.
- Press your advantages: A promising strategy pinpoints a company’s strengths or advantages, and then presses those advantages in the market.
- Look for internal weakness: Leaders can’t just focus on the competition’s weakness; they must also prioritize strengthening the weakest links within their own organizations.
- Watch for inertia and entropy: Inertia and entropy can pose risks to a business. Be mindful of inertia (a company’s resistance to change) and entropy (how a company devolves into chaos if not properly managed).
- Narrow your focus: Don’t divide up attention into too many channels. Instead, focus on one or two critical issues and work on resolving those.
- Choose feasible objectives: Leaders must pick feasible goals if they hope to reach the larger goals they’ve set for their companies. Too much ambition could lead to failure.
- Beware of chasing growth: Don’t strive for growth just for the sake of growth. This could lead to unhealthy growth that is forced rather than intentional.
- Treat your strategy as a design: Strategy isn’t chosen; it’s constructed. A good strategy must be tightly designed to form a whole that will help bring about a leader’s success.
- Anticipate change: A leader should constantly predict what changes could impact their industry and, as a result, their business, and look for opportunities in these changes to help drive their competitive advantage.
Now, let’s transition into bad strategy. Rumelt defines the four characteristics of bad strategy as follows:
- Fluff: Many leaders use grandiose phrasing to create an illusion of high-level thinking. Don’t do this. Instead, be honest, and make it simple.
- Failure to face the challenge: If a leader cannot correctly define their organization’s challenges, they will not accurately address them.
- Mistaking goals for strategy: Setting a goal to achieve is different from actually developing a strategy to overcome the obstacles that will help you achieve those goals.
- Bad strategic objectives: Objectives are considered harmful when they fail to address critical challenges or when they’re just altogether impractical.
Rumelt wrote his book to challenge leaders to look at things from a new perspective. He didn’t want to offer formulas for building a good strategy but, instead, wanted to impart logic behind what makes a strategy good or bad. I hope you found as much help in his words as I have from reading his book, which I cannot recommend enough.