Bookworm: Good Strategy, Bad Strategy

There are three ‘kernels of good strategy, argues Richard Rumelt. And ‘hope’ is not one of them.

What's it about?

Well strategy, obviously. “Strategy’s strategist” Richard Rumelt is one of The Economist’s 25 most influential people in business management. He also worked on the Voyager Jupiter mission, so if strategy feels a bit like rocket science, at least now you’ve got a rocket scientist to help you understand it.

What do businesses often get wrong about strategy?

A goal is not a strategy. Saying “we want to grow by 20%” or “we want to be the top choice for customers” is not a strategy.

Many corporate strategies are no better than a sports coach having a ‘strategy’ of “let’s win”. A strategy isn’t a ‘fluffy’ motivational statement or goal; it tells you how you will win, via an explicit set of actions that play to your unique strengths.

So, what does playing to my strengths look like?  

David used his unique skill with a slingshot and applied it to the one vulnerable spot on Goliath’s head to win. Good strategy involves intelligently applying what you’re uniquely good at to the most promising opportunity. Never engage in a competition where you don’t have a distinct edge or you’ll end up ‘wrestling the gorilla’. Not a good idea.

Can you give an example?

A textile start-up which has developed a revolutionary new clothing fibre would be ill advised to divert its energies into selling clothing directly and competing against big retail incumbents when it could focus on licensing the tech to those same would-be competitors.

So, I just focus on my key strengths, right?

Yes, but it’s not always easy because we often meet internal resistance. For example, when Steve Jobs stripped back Apple’s earlier, broader product line, many of the older sales and tech teams resisted strongly, favouring their original, more diverse product range.

We also need to add measures that hinder competitors getting in on the action. For example, Apple’s iPhone is protected by the brand reputation as well as the complementary iTunes package which makes it harder for others to copy them.

What are the main ingredients of a good strategy?

There are three. The “kernel” of good strategy comprises “diagnosis” (a clear analysis of the situation leading to a creative insight), a “guiding policy” (your broad approach) and a “set of coherent actions”.

What does that look like in practice?

Take a local grocery shop. The owner knows she can’t compete with the big supermarkets on price. She needs a competitive advantage that plays to her strengths (diagnosis). She chooses to focus on serving time-pressed, well-off local people instead of cost-conscious shoppers (guiding policy). She then focuses on offering premium goods, opens a second checkout after 5pm and adds more parking spaces (coherent actions).

But how do I get to my initial strategic insight, or diagnosis?

You still need creative ideas and hypotheses. For example, in 1983, after a visit to Italy, Howard Schultz had a gut instinct that Americans would appreciate the Italian espresso experience, as long as it was modified with more comfortable seating; the result was Starbucks.

“Master strategists” don’t follow a rule book; they look for novel and unexpected approaches wherever they go. Strategy is as much an art as a science.

Sounds great, but how will I know in advance if my strategy is the right one?

You won’t. Strategy can only be assessed after the fact on one pudding-based criterion of proof: did it work? A strategic choice is always a brave, creative gamble. That’s why most companies don’t really have a genuine strategy and just follow the crowd.

What am I most likely to say after reading this book?

“Hope is not a strategy.”

What am I least likely to say after reading this book?

“What’s our strategy? To be the best!”