Good strategy, bad strategy (Rumelt)

Richard Rumelt’s distinction between good and bad strategy centres on one idea: strategy is a coherent response to an important challenge. A good strategy diagnoses the obstacle, chooses a guiding approach and concentrates action where it can create leverage.

When to use it

Use the framework to develop a strategy, test whether an existing plan is genuinely strategic and replace broad aspiration with a focused response to a consequential problem.

Origins

Rumelt’s work on corporate strategy, diversification and competitive advantage led to a long-running critique of plans that substitute ambition for problem solving. His chain-link example captures the logic: when one weak link can collapse the entire system, strengthening other links creates little value until the constraint is fixed. The failure of the Challenger O-ring in 1986 provides a stark illustration of system performance being limited by a critical vulnerability.

What it is

In Good Strategy, Bad Strategy, published in 2011, Rumelt argues that “strategy” loses meaning when it becomes a label for every goal, slogan or budget.

Bad strategy commonly displays four characteristics:

Fluff:

inflated language and jargon create an appearance of insight without making a choice.

Failure to face the challenge:

the plan does not diagnose the critical obstacle, so its success cannot be evaluated.

Mistaking goals for strategy:

desired outcomes and exhortations are offered without a method for overcoming difficulty.

Bad strategic objectives:

priorities are incoherent, impractical or disconnected from the diagnosed problem.

A good strategy has a three-part kernel:

Diagnosis:

a clear explanation of the challenge that reduces complexity without denying important facts.

Guiding policy:

the chosen approach and boundaries for dealing with that challenge.

Coherent actions:

mutually reinforcing commitments that implement the policy.

Rumelt also describes sources of strategic power:

Leverage:

concentrate effort on a pivotal point where action can trigger wider benefit.

Proximate objectives:

set an attainable next objective that resolves enough uncertainty to make further progress; see Setting SMART objectives.

Chain-link logic:

strengthen the weakest critical link before optimising parts that cannot improve overall performance. Challenger in 1986 remains the cautionary example.

Design:

configure activities, resources and customer experience as an integrated system.

Focus:

apply advantage where it matters and avoid attractive distractions; see Stick to the knitting (Peters and Waterman).

Growth:

treat healthy growth as a consequence of advantage, innovation or efficiency rather than an end pursued through value-destructive deals; see Creating value from mergers, acquisitions and alliances.

Advantage:

deepen, broaden and renew the strengths that create value; see Profit from the core (Zook).

Dynamics:

recognise and exploit a technological, regulatory, environmental or social wave.

Inertia and entropy:

understand how rigidity and disorder weaken organisations, including one’s own.

The sources are not a checklist to include in every strategy. They are lenses for identifying where focused action may produce disproportionate effect.