Good Strategy - Bad Strategy : The Difference And Why It Matters - Richard Rumelt

Good Strategy - Bad Strategy : The Difference And Why It Matters 

Your understanding of the differences between good and bad strategy is essential to the growth of your business

The underlying reason for most businesses is profit-making and generation of revenue. Sadly, a lot of businesses run down because of their ignorance of the difference between a good strategy and a bad strategy. Good strategy comes with experience, plan, focus, and the willingness to adapt to change seamlessly. Knowing when to strike and knowing when to create leverage for yourself are key points to note in good strategies.

Bad strategies, however, are detrimental and damaging. Building a business without a well-laid plan, actionable proximate objectives, and policy guidelines is a fast way of killing that business.

With a blend of personal, first-hand experience, and a narrative flow that gives way for easy reading, Richard Rumelt has created a masterpiece that is recommended for everybody. If you want to learn about the best strategies on how to be very successful, then this is the right book for you.

A good strategy sometimes comes unexpectedly from simple sources

Good strategies are very rare, especially among companies.

Your business gets a natural advantage the moment you have good strategies, and this is because your rivals don't expect you to have one.

In the year 1995, giant tech company Apple was on the brink of collapse and was expected to go bankrupt in a matter of months, but they were able to turn their fortunes around. The arrival of Steve Jobs as the new CEO sparked a new beginning. Steve Jobs had a simple yet massively deciding strategy. He collapsed Apple's numerous operations to a well-organized size and cut down on irrelevant and unnecessary expenses. Apple was building too many products and did very little to educate the end-users on the difference between these products.

By focusing on a few particular products, Steve Jobs was able to give Apple a strategy and focal point and made them into one of the biggest companies in the world.

Jobs’ strategy was very simple yet unexpected by rival companies.

Power resides in discovering things from different perspectives

Discovering things from a different angle and perspective is also another good strategy that's simple, yet extraordinary. In the Bible, around 1030 B.C., a young shepherd named David successfully killed Goliath — a nine-foot brutal giant.

Power can be discovered when you look at things from a different perspective other than the orthodox way.

The story perceived by many to be nothing but a miracle was actually a tale of power, precision, weakness, and strength. David as a shepherd boy stood no chance against Goliath in combat, but what the others didn't know was that he had discovered Goliath's weakness. As a shepherd, David was very good with a slingshot. When he was offered armor, he rejected it, knowing it would slow him down. David killed Goliath with a stone from his slingshot to the head of the giant. David saw a weakness in Goliath — the giant's armor didn't protect his forehead

Bad strategy is not as a result of a lack of good strategy, it's the negative effects and the misconception of a supposedly good strategy

Four major factors should be examined to detect a bad strategy.

Fluff.     This a form of rubbish thoughts and ideas, hiding behind unnecessarily inflated words to create the illusion of high-level thinking.

Failure to face the challenge. Bad strategy does not recognize or define the challenge. When you fail to define the challenge, you cannot come up with any plan or strategy to improve it.

Mistaking goals for strategy. A lot of people make the mistake of substituting bad strategies for goals. A lot of bad strategies are nothing but ideas that do not have a blueprint of how to overcome the challenge.

Bad strategic objectives. Bad strategic objectives occur when you fail to address critical issues or when those issues are impracticable.

Detecting a bad strategy massively increases your chances of turning it into a good strategy.

Bad strategy occurs when you are unwilling to go through the hard work of finding a good strategy

Bad strategy is not synonymous with the miscalculation of ideas.

A good strategy needs focus, dedication, and determination.

All of these require making hard choices. The unwillingness to make these choices is what gives rise to bad strategies.

Being a charismatic/transformational leader doesn't mean you automatically possess a good strategy. Several leaders do not have strategic ideas to effect the desired change.

The concept of new thought is an analogous strategy presented to people through packaged motivational words. There's a general misconception about new ideas from people. Many businesses make the mistake of seeing an idea as brand new. They also believe that merely thinking about success guarantees it.

The power of thought cannot be imposed to form presentable results.

Strategies involve finding the good and bad parts of it.

A good strategy builds its foundation a kernel

A kernel consists of three elements.

1. A defined evaluation that explains the true nature of the obstacles. A brilliant diagnosis simplifies the complexity of reality by identifying certain aspects of the situation as critical.

2. A guiding policy for dealing with the challenge. This is a well-detailed concluding approach chosen to cope with or overcome the obstacles identified in the diagnosis.

3. A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy.

The main components of a strategy require the diagnosis of the whole situation, a guiding policy that stands as a blueprint for eliminating obstacles and erecting passages, and a set of coherent actions to maintain and upgrade subsequently

Drawing power from action, energy, and knowing where to focus is an act of strategic building called leverage

Leverage is more than just having a lever and applying force for movement. Archimedes, deemed to be one of the smartest people to ever live, once said: “give me a lever long enough, a fulcrum strong enough, and I'll move the world.” Examining the possibility of Archimedes' statement, to move the world would be to know exactly where to attach the lever and fix the fulcrum.

Having leverage means you know where, when, and how to apply the required force.

Strategic leverage is the combination of anticipation, a deep look into the pivotal points, and applying concentrated efforts to make it work.

Knowing when to apply strategic leverage gives you a better opportunity to make a difference.

A business organization must know when to be weak and when to be strong.

They must know how to have a hold on their consumers, and also know the strategic leverage they can pull to stay competitive in the market.

Proximate objectives involve setting a feasible time frame for the accomplishment of an idea or a goal

When you set a target, always ensure that you have enough resources to meet that target.

Unfortunately, a lot of businesses do not think like this. When President Kennedy announced that the astronauts from the United States would land on the moon by 1960, he was setting a proximate objective. While it might look impossible to the layman, Kennedy knew that the U.S. had the resources to pull it off, hence the announcement.

Setting a feasible time to meet a target gives you a better chance to achieve your goals.

Simply setting an objective without having the required resources opens you up to disappointments, and puts your business at risk.

To build proximate objectives, you should create options and take a stand on what is best.

Also, table out all your plans and arrange them according to importance. This helps you to create a working environment and make it easier to outline a definite plan that would be used for your business plan.

Limiting factors are like chain-links — a weak link in a chain cannot be rectified by strengthening other links

Limiting factors are the things that reduce the value of a product. A beautiful house built beside a noisy highway has a limiting factor — the noisy highway. There is no point in strengthening little components of a product if the main component is prone to failure.

The moment you can identify and eliminate limiting factors, you have a bigger chance at being very successful.

It is very easy to get stuck if you're involved in an organization that is chain-linked.

A chain-linked organization requires maximum effort from all proportions to function well.

When your department makes a conscious effort to strengthen its own link, that effort must be matched by other departments; otherwise, it could spell disaster. Not getting equal effort can lead to frustration and reproach of energy, which is not good for the development of any organization.

To get unstuck in a chain-linked problem, considerable effort must be made to synchronize ideas across all proportions of an organization.

Each department must strive for excellence for the general good of the organization.

Using design helps you to map out strategic positions for victory

In the Bronze Age circa 210 B.C., the Roman empire controlled a lot of territories in Italy. Having earlier lost a battle against the Romans, Hannibal sought to restore the glory of Carthage over losing the southern Mediterranean. Hannibal gathered an army to Spain through Gaul and then to Italy to conquer some towns in Rome. Fed up with the constant attacks, the Roman senate sent some appointed consuls to take eight legions to battle with Hannibal in an open field. The Romans boasted of an army of eighty-five thousand men, compared to Hannibal's fifty-five thousand. The Romans were expected to win because of the thirty thousand extra soldiers they had, but it wasn't so. Hannibal had devised a battle strategy that tricked his opponents into attacking wildly, slowly camping them in the middle. By the time the Romans realized, they had been surrounded by Hannibal's men, and so clustered in the middle that there was no space to draw their weapons. Hannibal's victory gave him the title “father of the strategy,” prompting other nations to copy his style.

Designs are components of strategies used to create and eliminate problems.

The victory of Hannibal in Cannae came as a result of premeditation, anticipation, and the design of coordinated action. Whether through improvisation or premeditation, a victory must have a blueprint that serves as a roadmap to determine subsequent battles.

For businesses, designs are very important.

Producers must find out what appeals to the customer and how best to make the product look marketable to the end-users.

In business, focus is knowing how to capture a particular part of the market where you supply more value to that market than other major competitors

Apple products don't sell as many units as other major companies, but it generates more revenue than those companies. Apple developed a business strategy that allows them to have a focus and also maintain their bargaining power over their users. Businesses without focus tend to lose its bargaining power because their products would now be heavily influenced by what the consumer wants, and the highest price they are willing to buy the products.

Most companies focus on too many goals at once, making their market lose value. When an organization is without focus, such an organization finds it hard to come up with a state of the art innovation that would attract people to the product regardless of the high price.

It is then advisable for businesses to focus on a few parts of their products and channel the level of energy they would input in more products into these few parts.

Having a focus makes it possible to build a brand that would be distinctive and unique to consumers.

Unique brands require unique products, and unique products require unique features that can only be made possible through focus.

Expansion can be good for business, but it doesn't automatically translate to growth

When a company acquires another company, most especially a rival company, it becomes difficult to maintain if care is not taken. Growth can be very deceptive when it comes to acquisition. To acquire another company or business, especially a public one, you'll most likely end up paying too much. Simply purchasing a company and leaving it to run in its previous capacity will most likely yield no profit. Unless you can add value to the value already on the ground, such an acquired business will run down, pulling others with it.

Healthy growth is not as a result of big mergers or expansion; it comes from successful innovation, cleverness, and efficiency.

When Telecom Italia and Cables & Wireless proposed a merger, the only reason given then was that a merger would ensure bigger cash flow for both companies. Telecom Italia, as a big telecommunications company, had more than enough cash flow, likewise Cables & Wireless, so a merger made no sense. Telecom Italia needed to move its network operations across the continent, and Cables & Wireless had the cables and resources needed. What they needed a merger for could have easily been achieved by a contract.

Growth doesn't necessarily mean expansion, but for a good expansion to take place, it has to have healthy growth.

A business must know how to detect weaknesses and build advantages around it.

Advantages can be relative because, in one way or another, everyone has an advantage — what makes yours special is your ability to use it. You must focus on that part where you have advantages and avoid where you don't. Switching from a line of products can be tempting, but it can also spell disaster. It's not just enough to switch from sprinting to wrestling gorillas as Susan put it when she was advising a startup company that produced microporous materials. The company had manufactured a product that would make considerable changes in the clothing industry, and being proud of their work, wanted to start a company of their own. Susan, one of their strongest supporters, had advised them against it, making it known to them they had an advantage producing, and would only be dabbling into an unfamiliar and competitive market, should they set up a company.

It is very important to be interested in competitive advantage.

To own competitive advantage, your product has to be unique in such a way that it would be very difficult and almost impossible to be recreated by competitors.

Gaining higher ground increases your chances of victory and a more stable defence

The best place for military defenders is an undefended higher ground. Here, it is easier for them to attack opponents, and it's also hard for opponents to attack them. The thing about undefended higher grounds is how to find one in the first place.

To find higher ground in business, you have to create one yourself through pure innovation.
Creating innovative models for your business can put you on the high grounds and give you a big name in the competitive market. Another way to get an undefended higher ground is to exploit a wave of change. This change can be very radical and unsettling. It's the type of change that destroys the old order to establish a new one. It can displace existing leaders and upturn already laid down plans.

You need to take advantage of the wave of change at its early stage or risk being swept by it. A sailor doesn't wait for the sea to get stormy before steering his boat or ship away from it.

Taking advantage of the wave of change is using dynamics to operate at a higher level, where it would be easier to defeat your opponents.

Inertia and entropy helps you to make calculated efforts on how to take advantage of a situation, and also avoid a downfall from the same situation

Even if there are no changes, entropy forces businesses to continue maintaining the purpose, form, and method of an organization. Understanding Inertia is vital because it allows you to take advantage of other competitors' unwillingness or inability to adapt to change. Also, understanding Inertia also opens your eyes to the dangers of entropy and how you can avoid them.

Lack of future term plans and the lack of foresight to predict the outcome of a change is detrimental to the growth of any business.

A good strategic position involves knowing when to strike and knowing how to prevent being struck.

Nvidia's sudden rise to the top of the market in 3D technology was possible because they were able to adopt the kernel strategy while also establishing a focus

When it was founded in 1993, the company's initial plan was to establish a new multimedia standard, but they failed at that. The arrival of Jen-Hsun Huang, however, changed its approach, and the company created a focus on 3D chips instead. This, coupled with the rise of PC gaming helped Nvidia rise to prominence within a short period. They started specializing in the manufacturing of supercomputers that were very fast and good for PC games

A good strategy is built on functional knowledge about the way business is

Good strategy thrives on hoarded information that can be beneficial to your company.

A newly crafted strategy is an empirical hypothesis where leaders learn new things to know where to fast track, slow-down, or adjust accordingly.

In the field of science, hypothesis requires reaching beyond the edge into the known to find if there are ways to accomplish an idea. The guarantee of safety is not enough reason to deter scientists from making hypothesis. Likewise, asking for a safety guarantee before reaching beyond the edge in a business is a flawed judgment.

Business is a risk, and strategies evolve from risks.

This is not to say that risks should be taken anyhow — the calculated risk is what's expected from a good businessperson to form a good strategy.

Knowing how to reflect on without losing your head helps you think like a professional

Making a list might look like a simple piece of work, especially for great businessmen like Carnegie. Yet in the year 1890, Carnegie charged Frederick Taylor, a professional and expert on work organization, to tell him something worth hearing about management in exchange for ten thousand dollars. Taylor accepted the challenge and duly told Carnegie to make a list of the ten most important things he could do and start doing the number one. A week later, Taylor received a check for ten thousand dollars from Carnegie.

The beauty of making a list is not just in putting down a plan; it's in the realization that comes with creating that list.

For Carnegie, the list helped him reflect on a lot of things as he put them down, making him realize where he's lacking, and how to adjust accordingly.

Always make a list of the most important things in your life because doing so opens your mind to a whole lot of angles.

A good strategy is as a result of an independent, careful examination and evaluation of situations for a better purpose.

Bad strategy stems from shabby, unplanned evaluation of a situation without making the right decisions. Knowing when to be level-headed when you attain success is very vital to the growth of your business. A little scandal can damage years of hard work if absolute care is not taken.

Believing in social herding makes it difficult to see your own shortcomings because society has made you believe all is well even if it isn't. The inside view tricks you into believing that nothing can go wrong. Failure to learn from past experiences can cause your business to collapse totally

Conclusion

Good strategy and bad strategy exist across all areas of humanity. As mentioned above, a strategy is a hypothesis, and the prospect of making a mistake cannot be eliminated. Understanding what good strategies and bad strategies are will help you make better business decisions now and in the future.

Make a comprehensive list of the things that are most important in your life and start working on the first one.