Good Strategy, Bad Strategy

Good Strategy, Bad Strategy is a concise guide to great business-planning for the long term, revealing the 4 symptoms of bad strategy, the 3 pieces of a good one, and the 10 sources of power businesses can tap into to realize theirs.

Good strategy is often easy to explain in hindsight. Of course it was a great idea for Apple to focus all of its resources on the Macintosh, or for McDonald’s to build playgrounds next to each restaurant. The Macintosh was a global success, and McDonald’s became the family-friendly fast-food restaurant of choice.

Examples of bad strategy are harder to find, partially because many bad-run businesses go bust sooner or later. It’s also not nearly as cool to talk about. Thankfully, Rumelt breaks down the 4 main symptoms of bad strategy for us:

Fluff is “a form of gibberish masquerading as strategic concepts or arguments.” Whenever someone uses big words to describe a plan that makes no sense, you know bad strategy is in the air. Failure to face the challenge is what may have ended my town’s only burger place. What we needed was an affordable joint with homemade burgers. What we got was a fancy dining experience which most people couldn’t afford. Mistaking goals for strategy. Growing your revenue by 20% isn’t a strategy. That’s a wish you have for your business. Neither are “maintaining your profit margins,” “delighting your customers,” or “being the firm of choice.” Strategy is about the how, not the what. Bad strategic objectives include long but unfocused to-do lists (“dog’s dinner objectives”) and “blue-sky objectives” that don’t actually address the challenge at hand.

Okay, so much for what not to do. But what is good strategy? Let’s find out!

Ever since Elon Musk became the CEO of Tesla in 2008, the company’s mission has been “accelerating the world’s transition to sustainable energy.” But how did they deliver on this mission so far and become one of the most valuable companies in the world along the way? Good strategy was not the only, but surely one big piece of the puzzle. According to Rumelt, the “kernel” of a good strategy goes back to 3 elements: Diagnosis. First, you must identify the challenge and simplify it to its most critical aspects. Guiding policy. Next, you choose an overarching approach of you’ll deal with the challenge. A set of coherent actions. Finally, you decide on a series of actions you’ll take to implement your policy. Tesla’s first diagnosis was that electric cars were neither performant nor desirable. If the world was to transition to EVs, EVs would have to be something people actually want. Therefore, their guiding policy became to make cool-looking electric cars that…