Good Strategy Bad Strategy: The Difference and Why It Matters

Citation

Rumelt, R. P. (2011). Good Strategy Bad Strategy: The Difference and Why It Matters. Crown Business.

Chapter Summary

The book is a short trade book of about 320 pages: an introduction, eighteen chapters in three parts, then notes and an index. Part One defines good and bad strategy, Part Two catalogues sources of power that a strategy can draw on (the publisher counts nine), and Part Three turns to the habits of mind of the strategist. There are no exercises, cases at the end of chapters or formal models; each argument is carried by examples from business, government and military history.

Introduction: Overwhelming Obstacles

The introduction sets the frame for the whole book: strategy is the work of finding the critical factors in a situation and designing a coordinated way of acting on them. It separates this from goal-setting and insists that a strategy must include concrete action.

Part One: Good and Bad Strategy (Chapters 1–5)

Chapter 1: Good Strategy Is Unexpected; Chapter 2: Discovering Power. The opening chapters argue that a coherent strategy is itself a source of strength, partly because so few organisations have one, and that a strategy is as much about what not to do as what to do. Chapter 2 looks for power in situations where a successful organisation changed the terms of competition, including Wal-Mart and the US Department of Defense.

Chapter 3: Bad Strategy. The book's best-known chapter names four hallmarks of bad strategy: fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives (ones that miss the critical issues or cannot be achieved).

Chapter 4: Why So Much Bad Strategy? Rumelt traces bad strategy to the avoidance of choice, to template-style planning and charismatic visions of leadership, and to the belief that positive thinking and shared vision are enough.

Chapter 5: The Kernel of Good Strategy. The conceptual core of the book. The kernel has three parts: a diagnosis that simplifies the situation and identifies what is critical, a guiding policy that sets an overall approach to the obstacles, and coherent actions that are coordinated to carry the policy out.

Part Two: Sources of Power (Chapters 6–15)

Chapter 6: Using Leverage; Chapter 7: Proximate Objectives. Leverage comes from anticipation, from pivot points where a small effort has a large effect, and from concentrating resources on few targets. A proximate objective is one close enough to be feasible; the more uncertain the future, the more proximate objectives need to be.

Chapter 8: Chain-Link Systems; Chapter 9: Using Design. Chapter 8 treats systems whose performance is limited by their weakest link, where improving one part alone may achieve nothing. Chapter 9 presents strategy as design: a tightly integrated configuration of resources and actions, with the trade-off that such designs are harder to build and less flexible.

Chapter 10: Focus; Chapter 11: Growth; Chapter 12: Using Advantage. These chapters cover how coordinated policies are aimed at the right market segment, the author's scepticism about growth pursued for its own sake (notably through acquisitions), and how to understand and deepen a competitive advantage rather than treat it as simply a source of profit.

Chapter 13: Using Dynamics; Chapter 14: Inertia and Entropy. Chapter 13 is about exploiting waves of external change by working out their second-order effects. Chapter 14 deals with the forces inside organisations, inertia in routines and culture and the drift into disorder of weakly managed firms, and with how leaders overcome them.

Chapter 15: Putting It Together. A single extended case, the graphics-chip company Nvidia, is used to show several of the sources of power working at once.

Part Three: Thinking Like a Strategist (Chapters 16–18)

Chapter 16: The Science of Strategy; Chapter 17: Using Your Head; Chapter 18: Keeping Your Head. The last part treats a strategy as a hypothesis and its implementation as an experiment, offers practical techniques for questioning one's own ideas and exercising judgement, and closes with the importance of independent judgement and with errors of judgement such as overconfidence after a run of success.

Key Concepts

Part One: Good and Bad Strategy

• The kernel: the minimal structure of a strategy, made up of a diagnosis, a guiding policy and coherent actions.
• Diagnosis: a simplification of a complex situation that answers "what is going on here?" and identifies which aspects are critical.
• Bad strategy: not merely the absence of strategy but a recognisable pattern of fluff, unfaced challenges, goals passed off as strategy and impractical objectives.
• Goals versus strategy: a list of desired outcomes says nothing about how obstacles will be overcome.

Part Two: Sources of Power

• Leverage: anticipation, pivot points and concentration, which let limited resources have a disproportionate effect.
• Proximate objective: a target close enough to be achievable, which turns an ambiguous situation into a solvable problem.
• Chain-link system: a system whose performance is set by its weakest component.
• Inertia and entropy: organisational resistance to change and the tendency of poorly managed organisations to lose focus.

Part Three: Thinking Like a Strategist

• Strategy as hypothesis: a strategy is an educated judgement about what will work, to be tested and revised in action.
• Judgement: the practised ability to question one's own first ideas and to avoid predictable errors.

Critical Analysis

Strengths

• A usable test for any strategy. The kernel and the four hallmarks of bad strategy give students a quick way to check a mission statement, a corporate plan or a case answer. Dave Kellogg, in a 2020 review on his blog Kellblog, describes the kernel as simple and the critique of bad strategy as the book's sharpest part.
• Breadth of examples. Endorsements quoted by the publisher stress examples from contemporary business and world history, and the chapters move between companies, government and military situations, which shows that the kernel is not limited to commercial competition.
• Readable and short. The book was written for a general audience, uses no algebra or formal models, and can be read in a few sittings. It was named the strategy pick in strategy+business's Best Business Books 2011.
• Complements analytical frameworks. Chapters on leverage, proximate objectives and chain-link systems give vocabulary for implementation and coordination, topics that industry-analysis frameworks tend to leave aside.

Limitations

• Stronger on diagnosis of failure than on process. Kellogg suggests the book might better have been titled "Bad Strategy, Good Strategy", because it does more to expose weak strategy than to show how a management team should work together to build a good one.
• A single-challenge framework. The kernel asks for one diagnosis of the central challenge; Kellogg notes that if that diagnosis is wrong, everything built on it fails, and that balancing immediate and longer-term challenges is hard within the framework.
• Not a textbook. There are no exercises, end-of-chapter summaries or systematic coverage of tools such as industry analysis, portfolio strategy or the formal economics of competition. Many examples date from before 2011.

Where It Fits in the Course

This is the natural first book in the strategy course: it explains what a strategy is before students meet the analytical machinery. Joan Magretta's Understanding Michael Porter is the best companion at the same stage; it is a concise, plain-language guide to Porter's five forces, competitive advantage and the value chain. Read together, Rumelt supplies the logic of a strategy (diagnosis, policy, action) and Magretta supplies the economic analysis of industries and positions that a diagnosis often needs.

After these two, Porter's own Competitive Strategy is the original statement of industry and competitor analysis. Whittington, Johnson and colleagues' Exploring Strategy is a full strategic management textbook with cases, organised around strategic position, choices and strategy in action. Robert Grant's Contemporary Strategy Analysis and Besanko and colleagues' Economics of Strategy build strategy on economics, the resource-based view and game theory, and suit students who want analytical depth. Rumelt's chapters on advantage, design and dynamics read well as an informal preview of the topics those books formalise.

How to Use This Book

No background is needed. The book suits first-year students, students from other disciplines taking a single strategy module, and anyone preparing to analyse cases.

• Core: the Introduction and Part One. Chapters 3 and 5 should be read closely; the kernel in Chapter 5 is the idea most worth carrying into the rest of the course.
• Selective: Part Two can be read in any order. Chapters 6–8 (leverage, proximate objectives, chain-link systems) are the most useful for implementation questions; Chapters 12 and 13 connect best with the economic treatments of advantage and industry change in later course texts. Chapter 15 shows how the pieces combine in one company.
• Optional: Part Three is reflective and can be left for later, though Chapter 17 contains practical advice on testing one's own judgement.

Useful activities alongside the book: take a published corporate strategy or university strategic plan and test it against the four hallmarks of bad strategy; rewrite it as a kernel with a one-paragraph diagnosis, a guiding policy and three to five coherent actions; and, for a case in the course textbook, identify a proximate objective and a weakest link. Because the book offers no analytical tools for the diagnosis itself, pair the exercise with industry analysis from Magretta or Porter.