Good Strategy, Bad Strategy Book Summary By Richard Rumelt

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Good Strategy, Bad Strategy is an exceptional book which examines the strategies that work and those that don't.

Through examining a variety of historical examples from different areas, the book reveals the true power of effective strategies and how to create one.

By drawing on a wealth of expertise from many different fields, Good Strategy, Bad Strategy provides practical advice and clear-cut instructions on how to develop effective strategies for any situation.

It also includes a complete blueprint for creating your own custom strategy.

In short, Good Strategy, Bad Strategy provides readers with everything they need to build clever and successful strategies for their life or business.

Good Strategy, Bad Strategy

Book Name: Good Strategy, Bad Strategy (The Difference and Why It Matters)

Author(s): Richard Rumelt

Rating: 4.2/5

Reading Time: 21 Minutes

Categories: Entrepreneurship

Author Bio

Richard Rumelt is one of the leading experts in business and strategy.

The Harry and Elsa Kunin Chair at UCLA Anderson School of Management, Richard has been praised for his influence on management concepts by The Economist as one of the 25 living people with the strongest influence on them.

His book, Good Strategy, Bad Strategy: The Difference and Why It Matters has been described as a "giant" in McKinsey Quarterly's field of strategy.

Anatomy Of A Winning Strategy: Uncover The Secrets Behind What Makes Good Strategies Succeed And Bad Ones Fail

Good Strategies

If you want to become an effective strategist, Good Strategy, Bad Strategy is the book for you.

It offers insights into strategic thinking by drawing from examples of both successful and unsuccessful cases.

You’ll learn about the anatomy of a winning strategy and how to apply it in your life or business.

You’ll also be able to figure out why some strategies fail even though they look great on paper and understand what makes a good strategy good.

Plus, this book will show you how to tap into the hidden powers of a situation so that you can maximize its potential impact on your success.

Lastly, this book provides lessons about geometry that lead to big victories – like saving 50,000 Roman soldiers!

Good Strategy, Bad Strategy is an invaluable tool for anyone who wants to be skilled in coming up with strategies that ensure heads turn their way!

The Difference Between A Strategy And A Goal: A Clear Plan Of Action Is Necessary For Success

In today’s world, it’s important that we don’t confuse strategy with ambitious goal setting, visions or slogans.

All too often, these goals and visions are mistaken for strategies when in reality they are nothing more than, as the author mentions, “stand-alone ideas.”

A real strategy must have precise information on how to actually achieve such goals.

Take the example of a football team: if their coach simply tells them to “win the next game,” they need further guidance in order to make that a reality.

Without additional detail and instruction on how to do achieve this goal (i.e.

their strategy), achieving that victory is unlikely!

Buzzwords and motivational slogans also masquerade as strategies all too frequently.

The fundamental strategy of one major retail bank described as “customer-centric intermediation” – when broken down into understandable language – essentially became “be a bank!” In other words, it was simply restating an obvious fact without any new insights or plans on how to proceed forward.

If you have ambitions but no plan of action to reach them, then you don’t truly have a strategy–no matter the amount of buzzwords you put into it.

The Essential Component Of Any Strategy: The Kernel

The foundation for every good strategy is the same: a diagnosis, a guiding policy and a set of coherent actions.

The diagnosis determines what is needed to solve the problem, and the guiding policy sets out how it can be done.

Then, with a plan in place, coherent actions must be taken to ensure that everything falls into place as intended.

We can illustrate this point with IBM in 1993.

The company was struggling due to the fractured technology market where companies were offering individual components rather than complete computers.

So CEO Lou Gerstner focused on customer solutions by integrating and centralizing its different departments so that IBM could become competitive once again.

This was their guiding policy; the kernel of their strategy.

More recently, we can look at Ford Motor Company’s acquisition of Volvo, Jaguar, Land Rover and Aston Martin as another example.

They wanted to exploit these brands while also taking advantage of economies of scale, but they fell short because they failed to consider that customers value these brands for their unique qualities.

This incoherent action caused their strategy to fail – ultimately leading them back to square one.

A successful strategy needs all three elements working together in harmony – without them, you have no chance of success.

Diagnosis establishes the target goal, guiding policies help steer us towards it and coherent actions make sure that everyone is on board for it.

In a nutshell: without all three components working together seamlessly, your strategy won’t stand a chance!

You Can’t Have It All: Prioritization Is Essential For Forming An Effective Strategy


Forming a good strategy requires that you be willing to make hard decisions and move in one specific direction.

No one enjoys making tough choices, but it’s essential if you want to hit your goals.

Take Digital Equipment Corporation (DEC), for instance.

In 1988, DEC was stuck trying to decide how to respond when confronted with a new type of PC.

They wanted the best of all worlds, but they couldn’t find an effective compromise between building ready-to-use systems, customer solutions, or invest in new technology.

This indecisiveness proved costly when, four years later and with a new CEO on board, they decided to focus solely on chips only by then they had missed the boat and were overtaken by competitors.

The same can be said for Intel when they faced a similar situation after encountering tough competition from Japanese manufacturers in the market during the early 90s.

Their CEO Andy Grove decided that Intel should shift its focus towards manufacturing microprocessors; a decision that met with resistance from various parts of their business due to feelings being attached to old habits and processes.

Grove ignored this opposition though and persevered with his choice; something which has since paid off – by 1992 Intel had become the world’s largest manufacturer of semiconductors!

The lesson here is clear: when formulating your strategy always prioritize what matters most and commit to moving in one direction.

Even if it meets great opposition – having courage will take you far!

Gain Leverage In The Market With A Strategic Focus On Pivot Points

If you want to make sure that your strategy is profitable, you need to ensure that it gives you leverage over your rivals.

This means anticipating future opportunities and being able to act on them before they can react.

Take a look at Toyota’s approach as an example.

They saw the dwindling supply of fossil fuels would eventually lead to a demand for hybrid cars, so they invested heavily in engineering the right technology so other manufacturers would license their system instead of reinventing the wheel.

In order to gain this leverage, you need to figure out what the central pivot point is in your market or industry.

For 7-Eleven convenience stores in Japan, it was variety – so they implemented a system to maximize soft drink selection by researching local tastes and stocking stores accordingly – which gave them an edge over competitors who lacked variety.

By closely examining their market and identifying the “pivot point,” 7-Eleven was able to gain leverage and turn their strategy into a success!

A Lesson From History: How To Successfully Strategize With Limited Resources

Creating a successful strategy requires you to find the right balance between resources and actions in order to perfectly fit your specific situation.

You don’t want to end up with a plan that is either too ambitious or too limited; it needs to strike the perfect balance of resource availability and possible actions.

For example, when Hannibal invaded the Roman Empire in 216 BC, he faced an 85,000 – 55,000 wrongful numerical disadvantage.

Rather than hoping for miracle, he created a savvy strategic plan based on his current circumstances and applied creative tactics to triumphed over his opponents.

He had his troops form an arc which then drew back feigning retreat – making those who rushed in believing victory was nearby stumbled into disaster instead.

When more Romans poured forward in pursuit, they were compressed together without any room for their armies’ usual arms maneuvers.

Hannibal’s men circled behind them as that was when the slaughter began causing 50,000 losses for Rome compared to Hannibal’s modest 5,000 casualties.

This scenario from ancient times serves as testament to the fact that having insight into your resources and matching them with smart initiatives can help you maintain control even when placed under trying circumstances such as adversity or competition – creating better strategies than those who rely merely on hope or fate alone!

How To Take Advantage Of Changes And Innovations In The Business World


You can use the dynamics of changing business circumstances to gain the high ground in a market.

This can be done by taking advantage of second-order effects, which are the less obvious opportunities that the introduction of new technologies can provide.

For example, when television emerged, it was easy to predict that it would take away customers from movie theaters, yet there were certain second-order effects that were much harder to foretell.

It caused Hollywood studios to reorient their business model and fund independent films so they could draw specialist audiences back to the cinema; helping indie directors and writers benefit from corporate funding for their work.

In markets with mature technologies and low investments for research and development improving existing technologies, you can create changes through innovation.

For instance, Kodak and Fuji challenged Ilford and Ansco’s market share of photography film by introducing color film.

They made the technology better than it had ever been before, managing to change people’s expectations in this market, while rising to its top positions in return.

How To Turn Your Vision Into Reality With A Winning Strategy

A good strategy is one that maximizes your competitive advantage and gives you an edge over your competitors.

It does this by limiting their opportunities and maximizing the resources you have at your disposal.

Take Apple’s iPhone, for example.

It has many isolation mechanisms that make it difficult for competitors to create a rival product, from its brand name, reputation, and comprehensive operating system to its huge iTunes database.

All these factors demonstrate how powerful a good strategy can be in giving you the advantage you need in your market over any rivals.

Another way of achieving competitive advantage through a good strategy is by creating more demand for the resources you have available.

The POM Wonderful pomegranate juice company did just this when they increased their US production capacity six fold and then marketed their pomegranate juice as a health drink with numerous benefits.

Because they were able to become the largest producer of pomegranates, POM Wonderful was able to reap all the rewards from the high demand without having to share with other manufacturers or competitors!

By understanding how successful strategies maximize competitive advantage, you will be better prepared to create an effective plan for success!

How To Become An Effective Strategist: Test Your Hypotheses And Refine Them For Maximum Success

Developing and implementing an effective strategy requires more than just thinking up an idea – it’s about approaching the process like a science.

As an example, we can look to Howard Schultz who created a hypothesis about bringing the Italian espresso experience to America – and then tested it out.

Schultz used his observation about the differences in coffee culture between Italy and America as the basis for his hypothesis: that Americans would embrace espresso if it was presented to them in the same way Italians consumed it.

He then tested his hypothesis at his roasting company’s branch in Seattle before purchasing Starbucks’ retail and trademark rights in 1987.

This successful example goes to show that effective strategizing involves forming and testing some kind of working hypothesis.

In Schultz’s case, this meant making educated estimations and assumptions to see whether or not they could be proven true before he made any major moves (like buying Starbucks).

His experiment brought him great success – by 2001, Starbucks was generating $2.6 billion in revenue!

Strategy really is like a science: you must come up with a possible explanation or hypothesis, test it out through experimentation, observe what works and what does not work, learn from your results and refine your approach for further iterations of experimentation.

By following this kind of methodology you can create winning strategies!

Gaining Perspective Through The Outside View: The Key To Avoiding Disaster


If you want to avoid making fatal mistakes and get the best results out of any situation, you need to look at it from an outside perspective and learn from the failures of others.

This is a valuable lesson taught in the book Good Strategy, Bad Strategy by Richard Rumelt.

The 2008 financial crisis serves as an example of how important learning lessons from other’s history is.

Instead of looking at financial history with an outside view, many people chose to follow the inside view and ignored problems within the system.

The result was one of the greatest financial crises in half a century.

Likewise, if people had taken the time to consider that statistics show that talking on a cell phone while driving makes you five times more likely to have a car accident (almost as bad as being drunk while driving), then many accidents could have been avoided.

This is why it’s so important to take an outside view and gain perspective by closely scrutinizing other people’s experiences and learning from their successes and failures.

With this insight, we can make better decisions and avoid repeating past mistakes.

Wrap Up

The final summary of Good Strategy, Bad Strategy is simple: you can become an effective strategist, but only if you understand what makes a solid strategy and how to leverage, maximize your resources or anticipate change.

In order to do that, all you have to do is get your priorities straight, take lessons from the past and think like a scientist.

For starters, prioritize your objectives so that you have a unified direction.

Secondly, learn from others in similar situations than yours – look at it objectively and don’t assume it’s different just because this time it affects you.

Lastly, form hypotheses about your situation and test them out.

You’ll gain valuable insight into the deciding factors of your problem that will ultimately help develop an effective strategy.

Arturo Miller

Hi, I am Arturo Miller, the Chief Editor of this blog. I'm a passionate reader, learner and blogger. Motivated by the desire to help others reach their fullest potential, I draw from my own experiences and insights to curate blogs.

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