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Synopsis

Why do so many organizations get strategy wrong? Even some of the world's biggest organizations do strategy poorly, and incorrectly credit their success to their personal decision-making skill. Leaders often do what makes them feel good, whether it helps their company or not.

We read the book Good Strategy, Bad Strategy by Richard Rumelt and will break down the key insights between good and bad strategy. The "kernel" of good strategy contains three main components: diagnosis of a problem; an appropriate guiding policy; and a set of coherent actions. If each stage isn't treated carefully, bad strategy is inevitable.

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The Coherent Actions stage in developing a new software product involves a set of actions that are designed to address the identified problem and follow the guiding policy. Here are some clear directions for this stage:

1. Prioritize Tasks: Identify the most critical tasks that need to be accomplished first. This could be based on their impact on the overall project or their dependencies on other tasks.

2. Allocate Resources: Assign resources, including personnel, time, and budget, to each task based on its priority and requirements.

3. Set Clear Goals: Define clear, measurable goals for each task. This will help in tracking progress and identifying any deviations from the plan.

4. Regular Monitoring: Regularly monitor the progress of each task. This will help in identifying any issues early and taking corrective actions.

5. Review and Adjust: Review the progress regularly and adjust the plan if necessary. This could involve re-prioritizing tasks, re-allocating resources, or changing the goals.

Remember, the key to successful coherent actions is to ensure that all actions are aligned with the guiding policy and are aimed at addressing the diagnosed problem.

Sure, let's break down the stages of building a software product using the three main components of a good strategy as outlined by Richard Rumelt.

1. Diagnosis of a problem: You identify a problem that your software product will solve. For example, businesses are struggling to manage their customer relationships effectively.

2. An appropriate guiding policy: You decide on a policy that will guide the development of your software product. For example, your policy could be to create a user-friendly Customer Relationship Management (CRM) software that is accessible on multiple devices.

3. A set of coherent actions: You outline the steps needed to develop your software product. This could include designing the user interface, coding the software, testing it for bugs, and finally, launching it to your target audience.

Remember, each stage must be treated carefully to avoid a bad strategy. For instance, if you rush the diagnosis stage and misidentify the problem, your software product might not meet the needs of your target audience. Similarly, if your guiding policy is not clear, your development team might not know what they are working towards. Lastly, if your actions are not coherent, you might end up with a product that doesn't function as intended.

The Coherent Actions stage in developing a new software product involves a set of actions that are designed to address the identified problem and are guided by the policy. Here are some clear directions for this stage:

1. Prioritize Tasks: Identify the most important tasks that need to be accomplished and prioritize them based on their impact on the overall project.

2. Allocate Resources: Determine the resources required for each task and allocate them accordingly. This includes human resources, technology, and time.

3. Set Clear Goals: Each action should have a clear goal that contributes to the overall objective of the project. This helps in tracking progress and measuring success.

4. Ensure Team Alignment: All team members should understand and be aligned with the actions to ensure smooth execution.

5. Regular Review: Regularly review the actions to ensure they are still relevant and effective in achieving the project's goals. Make necessary adjustments if required.

Remember, the Coherent Actions stage is not a one-time event but a continuous process that requires regular monitoring and adjustments.

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Top 20 insights

  1. In its simplest form, good strategy answers three very simple questions: 'why' (diagnosis of the problem), 'what' (guiding policy for action), and 'how' (the actionable objectives themselves). Rumelt calls this the kernel of good strategy.
  2. A good guiding policy tackles the obstacles identified in the diagnosis of a problem through the creation of advantage or the collection from sources of advantage. Importantly, not all advantage is competitive (in the case of nonprofits or public-policy strategy).
  3. Action points are vital to any good strategy. Companies often lack action points. With Bush in Iraq, the goal was to invade and conquer. The goals were freedom, democracy, and reconstruction; but the strategy was not implemented until General David Petraeus laid out what must be done to counter an insurgence (something that had not been considered before). General Petraeus' impact was great. This example demonstrates why coherent action must be central to any strategy. "A good strategy does more than urge us forward toward a goal or vision," Rumelt writes. "A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them."
  4. There are two main types of bad strategic objectives: 1) dog's-dinner objectives, which often constitute a "scrambled mess of things to accomplish" and tend to come from large meetings; and 2) blue-sky objectives. "A blue-sky objective is usually a simple restatement of the desired state of affairs or of the challenge," Rumelt writes. "It skips over the annoying fact that no one has a clue as to how to get there."
  5. The example of when a doctor treats a patient can be used to guide good strategy. It consists of three stages: diagnosis of the problem, e.g. name the disease or pathology; the therapeutic approach taken then becomes the doctor's guiding policy; and finally, the doctor's prescriptions for diet, therapy and medication are the coherent actions to be taken.
  6. "The simplest business strategy is to use knowledge gleaned by sales and marketing specialists to affect capacity expansion or product design decisions—coordination across functions and knowledge bases" – Richard Rumelt
  7. Operation Desert Storm in 1991 was the US's counter-attack to Iraq's invasion of Kuwait. General Schwarzkopf received adulation for his strategy to misdirect Saddam Hussein's attention while he flanked his forces with a so-called 'left hook'. However, Rumelt points out that the strategy is foreshadowed in the US Army's own field manual titled 'Operations'. What was seen as a brilliant strategy by many in the US media and general population was sound, simple action based on the US's own field manuals. Often this is the essence of good strategy: simple in concept, focused on execution.
  8. There are two essential, frequently overlooked sources of advantage for organizations: 1) A coherent strategy—objectives that don't conflict with and do relate closely to one another. "A good strategy doesn't just draw on existing strength; it creates strength through the coherence of its design," which creates advantage; and 2) The creation of new strengths through subtle shifts in viewpoint: "An insightful reframing of a competitive situation can create whole new patterns of advantage and weakness."
  9. The tale of David versus Goliath can reveal that what often appears a weakness at first may in fact be a strength in certain situations. Through the list of David's strengths and weaknesses, one might presume his diminutive size is a weakness against the much stronger, much bigger Goliath, yet it was David's quick movement and skill with a slingshot, aimed at an uncovered part of Goliath's body, that secured his victory. Good strategy often lies in a leader's ability to see what others cannot. When such insight is realized, a reframe of a situation can enable fresh ways to think that can lead to unique approaches.
  10. Proximate objectives are central to any strategy. John F. Kennedy's goal to put a man on the moon by the end of the 1960s, while often touted as a lofty, audacious goal, was in fact a carefully chosen proximate objective—that is, one that the administration felt was within reach. The more dynamic and complex a situation, the more proximate objectives should be, because despite what many strategy writers espouse, your foresight grows worse as the complexity of a situation increases.
  11. There are four major hallmarks of bad strategy: 1) fluff, aka "a form of gibberish masquerading as strategic concepts or arguments"; 2) a failure to face the challenge; 3) mistaking goals for strategy, and 4) bad strategic objectives.
  12. Chain-link systems, beware: performance is limited by its weakest chain link. When there is a weak link, a chain is not made stronger by strengthening the other links. General Motors suffered from chain-link problems between 1980-2008. If knobs still fall off automobile dashboards and door panels continue to rattle, improving transmission will do little good. Improving fit and finish will do little good as long as the designers make sub-par designs. These are examples of chain-link systems: in many business situations, the whole is only as good as its weakest link. It is important for leaders to identify and address the worst problems afflicting a company.
  13. Chain-link systems, rejoice: Conversely, "the excellence achieved by a well-managed chain-link system is difficult to replicate," as can be seen with IKEA. The source of IKEA's dominance is in the integrated coordination of its policies, including giant retail stores in suburban neighborhoods (with free parking), catalogs that effectively replace a sales force, flat-pack furniture designs that reduce shipping and storage costs, and so on. To compete with IKEA, a company must implement each stage of the process, because each link complements the next.
  14. "Doing strategy is more like designing a high-performance aircraft than deciding which forklift truck to buy or how large to build a new factory. When someone says, 'Managers are decision-makers,' they are not talking about master strategists, for a master strategist is a designer." Rumelt emphasizes the importance of creative design when putting together a strategy.
  15. Focused strategy: Crown Cork & Seal was a metal-can maker that despite its smaller size and higher costs compared to competitors, made far more money than any of them. This was because all of Crown's policies were coherent, focused on the goal of retaining the company's bargaining power. While its competitors supplied all customers (thus intensifying competition between said suppliers), Crown's policies were focused on short runs and remained adaptable to the sporadic customer. Because to shift production is expensive, most suppliers don't do it. But this is how Crown managed to succeed: it retained its leverage where others did not.
  16. The fetishization of growth: When Crown Cork & Seal's new CEO took over, he had ambitious plans to grow the business. During the ten years before Avery became CEO (1980-1989), revenues only grew at 3.1% each year. Crucially, however, it yielded an average return for shareholders of 18.5%. After Avery took over, Crown's rise in sales revenue was accompanied by a dramatic fall in return on capital (the ratio of profit to investments)—below 5%. Before he took over that figure was 15.3%. Performance had deteriorated because the new CEO chased growth for its own sake.
  17. Inertia and entropy: The inertia of Blockbuster's failure to give up on its retail stores meant that Netflix surpassed it and is now an industry leader. "Understanding the inertia of rivals may be just as vital as understanding your own strengths. … An organization's greatest challenge may not be external threats or opportunities, but instead the effects of entropy and inertia." Organizational inertia usually falls into one of three categories: 1) the inertia of routine; 2) cultural inertia, and 3) inertia by proxy.
  18. Don't accept the first convenient solution to a problem: 1) consider the kernel of good strategy, as discussed above: diagnosis, guiding policy, and coherent action; 2) approach a problem with a 'problem-solution' view, simplify the process with the identification of a problem the organization hopes to solve; and 3) use the 'create-destroy' approach, which includes the attempt to destroy one's own ideas and solutions to test their robustness. (Rumelt recommends execs to imagine a panel of experts that scrutinizes your proposed solution.)
  19. Since Jen-Hsun Huang became the CEO of Nvidia in 1999, the company's shares increased 21-fold, which outperformed Apple over the next decade-plus. Nvidia's explosion is an example of great strategy, based on Rumelt's 'kernel' approach: the company diagnosed the problem, namely that 3D-graphics cards were the future; its guiding policy was the shift from a multi-media approach to a focus on improved graphics for PCs by the development of superior GPUs, and its action points were coherent and focused. More detail on this example can be found below.
  20. Execs should utilize leverage. Rumelt says leverage is the focus of attention and resources at the right moment towards a pivotal objective. There are three main considerations in the process of strategic leverage: 1) anticipation of challenges and opportunities, which often comes from the analysis of competitor behavior and market forces; 2) pivot points from which to base strategic focus, as in sources of strength for an organization relative to alternative approaches; and 3) the concentration of resources toward said points.
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Questions and answers
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A small business can use the key topics or framework covered in the book "Good Strategy, Bad Strategy" to grow by applying the three core elements of a good strategy: diagnosis, guiding policy, and coherent action. Firstly, the business needs to diagnose the problem or challenge it is facing. This could be anything from lack of market share to poor customer retention. Secondly, the business needs to develop a guiding policy to address the diagnosed problem. This policy should aim to create or leverage advantages. Lastly, the business needs to define coherent actions to implement the guiding policy. These actions should be specific, actionable, and directly linked to the guiding policy and diagnosis.

Some examples of companies that have successfully implemented the principles of good strategy as outlined in Richard Rumelt's book 'Good Strategy, Bad Strategy' include Apple, Amazon, and Google. Apple's clear diagnosis of the problem of complicated technology, their guiding policy of creating user-friendly devices, and their coherent actions in product development and marketing align with Rumelt's principles. Amazon's strategy of becoming the 'Earth's most customer-centric company' and their actions to achieve this also align with these principles. Google's strategy of organizing the world's information and making it universally accessible and useful, and their actions in developing search algorithms and other technologies, also demonstrate the principles of good strategy.

The principles of good strategy from the book Good Strategy, Bad Strategy can be applied in a non-profit or public-policy context by following the kernel of good strategy: diagnosis, guiding policy, and coherent action. First, identify the problem or challenge that the non-profit or public policy needs to address. This is the diagnosis. Next, develop a guiding policy, which is a general approach on how to overcome the obstacles identified in the diagnosis. This could involve leveraging the organization's strengths or addressing its weaknesses. Finally, define the coherent actions - specific steps that the organization will take to follow the guiding policy. These steps should be concrete, actionable, and directly linked to the guiding policy and diagnosis.

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Summary

Useless 'strategy' has pervaded the psyche of organizations worldwide. Why? Because good strategy is hard work. From redundant vision-building to lazy law-of-attraction thinking, people do what makes them feel good, whether it helps their company or not. It's easy to declare wishfully; it's much harder to put together a plan to ensure execs' wishes are granted.

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The most innovative ideas presented in Good Strategy, Bad Strategy include the concept that good strategy is hard work and requires more than just wishful thinking or vision-building. It emphasizes the importance of a well-structured plan to ensure the execution of the strategy. The book also challenges the common misconception that success can be attributed solely to personal decision-making skills, highlighting the role of effective strategy in achieving organizational goals.

A company in a traditional sector like manufacturing or retail can apply the innovative approaches discussed in Good Strategy, Bad Strategy by first understanding the core principles of good strategy. This includes identifying and focusing on the critical issues or challenges, creating a guiding policy to address these issues, and developing a set of coherent actions to implement the policy. For instance, a manufacturing company might identify a key challenge as outdated production processes. The guiding policy could be to adopt more efficient, technology-driven processes, and the coherent actions could include investing in new machinery, training staff, and regularly reviewing and improving the processes.

The lessons from Good Strategy, Bad Strategy can be applied in today's business environment by avoiding useless strategies that only make people feel good but do not contribute to the company's success. Instead, businesses should focus on creating a good strategy which involves hard work and a well-thought-out plan. This plan should be designed to ensure that the executives' wishes are granted. It's not enough to just have a vision, it needs to be backed up with a solid strategy.

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Good strategy cannot be stumbled upon by chance. Even some of the world's biggest organizations do strategy poorly, and incorrectly owe their success to their decision-making skill. Conversely, many organizations do strategy expertly, from which much can be learned. The 'kernel' of good strategy contains three main components: diagnosis of a problem; an appropriate guiding policy; and a set of coherent actions. If each stage isn't treated carefully, bad strategy is inevitable.

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A manufacturing company can apply the innovative approaches discussed in Good Strategy, Bad Strategy by first diagnosing the problems in their current strategy. This could be inefficiencies in the production process, outdated machinery, or a lack of skilled labor. The next step would be to develop a guiding policy to address these problems. This could involve investing in new technology, training staff, or streamlining the production process. Finally, the company needs to implement a set of coherent actions to execute this policy. This could include setting timelines for when new machinery will be installed, or when training programs will be completed. By following these steps, a manufacturing company can develop a good strategy that leads to improved performance and success.

The concept of the 'kernel' of good strategy, as explained in the book 'Good Strategy, Bad Strategy' by Richard Rumelt, refers to the three main components that form the core of any effective strategy. These components are:

1. Diagnosis of a problem: This involves identifying and understanding the challenge or issue at hand. It's about defining what the actual problem is that needs to be addressed.

2. Guiding policy: This is the overall approach or method to handle or solve the diagnosed problem. It's a kind of game plan that guides the organization's actions.

3. Coherent actions: These are the specific steps or actions that are taken in line with the guiding policy to address the problem. These actions should be coherent, meaning they should be logical and consistent, and should effectively work together to solve the problem.

If any of these stages is not treated carefully, it can lead to a bad strategy.

The lessons from Good Strategy, Bad Strategy can be applied in today's business environment by focusing on the three main components of a good strategy: diagnosis of a problem, an appropriate guiding policy, and a set of coherent actions. Businesses should avoid attributing their success to personal decision-making skills and instead focus on developing a robust strategy. They should carefully treat each stage of strategy development to avoid bad strategy. It's also important to learn from organizations that do strategy expertly.

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A paragon of organizational strategy, Richard Rumelt walks readers around the many landmines lying in wait should leaders misstep in their strategy. At its core, strategy is the identification of critical factors in a situation, then the skillful design of coordinated actions to deal with said factors. It requires awareness of one's resources and capabilities and a sharp understanding of one's industry and its surrounding space. Though there is much to learn, fundamentally strategy is very difficult leg work, not easily replaced with template-style vision building or any other form of pseudo-strategy.

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The theories presented in Good Strategy, Bad Strategy challenge existing paradigms in the field of business strategy by emphasizing the importance of identifying critical factors in a situation and designing coordinated actions to deal with them. It argues against the common practice of relying on template-style vision building or other forms of pseudo-strategy. Instead, it advocates for a more rigorous approach that requires a deep understanding of one's resources, capabilities, industry, and its surrounding space.

A manufacturing company can apply the innovative approaches discussed in Good Strategy, Bad Strategy by first identifying the critical factors in their situation. This could be anything from market trends, customer needs, to production inefficiencies. Once these factors are identified, the company can then design coordinated actions to deal with these factors. This might involve investing in new technologies to improve production efficiency, repositioning their products to meet changing customer needs, or exploring new markets. The company also needs to be aware of its resources and capabilities, and have a sharp understanding of its industry and its surrounding space. This will help the company to make strategic decisions that are grounded in reality.

The key takeaways from "Good Strategy, Bad Strategy" that are actionable for entrepreneurs or managers are:

1. Strategy is about identifying critical factors in a situation and designing coordinated actions to deal with them.

2. It requires a deep understanding of one's resources, capabilities, industry, and its surrounding space.

3. Strategy is not easily replaced with template-style vision building or any other form of pseudo-strategy. It requires hard work and careful planning.

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Some ground rules

Rumelt first dispels what some believe constitutes strategy. It has little to do with ambition, leadership, vision or the economic logic of competition. The core of strategy work is "discovering the critical factors of a situation and designing a way of coordinating and focusing actions to deal with those factors."

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Richard Rumelt's idea of coordinating and focusing actions to deal with critical factors in a situation is central to his understanding of strategy. He argues that strategy is not about ambition, leadership, vision, or the economic logic of competition. Instead, it's about identifying the critical factors in a situation and then designing a way to coordinate and focus actions to address those factors. This approach requires a deep understanding of the situation, clear identification of the critical factors, and a well-designed plan to address them.

Rumelt's concept of strategy challenges traditional notions of ambition, leadership, and vision by asserting that these elements are not the core of strategy. Instead, he emphasizes that the essence of strategy is about identifying the critical factors in a situation and designing a way to coordinate and focus actions to address those factors. This perspective shifts the focus from personal attributes and competitive logic to situational analysis and action planning.

The book "Good Strategy, Bad Strategy" by Richard Rumelt presents several key insights. Firstly, it dispels common misconceptions about strategy, stating that it has little to do with ambition, leadership, vision, or the economic logic of competition. The core of strategy work, according to Rumelt, is discovering the critical factors of a situation and designing a way of coordinating and focusing actions to deal with those factors. This implies that a good strategy requires a clear understanding of the situation, a well-defined approach, and a coordinated effort to execute the plan.

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Bad strategy is not only the absence of good strategy; bad strategy is itself a hodgepodge of misunderstood or misapplied concepts. Leaders often "mistakenly [treat] strategy work as an exercise into set goals rather than solve problems."

Steve Jobs and Apple

When Steve Jobs first returned to Apple, he didn't do much that was remarkable. Given Apple's shrinking market share (about 4% of the PC market when he rejoined), he did what any right-thinking strategist would do, according to Rumelt: he made a series of shrewd, necessary business choices that made sense.

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A small business can use the key topics or framework covered in Good Strategy, Bad Strategy to grow by first identifying its strengths and weaknesses. This will help in formulating a strategy that leverages its strengths and addresses its weaknesses. The business should also clearly define its objectives and the actions required to achieve them. It should also be ready to adapt its strategy based on the changing market conditions. Lastly, the business should ensure that the strategy is implemented effectively across all levels of the organization.

Good Strategy, Bad Strategy presents several innovative ideas. One of the key insights is the importance of identifying and focusing on the critical issues in the situation, the pivotal points that can multiply the effectiveness of effort. Another surprising idea is that a good strategy does not just draw on existing strength; it creates strength through the coherence of its design. Most people think that strategy is about planning, but Rumelt argues that it's about crafting a unique position and making tough choices.

The key takeaways from Good Strategy, Bad Strategy for entrepreneurs or managers are:

1. Good strategy is not just a vision or goal, but a coherent action plan that acknowledges and addresses the challenges.

2. Bad strategy is often characterized by fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives.

3. To develop a good strategy, identify the critical issues or challenges, develop an approach to overcome them, and create a coherent action plan.

4. Like Steve Jobs at Apple, make shrewd, necessary business choices that make sense in the context of your challenges.

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Jobs made (necessary) cuts across the board, simplifying and focusing the company's processes. Jobs took 'focused action'—something that is all too rare in business, writes Rumelt. He first steadied the ship and then stood poised and waited for the perfect opportunity to explode the company into life again.

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A small business can use the "focused action" strategy from "Good Strategy, Bad Strategy" to grow by first identifying its unique strengths and weaknesses. Then, it should develop a clear and concise strategy that leverages its strengths and addresses its weaknesses. This strategy should be focused and actionable, meaning it should be specific, measurable, achievable, relevant, and time-bound (SMART). The business should then execute this strategy with focus and determination, constantly monitoring and adjusting the strategy as necessary based on feedback and results.

The "focused action" strategy, as explained in "Good Strategy, Bad Strategy", refers to the approach of simplifying and focusing the company's processes. This strategy was notably used by Steve Jobs at Apple. Instead of trying to do everything at once, Jobs made necessary cuts across the board, simplifying and focusing the company's processes. This allowed the company to stabilize and prepare for the perfect opportunity to reignite its growth. This strategy emphasizes the importance of focus and simplicity in business, and the need to wait for the right opportunity to take action.

Good Strategy, Bad Strategy" by Richard Rumelt has significantly influenced corporate strategies by emphasizing the importance of focused action and simplification. The book highlights how successful strategies often involve making necessary cuts and focusing the company's processes. This approach steadies the company and positions it for future growth when the perfect opportunity arises. The book's principles have been adopted by many organizations, leading to more streamlined operations and effective strategies.

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There were many technologies on the brink of launch, and Jobs knew that. Despite Windows-Intel's seemingly insurmountable market lead, Jobs knew that if he made the right decision at the right time, he had a chance to skyrocket Apple to the top. So he steadied the ship, simplified product selection, made tough but necessary decisions, and waited.

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A company in a traditional sector can apply the innovative approaches discussed in Good Strategy, Bad Strategy by first understanding the core principles of good strategy. This includes identifying and focusing on the critical issues at hand, leveraging unique strengths to create advantages, and creating a coherent approach to overcome the challenges. The company can then apply these principles in their context. For instance, they can simplify their product selection, make tough but necessary decisions, and wait for the right time to make strategic moves, just like Steve Jobs did with Apple.

The book 'Good Strategy, Bad Strategy' provides several actionable takeaways for entrepreneurs. Firstly, it emphasizes the importance of having a clear and concise strategy. This involves identifying the critical issues at hand and developing an approach to overcome them. Secondly, the book advises against bad strategy, which often disguises as a goal or vision without a coherent action plan. Lastly, it highlights the role of the leader in making tough but necessary decisions and waiting for the right time to act.

Steve Jobs' return to Apple marked a significant turnaround for the company. He simplified the product line, made tough decisions, and waited for the right moment to launch new technologies. This strategy not only helped Apple regain its footing but also propelled it to the top of the tech industry. The broader implications of this case highlight the importance of strategic decision-making, the value of simplicity in product offerings, and the significance of timing in business.

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Jobs' strategy was focused, self-aware, and action-oriented throughout. "Good strategy itself is unexpected," Rumelt writes.

The Jobs formula

Jobs has an amusing, and incredibly simple, approach to business, which Rumelt, a foremost academic of organizational strategy, loves. It has four stages:

  1. imagine a product that is "insanely great"
  2. assemble a small team of the very best engineers and designers in the world
  3. make the product visually stunning and easy to use, pouring innovation into the user interface
  4. tell the world how cool and trendy the product is with innovative advertising.

Often the greatest business leaders, like Jobs, or Elon Musk, have simple approaches to strategy, even if technically they are complex. "Good strategies are usually 'corner solutions,'" Rumelt writes. "That is, they emphasize focus over compromise."

The curious case of Walmart

"Half of what alert [MBA students] learn in a strategy exercise is to consider the competition even when no one tells you to do it in advance," Rumelt writes as he details the case of Wal-Mart in 1986. Rumelt's students would theorize why Wal-Mart did so well (computerised warehousing and trucking system, non-union, low admin expenses and so on), but no one considered why, if this was so simple, competitors didn't copy the formula. "Looking just at the actions of a winning firm, you see only part of the picture."

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The key takeaways from Good Strategy, Bad Strategy that are actionable for entrepreneurs or managers include:

1. Good strategy is not just a goal or vision, it is a coherent mix of policy and action designed to surmount a high-stakes challenge.

2. Bad strategy is characterized by fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives.

3. Entrepreneurs and managers should always consider the competition, even when it's not explicitly stated. This is evident in the case of Wal-Mart in 1986, where despite having a successful formula, competitors didn't copy it.

4. It's important to look beyond the actions of a winning firm to see the full picture.

'Good Strategy, Bad Strategy' by Richard Rumelt has significantly influenced corporate strategies and business models. It has emphasized the importance of clear and coherent strategy over vague objectives. The book has taught businesses to focus on overcoming key challenges and leveraging unique advantages, rather than trying to achieve everything at once. It has also highlighted the importance of understanding the competition and not just copying successful firms. These insights have led many businesses to rethink and refine their strategies for better outcomes.

Companies might face several obstacles when applying the strategic concepts from Good Strategy, Bad Strategy. These could include resistance to change, lack of understanding of the strategic concepts, and difficulty in implementing the strategies due to operational or financial constraints. To overcome these obstacles, companies could invest in training and development to ensure all employees understand the strategic concepts. They could also engage in change management practices to ease the transition. Additionally, they could seek external help or consultancy for the implementation of the strategies.

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Kmart was the most notable failure. Eventually filing for bankruptcy in 2002, they focused on international expansion throughout the '70s and '80s, "ignoring Wal-Mart's innovations in logistics and its growing dominance of small-town discounting."

Overall, it is the coherence of structure, policy, and actions that made Wal-Mart so difficult to compete with. Isolated examples, such as the introduction of barcode scanners at checkout, are not enough; Kmart also had barcode scanners in the early '80s. The difference between it and Wal-Mart is coherence, a total strategy as opposed to "some imagined 'best practice' form. … The network, not the store, became Wal-Mart's basic unit of management."

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Companies might face several obstacles when applying the concepts from Good Strategy, Bad Strategy. These could include resistance to change, lack of understanding of the strategy, poor communication, and lack of resources. To overcome these obstacles, companies could ensure clear communication of the strategy, provide adequate training and resources, and foster a culture that embraces change and strategic thinking.

The book 'Good Strategy, Bad Strategy' presents several innovative ideas. One of the most surprising is the emphasis on coherence in strategy. It's not enough to have isolated examples of good practices, like the introduction of barcode scanners at checkout. The difference between successful companies like Wal-Mart and others is a coherent, total strategy. Another innovative idea is the shift in perspective from the store to the network as the basic unit of management. These ideas challenge conventional wisdom and provide fresh insights into strategic management.

The key takeaways from Good Strategy, Bad Strategy that are actionable for entrepreneurs or managers are:

1. Coherence in structure, policy, and actions: This is what made companies like Wal-Mart difficult to compete with. It's not about isolated practices but a total strategy.

2. Avoiding bad strategy: Bad strategy is often characterized by fluff, failure to face the challenge, over-ambition, and lack of coordination.

3. Focusing on strengths: Good strategy works by focusing resources on one's best opportunities.

4. Making hard choices: Good strategy involves making decisions and making no" a part of your strategy.

5. Having a guiding policy: This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

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Competitors must integrate the entire design of Wal-Mart's strategy to emulate its success. It is the coherence of its strategy that buttresses its advantage.

Bad strategy

There is a difference between what Rumelt in 2007 coined 'bad strategy' and no strategy at all. There are four major hallmarks of bad strategy:

Fluff is "a form of gibberish masquerading as strategic concepts or arguments. It uses … words that are inflated and unnecessarily abstruse and apparently esoteric concepts to create the illusion of high-level thinking."

A humorous example of fluff in business, the likes of which are to be avoided at all costs: "Our fundamental strategy is one of customer-centric intermediation" – a major retail bank that Rumelt worked with as a consultant. In other words, its fundamental strategy was to be a bank.

Failure to face the challenge

Bad strategy fails to recognize or define the challenge, which makes overcoming it near impossible. DARPA, a US military research organization, explicitly outlines what governs its actions (a good example):

  • "DARPA focuses its investments on this 'DARPA-hard' niche—a set of technical challenges that, if solved, will be of enormous benefit to US national security even if the risk of technical failure is high"
  • DARPA changes its program managers every four to six years to limit 'empire building' and so that workers challenge previously held modes of operation
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'Good Strategy, Bad Strategy' by Richard Rumelt has significantly influenced corporate strategies and business models by emphasizing the importance of clear, coherent strategies over vague objectives. It has taught businesses to focus on overcoming key challenges and leveraging unique advantages, rather than pursuing multiple conflicting goals. The book has also highlighted the dangers of 'bad strategy', such as fluff, failure to face the challenge, over-specification of goals, and designating goals as strategies, which has led many businesses to reassess and refine their strategies.

One of the most innovative ideas presented in Good Strategy, Bad Strategy is the concept of 'kernel' of a strategy, which includes a diagnosis, guiding policy, and coherent action. Another surprising idea is the emphasis on the importance of good strategic objectives, which should be an action that addresses the obstacles identified in the diagnosis. The book also highlights the importance of focusing on strategic advantages and leveraging them effectively. Lastly, the idea of 'bad strategy' is also innovative, where it discusses how strategies often fail due to fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives.

The theories in Good Strategy, Bad Strategy challenge existing business practices by emphasizing the importance of clear, coherent strategies over vague objectives. It argues that many organizations incorrectly attribute their success to personal decision-making skills, rather than effective strategic planning. The book also highlights the need for organizations to focus on overcoming specific challenges, rather than pursuing broad, undefined goals. This approach challenges the conventional wisdom in many businesses and encourages them to rethink their strategic planning processes.

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On this, Rumelt writes: "DARPA's strategy is more than a general direction. It includes specific policies that guide its everyday actions." DARPA has led to advancements in various fields, including stealth technology, GPS, nanotechnology, and much more.

Don't mistake goals for strategy

Statement of goals is not a strategy; a bad strategy often contains no action points.

Cookie-cutter annual 'strategic planning' accounts for most of corporate 'strategy': "Importantly, opportunities, challenges, and changes don't come along in nice annual packages. The need for true strategy work is episodic, not necessarily annual."

Bad strategic objectives: Strategic objectives must help an organization reach its desired end. Bad strategic objectives often fail to address critical issues or are impracticable. Rumelt suggests using the following definitions:

Goal: a word used to express overall values and desire. For example: The United States' foreign-policy goals of freedom, justice, and democracy

Objective: used to denote specific operational targets. For example: defeat the Taliban, rebuild infrastructure

Chen brothers: good goals plus good objectives

Chen Brothers, a distributor of specialty foods, was under threat by the growth of Whole Foods. Whole Foods was applying pressure on the smaller stores that Chen Brothers supplied.

Chen Brothers' stated goals were to 1) Grow profit; 2) be a good place to work; 3) be seen as the go-to distributor of organic foods.

Chen Brothers' stated objectives were to first categorize customers into three tiers; then, the most important objectives for each tier were as follows: the Top tier was to achieve shelf-space dominance, the middle tier was promotional parity or better, and the lowest tier was to grow market penetration.

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The key takeaways from "Good Strategy, Bad Strategy" that entrepreneurs can use to improve their promotional strategies and market penetration are:

1. Categorize customers into different tiers and set specific objectives for each tier. This helps in targeting the right audience with the right strategy.

2. For the top tier, aim to achieve shelf-space dominance. This means having your product prominently displayed in stores or online platforms.

3. For the middle tier, aim for promotional parity or better. This means your promotions should be as good as or better than your competitors.

4. For the lowest tier, aim to grow market penetration. This means increasing your product's market share by reaching more customers.

The tiered customer categorization strategy presented in Good Strategy, Bad Strategy challenges existing marketing practices by shifting the focus from a one-size-fits-all approach to a more targeted and tiered approach. This strategy categorizes customers into three tiers with different objectives for each tier. The top tier aims for shelf-space dominance, the middle tier seeks promotional parity or better, and the lowest tier aims to grow market penetration. This approach allows for more personalized marketing strategies that can better meet the needs and preferences of different customer groups, thereby potentially increasing customer satisfaction and loyalty.

The ideas from Good Strategy, Bad Strategy can be applied in real-world scenarios to achieve shelf-space dominance by first categorizing customers into different tiers. Then, for the top tier, the objective should be to achieve shelf-space dominance. This can be done by focusing on high-value customers and ensuring that your products are prominently displayed and readily available in stores. Additionally, it's important to have a clear and compelling value proposition that differentiates your products from competitors. Regularly reviewing and adjusting your strategy based on market feedback and changes can also help maintain shelf-space dominance.

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But Chen Brothers spotted the threat of Whole Foods and adapted. The company kept its goals the same but adjusted its strategic objectives. Its strategy became the linking together of the various smaller stores that Chen Brothers supplied to, formulating a common brand that would be sold through Whole Foods. It formulated a dedicated Whole Foods team, combining production, marketing, advertising, financial expertise, and distribution under one roof.

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The strategic objectives adjustment of Chen Brothers can be implemented in other real-world scenarios by identifying potential threats or opportunities in the market, and then adjusting the company's strategy accordingly. This could involve linking together various smaller entities or departments within the company to formulate a common brand or goal. It could also involve creating a dedicated team that combines different areas of expertise, such as production, marketing, advertising, financial expertise, and distribution. This approach allows for a more unified and efficient operation, which can help the company adapt to changes in the market and achieve its goals.

A startup can use the strategy of Chen Brothers to grow and adapt to market threats by keeping its goals the same but adjusting its strategic objectives in response to the market threats. This could involve linking together various smaller entities that the startup is associated with, formulating a common brand that can be sold through larger platforms. The startup could also formulate a dedicated team combining production, marketing, advertising, financial expertise, and distribution under one roof. This strategy allows the startup to adapt to market threats while maintaining its original goals.

Chen Brothers implemented several innovative ideas to adapt to the changing market. They recognized the threat posed by Whole Foods and adjusted their strategic objectives while keeping their goals the same. Their new strategy involved linking together the various smaller stores they supplied to, creating a common brand to be sold through Whole Foods. They also formed a dedicated Whole Foods team, integrating production, marketing, advertising, financial expertise, and distribution under one roof.

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Chen Brothers were successful in their attempts and were right about Whole Foods eventually dominating the specialty food market.

Two key takeaways from this example:

  • Sharp focus on one or two crucial objectives is vital. In this case, the objective was adapted; the original strategy of distributing directly to merchants was no longer tenable given Whole Foods' ascendance. "Management had skilfully designed a 'way forward' that concentrated corporate attention on one or two important objectives," Rumelt writes.
  • Industry-level awareness is essential. Chen Brothers identified Whole Foods as a force worthy of altering its own course. Whole Foods has stayed; Chen Brothers was right to adapt. Knowledge of your industry is a must for identifying opportunities and threats and adapting your strategy accordingly.
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Good Strategy, Bad Strategy presents several innovative ideas. One of them is the importance of sharp focus on one or two crucial objectives. This is demonstrated by the case of a company adapting its original strategy due to the rise of Whole Foods. Another surprising idea is the necessity of industry-level awareness. It's essential to identify opportunities and threats in your industry and adapt your strategy accordingly. These ideas challenge the conventional wisdom that success is solely due to personal decision-making skills.

The book's ideas on industry-level awareness and strategy adaptation are not only theoretical but also practical and can be implemented in real-world scenarios. For instance, the case of Chen Brothers adapting their strategy in response to the rise of Whole Foods is a real-world example of these concepts in action. They recognized a shift in the industry and adjusted their strategy accordingly, which is a testament to the importance of industry-level awareness. Similarly, any business can apply these principles. By staying aware of industry trends and being willing to adapt their strategy in response, businesses can navigate changes in their industry and maintain a competitive edge.

The lessons from Good Strategy, Bad Strategy can be applied in today's business environment by focusing on one or two crucial objectives. This sharp focus allows a company to adapt its strategy when necessary, as seen in the case of Chen Brothers who altered their course due to the rise of Whole Foods. Furthermore, maintaining an industry-level awareness is essential for identifying opportunities and threats. This knowledge allows a company to adapt its strategy accordingly, ensuring its survival and success in the ever-changing business landscape.

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Common pathways to bad strategy

The three most common pathways to bad strategy begin with the unwillingness or inability to choose. In short, strategy decisions are difficult to make. Having the conviction and the foresight to make big, tough decisions is a necessary step when putting together a strategy.

Second, a template style strategy that includes fill-in-the-blanks template ideas like "The Vision", "The Mission", "The Values" and "The Strategies." This alone is not an actual "strategy."

Third, there is now a fetishization of quasi-religious, law-of-attraction thought in the US that has its roots in 19th-century Protestant Christian individualism. This "new thought" has had a knock-on impact on business strategy, which often leads to a shallow motivational mantra rather than a strategy for success.

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The 'new thought' theory, as presented in the book, challenges the existing paradigms or practices in the field of business strategy by shifting the focus from traditional strategic planning to a more individualistic and motivational approach. This theory criticizes the conventional business strategy for being too rigid and formulaic, and instead, promotes a more flexible and adaptive approach that is driven by individual creativity and innovation. However, the book also warns about the risk of this approach turning into a shallow motivational mantra rather than a robust strategy for success.

The key takeaways from the book Good Strategy, Bad Strategy that are actionable for entrepreneurs or managers are:

1. Good strategy is not just a vision or goal, but a coherent set of actions designed to overcome obstacles and achieve a desired outcome.

2. Bad strategy is often characterized by fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives.

3. Entrepreneurs and managers should focus on identifying and leveraging their unique advantages, addressing their biggest challenges, and making coherent choices to achieve their goals.

The 'new thought' concept, rooted in 19th-century Protestant Christian individualism, has significantly influenced business strategy. It has led to a shift from traditional strategic planning to a more motivational approach. However, this has often resulted in shallow motivational mantras rather than robust strategies for success. The broader implications include a potential lack of depth and substance in business strategies, which could lead to ineffective decision-making and poor business performance. It's crucial for businesses to balance motivational elements with solid strategic planning to ensure sustainable success.

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The kernel of good strategy

Rumelt defines the 'kernel' of good strategy as "an effective mixture of thought and action with a basic underlying structure." It contains three elements: 1) A diagnosis, 2) a guiding policy, and 3) coherent actions.

A good "guiding policy" sets the stage for focused action. For example, George Kennan was the American diplomat in the USSR for more than a decade. He witnessed first-hand much of the terror for which the USSR was responsible. In 1946, he wrote the so-called 'long telegram', which explored the nature of Soviet ideology and power. He surmised that the Soviets positioned themselves explicitly against capitalism, and as such, Kennan's proposal was to treat the Soviet ideology as a virus that must be contained until it dies out.

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A manufacturing company can apply the guiding policy concept from Good Strategy, Bad Strategy by first identifying its unique strengths and weaknesses. This could be in terms of technology, workforce skills, production capacity, or market reach. The company then needs to formulate a strategy that leverages these strengths to gain a competitive advantage, while also addressing the weaknesses. This strategy should be clear, concise, and actionable. It should guide the company's decisions and actions towards achieving its goals. For example, if a company has a strong technological base, it could focus on producing high-tech, high-quality products. If it has a skilled workforce, it could focus on custom, hand-crafted products. The key is to have a clear, focused guiding policy that drives all actions.

The concept of a guiding policy in the book "Good Strategy, Bad Strategy" refers to a broad approach or a set of methods that provide direction to the actions or decisions in an organization. It's a kind of compass that guides the organization towards its goals. For instance, in the book, George Kennan's proposal to treat the Soviet ideology as a virus that must be contained until it dies out, serves as a guiding policy. It sets the stage for focused action and provides a framework within which decisions can be made.

Companies might face several obstacles when applying the guiding policy concept. Firstly, the lack of a clear understanding of the concept can lead to misinterpretation and incorrect application. Secondly, the guiding policy might not align with the company's current strategy or culture, causing resistance from employees. Thirdly, the company might lack the resources or capabilities to implement the guiding policy effectively. Lastly, external factors such as market conditions, competition, and regulatory changes can also pose challenges.

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This was a sliding-doors moment in foreign policy. If the challenge was diagnosed another way —for example, if the Soviet Union were enticed into the world community through a policy of engagement as opposed to containment— the Vietnam War, Berlin Airlift, Korean War, and many other horrific events might not have happened. Kennan's framing of the problem was absent of actionable objectives, and because of that, future American leaders struggled to turn the guiding policy into action.

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The concept of "actionable objectives" from "Good Strategy, Bad Strategy" could have potentially changed the course of historical events like the Vietnam War or the Berlin Airlift by providing clear, achievable goals. In the context of the Vietnam War, for example, actionable objectives could have included specific political or military targets, rather than a vague goal of stopping the spread of communism. Similarly, during the Berlin Airlift, actionable objectives could have helped to streamline efforts and resources more effectively. However, it's important to note that while actionable objectives can guide strategy, they cannot guarantee success or prevent unforeseen challenges.

The book "Good Strategy, Bad Strategy" by Richard Rumelt challenges traditional paradigms of strategic planning in several ways. Firstly, it emphasizes the importance of identifying and focusing on the critical issues in the situation, rather than trying to address all problems at once. Secondly, it argues that a good strategy is not just a vision or goal, but a coherent set of actions designed to overcome the obstacles identified. Thirdly, it criticizes the common practice of setting vague and unmeasurable goals, arguing that a good strategy requires clear and measurable objectives. Finally, it challenges the idea that strategy can be developed by following a standard formula or model, arguing that effective strategy requires deep insight into the specific situation and creative thinking about possible solutions.

The insights from "Good Strategy, Bad Strategy" can be applied to improve decision-making in business in several ways. Firstly, it emphasizes the importance of clearly defining the challenge. A good strategy starts with a clear diagnosis of the problem. Secondly, it highlights the need for a guiding policy for dealing with the challenge. This policy should provide an overall approach to overcome the obstacles identified in the diagnosis. Lastly, it stresses the need for a set of coherent actions, steps that are coordinated with one another to work together in addressing the challenge. By applying these insights, businesses can make more informed and effective decisions.

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A guiding policy can be an advantage in and of itself if it anticipates actions and reactions of others, reduces the complexity and ambiguity of a situation, by exploiting leverage, and by creating policies and actions that are coherent.

Nvidia: A+ strategy

Nvidia, a designer of 3D-graphics chips, had a rapid rise to the top, passing apparently stronger firms, including Intel, along the way in the 3D-graphics market. Since Jen-Hsun Huang became CEO in 1999 the company's shares increased 21-fold, even beating Apple during that same period.

Diagnosis: recognizing that 3D-graphics chips were the future of computing (given the almost infinite demand for graphics improvement that came from PC gaming).

Guiding policy: the shift from a holistic multi-media approach to a sharp focus on improved graphics for PCs through the development of superior graphics processing units (GPUs).

Action points: 1) The establishment of three separate development teams; 2) reducing the chance of delays in production/design by investing heavily in specific design simulation processes; 3) reducing process delays involving the lack of control over driver production, by developing a unified driver architecture (UDA). All Nvidia chips would use the same downloadable driver software, making everything run more smoothly at all stages (for both Nvidia and its customers).

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Unified Driver Architecture (UDA) is a design approach where all chips of a company use the same downloadable driver software. This strategy can significantly reduce process delays related to driver production. The benefits of UDA include smoother operations at all stages for both the company and its customers. It simplifies the development process, reduces the chance of production or design delays, and enhances control over driver production.

Investing in specific design simulation processes can help in reducing production or design delays by allowing potential issues to be identified and addressed before they become problematic in the actual production process. These simulations can test different aspects of the design under various conditions and scenarios, which can provide valuable insights into how the design might perform in real-world situations. This can lead to improvements in the design, which can reduce the likelihood of delays due to design flaws or unforeseen complications. Furthermore, by investing in these processes, companies can also save time and resources that would otherwise be spent on troubleshooting and fixing issues during the production stage.

Companies might face several challenges when establishing separate development teams. These include communication issues, as teams may struggle to coordinate and share information effectively. There could also be conflicts over resources, with each team wanting to prioritize their own projects. Additionally, there might be difficulties in maintaining a consistent company culture and ensuring all teams are aligned with the company's overall strategy and goals. Finally, there could be increased costs associated with managing multiple teams, including additional management personnel and infrastructure.

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Nvidia grew at a rate of about 67% per year from 2001 to 2007 and circumnavigated the design and production bottlenecks faced by companies like Intel. Despite similar growth to Nvidia during that period, Intel had the effects of its performance increases dulled by process issues. Nvidia, meanwhile, won consumers over with more frequent top-tier GPUs.

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Nvidia's growth strategy, which involved circumventing design and production bottlenecks and frequently releasing top-tier GPUs, has proven successful for them. Other tech companies could potentially implement a similar strategy, but it would require a deep understanding of their specific industry, the ability to innovate and adapt quickly, and the resources to frequently develop and release high-quality products. However, it's important to note that what works for one company may not necessarily work for another due to different market dynamics, customer needs, and company resources.

Nvidia's growth strategy is highly relevant to contemporary issues and debates in the tech industry. The company's ability to circumnavigate design and production bottlenecks, which are common challenges in the tech industry, is a key aspect of its strategy. This has allowed Nvidia to consistently deliver top-tier GPUs, winning over consumers and driving its growth. Furthermore, Nvidia's impressive growth rate of about 67% per year from 2001 to 2007 demonstrates the effectiveness of its strategy. This success provides a valuable case study for other tech companies looking to navigate the rapidly evolving tech landscape.

Nvidia's strategy has significantly influenced corporate strategies in the tech industry. They circumvented the design and production bottlenecks that companies like Intel faced, which allowed them to grow at a rate of about 67% per year from 2001 to 2007. This approach has shown other tech companies the importance of efficient design and production processes. Nvidia also won consumers over with more frequent top-tier GPUs, demonstrating the value of regular, high-quality product releases to maintain consumer interest and market share.

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Where competitors like Silicon Graphics spread themselves too thin, Nvidia's strategy during that time was intuitive, focused, and executed well.

Proximate objectives

The Kennedy administration was careful not to claim the US would beat the Soviet Union to put up a manned orbiting lab, or an unmanned vehicle on the moon; these feats, the US concluded, would not be achieved before the Soviets did so because of the latter's superiority in heavy-lift rockets. Kennedy chose his goal of putting a crew on the moon very carefully, because he knew that it was not only possible but probable that they would beat the Soviet Union: "…the moon landing would require much larger rockets than either nation possessed, giving the United States an advantage because of its larger base of resources."

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The Kennedy administration's strategic decision-making in the space race reflects the principles outlined in 'Good Strategy, Bad Strategy' in several ways. Firstly, they identified their competitive advantage, which was the United States' larger base of resources. This allowed them to aim for a more ambitious goal - landing a crew on the moon - that was beyond the capabilities of their competitor, the Soviet Union. Secondly, they made a clear choice not to compete in areas where they believed they were at a disadvantage, such as launching a manned orbiting lab or an unmanned vehicle on the moon. This demonstrates the principle of focusing resources on areas of strength and avoiding areas of weakness.

The book "Good Strategy, Bad Strategy" by Richard Rumelt provides several key insights into the difference between good and bad strategy. A good strategy is clear and concise, focusing on the challenges at hand and providing a coherent approach to overcome them. It includes a set of coherent actions and decisions based on an understanding of the power dynamics within a market or situation. On the other hand, a bad strategy is ambiguous and does not address the challenges. It is often a result of leaders avoiding difficult decisions, and it lacks a coherent plan of action. It's important to note that a good strategy also considers the organization's resources and capabilities.

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It is vital for execs to choose proximate objectives.

Design novel strategy

When you design a strategy, business leaders should consider three key stages:

  1. Premeditation
  2. The anticipation of others' behavior
  3. The purposeful design of coordinated actions.

Many great strategies are more like bespoke designs than decisions. Seeing strategy as a 'choice' or a 'decision' may in fact be a poor reflection of its true nature; often leaders are faced with unique challenges, to which they are forced to formulate a novel response.

Sometimes an early advantage, such as Xerox's plain-paper-copying patent, can lead to inertia. Such a big market lead can lead to complacency when management doesn't believe it needs to stay abreast of new developments.

Focus

Applied to strategy, 'focus' has two meanings: first, it denotes the coordination of policies that produces extra power through interactions and overlapping effects. Second, as introduced by Michael Porter in Competitive Strategy, it denotes the application of that power to the right target.

Use dynamics

The dynamics of change are important to consider when formulating strategy. Sensing waves of change in society, or in a given industry, is crucial.

As computer technology progressed in the 20th century, the focus shifted from interconnected individual computer systems—that were made and maintained by companies like IBM and DEC who specialized in integrated systems—to a series of component parts driven by the microprocessor. Now each part was 'smarter', and didn't require expertise of holistic integration. The industry had shifted, and IBM had to readjust.

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IBM's strategy adjustment in response to the shift in the computer technology industry was primarily driven by the evolution of technology. As the industry moved from interconnected individual computer systems to component parts driven by the microprocessor, IBM had to adapt. The new technology was 'smarter' and didn't require the expertise of holistic integration that was IBM's specialty. IBM had to readjust its strategy to stay relevant in the changing landscape. This involved diversifying their product and service offerings, focusing more on software and services, and less on hardware.

A small tech startup can utilize the insights from the book "Good Strategy, Bad Strategy" to adapt to industry shifts by first understanding what constitutes a good strategy. This involves identifying the challenges, creating a guiding policy to address the challenge, and developing a set of coherent actions to carry out the policy. The startup can learn from IBM's experience, as mentioned in the book, where the industry shift from integrated systems to component parts driven by the microprocessor required a strategic readjustment. By staying aware of industry trends and shifts, the startup can anticipate changes and adapt its strategy accordingly. It's also crucial for the startup to avoid bad strategy pitfalls such as fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives.

Holistic integration refers to the process of combining various parts of a system in such a way that they work together seamlessly as a whole. In the context of the book 'Good Strategy, Bad Strategy', it could be referring to the strategic approach where all aspects of a strategy are integrated and aligned towards achieving a common goal. This could involve integrating different departments, resources, and processes in a company to ensure they all contribute effectively to the strategic objectives. It's a contrast to a fragmented approach where different parts of an organization work in silos, potentially leading to inefficiencies and conflicts.

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Here are five 'guideposts' to read the shifting dynamics of an industry:

  • Raise fixed costs: the simplest form of transition is triggered by a substantial increase in fixed costs, such as when traditional pistons were replaced by more advanced jet engines, which leaves but a few competitors left able to pay for the added cost
  • Deregulation: this can enable previously stretched competitors to become more involved with profit-making
  • Predictable biases: biases include an inability to predict a dip in sales after continuously rising all-time highs; an overprediction of current companies and business models; and the advice from consultants and analysts that businesses should copy whatever the current largest player does
  • Incumbent responses: expect resistance from incumbent companies when dynamics start to shift
  • Attractor states: this provides a sense of direction for the future evolution of an industry, but such attractor states might not come to be.
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The lessons from "Good Strategy, Bad Strategy" can be applied to predict and manage biases in today's business environment in several ways. Firstly, understanding the concept of 'attractor states' can help businesses anticipate future industry trends and avoid biases in their strategic planning. Secondly, the book emphasizes the importance of not copying the strategies of the largest player in the industry, which can help businesses avoid the common bias of overpredicting the success of current companies and business models. Lastly, the book's insights on incumbent responses can help businesses manage biases by expecting and preparing for resistance when industry dynamics start to shift.

The book "Good Strategy, Bad Strategy" suggests that deregulation can have a significant impact on competitors. It can enable previously stretched competitors to become more involved with profit-making. However, it also implies that deregulation can lead to increased competition, which may result in a shift in industry dynamics. Incumbent companies may resist these changes. The book also introduces the concept of "attractor states", which provide a sense of direction for the future evolution of an industry, but these might not come to be.

The book 'Good Strategy, Bad Strategy' analyzes the transition triggered by a substantial increase in fixed costs as a form of industry transition. This transition is often triggered when there is a significant technological advancement, such as the replacement of traditional pistons with more advanced jet engines. This increase in fixed costs can lead to a reduction in competition, as only a few competitors are left who can afford the added cost. The book also discusses the implications of such transitions, including the potential resistance from incumbent companies and the possible emergence of new attractor states that provide a sense of direction for the future evolution of the industry.

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Inertia and entropy

Inertia and entropy, defined by Rumelt as resistance to change, are responsible for much bad strategy. The inertia of Blockbuster as it failed to abandon its retail stores meant that Netflix surpassed it and is now an industry leader. Understand the inertia of rivals, as it is vital as understanding your own strengths. As Rumelt wrote, "An organization's greatest challenge may not be external threats or opportunities, but instead the effects of entropy and inertia."

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The book 'Good Strategy, Bad Strategy' has significantly influenced corporate strategies and business models by emphasizing the importance of clear, coherent strategy over vague objectives. It has taught businesses to focus on overcoming key challenges and leveraging unique advantages, rather than pursuing numerous unrelated goals. The book's insights have also highlighted the dangers of inertia and entropy, encouraging businesses to adapt and evolve rather than resisting change. For instance, the failure of Blockbuster to abandon its retail stores, as highlighted in the book, serves as a cautionary tale for businesses to avoid strategic inertia.

A startup can use the concepts of inertia and entropy to its advantage by understanding and leveraging them. Inertia, or resistance to change, can be used to predict competitors' actions and responses. If a competitor is known for its inertia, a startup can anticipate that it will be slow to adapt to new trends or technologies, providing an opportunity for the startup to gain a competitive edge. On the other hand, entropy, or disorder within a system, can be minimized within the startup to maintain efficiency and productivity. By actively managing and reducing entropy, a startup can ensure smooth operations and prevent unnecessary complications or delays.

Netflix is a prime example of a company that has successfully understood and managed its own inertia and entropy. When Blockbuster was unable to abandon its retail stores due to inertia, Netflix capitalized on this and surpassed Blockbuster to become an industry leader. Another example is Apple, which has consistently innovated and adapted to changes in the technology industry, thereby managing its inertia and entropy effectively.

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Organizational inertia usually falls into one of three categories: 1) the inertia of routine; 2) cultural inertia, and 3) inertia by proxy.

Keep your head

If you can maintain composure and 'keep your head', even while those around you lose theirs, you are at a great advantage, Rumelt writes, who warns not to put blind faith in the stock market. He uses the example of the telecommunications industry and details a time around the beginning of the 21st century when everybody else had blind faith in the company Global Crossing, whose stock was grossly overvalued given the dynamics of its industry. This included the ease of entry for competitors, as it was not as hard as it seemed for others to do what Global Crossing was doing. In 2001, the company filed for bankruptcy amid an inability to keep up with bandwidth capacity — something that was clear to anyone that had looked close enough. Despite what everyone else thinks, conduct your own analyses, and do not be swayed by social herding. Keep your head.

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The book 'Good Strategy, Bad Strategy' presents several innovative ideas. One of the most surprising is the concept of 'keeping your head' in the face of social herding. The author, Richard Rumelt, warns against blind faith in the stock market and emphasizes the importance of conducting your own analyses. He uses the example of the telecommunications company Global Crossing, which was grossly overvalued due to social herding. Despite the hype, the company filed for bankruptcy in 2001 due to an inability to keep up with bandwidth capacity. This example illustrates the importance of independent thinking and analysis in strategic decision-making.

A small business can learn from the Global Crossing case by not putting blind faith in market trends or popular opinion. Instead, they should conduct their own analyses and make decisions based on their unique circumstances and insights. They should also be aware of the dynamics of their industry, including the ease of entry for competitors. It's important to realistically assess their capabilities and resources to avoid overextension. Lastly, maintaining composure and not being swayed by social herding is crucial.

The ideas from the book "Good Strategy, Bad Strategy" have significant potential to be implemented in real-world scenarios. The book emphasizes the importance of clear, concise strategic planning and warns against blind faith in volatile markets. These principles can be applied in various industries and situations. For instance, businesses can use these strategies to navigate competitive markets, make informed decisions, and avoid common pitfalls such as following market trends without proper analysis. However, the effectiveness of these strategies would depend on the specific context and the ability of the individuals or organizations to effectively interpret and apply them.

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