Good Strategy/Bad Strategy

The difference and why it matters

Author: Richard Rumelt

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📘 Introduction

🧠 A Compass in Times of Confusion

In Good Strategy/Bad Strategy, Richard Rumelt doesn’t talk about managerial trends or empty catchphrases. He cuts to the core. He shows us that, in the real world, many organizations, companies, and even governments don’t actually have a strategy — even though they think they do. What they have is a mix of vague goals, well-meaning intentions, and PowerPoints filled with empty slogans.

Rumelt makes a bold statement from the very first pages: real strategy is not the same as ambition, vision, or charismatic leadership. It is a clear diagnosis, a smart guiding approach, and a coherent set of actions.

📉 Bad strategy? Common, superficial, decorative.
Good strategy? Rare, incisive, transformative.

And the most unsettling part: “The presence of bad strategy often goes unnoticed… until it’s too late.”

📖 1 — “The Power of Strategy”

🎯 More Than a Goal: A Method

The first chapter is not a theoretical introduction but a declaration of principles. Rumelt immediately establishes that strategy is not a list of goals. Nor is it a fancy vision statement framed in a company’s lobby. Strategy, he says, is a deliberate approach to overcoming a significant challenge.

🧠 Rumelt references business, military, and even sports cases to make a key point: “A good strategy is like a lever. With the right diagnosis, you can move the world.”

📌 The heart of a good strategy consists of three elements:

Clear diagnosis: understanding the real problem.
Guiding policy: the general framework for action.
Coherent actions: specific, connected, logical steps.

🗣️ Key Quote:

“A good strategy is rare because it requires thinking. And thinking is uncomfortable.”

🔍 Rumelt has no patience for superficiality. He calls out strategies that are merely statements of intent: “We want to be global leaders,” “Our goal is to grow 20%,” “We are going to innovate.” What problem do they solve? What advantage are they leveraging? Where is the focus?

🧭 Chapter Takeaways:

Strategy is not a wish; it’s a response to a specific problem.
Without diagnosis, every action is just noise.
Clarity is more powerful than ambition.

📖 2 — “The Structure of a Good Strategy”

🔧 Three Gears That Must Work Together

In this chapter, Rumelt breaks down what he calls “the core of a good strategy.” He does so like an engineer dissecting a machine: precisely, logically, and with brutal honesty.

🧩 The three elements mentioned in the previous chapter — diagnosis, guiding policy, coherent actions — are now presented with concrete examples and a central message: real strategy is not improvised. It’s built, connected, and tested.

🎓 Rumelt shares the case of Apple, especially during its revival under Steve Jobs. What was the diagnosis? The company was scattered, unfocused. What was the guiding policy? “Focus on fewer, well-designed, highly integrated products.” What were the actions? Shutting down divisions, launching the iMac, betting on industrial design.

🗣️ Key Quote:

“Diagnosis, direction, and action: that is the structure that separates real strategy from empty rhetoric.”

📌 Rumelt also warns that often “strategy” is done without any diagnosis. Plans are launched because others are doing it, models are copied blindly, trendy phrases are parroted. But that doesn’t work.

🧭 Chapter Takeaways:

The diagnosis defines the terrain. The policy shows the path. The actions walk it.
Without structure, strategy cannot withstand the pressure of chaos.
Copying without understanding is a recipe for failure.

📖 3 — “Bad Strategy”

🚨 The Silent Enemy

This chapter is a warning. Rumelt dismantles the false ideas that often masquerade as strategy — and he does so forcefully. Bad strategy, he says, is not just useless... it’s dangerous. It creates an illusion of control, diverts resources, and often blinds us to the real problems.

📉 What does bad strategy look like? Rumelt identifies four clear signs:

Empty rhetoric: fancy words with no substance.
Lack of focus: trying to do everything at once.
Goals without a method: objectives not backed by real plans.
Confusing strategy with values or vision: “we want to be ethical,” “we want to innovate”... that’s culture, not strategy.

🗣️ Key Quote:

“Bad strategy is more common than good, not because organizations are incompetent, but because the fog of power confuses clarity with grandiosity.”

🧠 Rumelt directly attacks what he calls “the illusion of modern strategy”: documents that look important, with charts, KPIs, and heroic declarations... but don’t solve any real problem.

🔍 One example mentioned is the U.S. education system. For years, strategic plans talked about “improving quality” and “raising standards.” But they didn’t address the true diagnosis: structural inequality, misaligned incentives, and lack of focus on teacher training.

🧭 Chapter Takeaways:

A strategy that doesn’t prioritize is not strategy.
Vague language hides the lack of thought.
Not everything that sounds strategic actually is.

📖 4 — “The Illusion of Strategy”

🎭 Between Mirages and Self-Deception

In this chapter, Rumelt delves into the mechanisms that allow bad strategy to thrive. Why do organizations deceive themselves? Why do leaders approve plans that have no real chance of success?

🔍 The answer is uncomfortable: because it’s easier to be optimistic than to face conflict. It’s more comfortable to say “we’re going to be the best” than to decide what to exclude, what to shut down, or what to abandon.

🪞 Rumelt calls this “the illusion of consensus.” Plans are crafted that everyone can support — even if no one understands them or believes they’re feasible. Friction is avoided… and effectiveness is sacrificed.

📉 Another common problem is using goals as a substitute for strategy. Saying “we’ll double our sales in five years” says nothing about how it will be done, what problem is being solved, or what competitive advantage is being exploited.

🗣️ Key Quote:

“Confusing goals with strategy is like confusing a wish with a plan.”

📌 A telling example is that of the UK Ministry of Defence. For years, its strategic documents were so generic — “we will respond to 21st-century challenges” — that they were useless for making actual decisions. Should they invest in drones or infantry? Overseas bases or cybersecurity? The strategy said nothing. It was a disguise.

🧭 Chapter Takeaways:

Real strategy requires saying no to many things. What you don’t do is just as important as what you do.
Leaders must tolerate conflict if they want clarity.
Strategic thinking demands courage: to diagnose, to decide, and to prioritize.

📖 5 — “Discovering Hidden Advantage”

🔍 It’s Not About Copying—It’s About Seeing What Others Don’t

In this chapter, Rumelt offers a core idea: good strategy doesn’t come from copying market leaders. It comes from spotting an asymmetry — a weak point in the environment or an untapped advantage.

🧠 Strategy, Rumelt says, is “about leveraging a latent source of power that others aren’t using.”

💡 Where to look? In the unexpected: in tech changes, market friction, or the rigid habits of competitors. That’s where opportunity hides.

📌 He illustrates this with Nvidia, the graphics chip company. While others focused on traditional processors, Nvidia saw a specific advantage: video games needed parallel processing power. That insight led them to dominate a niche — which later exploded with AI.

🗣️ Key Quote:

“Strategic advantage isn’t created. It’s discovered.”

🧩 Another key concept is the dynamics of change. When everything shifts, the ground becomes unstable. And there, Rumelt says, short-lived windows of opportunity open.

🎯 Example: when Apple launched the iPod, the true advantage wasn’t just the design or tech — it was understanding that the user experience (iTunes + device) was the real differentiator, not the hardware alone.

🧭 Chapter Takeaways:

There’s no strategy without diagnosis… but also none without opportunity.
Sustainable advantages often begin as invisible to others.
Seeing clearly what others ignore is the first step toward real strategic advantage.

📖 6 — “Using Leverage”

🔧 Do More With Less: The Art of Applying Force Where It Matters

This chapter introduces one of Rumelt’s most powerful concepts: strategic leverage — how an organization can create outsized impact with limited resources by applying pressure in exactly the right place.

💪 Rumelt puts it like this: “Leverage happens when you focus your energy at a point where a small action can produce big results.”

🛠️ And the secret? Choosing the right pressure point.

📌 A classic case: IKEA. They don’t compete with luxury furniture. Their strategy targeted people needing functional, affordable, easy-to-transport furniture. The key leverage: design products customers could assemble themselves. That lowered logistics costs, simplified production, and created a unique experience.

🗣️ Key Quote:

“Strategy is not about piling on effort. It’s about concentrating it.”

🎯 Another example: Barack Obama’s 2008 campaign. Instead of spending millions on traditional media, the team leveraged social networks, message segmentation, and community mobilization. The result? A powerful edge over better-funded rivals.

📉 Rumelt criticizes companies that spread resources evenly across all projects — that, he says, is anti-strategic. Real strategy concentrates resources where they can make the most difference.

🧭 Chapter Takeaways:

Strategy is not brute force; it’s well-directed force.
Leverage maximizes impact by focusing on the system’s key levers.
The ability to say “no” to many things enables a strong “yes” to what truly matters.

📖 7 — “Using the Advantage of Focus”

🎯 Pick Your Battle, Dominate the Ground

This chapter revolves around a key idea: strategic concentration. Rumelt argues that an organization cannot (and should not) try to win on every front. The key is to carefully choose where to compete—and where not to.

🧠 “Focus,” he says, “is not a limitation. It is a source of power.”

🗣️ Key Quote:

“You can’t be excellent at everything. But you can be unbeatable at something.”

📌 Rumelt shows how focus allows a sustainable advantage to be built. A classic example is Southwest Airlines. While traditional carriers offered multiple classes, connections, and in-flight meals, Southwest followed a different logic: short, direct flights, one class, and high aircraft turnover. What seemed like a disadvantage became a source of unmatched efficiency.

🔍 Another case: Napoleon’s army. His strategy focused on concentrating decisive force on a single key point, even if it meant leaving other flanks exposed. The principle: win decisively where it matters most, not defend everything weakly.

📉 In contrast, Rumelt criticizes the corporate logic of “growing in all segments,” “serving all markets,” or “being everything to everyone.” This, he warns, dilutes resources and breeds mediocrity.

🧭 Chapter Takeaways:

Choosing where to compete is more important than having vast resources.
Focus brings clarity, efficiency, and a recognizable strategic identity.
A focused strategy also means saying “no” to many tempting opportunities.

📖 8 — “Thinking Under Pressure”

🌪️ Strategy in Turbulent Times

Here, Rumelt addresses one of the book’s most critical questions: How do you design strategy when data is unclear, the environment is hostile, or change is constant?

🧠 The answer is neither easy nor comforting: think with rigor, strip away the unnecessary, and adjust constantly.

🗣️ Key Quote:

“You don’t need perfect predictions. You need clarity on what really matters.”

📌 Rumelt recounts how, during WWII, the Allies didn’t know where the bombers’ critical weaknesses were. Damage reports showed where bullets had hit—but not the fatal spots. The planes that didn’t return were the key. The lesson: reinforce where no hits were observed, because that’s where the true danger lay.

🔍 This kind of thinking—counterintuitive, critical, based on smart inference—is the heart of strategy in uncertain environments.

🎯 Another case: Intel in the 1980s. They were losing ground in the memory market. The solution? Abandon the sector and focus on processors. A tough decision… but a strategic one. Acknowledging that the environment has changed is the first step to valid strategy.

📉 The most common error, Rumelt says, is paralysis by analysis—waiting for perfect data before acting. But that’s impossible. Instead, he proposes an agile mindset: diagnose with what you have, act with focus, and adjust as you go.

🧭 Chapter Takeaways:

Uncertainty is no excuse to skip strategy. It’s the reason to build a better one.
Tough decisions are the heart of strategy—not an obstacle to it.
Strategic thinking under pressure means prioritizing, simplifying, and acting with courage.

📖 9 — “Sources of Power”

⚡ Where Strategic Advantage Is Born

Here, Rumelt reveals the hidden levers that can give an organization a dominant position. We’re no longer talking only about diagnosis or focus, but about how to create and sustain real competitive power.

🧠 “Effective strategy doesn’t just spot opportunity… it exploits it with a power engine behind it.”

📌 Rumelt outlines several sources of strategic power. The most important include:

Economies of scale: producing more reduces unit cost.
Networks: the more users, the more valuable the product (classic case: Facebook).
Accumulated capabilities: hard-to-replicate skills, like Apple’s design or Amazon’s logistics.
Market positioning: being where others can’t reach—or only get to too late.

🗣️ Key Quote:

“Power in strategy is the ability to force others to play by your rules.”

🔍 Rumelt emphasizes that these sources aren’t magic—they must be carefully cultivated with patience, consistency, and strategic design. A good idea isn’t enough. You have to turn it into a system that reinforces the advantage continuously.

🎯 Notable case: Toyota. Its edge wasn’t just “just-in-time” production, but a culture of continuous improvement (kaizen), a flexible manufacturing structure, and a deep commitment to quality. Together, these capabilities created a system that looked imitable—but was nearly impossible to replicate.

🧭 Chapter Takeaways:

Strategic power is built internally: through processes, culture, structures, and consistent choices.
Real advantage comes not from copying what works now, but anticipating what will work tomorrow.
A good strategy activates a source of power; a great one turns it into a barrier for competitors.

📖 10 — “Strategic Design”

🏗️ Structuring to Compete

This chapter is a rare gem: it discusses how organizational design — often seen as technical or dull — can be a first-rate strategic tool.

🧠 Rumelt argues that design isn’t just about operating efficiently… it’s about winning.

📌 What does this mean? That the way a company is structured — its hierarchy, units, information flows, and decision-making processes — can be a source of competitive advantage… or of constant chaos.

🗣️ Key Quote:

“Structure is a hypothesis about where power will reside.”

🔍 Rumelt points out that many leaders design their organizations based on tradition, internal politics, or convenience — instead of tailoring them to meet strategic challenges.

🎯 A pivotal case: DuPont in the 1920s. As the company expanded into multiple product lines, it abandoned the functional model (departments by area: production, finance, etc.) and created self-sufficient product divisions. This structure enabled agile and coherent growth — and was later copied by giants like General Motors and Procter & Gamble.

📉 In contrast, Rumelt highlights examples where poor organizational design blocks strategy: companies with so many hierarchical layers that critical information never arrives on time, or structures so rigid that they can’t pivot when conditions change.

🧭 Chapter Takeaways:

Strategy cannot be executed well if the structure is misaligned.
Designing an organization means designing the pathways through which power, information, and action flow.
Strategic design is not static: it must evolve alongside the strategy.

📖 11 — “Formulating a Good Strategy”

🧠 Think Clearly, Act Intentionally

After explaining what strategy is—and what it is not—Rumelt finally tackles what many have been waiting for: how to actually formulate a good strategy step by step.

📌 The answer is not a magic formula, but a structured process that combines diagnosis, guiding policy, and coherent action. He reaffirms the book’s core structure:

Clear diagnosis of the central challenge
Guiding policy — principles that steer decisions
Coherent actions — aligned with the diagnosis

🗣️ Key Quote:

“Formulating a strategy is discovering a design to overcome a significant challenge.”

🔍 Rumelt stresses that you don’t start with goals — you start with questions:

What is truly at stake?
Where are the bottlenecks?
What has changed in the environment?
What capabilities do we have that others don’t?

🎯 An inspiring case: California’s government in the 1990s. Faced with an energy crisis, rather than just increasing supply, they strategically reduced peak demand through smart incentives. The strategy worked because it tackled the root cause—not just the symptoms.

📉 Rumelt criticizes strategy processes filled with templates, matrices, and benchmarks—but empty of real thinking. A good strategy, he says, demands focus, brutal honesty, and the courage to choose.

🧭 Chapter Takeaways:

Strategy formulation is rigorous thinking, not filling out forms.
A good diagnosis is 70% of strategic success.
Mental clarity must come before organizational clarity.

📖 12 — “Thinking Like a Strategist”

🧩 More Than a Skill: A Mindset

This final chapter is both a call to action and a call to reflection. Rumelt concludes that strategic thinking isn’t an innate talent or a mechanical technique — it’s a way of seeing the world.

🧠 “Strategic thinking is a practice developed by observing, questioning, and connecting dots that others don’t see.”

📌 He offers five habits of strategic thinkers:

Reframe the problem — don’t accept it as presented.
Simplify without trivializing — get to the core without losing depth.
Spot leverage points — where one action yields large results.
Tolerate ambiguity — act without having all the information.
Be skeptical of the obvious — question common solutions.

🗣️ Key Quote:

“Strategic thinking is resisting the urge to act before understanding.”

🔍 Rumelt shares examples where uncommon thinking made all the difference — from entrepreneurs avoiding saturated markets to governments that rewrote the rules instead of playing under pressure.

📉 The main enemy, he says, isn’t lack of resources — it’s intellectual laziness. The temptation to copy, to follow trends, to believe the past predicts the future.

🎯 He ends with an inspiring note: strategy is not reserved for big corporations. It’s useful in schools, nonprofits, families. Wherever there’s an important challenge, strategic thinking makes the difference.

🧭 Chapter Takeaways:

Strategic thinking is cultivated, not inherited.
Better questions lead to more powerful decisions.
Strategy is an act of intellectual and moral leadership.

🎬 Epilogue: Rumelt doesn’t sell formulas. He invites us to think.

Good Strategy/Bad Strategy is a book for leaders who are not afraid of complexity. It doesn’t promise shortcuts, but it offers mental tools that can transform how we see problems, make decisions, and act under pressure.