Good Strategy-Bad Strategy: Defining Success or Failure

The article "Good Strategy, Bad Strategy" is about the essential principles of effective strategy, drawing upon the book by Richard Rumelt. The article highlights the crucial components of a good strategy, including a clear diagnosis of the problem, a guiding policy to address the problem, and coherent actions to implement the policy. The article then uses several real-world examples, like Apple under Steve Jobs and Starbucks under Howard Schultz, to showcase how successful organizations utilize good strategy.

In today’s complex business world, strategy is often considered the secret weapon for success. But what exactly makes a strategy good, and why do so many fail? Richard Rumelt’s book, Good Strategy Bad Strategy, takes a deep dive into this topic, distinguishing between truly effective strategies and those that fall short. With real-world examples of companies and leaders who have succeeded—or failed—based on their strategic decisions, the book provides a clear framework for understanding what makes strategy work.

In this article, we’ll explore key concepts from Rumelt’s Good Strategy Bad Strategy using memorable stories of famous people, companies, and events. We’ll examine how effective strategies are built on a solid foundation and how bad strategies often rely on wishful thinking, vague goals, or a lack of coherent action.

What Makes a Strategy "Good"?

According to Rumelt, a good strategy is built on three critical components:

• A Clear diagnosis of the challenge or problem.

• A Guiding policy that addresses the problem.

• Coherent actions that implement the policy and move the organization forward.

Good strategy is focused, practical, and based on a deep understanding of the situation. It’s not about setting lofty, abstract goals or simply creating a vision—it’s about facing the hard truths, identifying the real problems, and developing a realistic plan to address them.

Apple’s Revival under Steve Jobs

One of the most famous examples of good strategy comes from Apple, particularly when Steve Jobs returned to the company in 1997. At the time, Apple was in dire straits—its products were failing in the market, and it had become a bloated, unfocused company. Jobs knew that Apple’s biggest problem wasn’t just a lack of innovation but a lack of focus.

Diagnosis

Jobs quickly diagnosed the problem: Apple had too many products and lacked a clear identity. The company was producing dozens of different models, from printers to multiple lines of computers, with no clear sense of purpose.

Guiding Policy

Jobs implemented a guiding policy that was brutally simple: focus on what Apple did best. He slashed 70% of the company’s product line, cutting down the clutter and focusing on a handful of key products, including the iMac and later the iPod.

Coherent Actions

Jobs didn’t just cut products; he ensured that Apple would make the best products in the world. His focus on design, innovation, and customer experience became the driving forces behind Apple’s turnaround. The iMac, with its groundbreaking design and user-friendly features, was the first product to signal Apple’s resurgence. Then came the iPod, iPhone, and iPad, each product reinforcing the company’s strategic direction.

Outcome

Apple’s clear diagnosis, guiding policy, and coherent actions transformed it into the most valuable company in the world. Steve Jobs’ strategic clarity was the foundation for Apple’s success, proving that good strategy is about understanding the core problem and ruthlessly focusing on solving it.

The Pitfalls of Bad Strategy

In contrast, bad strategy is characterized by vague goals, wishful thinking, and a lack of real action. Rumelt describes bad strategy as failing to diagnose the actual problem or challenge, creating a wish list of objectives without clear direction, and relying on buzzwords and fluff instead of coherent, actionable plans.

Bad strategy often emerges when leaders are unwilling to face the reality of their situation, choosing instead to declare broad, unachievable goals without the steps necessary to achieve them.

Nokia’s Fall from Smartphone Leadership

Nokia was once the dominant player in the mobile phone industry. In the mid-2000s, it held over 40% of the global market share and was the undisputed leader in mobile handsets. But by 2013, Nokia’s market share had plummeted, and it was forced to sell its mobile business to Microsoft. What happened?

Diagnosis

The smartphone revolution, led by Apple’s iPhone in 2007, fundamentally changed the mobile phone market. Consumers wanted smartphones with touchscreens and app ecosystems. However, Nokia failed to properly diagnose this shift. While Apple and Android developers were innovating with software and design, Nokia continued to focus on hardware and traditional mobile operating systems.

Guiding Policy

Rather than pivoting toward the future, Nokia tried to maintain its leadership in the traditional phone market. It dabbled with its Symbian operating system for smartphones but failed to commit fully to a strategy that would embrace the smartphone revolution.

Coherent Actions

Nokia’s actions were fragmented and inconsistent. It launched multiple operating systems, including Symbian, Maemo, and later Windows Phone, but never developed a coherent strategy to compete effectively in the smartphone market. Instead of focusing on innovation and user experience, Nokia relied on its brand and existing dominance, failing to adapt to new consumer demands.

Outcome

Without a clear diagnosis of the threat posed by smartphones or a focused strategy to respond, Nokia lost its dominant position. Its inability to create a cohesive plan allowed competitors like Apple and Samsung to take over the market, leading to the company’s eventual downfall.

Nokia’s failure illustrates how bad strategy—based on misdiagnosis, vague goals, and inconsistent actions—can lead to catastrophic outcomes.

Starbucks' Bold Strategy under Howard Schultz

When Howard Schultz returned to Starbucks in 2008 as CEO, the company was struggling. Despite its global presence, Starbucks was losing its connection with customers. Its stores had become generic, sales were dropping, and its premium brand was under threat.

Diagnosis

Schultz diagnosed the problem as a loss of Starbucks’ unique identity. The company had grown too quickly, focusing on expansion rather than the quality of its customer experience. Starbucks was no longer seen as a premium coffee brand, and the essence of the “Starbucks experience” had been diluted.

Guiding Policy

Schultz’s guiding policy was to return Starbucks to its roots—reestablishing its focus on the customer experience, improving the quality of its products, and reinforcing its premium brand identity.

Coherent Actions

Schultz implemented several bold actions to bring the company back on track. He closed 600 underperforming stores, retrained baristas to make espresso with care, and even closed all U.S. stores for a day to focus on training. Schultz also introduced new product lines, like the Starbucks Reserve brand, to emphasize premium quality.

Outcome

Schultz’s strategy was a success. Starbucks not only regained its place as a leader in the coffee industry but also solidified its reputation as a premium global brand. By clearly diagnosing the problem, implementing a focused policy, and taking coherent action, Schultz executed a good strategy that reversed Starbucks’ decline.

Good Strategy in the Public Sector: The Apollo Program

Not all examples of good strategy come from the corporate world. One of the best examples of good strategy in the public sector is the Apollo Program, which successfully landed humans on the moon in 1969.

Diagnosis

The U.S. government, facing the technological and ideological challenge posed by the Soviet Union during the Cold War, diagnosed the problem: the Soviet Union had taken an early lead in the space race, and the U.S. needed a bold, ambitious goal to demonstrate its technological superiority.

Guiding Policy

President John F. Kennedy set a clear and ambitious guiding policy: land a man on the moon and return him safely to Earth by the end of the decade. This goal focused the efforts of NASA and provided a clear objective for the country.

Coherent Actions

The Apollo program took several coherent actions to achieve this goal. NASA consolidated its resources, focused on research and development, and systematically overcame technical challenges, such as rocket propulsion, spacecraft design, and life support systems. The program involved coordination between thousands of scientists, engineers, and government agencies.

Outcome

In 1969, NASA succeeded in landing Neil Armstrong and Buzz Aldrin on the moon. The Apollo Program is widely regarded as one of the greatest achievements in human history, demonstrating how good strategy—clear diagnosis, guiding policy, and coherent action—can lead to extraordinary results.

Avoiding the Traps of Bad Strategy

Rumelt warns that many organizations fall into the trap of bad strategy because they focus on slogans, vision statements, or lists of goals that have no basis in reality. Leaders often declare ambitious objectives—like becoming "the best in the world"—without diagnosing the real problems or outlining the steps needed to achieve them.

A famous example of bad strategy is WeWork, the office-sharing startup that imploded in 2019. WeWork’s strategy was built on grand visions of "changing the world" and "elevating the world’s consciousness," but these lofty goals had no concrete plan behind them. The company expanded rapidly, despite unsustainable financial losses and an unclear path to profitability. The lack of a coherent strategy led to its dramatic downfall when it attempted to go public.

In Good Strategy Bad Strategy, Rumelt makes it clear that effective strategy isn’t about setting vague goals or chasing growth for growth’s sake. Good strategy requires an honest assessment of challenges, a clear and focused guiding policy, and coherent actions that lead to tangible results.

From Apple’s resurgence under Steve Jobs to Starbucks’ revival under Howard Schultz, the examples of good strategy in business show that success comes from clarity, focus, and decisive action. Conversely, companies like Nokia and WeWork demonstrate how bad strategy—based on wishful thinking, misdiagnosis, or a lack of focus—can lead to failure.

In today’s competitive business world, the lessons from Good Strategy Bad Strategy are more relevant than ever. Leaders who want to build sustainable success must prioritize clarity, honesty, and coherence in their strategic planning, ensuring that their actions are aligned with their diagnosis and policy. Only then can they avoid the pitfalls of bad strategy and achieve lasting success.

Source : Good Strategy Bad Strategy: The Difference and Why It Matters by Richard Rumelt (2011).