Good Strategy Bad Strategy (review, part 3)

This this the third and final installment of my review of Richard P. Rumelt’s book, Good Strategy Bad Strategy.

You can find the first part here, and the second part here.

In part three, Thinking Like a Strategist, Rumelt focuses on the introspective aspect of strategy, ”thinking about your own thinking.“ This, I think, is by far the biggest stumbling block for aspiring managers. One usually reaches positions of power through some combination of competent performances. Often when people (and their companies) reach this status they become complacent and overconfident in their own abilities; questioning their own thinking, to them, is like trying to fix what isn’t broken. It really is a humbling exercise to challenge your own arguments. Ironically, it’s most difficult to do as success induces others to trust rather than challenge your decisions leading to overconfidence, that it’s most important since there are less people to probe for weakness in your strategy.

In the chapter, The Science of Strategy, Rumelt argues that crafting good strategy, dealing “with the edge between the known and unknown,” is very much a scientific endeavor (now you’re talking my language), where managers must use the scientific method in a effort to continually test, refine, and improve the strategy. This quote is particularly astute:

Given that we are working on the edge, asking for a strategy that is guaranteed to work is like asking a scientist for a hypothesis that is guaranteed to be true — it is a dumb request…. A good strategy is, in the end, a hypothesis about what will work. Not a wild theory, but an educated judgment.

This argument goes against the idea that good strategy is simply an exercise in deduction, what Rumelt calls “winding the crank.” He elaborates:

The problem with treating strategy as a crank-winding exercise is that systems of deduction and computation do not produce new interesting ideas…. Treating strategy like a problem in deduction assumes that anything worth knowing is already known — that only computation is required.

In the chapter, Rumelt presents some ideas and techniques for “expanding the scope of your thinking about strategy and subjecting your ideas to deeper criticism.” I won’t address all of them but one definitely stood out as my favorite, create-destroy. This is the concept of generating high-quality alternatives through the process of destroying the ones you’ve already put forth. I love this idea, I think it’s one of the reasons that tough primary elections can strengthen the victorious candidate by requiring them to not only create political positions but also to defend them against rivals who will surely search for every weakness to exploit. But, like I said above, this is not something that makes people very comfortable. “Trying to destroy your own ideas is not easy or pleasant. It takes mental toughness to pick apart one’s own insights.”

In the final chapter, Keeping Your Head, Rumelt discusses several pitfalls to watch out for while in the business of crafting strategy including engineering overreach, smooth-sailing fallacy, risk-seeking incentives, social herding, and the inside view. He uses two cases to illuminate these vices, one involving the failure of trans-oceanic cable company, Global Crossing, and the other concerning the recent financial crisis. Global Crossing’s downfall happened in the midst of its soaring stock price that analysts used to justify the company’s business strategy while a simple five forces analysis could show big trouble ahead. The financial crisis, on the other hand, was the result of a combination of previously stated pitfalls. I have to raise a quick objection to Rumelt alleging that President Bill Clinton’s National Homeownership Strategy to incentivize home ownership among minorities contributed to the crisis. We’ve been through this argument and it holds no weight. Oh well.

Well, I hope you have enjoyed my three part review. It was much more difficult to do than I had originally thought but in the end was quite useful to go back and re-familiarize myself with the content. I’m sure I’ll be keeping this book close at hand for future reference. For now, I’m moving on to The Scientists by John Gribbin and Adam Hook and The Strategy Book by Max McKeown. Not sure if I’ll have time for a review as I’ll start my second year in my MBA program on Tuesday, but we’ll see.