Strategy — Recommended Reading

Two recent books bring the brilliance of two very influential strategists down to earth.

Good Strategy, Bad Strategy: The Difference and Why It Matters (2011 Crown Business).  UCLA professor Richard Rumelt gives us a very readable 300 pages, using many examples from his own consulting of the three elements of a “kernel of strategy:” (1) a diagnosis that defines the nature of the challenge, by simplifying the overwhelming complexity of reality to the critical aspects of the situation; (2) a guiding policy for coping with or overcoming the obstacles identified in the diagnosis; and (3) a set of coherent actions designed to carry out the guiding policy.  He also gives the reader some unique insights into “strategic leverage” and “decisive asymmetries,” ways for using relative advantages to capitalize on the inertia and inefficiencies of others.

Rumelt also clarifies that “bad strategy” is not just weak strategy; it is dangerous, wasteful, and very common.  Rumelt finds four hallmarks of bad strategy: (1) fluff; (2) failure to face the challenge; (3) mistaking goals – statements of desire – for strategy; and (4) bad strategic objectives – impracticable and don’t address critical issues.

Identified by the Economist as 1 of the 25 living people who most influence management thinking, and by McKinsey as a giant in the field of strategy, Professor Rumelt has synthesized a vast understanding of the theory and practice of strategy into a kernel we can all chew on.

Understanding Michael Porter: The Essential Guide to Competition and Strategy (2012 Harvard Business Review Press).  Joan Magretta, a long-term colleague of Michael Porter and previous partner at Bain, distills the essence of Porter’s major contributions to the field of competitive strategy in 240 pages with very clear frameworks, examples, and sage advice on what people are doing right and wrong with these frameworks.  Whether it is your introduction to Porter’s ideas or it is a primer for everything you read years ago, this book will show you what Porter’s frameworks are, how they all fit together, and when they should be used, based on the decades of lessons learned by Magretta and Porter.

You will learn that (spoiler alert):

  • competition is about creating the most unique value, not beating rivals.  Competing to be the best will lead to a flawed strategy and mediocre performance.  Porter says, “Aim to be unique, not best.”
  • competing for profits in the supply chain involves five forces that determine your industry structure — who gets how much of what profits generated from the value realized.  The forces include existing rivals, suppliers, buyers, new entrants, and substitutes, all capable of appropriating profits in the industry.  Porter finds that, “Industry structure determines profitability,” trumping other determinants.
  • sustaining a relative position of superior performance comes from differentiating around price or costs, relative to rivals.  Performance means producing value that exceeds the costs of all inputs.  Porter provides the “value chain” to determine where to differentiate activities, while driving for operational excellence in all activities.
  • strategy means developing a distinctive value proposition, deliberately choosing a different set of activities to deliver a unique mix of value.

Magretta brings thousands of pages of Porter’s many books and articles into a simple-to-see framing of Porter’s deeper insights of what to think about and how to apply it.  This distillation helped me see new connections after twenty years of working with Porter’s strategic frameworks.

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