I first leant Michael Porter’s work during my management classes. His ideas—such as the Five Forces and Value Chain Analysis—were foundational. They brought structure to strategic thinking, making the conversation sound sharp and Sr Executive ready. Though I was just a student, even back then, something didn’t quite sit right with me intuitively.
It all looked brilliant on paper, but a real strategy—a truly effective strategy—felt too complex and contextual to be built from templates. The frameworks were useful, no doubt. They helped guide discussions and made strategies easier to communicate to executives. However, they often overlooked the messy and actual realities of decision-making: uncertainty, trade-offs, internal bottlenecks, and shifting priorities.
Recently, I stumbled upon Richard Rumelt’s Good Strategy/Bad Strategy. And something clicked. His approach didn’t feel like strategy by committee or PowerPoint—it felt real. Rumelt’s way of diagnosing challenges and coherent action resonated deeply.
So I decided to dive in—into both Porter and Rumelt. This piece is a reflection of that journey: comparing and contrasting two of the most influential thinkers in strategy and, more importantly, exploring how each approach might serve different contexts—from corporate playbooks to product strategy. I’ve spent years observing businesses struggle with strategy. Some launch ambitious plans that go nowhere. Others mistake their to-do lists for strategy. And a few—a precious few—develop strategies that actually transform their organizations. What makes the difference?
In my quest to understand this question, I’ve repeatedly returned to these two intellectual giants who fundamentally changed how we think about strategy. I understand that all of us, including myself, can live in our own bubbles. I intend not only to understand their theories but also to develop a playbook with sound reasoning. I’m going to explore what makes strategy effective and how these approaches might transform anyone’s strategic thinking.
Michael Porter’s Competitive Strategy
Overview
The first time I learnt Porter’s work when I was business student. Suddenly, the competitive landscape came into sharp focus. For Porter, strategy isn’t about being the best but being unique. Let that sink in for a moment. How often have you heard companies striving to be “the best” without defining what that means?
Porter offers three distinct paths to competitive advantage, which he calls “generic strategies“:
- Cost Leadership: Becoming the lowest-cost producer while maintaining acceptable quality. Think Walmart or IKEA.
- Differentiation: Creating something customers perceive as unique and valuable. Think Apple or Starbucks.
- Focus: Targeting a narrow market segment with either cost leadership or differentiation. Think Rolls-Royce or specialized consulting firms.
The brilliance of this framework is its clarity. You can’t be everything to everyone. One must choose.
Frameworks
Five Forces Framework
If you’ve ever wondered why some industries are consistently more profitable than others, Porter’s Five Forces framework provides the answer. It examines:
- Threat of New Entrants: How easily can newcomers join your industry? High barriers to entry protect incumbents.
- Bargaining Power of Suppliers: Can Suppliers Squeeze Margins? When a few suppliers control critical resources, they hold the power.
- Bargaining Power of Buyers: Can Customers Dictate Terms? When buyers have many options or purchase in large volumes, they gain leverage.
- Threat of Substitutes: Can customers easily switch to alternative products or services? Digital photography’s destruction of the film industry is a classic example.
- Competitive Rivalry: How intensely do existing players compete? Industries with numerous similar-sized competitors often experience intense price competition.
I’ve used this framework countless times, and it still amazes me how quickly it clarifies the competitive dynamics of virtually any industry.
Value Chain Analysis
Porter’s Value Chain helps you see your business as a sequence of activities that create value. It breaks operations into primary activities (like inbound logistics and marketing) and support activities (like HR and technology development).
By mapping value chain against competitors, I could identify areas of advantage or disadvantage. It’s like getting an X-ray of business operations.
Example: Toyota’s Cost Leadership
Toyota offers a masterful example of Porter’s cost leadership strategy in action—transforming not just a company but an entire industry. When American executives first toured Toyota plants in the 1980s, they were stunned. They expected to find cutting-edge robotics. Instead, they found elegant, straightforward systems that eliminated waste at every turn.
Toyota’s approach included:
- Just-in-time inventory: Parts arrived exactly when needed, eliminating storage costs
- Continuous improvement (Kaizen): Workers constantly sought small efficiency gains
- Quality circles: Teams collaborated to solve problems and improve processes
- Standardization: Common components across models created economies of scale
What makes Toyota’s strategy particularly remarkable is how it redefined cost leadership. While traditional American automakers pursued economies of scale through massive production runs of identical models, Toyota created a flexible manufacturing system that could produce different models on the same line without sacrificing efficiency. It is known as the Toyota Production System (TPS), focused on eliminating seven types of waste: Overproduction, Waiting, Transportation, Over-processing, Inventory, Motion, Defects
By attacking these wastes systematically, Toyota achieved both lower costs and higher quality—something that conventional wisdom had considered mutually exclusive.
Toyota also demonstrated Porter’s principle that sustainable competitive advantage comes from creating an integrated system, not individual best practices. When competitors tried to cherry-pick elements of TPS without understanding the whole system, they rarely achieved the same results.
Key important point to observe was Toyota didn’t achieve cost leadership through low wages or inferior materials. They did it through operational excellence that competitors found almost impossible to replicate. Why? Toyota’s advantage wasn’t any single practice but the integration of dozens of practices into a coherent system—exactly what Porter’s strategy emphasizes.
Richard Rumelt’s Good Strategy/Bad Strategy
Overview
In one of my previous companies, we spent weeks crafting a “strategic plan” full of ambitious goals and KPIs, but something felt off. Then I read Rumelt, and it hit me: we didn’t have a strategy at all. We had a wish list. Rumelt’s approach starts with a simple insight: good strategy addresses a specific challenge. It’s not about ambition or excellence in general terms—it’s about overcoming a particular obstacle.
At the heart of his approach is the “kernel” of good strategy:
- Diagnosis: Clearly identifying the challenge you face
- Guiding Policy: Your overall approach to overcoming that challenge
- Coherent Actions: Coordinated steps that implement the guiding policy
This framework transformed how I think about strategy. I realized that without a clear diagnosis, everything else is just guesswork.
Key Concepts
What I find most valuable about Rumelt is his clear-eyed assessment of bad strategy, which is unfortunately far more common than good strategy. He identifies four hallmarks:
- Fluff: Empty buzzwords and jargon that sound impressive but say nothing
- Failure to face the challenge: Avoiding the hard work of identifying obstacles
- Mistaking goals for strategy: Setting ambitious targets without explaining how to achieve them
- Bad strategic objectives: Pursuing impractical or inconsistent goals
I’ve sat through countless meetings where these errors weren’t just present—they dominated the discussion. Have you experienced this, too? That sinking feeling when a “strategic plan” is unveiled that’s merely a collection of wishful thinking and buzzwords?
Example: Apple’s Turnaround
Apple’s resurrection under Steve Jobs is my favorite example of Rumelt’s principles in action. When Jobs returned to Apple in 1997, the company was 90 days from bankruptcy. They had a confusing product line, a declining market share, and a fractured culture. What did Jobs do?
Diagnosis: Jobs identified that Apple had lost its focus and identity by creating beautifully designed, integrated products that merged technology with art.
Guiding Policy: Radically simplify the product line and focus on creating a small number of exceptionally designed, integrated products that provide superior user experiences.
Coherent Actions:
- Slashed the product line from dozens to just four categories
- Invested heavily in distinctive industrial design
- Created a seamless ecosystem across hardware, software, and services
- Established Apple Stores to control the customer experience
- Shifted marketing to emphasize the emotional connection with users
What makes this strategy “good” in Rumelt’s terms is its coherence. Each action reinforced the others. The simplified product line allowed Apple to focus its design resources. The distinctive design enabled premium pricing. The premium pricing funded further innovation. The Apple Stores showcased beautiful products while providing education and support.
Comparing the Two Approaches
Core Focus
After studying both approaches, I believe that the fundamental difference lies in their starting points:
Porter begins with industry analysis and competitive positioning. His essential question is: “How do we position ourselves within this industry to achieve sustainable competitive advantage?”
Rumelt begins with a problem diagnosis. His essential question is: “What is the key challenge we face, and how do we develop a coherent approach to overcome it?”
I find that Porter helps me think systematically about external competitive forces. In contrast, Rumelt helps me to focus on specific situations and challenges.
Frameworks vs. Problem-Solving
In my experience analyzing organizations of various sizes, I’ve noticed that:
Porter’s Approach:
- Provides clear analytical tools that can be consistently applied
- Helps make sense of complex, competitive environments
- Works well when the key challenge is competitive positioning
Rumelt’s Approach:
- Emphasizes strategic thinking over planning processes
- Adapts more easily to unique situations
- Excels when the key challenge isn’t just competitive positioning
Porter gives a map of the competitive terrain, while Rumelt teaches how to navigate a specific journey across that terrain.
Deep Dive into Rumelt’s Approach
Diagnosis
I believe diagnosis is the most underrated aspect of strategy. Most organizations rush past it to get to action planning. But as Rumelt emphasizes, without a proper diagnosis, you’re shooting in the dark.
A good diagnosis:
- Simplifies complexity by identifying what truly matters
- Creates insight by connecting dots in new ways
- Focuses attention on the critical challenge
Guiding Policy and Coherent Actions
Once I have a clear diagnosis, next step is a guiding policy—overall approach to the challenge. This isn’t a specific action but a general method for dealing with the identified obstacle.
What makes actions “coherent” is their reinforcement of each other and direct connection to the guiding policy. Each action was built upon the others rather than working in isolation.
Real-World Application: Netflix’s Strategy Transformation
Netflix’s transformation as another powerful example of Rumelt’s approach.
Diagnosis: Around 2005-2007, Netflix diagnosed that physical DVD distribution, while still profitable, would eventually become obsolete as internet speeds increased. The critical challenge was how to transition to digital streaming before competitors while maintaining profitability.
Guiding Policy: Netflix decided to lead the transition to streaming entertainment by building an unrivaled content library and user experience, leveraging its deep understanding of customer viewing preferences.
Coherent Actions:
- Invested heavily in streaming technology when competitors were still focused on physical media
- Used data from DVD rental patterns to inform content acquisition decisions
- Initially offered streaming as a free add-on to DVD subscriptions
- Developed sophisticated recommendation algorithms to enhance the user experience
- Gradually shifted from licensed content to original programming
- Expanded internationally to achieve global scale
What strikes me about Netflix’s strategy is how early they diagnosed the coming shift to streaming. They could have easily continued milking their profitable DVD business but chose to disrupt themselves before someone else did.
Think about your own industry. What future disruption might you need to get ahead of? What would a Netflix-like transformation look like for your organization?
Ability to Discern – Applying Strategic Frameworks to Real-World Scenarios
Perhaps the most critical skill a strategist can develop is the ability to discern—to recognize which strategic approach is most appropriate for a given situation and what aspects of a problem deserve the most attention. This section explores how Porter’s and Rumelt’s frameworks can be applied to real-world scenarios and, more importantly, how to discern which approach might yield better results in different contexts.
True strategic thinking requires not just knowing the frameworks but understanding when and how to apply them. It’s about developing the judgment to see beneath surface-level challenges to identify the core issues that will make or break your success. Let’s examine three different business scenarios through both strategic lenses to demonstrate this discernment in action.
The eBike Product – A Strategy Lens
Consider a real-world scenario: launching a new eBike product into the market.
Using Porter’s Framework:
- Threat of New Entrants: Moderate. While hardware startups require capital, technology and distribution barriers are lowered.
- Bargaining Power of Suppliers: Moderate to high, especially if relying on imported battery or chip components.
- Bargaining Power of Buyers: High – consumers have many choices in mobility.
- Threat of Substitutes: High – scooters, traditional bikes, public transport.
- Industry Rivalry: Intense – many players competing on features, price, and brand.
Porter’s framework leads one to a strategy focused on cost leadership (manufacturing in bulk to reduce prices) or differentiation (offering a unique feature, such as smart connectivity or a lightweight battery design).
But here’s what Porter misses:
- Is there a real problem being solved? Are people struggling enough with current mobility options to justify switching?
- Is there a behavioral change required (e.g., switching from two-wheelers or cars to eBikes)? Is that shift feasible in your target geography?
- What is the serviceable addressable market (SAM)? Does it justify the investment, and how many customers are truly reachable?
This is where Rumelt’s thinking becomes critical. He would push us to diagnose the core challenge:
- Maybe urban congestion and climate concerns are prompting users to adopt sustainable mobility.
- But maybe the real challenge isn’t adoption—it’s trust in battery performance, service availability, or theft.
A better strategy might not be just differentiating features but building trust:
- A guiding policy focused on safety, reliability, and convenience.
- Coherent actions like setting up a roadside assistance network, easy battery swaps, or subscription-based pricing.
SaaS for Fleet Management in Healthcare – A Strategic Lens
Let’s take another example: launching a SaaS-based fleet management solution specifically tailored to the healthcare industry. Though such solutions are prevalent in sectors like automotive, logistics, and heavy equipment rental, the healthcare sector remains relatively underserved. At-least on paper, this could be a massive opportunity due to the market size and the complexity of managing service fleets across hospital networks, diagnostic centers, and home healthcare providers.
Using Porter’s Five Forces:
- Threat of New Entrants: Low – capital-intensive, need for healthcare domain expertise.
- Bargaining Power of Suppliers: Moderate – integrations with EHR systems and IoT tracking providers are essential.
- Bargaining Power of Buyers: High – hospitals are budget-conscious and risk-averse.
- Threat of Substitutes: Moderate – manual scheduling, general-purpose tools (e.g., Excel, Google Calendar).
- Industry Rivalry: Low – very few focused competitors in healthcare-specific fleet management.
Porter’s model might indicate a favorable strategic position: high entry barriers, low rivalry, and a largely untapped market.
But Rumelt would ask different questions:
- What is the core problem? Is there genuine pain in managing technicians or ambulance fleets today?
- Can we influence behavioral change? Field service technicians often prefer the flexibility of independent work and may resist integration into centralized systems.
- What value proposition actually resonates? Is it cost savings for the admin team, reduced downtime, or faster patient response?
Rumelt’s strategy would begin with diagnosis:
- The real issue isn’t logistics but trust and coordination across departments.
- Or the biggest hurdle is not tech—but compliance, onboarding, and culture.
A guiding policy might be:
- Focus on one use case, such as mobile diagnostic services or home health visits.
- Build a trust-based platform with transparent tracking, compliance logs, and patient feedback loops.
Coherent actions could include:
- Integrating with hospital scheduling systems.
- Offering on-demand dispatching and field visibility.
- Partnering with healthcare-specific logistics firms for pilot programs.
Energy Management in the Smart Grid Ecosystem – A Strategic Lens
Consider another real-world scenario: The energy management space within the Smart Grid ecosystem has long been seen as the next frontier for innovation—promising sustainability, reduced costs, and improved efficiency.
Using Porter’s Five Forces:
- Threat of New Entrants: High capital and regulatory barriers make entry difficult.
- Bargaining Power of Suppliers: Moderate – hardware and sensor manufacturers.
- Bargaining Power of Buyers: High – utilities and households expect savings and transparency.
- Threat of Substitutes: Moderate – legacy grid systems, manual monitoring.
- Industry Rivalry: High – multiple players, including startups and incumbents.
On paper, the industry looks ripe for disruption. Porter’s analysis may justify investing in differentiated features, enterprise partnerships, or economies of scale.
But many companies have failed—and here’s why:
- Human behavior. Despite all the tech innovation, changing how people or institutions interact with energy remains a steep uphill climb.
- Users don’t change habits easily—especially when savings are minimal or invisible.
- Utilities and regulators operate at glacial speeds, slowing adoption.
Rumelt’s lens uncovers a different diagnosis:
- The real issue may not be technology readiness—but user inertia, regulatory friction, or lack of trust.
Guiding Policy:
- Focus on one highly motivated segment (e.g., ESG-focused commercial buildings).
Coherent Actions:
- Demonstrate tangible ROI with real-time dashboards and gamified savings.
- Partner with local governments for incentives.
- Provide concierge onboarding to overcome early resistance.
Rumelt reminds us that solving the right problem—often human—is more important than dominating a well-mapped market.
Conclusion
In my work, I often feel obligated to adopt a long-term view and critically evaluate initiatives labeled as “strategic.” Over time, I’ve found myself drawing from both Porter and Rumelt. I use Porter’s frameworks—like the Five Forces or generic strategies—to understand the competitive landscape and identify structural forces shaping the industry. But when it comes to addressing specific challenges, I try to use Rumelt’s approach on clear diagnosis, focus, and coherent action.
Based on my experience, i believe that Porter’s and Rumelt’s approaches complement rather than contradict one another i.e. Porter’s frameworks helps me understand the competitive environment and identify possible positions. However, Rumelt’s approach diagnoses specific challenges and develops coherent actions to address them.
I observed my CxO draw from both approaches
- He uses Porter-type tools to analyze industry dynamics and competitive positions
- He also applies a Rumelt-type approach to ensure strategy addresses the organization’s specific challenges
I’m continously reflecting on my strategic thinking. Are you as well? Are you clear about your industry’s structure and your competitive position? Have you diagnosed the specific challenge you face? Is your approach coherent, with actions that reinforce each other?
Strategy isn’t just for large corporations or business school case studies. Whether someone is running a small business, leading a team, or planning own career, these principles help to manage limited critical resources.
The greatest lesson I’ve learned from both Porter and Rumelt is that strategy requires choice—deciding what to do and, equally important, what not to do.