Good Strategy, Bad Strategy | Richard Rumelt
Richard Rumelt, author of *Good Strategy, Bad Strategy* and *The Crux*, discusses the concrete elements of good strategy, why to call them "action agendas," and how every great strategy starts with a clear diagnosis of the biggest challenge. He emphasizes focus, power, and overcoming organizational dynamics.
Deep Dive Analysis
15 Topic Outline
Defining Strategy and its Origins
The Three Core Components of a Good Strategy (The Kernel)
Identifying and Avoiding Bad Strategy
Understanding and Leveraging Power in Strategy
Different Sources of Strategic Power
How to Implement and Apply Strategic Power
The Value of Historical Knowledge in Strategic Thinking
Crafting an Effective Action Agenda
The Crux of a Problem and Strategic Insight
Overcoming Organizational Hurdles in Strategy Execution
The Importance of a Single Decider
Strategic Thinking for Startups
The 'Value Denials' Exercise for Innovation
Final Thoughts on Strategy and Problem Solving
Lightning Round and Listener Engagement
8 Key Concepts
Strategy
A strategy is a design for overcoming a high-stakes challenge, representing a mixture of policy and action intended to deal with a specific issue or problem. It is fundamentally a form of problem-solving.
The Kernel of a Good Strategy
This framework consists of three essential components: a diagnosis that defines the nature of the challenge, a guiding policy that outlines the overall approach to deal with it, and a set of coherent actions that implement the policy without contradiction. All three elements must be present for a strategy to be effective.
Bad Strategy
Bad strategy is characterized by mistaking abstract goals or ambitions for an actual strategy, using vague or 'fluff' language, lacking a clear diagnosis of the problem, or proposing incoherent actions that contradict each other. It often fails to provide a clear path forward or address underlying challenges.
Strategic Power
Strategic power refers to an asymmetry or leverage that provides a distinct advantage in a competitive situation. This can arise from factors like being the first mover, having a strong reputation, unique relationships, specialized knowledge, or specific resources that competitors do not equally possess.
Network Effects
A phenomenon where the value of a product or service increases for both new and existing users as more people adopt it. This creates a powerful asymmetry, making it difficult for competitors to catch up once a market leader establishes a large user base, as seen with platforms like the telephone system or social media.
Diagnosis Skill
This is the ability to understand a complex situation by consciously deciding what aspects of reality to focus on and forming hypotheses about how different elements connect. Developing this skill often involves studying historical events and practicing the analysis of past challenges to form independent opinions.
The Crux (in strategy)
Inspired by mountain climbing, the crux in strategy refers to the hardest, most critical part of a problem or challenge. Strategic insight often emerges from deeply immersing oneself in this difficult aspect, leading to a sudden realization of a way to solve it, which then makes the rest of the path significantly easier.
Value Denials
An exercise that involves identifying things people should logically be able to buy or experience but currently cannot, due to market gaps, inefficiencies, or existing limitations. This process helps uncover opportunities for new businesses, products, or innovations by envisioning how something ought to be.
11 Questions Answered
A strategy is a design for overcoming a high-stakes challenge, combining policy and action to deal with a specific issue or problem.
A good strategy, often called 'the kernel,' consists of three parts: a diagnosis of the situation, a guiding policy to address the diagnosis, and a set of coherent actions to implement that policy.
Bad strategies often mistake abstract goals for actual strategy, use vague or 'fluff' language, lack a clear diagnosis of the problem, or propose incoherent actions that contradict each other.
Strategic power comes from an asymmetry or leverage, such as being first, having a strong reputation, unique relationships, or specialized knowledge. To find it, identify what makes your company or team different and what unique resources or skills you possess.
Strategy is not a science like physics but is often based on analogies to previous human experience. Studying history helps develop diagnostic skills by allowing one to practice understanding complex situations and forming independent opinions.
Instead of calling it a 'strategy,' frame it as an 'action agenda.' Start by listing ambitions, then filter to identify one or two key challenges that are both important and addressable. The agenda then consists of concrete action steps to tackle these challenges.
The crux refers to the hardest, most critical part of a problem. Strategic insight often comes from deeply immersing oneself in the nature of this difficult part and then seeing a way through it, similar to a challenging move in rock climbing.
Key challenges include organizational dynamics, politics, diverse interests among stakeholders, and a fear of action. These factors can diffuse effort and make it difficult to focus on a coherent set of actions.
In organizations, especially large ones, a 'decider' is crucial because different interests and opinions often lead to disagreement. Someone ultimately needs to make choices, commit to a direction, and assign responsibilities to ensure coherent action.
For a startup, strategy involves making a clear bet under uncertainty, typically aiming at a specific product-market solution. Founders need to be both committed to their vision and willing to quickly adapt or pivot as new information comes in and initial bets prove incorrect.
This exercise involves asking, 'What is it that you should be able to buy, but you can't?' By identifying unmet needs or missing solutions in the market, individuals and companies can uncover opportunities for new businesses, products, or services.
19 Actionable Insights
1. Diagnose the Core Challenge
Begin strategy formulation by deeply diagnosing the specific, high-stakes challenge you face, focusing on “what makes it hard” to understand the nature of the problem.
2. Apply Strategy Kernel
A good strategy consists of three core elements: a clear diagnosis of the situation, a guiding policy for how to deal with it, and coherent actions that implement the policy and don’t contradict each other.
3. Use “Action Agenda” Term
Instead of calling it a “strategy,” refer to it as an “action agenda” to emphasize concrete steps for addressing a problem, rather than abstract concepts or long-term missions.
4. Prioritize Addressable Challenges
When selecting challenges to tackle, prioritize those that are both important (close to your ambitions) and genuinely addressable, meaning you can actually make progress on them.
5. Leverage Asymmetry & Power
To create a winning strategy, identify and exploit an asymmetry or unique source of power (e.g., reputation, relationships, specialized knowledge, network effects) and focus that power on an achievable target.
6. Concentrate on Few Priorities
To maintain focus and effectiveness, limit your priorities to a few key items, understanding that “priority” means “the first” and trying to do too many things diffuses effort.
7. Avoid Bad Strategy Pitfalls
Avoid strategies that are merely a list of abstract goals or ambitions, contain “fluff” or word salad, or propose incoherent actions that contradict each other, as these are signs of a bad or non-existent strategy.
8. Immerse for Strategic Insight
Develop strategic insight by deeply immersing yourself in the nature of the problem, as this dedicated study often leads to breakthroughs in understanding how to deal with complex situations.
9. Learn from History’s Analogies
Read widely in history, biographies, and business history to gain a rich understanding of past human experiences, which provides valuable analogies for strategic thinking in current complex situations.
10. Practice “Think Again”
After forming an initial diagnosis or understanding, actively challenge it by asking if there’s another way to look at the situation, fostering deeper and more accurate insights.
11. Address Organizational Inertia
Recognize that organizational dynamics, diverse interests, and fear of change are major hindrances to strategy execution, requiring a clear decision-maker to align efforts and overcome resistance.
12. Embrace Decisive Leadership
A leader must ultimately make clear decisions, stating “it’s going to be this way” and assigning responsibilities, as a hierarchy of power is necessary to coalesce around an action agenda and overcome conflicting interests.
13. Startup: Adapt & Search
For startups, be prepared to quickly adapt your product-market solution based on new information, continuously searching and pivoting until you find what resonates and enables growth.
14. Startup: Conviction & Flexibility
As a founder, cultivate the dual skill of unwavering commitment to your vision while also maintaining the flexibility to pivot and change direction when initial assumptions or approaches prove ineffective.
15. Identify “Value Denied”
Look for “value denied” opportunities by identifying products or services that should exist or function perfectly but currently don’t, then explore how to design or deliver them.
16. Design “Perfect X”
Engage in design thinking by imagining the “perfect” version of an everyday object or service, listing its ideal attributes, and then considering how those improvements could be engineered.
17. Ask “What Was Hard?”
When interviewing or assessing strategic thinking, ask individuals about a difficult accomplishment they are proud of, focusing on the nature of the challenge and their process for overcoming it.
18. “More Than Ever” Motto
When asked by a partner if you still love them, the correct and impactful response is “more than ever,” a simple yet profound affirmation of enduring affection.
19. Create Writing Tension
To make writing more engaging and emotionally resonant, intentionally create tension by highlighting difficulties, dilemmas, or contrasting elements within the narrative.
5 Key Quotes
Don't call it a strategy. Call it an action agenda.
Richard Rumelt
Focus is the fundamental source of power and strategy.
Richard Rumelt
You wouldn't want to be in a commercial airplane and hear the tower say to the pilot, I'm giving priority to the following three planes along runway five. You know, right away, you know, there's something wrong.
Richard Rumelt
He who forecasts the future lies even if he tells the truth.
Richard Rumelt
At some point, your spouse or your partner will ask you, do you still love me? And there's only one correct answer to that question, which is more than ever.
Richard Rumelt
1 Protocols
Foundry for Strategy Creation
Richard Rumelt- Organizational leader (usually CEO) and 7-8 senior executives commit 2-4 days for a dedicated meeting.
- Meet to identify and list 25-30 problems or challenges facing the organization, often using a board or post-it notes.
- Acknowledge that not all problems can be addressed simultaneously, fostering a sense of the need for focus.
- Collaboratively identify 1-2 key challenges that are both important (close to ambitions) and addressable (can actually be acted upon).
- Determine a set of coherent action steps to take on these identified challenges, forming a concrete 'action agenda' rather than a traditional strategy document.