Good Strategy, Bad Strategy | Richard Rumelt

Richard’s background (00:00:00)

• Richard Rumelt is a renowned expert in strategy.
• He has authored several books, including "Good Strategy, Bad Strategy" and "The Crux".
• He has consulted on strategy with companies like Microsoft, Apple, Intel, and government organizations.

What is a strategy? (00:04:29)

• A strategy is a designed plan for overcoming a high-stakes challenge.
• It involves a mixture of policy and action to deal with the challenge.
• The word "strategy" comes from the Greek word "stratos," which refers to elected leaders who dealt with various issues in ancient Athens.

The essential components of a good strategy (the “kernel”) (00:06:23)

• A good strategy has three essential components:
  • Diagnosis: Understanding the situation and the nature of the challenge.
  • Guiding policy: Determining how to deal with the situation.
  • Coherent action: Taking actions that are aligned with the diagnosis and guiding policy.

An example of good strategy (00:15:04)

• Microsoft's adaptation to AI illustrates the three components of a good strategy:
  • Diagnosis: Recognizing the challenge of adapting to AI.
  • Guiding policy: Investing in a major AI leader.
  • Coherent action: Incorporating AI into the search engine.

Bad strategy (00:16:55)

• A bad strategy is a set of profit or performance goals without a clear diagnosis of the problem or a plan of action.
• It can also be a list of intentions or verbalizations that lack coherence and specific actions.
• Bad strategies often use fancy words and fluff to describe the situation without providing a clear direction.
• Lacking a diagnosis is a key reason for bad strategy.
• Goals can be mistaken for strategy, leaving out important aspects.
• Focus and coherence are essential, with a few key actions rather than too many.

The importance of focus and power (00:25:17)

• Focus is crucial for effective strategy.
• Power is a source of focus that can be used to affect a target.
• Diffusing efforts by trying to achieve too many things at once weakens strategy.

Identifying and utilizing power (00:28:19)

• Power is an advantage in a competitive situation.
• It can come from various sources such as being first, having a reputation, or building relationships.
• Power can be transitory or permanent and should be used to compete and survive.
• To identify power, look for asymmetries and what makes a company or team different from others.
• Redefining the space down to a smaller scale can help identify power in a certain marketplace or customer set.

Types of power (00:34:38)

• Richard Rumelt lists various types of power, including leverage, proximate objectives, chain-link systems design, focus, growth advantages, dynamics, inertia, and entropy.
• Network effects are a powerful force in today's business landscape, as seen with the rise of social media platforms and Amazon.
• The size of the user base and data can provide significant advantages in areas such as AI and search engines.
• Specialization can be a strategy to compete with market leaders in the presence of strong network effects.

Implementing power (00:41:13)

• Power is a crucial element in strategy implementation, providing an edge over competitors.
• Sources of power can include reputation, institutional skill, asymmetry, or knowledge.
• Identifying and leveraging these sources of power is essential for successful strategy execution.
• Strategy often involves surprising and unexpected actions that go against conventional expectations.
• Coherent strategies require focus and achievable objectives, avoiding the pursuit of multiple conflicting goals.
• Nation-building is a complex and long-term process, as exemplified by the challenges faced in Afghanistan.
• Studying history and learning from past events and analogies can provide valuable insights for strategic thinking.

The importance of historical knowledge (00:48:15)

• The further back in history, the less rich the historical records become.
• The best histories are written by people at the time or soon after.
• Studying history can provide valuable insights and analogies for understanding complex situations.
• It's important to think critically about historical events and not rely solely on someone else's interpretation.

How to write an action agenda (00:55:23)

• Clearly state the problem or challenge you are facing.
• Don't call it a strategy; call it an action agenda.
• Focus on achievable challenges that are important and addressable.
• Identify the actions steps you will take to address the challenge.
• Set a realistic timeframe for your action steps (2-3 years for large companies, 6 months to a year for smaller companies).

The crux (01:02:47)

• The crux is the hardest point of a challenge or climb.
• Focusing on the crux helps identify the biggest challenge to achieving ambitions.
• Insight into the crux leads to innovative solutions.
• Insight is not guaranteed and can come at unexpected times.
• Immerse yourself in the problem to gain insight.

Challenges to executing a strategy (01:10:40)

• Organizational dynamics and politics can challenge strategy execution.
• Prioritization challenges arise due to diverse interests and needs.
• Hierarchy of power is necessary for decision-making.
• Senior executives have the knowledge needed for strategy creation.
• Consulting firms can provide additional insights but don't possess all the necessary information.
• Senior executives must make decisions and allocate responsibilities.
• Hesitancy to make decisions can hinder strategy execution.

The need for a decider (01:15:44)

• Diversity of interests and fear of action can hinder strategy execution.
• Changing power relationships and human dynamics make decision-making difficult.
• Hierarchy ensures someone ultimately makes decisions.
• Leaders must communicate decisions and assign responsibilities.
• Hesitancy to make choices can paralyze organizations.
• Effective leadership requires both vision and decision-making.

Strategy for startups (01:20:39)

• Startups deal with a lot of uncertainty and are making bets on the future.
• Successful startups often switch their target market and solution after searching for the right fit.
• Founders need to be able to commit and adapt simultaneously.
• The technology landscape can change rapidly, making it difficult to predict the future.
• Startups need to be quick to adapt to changing conditions.

Richard’s “value denials” exercise (01:26:04)

• Value denials are things that people would like to buy but can't.
• Identifying value denials can lead to new business opportunities.
• Regulations and other barriers can hinder innovation.
• Entrepreneurs should look for opportunities to innovate where it is possible.

Closing thoughts (01:31:01)

• Strategy is not mysterious; it's about solving the most important problem you're facing.
• Focus on something doable and be consistent.
• Sometimes, the best way to improve is to stop doing something.