Good Strategy, Bad Strategy | Richard Rumelt

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.

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