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Good Strategy, Bad Strategy | Richard Rumelt
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Richard Rumelt is a legend in the world of strategy. He’s the author of Good Strategy/Bad Strategy and The Crux: How Leaders Become Strategists, both of which are often recommended by guests on this podcast. From his early days teaching in Iran at a Harvard-sponsored business school to teaching at Harvard Business School itself to over four decades teaching at UCLA’s Anderson School of Management, Richard’s impact resonates globally. His strategic insights are sought after by major corporations including Microsoft, Shell, Apple, AT&T, Intel, and Commonwealth Bank and by governmental organizations such as the U.S. Army Special Operations Command. In this episode, we discuss: • The essential components of a good strategy • The importance of coherence in strategy • Common pitfalls that create a bad strategy • How “power” plays into strategy, and common sources of power • The value of knowing history when developing effective strategies • Why a strategy should simply be called an “action agenda” • The need for one decider in an organization — Brought to you by: • CommandBar—AI-powered user assistance for modern products and impatient users: https://www.commandbar.com/lenny • Miro—A collaborative visual platform where your best work comes to life: https://miro.com/lenny • Vanta—Automate compliance. Simplify security: https://vanta.com/lenny Find the transcript and references at: https://www.lennysnewsletter.com/p/good-strategy-bad-strategy-richard Where to find Richard Rumelt: • Email: richard@generalimagination.com • LinkedIn: https://www.linkedin.com/in/richard-rumelt-18520828/ • Website: https://thecruxbook.com/ Where to find Lenny: • Newsletter: https://www.lennysnewsletter.com • X: https://twitter.com/lennysan • LinkedIn: https://www.linkedin.com/in/lennyrachitsky/ In this episode, we cover: (00:00) Richard’s background (04:29) What is a strategy? (06:23) The essential components of a good strategy (the “kernel”) (15:04) An example of good strategy (16:55) Bad strategy (25:17) The importance of focus and power (28:19) Identifying and utilizing power (34:38) Types of power (41:13) Implementing power (48:15) The importance of historical knowledge (55:23) How to write an action agenda (01:02:47) The crux (01:10:40) Challenges to executing a strategy (01:15:44) The need for a decider (01:20:39) Strategy for startups (01:26:04) Richard’s “value denials” exercise (01:31:01) Closing thoughts (01:33:57) Lightning round Production and marketing by https://penname.co/. For inquiries about sponsoring the podcast, email podcast@lennyrachitsky.com. Lenny may be an investor in the companies discussed.
Segments Timeline
Action Agenda vs. Strategy
Richard Rumelt emphasizes the importance of referring to strategy as an 'action agenda.' He argues that many people mistakenly believe that a strategy requires a comprehensive mission, vision, and values. Instead, he advocates for identifying key challenges and outlining coherent actions to address them, which is the essence of strategic thinking.
"don't call it a strategy call it an action agenda huge numbers of people out there willing to sell you advice Mission and your vision and your values all these things that have to be in place before y..."
Meet Richard Rumelt
In this segment, Lenny introduces Richard Rumelt, a renowned strategist and author of 'Good Strategy/Bad Strategy' and 'The Crux.' Rumelt shares his extensive background, including his teaching roles at Harvard and UCLA, and his consulting experience with major corporations and government organizations. He sets the stage for discussing the core elements of effective strategy.
"what you're doing when you're thinking strategically today my guest is Richard rammelt Richard is an absolute legend in the world of strategy it was such an honor to have him come on the podcast he's ..."
Defining Strategy
Richard Rumelt provides a clear definition of strategy as a design for overcoming significant challenges. He explains that strategy is a blend of policy and action aimed at addressing these challenges, whether they are opportunities or threats. Rumelt emphasizes that strategy is not limited to military contexts but applies broadly to various issues, including global challenges.
"you Richard remelt after a short word from our sponsors let me tell you about command bar if you're like me and most users I've built product for you probably find those little in product popups reall..."
The Kernel of Good Strategy
Rumelt introduces the concept of the 'kernel' of a good strategy, which consists of three essential components: a clear diagnosis of the situation, a guiding policy, and coherent actions. He critiques the over-reliance on analytical tools in strategy formulation and stresses the importance of understanding the core challenges and creating actionable plans that align with those challenges.
"what are the essential components of a good strategy well a strategy is a designed for overcoming a high stage challenge it's a mixture of policy and action designed to deal with a challenge the chall..."
Examples of Good Strategy
In this segment, Rumelt illustrates the components of a good strategy with examples, including how Microsoft is adapting to AI. He discusses the importance of having a clear diagnosis, a guiding policy, and coherent actions that align with the strategic goals, highlighting the common pitfalls organizations face in executing effective strategies.
"something it's not really a strategy it's something else awesome okay is there an example that you could give that kind of makes these even more concrete of just I don't know something that comes to m..."
Identifying Bad Strategy
Rumelt discusses the characteristics of bad strategy, emphasizing that many organizations confuse goals with strategy. He explains that a bad strategy often consists of vague performance goals without a clear plan of action, leading to ineffective strategic outcomes. This segment highlights the need for clarity and coherence in strategic planning.
"what is a bad strategy can we just touch on a few of the things you see as signs that your strategy is is bad or maybe it doesn't even exist sure what H good strategy bad strategy uh a lot of a lot of..."
The Flaws of Ambitious Goals
Rumelt critiques the reliance on ambitious goals as a substitute for strategy, using an example from the U.S. Department of Defense. He explains that simply stating intentions without addressing underlying issues leads to ineffective strategies, stressing the need for a thorough diagnosis of problems.
"Ambitions are non strategy a list of all the different things you wish would happen is not strategy I was asked to help part of the US Department of Defense create a strategy for all the 17 different ..."
The Problem with Fluff in Strategy
Rumelt addresses the issue of 'fluff' in strategic documents, where organizations use complex language without substance. He warns against vague statements that do not provide actionable insights, emphasizing that clarity and coherence are crucial for effective strategy.
"what holding it back what is the problem we have to solve it's not there and so I was I was hired to do a Foundry for company and they said well our our diagnosis inste not grown Fest okay oh and let'..."
Missing Diagnosis in Strategy
In this segment, Rumelt highlights the critical role of diagnosis in formulating a good strategy. He explains that without identifying the root causes of issues, organizations risk creating ineffective strategies that fail to address real problems.
"also is fluff people will use fancy words to describe their situation now since I wrote that you know the term word salad has become common and to there's a lot of word salad writing that people try t..."
The Importance of Coherence
Rumelt discusses the necessity of coherence in strategic actions, arguing that strategies must connect logically and focus on a few key initiatives. He suggests that organizations often dilute their efforts by trying to pursue too many goals simultaneously.
"strategy bad strategy is a documented or a set of intentions or a set of verbalizations where it's non strategy there's no diagnosis often president o started out saying where United States is falling..."
Understanding Power in Strategy
Rumelt introduces the concept of power in strategy, explaining that effective strategies exploit asymmetries to gain competitive advantages. He emphasizes the importance of recognizing and leveraging unique strengths to enhance strategic effectiveness.
"is there oh where you don't do the diagnosis why do we have this the argue over diagnosis is part of politics and part of organizational politics absolutely do and that's important to do a strategy yo..."
Identifying Your Source of Power
In this segment, Rumelt provides guidance on how organizations can identify their sources of power. He encourages leaders to analyze their unique advantages and asymmetries in the market to develop effective strategies that capitalize on these strengths.
"understanding it and and in public policy we argue over the diagnosis and in organizations we argue and unless you resolve you can it so lacking diagnosis is one of the key reasons for bad strategy th..."
The Role of Focus in Strategy
Rumelt emphasizes the importance of focus in strategy, using a personal anecdote about using a magnifying glass to illustrate how concentrating efforts can lead to success. He discusses how organizations must avoid spreading themselves too thin to maintain strategic effectiveness.
"numers you know we work best when we concentrate we're more effective when we concentrate on a few things a few people a few uh Focus who is is the fundamental source of power and Str yeah trying to d..."
Power Dynamics in Competitive Strategy
Rumelt explores the dynamics of power in competitive situations, explaining that successful strategies often involve leveraging unique advantages. He discusses how organizations must adapt to changing environments and recognize when their inherited power may become a disadvantage.
"threat and that sequence is part of strategic strategic action you need a source of power I say power I don't say Advantage efficiency as they say power because there are different ways in which power..."
Navigating Organizational Complexity
In this segment, Rumelt addresses the challenges of navigating complexity within organizations. He highlights how differing interests and goals can diffuse strategic focus, making it essential for leaders to maintain clarity and coherence in their strategic initiatives.
"there's gradually a diffusion of effort and one of the big issues in strategy is simply the organization it it complex organizations particularly have a you have a hard time focusing energy because of..."
Understanding Sources of Power
Richard Rumelt discusses the various sources of power that companies can leverage to gain a competitive advantage. He emphasizes the importance of identifying unique asymmetries within a business and how these can lead to strategic power. Rumelt also highlights the transient nature of power and the need for companies to adapt to changing market dynamics.
"so power the opposite side of power is this what you inherit from the pendant can be the wrong CL and so what but the source of power is is that source of power can be an invention the source of power..."
The Impact of Network Effects
In this segment, Rumelt explains the concept of network effects and how they can significantly enhance a business's value. He uses examples from technology companies, illustrating how a larger user base can lead to greater utility and competitive advantage. Rumelt also discusses the implications of network effects in the context of modern business models.
"for better or worse for better because if you look at government there is no Changing of the Guard they get stifi makes sense so in your book you have this whole list of types of power I'll just read ..."
The Role of Data in Competitive Advantage
Rumelt elaborates on the importance of data in shaping competitive strategies, particularly in the tech industry. He discusses how companies like Google leverage vast amounts of data to improve their services and maintain market leadership. This segment underscores the significance of data as a source of power in contemporary business.
"department store economics are that you're you're saving people the cost of going out of the store Mory DST stre to another store so now it's all in one place and supermarkets the same thing but they ..."
Navigating Business Challenges
Richard Rumelt reflects on the challenges businesses face in maintaining their competitive edge. He discusses the dynamic nature of markets and the necessity for companies to adapt their strategies continually. Rumelt emphasizes the importance of understanding historical context and learning from past experiences to navigate current business landscapes.
"on and so unless there's some new innovation there that isn't just the amount of data you the leader again has this asymmetry working for now the way you get around all that is by being specialized by..."
Finding Your Strategic Edge
In this insightful segment, Rumelt shares advice on how businesses can identify their unique sources of power. He stresses the need for a clear understanding of competitive dynamics and the importance of leveraging historical insights to shape effective strategies. Rumelt encourages listeners to seek asymmetries that can provide a strategic advantage in their respective markets.
"anyway I wanted to come back to the element about power I think when people are thinking about power it may not be clear where that plugs into the diagnosis The Guiding policy and the coherent actions..."
Lessons from History for Strategy
Rumelt discusses the value of historical knowledge in strategic planning. He argues that understanding past events and their outcomes can provide critical insights for current decision-making. This segment highlights the importance of learning from history to develop coherent and effective strategies in business.
"looking for looking for this this information this skill this this thing in the field the way the resources are arranged that's going to give you this Edge and some of that is is sort of part of the s..."
Understanding Historical Context
Richard Rumelt emphasizes the importance of understanding history when developing strategies. He discusses how the best histories are often written by those who experienced events firsthand, and he encourages listeners to explore historical economic cycles, such as the Great Depression, to gain insights into current challenges. By examining past events, one can form a more informed diagnosis of present-day issues.
"read as much as you can and you'll often find something in there yeah the the further back we go in history the the leader is the is less Rich the best histories are are are written by the people at t..."
The Art of Diagnosis
In this segment, Rumelt discusses the critical skill of diagnosis in strategy formulation. He illustrates how understanding the challenges faced by organizations is essential for creating effective strategies. By analyzing historical events and their complexities, strategists can develop a clearer perspective on current problems and avoid common pitfalls in strategic thinking.
"can go online and look at the Wall Street Journal the your tis from that era and start in September of 1928 and just look at the front page every day which I done and you can see it unfold and it's a ..."
The Importance of Action Agendas
Rumelt advocates for reframing strategy as an 'action agenda' rather than a traditional strategy. He explains that focusing on actionable steps to address specific challenges is more effective than vague long-term goals. This approach encourages clarity and direct action, making it easier for teams to understand their objectives and the steps needed to achieve them.
"right the most important intellectual tool we have is to think again to to say okay I came up with this diagnosis because I thought this and I thought this is there another way to look at this situati..."
Navigating Complex Challenges
In this segment, Rumelt shares insights on how to navigate complex challenges in strategy development. He emphasizes the need to identify and focus on the most significant challenges that align with an organization's ambitions. By prioritizing actionable steps and understanding the barriers to success, strategists can create effective plans that drive progress.
"studying and thinking I had a colleague at UCLA who assigned a book to NBA students and they went to the D and and kicked out of the course a book he wants to read a book no man sounds like you have a..."
Defining the Crux of Strategy
Rumelt introduces the concept of the 'Crux' in strategy, likening it to the hardest part of a mountain climb. He explains that identifying the most challenging aspect of a strategic initiative is crucial for success. By focusing on overcoming this critical hurdle, organizations can streamline their efforts and achieve their ambitions more effectively.
"because I felt that that colonel was not sufficiently sharp enough for people and even in the Crux I could if I could rewrite the C's book I would maybe write it a little differently today a whole cou..."
Aligning Ambitions with Action
In this segment, Rumelt discusses the relationship between ambitions and actionable strategies. He encourages organizations to clarify their ambitions and identify which challenges they can realistically address. By aligning their strategic focus with achievable goals, teams can create a more effective action agenda that drives meaningful progress.
"that all of that is a different literature form there huge numbers of people out there willing to sell you device long your mission and your vision and your values and your all these things that have ..."
The Role of Focus in Strategy
Rumelt highlights the importance of focus in strategic planning. He explains that organizations must choose which challenges to tackle based on their ambitions and the feasibility of addressing those challenges. This focus allows teams to concentrate their efforts on the most impactful areas, leading to more successful outcomes.
"reaching and what's holding you back what are the barriers what are the problems so I I approach the question of the problem now through the filter of the ambition that that these are Ambitions fine l..."
Design Insights from Strategy
In this segment, Rumelt draws parallels between strategic thinking and design insights. He shares examples of how effective design can solve complex problems by focusing on the core challenges. By applying strategic principles to design, organizations can innovate and create solutions that address their most pressing needs.
"that roughly the way to think about it yeah yeah and the idea comes from a sign and it comes from climbing I used to be a climber a rut climber in a snow Climer and a Crux and a climb is the hardest p..."
The Role of Insight in Strategy
Rumelt elaborates on how insight is crucial for effective strategy formulation. He explains that insight often arises from deeply engaging with the problem at hand and can lead to innovative solutions, even in high-pressure situations like rocket landings. He stresses that insight is not guaranteed and requires immersion in the problem's nature.
"that software Engineers Hardware Engineers mechanical engineers space science Engineers like I was experience when we look on a dilemma and we try to focus on what makes this hard and and then and the..."
Overcoming Fear of Insight
In this segment, Rumelt addresses the fear associated with pursuing insight in strategy. He notes that while organizations desire innovation, they often hesitate to explore deeper insights due to the uncertainty involved. He encourages listeners to embrace the process of diagnosing problems to uncover actionable insights.
"were off by 500 miles so Jupiter how do we know exactly where it is because we can look at it through our telescopes so we can look at it from the right side of our orbit and the left side of our orbi..."
Navigating Organizational Dynamics
Rumelt discusses the challenges of executing strategy within organizations, particularly the impact of differing interests and priorities. He highlights the necessity of having a clear decision-making hierarchy to avoid the pitfalls of indecision and conflicting agendas that can derail strategic initiatives.
"to it can come while you're driving the car can come the next day it can come in the Chanel Charles stor reports that his insight into the nature Revolution came as he stepped off um a carriage into t..."
The Importance of a Decider
In this segment, Rumelt emphasizes the need for a 'decider' in organizational strategy. He reflects on the complexities of aligning diverse interests and the hesitancy leaders face in making definitive choices. He argues that effective strategy requires clear leadership and the courage to make tough decisions.
"people can do to improve how this works typically I'll say typically we need hierarchy of power because there has to be some mechanism for deciding what we're going to do and there's people with diffe..."
Lessons from Historical Strategy
Rumelt shares insights from his experiences, including a conversation with former Secretary of Defense Donald Rumsfeld, about the challenges of strategy in complex environments. He discusses how historical examples, like Nokia's decline, illustrate the consequences of poor strategic decisions and the importance of informed leadership.
"Strat and he said well strategy that's a hard subject he said you know I've got people here in the defense Department who have an expert on anything you want to know the clan structure in Iraq we got ..."
The Complexity of Organizational Strategy
Rumelt explores the intricate dynamics of strategy within organizations, highlighting the need for clarity in decision-making amidst competing interests. He discusses how the fear of change and the complexity of human relationships can hinder effective strategy execution.
"come in and do a competitive analysis and a customer analysis and all of that but the basic issues the challenges you're facing they know that it's not mysterious they know all that stuff but they dis..."
Leadership vs. Management in Strategy
In this segment, Rumelt contrasts the concepts of leadership and management in the context of strategy. He critiques the modern focus on leadership qualities over decisive management actions, arguing that effective strategy requires both clear direction and the ability to make tough choices.
"this if you go to the bookstore and look at the management section in the bookstore most of it's about leadership and the leadership is mostly about perfecting yourself it's not about leading anybody ..."
Strategic Decision-Making in Startups
Rumelt discusses the unique challenges faced by startup founders in developing strategy amidst uncertainty. He emphasizes the importance of being adaptable and responsive to changing market conditions while maintaining a clear vision of the target market and solution.
"true one of the things we see in in in government particularly is is presidents have a hard time getting advice because they they surround themselves with people who want to please them never one we r..."
The Search for Market Fit
In this concluding segment, Rumelt highlights the iterative nature of finding product-market fit in startups. He explains that successful startups often pivot their strategies based on customer feedback and market realities, underscoring the need for flexibility and a willingness to adapt.
"do you even need a strategy well it's it's you're you're dealing a lot of uncertainty when when you're a founder and a startup you're making a bet you're making a bet like an oil well wildhater would ..."
Historical Lessons in Innovation
Rumelt draws parallels between modern startups and historical innovations in industries like aviation and automobiles. He illustrates how early entrepreneurs had to make educated guesses about the future of their industries, emphasizing the unpredictability of market dynamics and the importance of learning from history.
"year and that's very very entrepreneurial very edgy stuff um but it's go back and read about the beginnings of the electrical industry or the beginnings of Aviation or the beginnings of motorized this..."
Identifying Value Denials
Richard Rumelt introduces the concept of 'value denials'—opportunities in the market where customers have unmet needs. He shares personal anecdotes about his frustrations with services that should exist but don't, encouraging entrepreneurs to identify and solve these problems as a pathway to innovation.
"youan but if for a startup we have to be fast we have to we have to adapt as it as as the information comes in and and that's the nature of the story The Action agenda has to be quick adaptation to to..."
Designing the Perfect Product
In this segment, Rumelt discusses the importance of envisioning ideal products and services. He challenges listeners to think critically about how existing products can be improved, using the example of a perfect window to illustrate how simple questions can lead to innovative business ideas.
"price uh if I live in Hong Kong and I'm going to the airport I can drop my luggage off downtown and it arrives at the airport checked in I don't have to let it why can't I do that in the US um value t..."
Overcoming Regulatory Barriers
Rumelt addresses the challenges posed by regulations that hinder innovation in various industries. He discusses how understanding the limitations imposed by regulations can help entrepreneurs navigate and find opportunities for innovation, emphasizing the need for creative problem-solving.
"it should let not let in the bugs it should maybe have shuts or nut shutters and so I said how could you design the perfect window what would it look like and there's some kids at MIT that had develop..."
The Art of Not Doing
Rumelt shares insights on the importance of focus in strategy, suggesting that knowing what not to do is as crucial as knowing what to pursue. He reflects on a personal story about his wife's skiing lessons, illustrating how eliminating bad habits can lead to improvement and success.
"know to people just call so how do you get around that you you have to look at places where it's possible to Innova first of all but yeah the idea of how do you make something better how you make it p..."
Final Thoughts on Strategy
In closing, Rumelt emphasizes that strategy is not a mysterious concept but rather about solving significant problems effectively. He encourages listeners to focus on actionable strategies and shares his thoughts on writing a book about what not to do in business, reinforcing the value of practical wisdom.
"read that I love that title can I tell you a story absolutely my wife Kate took up skiing when we got married 24 25 years ago and uh she had this stem that she couldn't get rid of when you make a turn..."
Assessing Strategic Thinking
Richard Rumelt shares his approach to evaluating strategic thinking in others. He emphasizes the importance of discussing real-world experiences and challenges rather than theoretical knowledge. By asking about difficult situations and interesting strategies from the past, he gauges a person's understanding and insight into effective strategy.
"they good at strategic thinking yeah I like to ask people about what have you done that was hard that you prow it what have you done that that was difficult and what was it and why was it difficult an..."
Innovative Products and Personal Favorites
In this segment, Richard discusses his recent discoveries in innovative products, including a memory foam bed and smart telescopes. He highlights how these advancements enhance user experience and accessibility in astronomy, showcasing the intersection of technology and personal interest.
"ask questions about Theory they ask questions about things that happened and partly I'm looking to you know this person have any knowledge about the world or they just they just know what professor sa..."
Life Lessons and Marriage Wisdom
Richard shares a poignant life motto that he imparts to his MBA students, emphasizing the importance of love and communication in relationships. He reflects on the significance of expressing love and commitment, providing valuable advice that resonates beyond the classroom.
"$2,000 that that are remarkable in what they can do excellent choice next question do you have a favorite life motto that you often find yourself coming back to sharing with friends either in your wor..."
Writing Insights from His Daughter
Richard discusses the influence of his daughter, a successful fiction writer, on his understanding of writing. He explains how she taught him about creating tension in narratives, drawing parallels between storytelling and strategic thinking, and how this insight informs his approach to business writing.
"advice gave me tingles I'm going to use that 100% thank you for some marriage advice final question your daughter Cassandra is a writer as well in fiction she writes fiction is there anything that she..."
The Foundry Concept in Strategy
Richard elaborates on his Foundry concept, a problem-oriented approach to strategy development. He describes how this process helps organizations focus on key challenges and create actionable agendas, emphasizing the importance of collaboration and deep understanding in strategic planning.
"there's a tension between the right way and wrong way or if not right and wrong way at least there's a tension between should we go left or should we go right it makes it interesting otherwise it's uh..."
Closing Thoughts and Future Engagement
In the closing segment, Richard expresses gratitude for the conversation and encourages listeners to reach out with their own strategic experiences. He highlights the value of sharing stories and insights, reinforcing the collaborative nature of strategy development and the importance of continuous learning.
"the foundaries work it's not so easy to figure out how to take The Foundry concept and expand it I've talked to a couple consulting firms about well guys like to how to do foundaries and they say how ..."