Learn to Think Like A Strategist
It's simpler than you would expect.
Implementing lessons from business books can be challenging. So I simplify abstract principles and add real-world perspectives by summarizing my favorite chapters. These will help you build more robust mental models and spur professional growth.
In this post, I discuss the 5th chapter (titled 'The Kernel of Good Strategy') of Richard Rumelt’s Good Strategy/Bad Strategy — The Difference And Why It Matters. If you would like to read my last post on the book, here it is. TL;DR and quotes at the end.
This chapter’s framework, in my view, works as the book’s foundation. All concepts discussed afterward build on this chapter’s framework. Keep this framework in mind as we progress. Bookmark it if you need to. You will recollect key ideas more reliably this way.
According to Rumelt, ‘the kernel’ of any strategy is a diagnosis, a guiding policy, and a set of coherent actions. Rumelt emphasizes that kernel creation needs to precede the creation of a strategy's remaining parts (Goals, objectives, timelines, change management, and more).
Diagnosis
A good diagnosis usually,
Identifies key obstacles to drive clarity in analysis.
Draws parallels with similar situations to guide problem-solving.
Simplifies a problem down to its most crucial aspects to drive focus.
Defines a domain of action, so execution focuses on areas within control.
Is ‘a judgment about the meaning of facts’.
Rumelt implies there are many ways to arrive at a diagnosis when he calls it a ‘judgment about the meaning of facts.’ Moreover, analysis of the same situation can lead to several differing diagnoses. Rumelt’s insistence on a diagnosis, however, took me back to consulting frameworks we learned at B-school. They were a great way to create a diagnosis because they simplified business analysis.
In my experience, senior leaders usually have a diagnosis—especially those who’ve been in one role for a while. Use this and collect data points to fine-tune a preexisting diagnosis instead of starting from scratch. If you can, speak with multiple levels of leadership. Remember, this won’t happen over one meeting, so set expectations accordingly. Life doesn’t work like a case interview :).
Before moving on to the next part of Rumelt’s framework, here is DARPA’s strategy statement. It gives us a well-crafted diagnosis of its situation.
“A basic challenge for any military research organization is matching military problems with technological opportunities, including the new operational concepts those technologies make possible. Parts of this challenge are extremely difficult because: (1) some military problems have no easy or obvious technical solution; and (2) some emerging technologies may have far-reaching military consequences that are still unclear. DARPA focuses its investments on this “DARPA-hard” niche - a set of technical challenges that if solved will be of enormous benefit to U.S national security, even if the risk of technical failure is high.”
Guiding Policy
After determining the diagnosis create a guiding policy that gives an overall approach to tackling the diagnosis’ obstacle.
Rumelt uses the example of an owner-run grocery store competing with a local supermarket to explain the concept. The ‘obstacle’ from the store’s perspective is the supermarket’s low pricing. The owner could have used a large variety of tactics to overcome the ‘obstacle’. There were several decisions to be made - both big and small. Having run a small business myself, I relate. I needed to handle decisions ranging from toilet seat selection to head of sales selection. Making so many decisions without clarity leads to fatigue. Fatigue leads to poor choices.
The owner needed a guiding policy to bring clarity. To create one, she thought more broadly first. Instead of tackling minor decisions she first decided between target customer segments. Her guiding policy was to serve busy professionals instead of more price-sensitive college students. Such a policy was beneficial because these segments had distinct requirements. These distinctions made decisions easier. She simply needed to ask herself, ‘would the busy professional pay a premium for this?.’
A guiding policy allows us to move on to execution by bringing clarity to decision-making. One can revisit the guiding policy or the diagnosis if the initial outcomes aren't ideal.
Here are the traits of a good guiding policy.
Directly addresses obstacles defined in the diagnosis.
Anticipates external actions and reactions.
Reduces complexity.
Draws a line between different options under consideration but doesn’t define an exact course of action.
Coherent Action
A good guiding policy then helps facilitate coherent action. Here’s what Rumelt means by coherence.
“… The resource deployments, policies, and maneauvers that are undertaken should be consistent and coordinated. The coordination of action provides the most basic source of leverage or advantage available in strategy.”
Ford’s acquisition of Land Rover, Aston Martin, Jaguar, and Volvo is a classic example of incoherence. The acquired companies used a guiding policy that derived profits from brand building. For instance, if Aston Martin’s CEO had to choose between shopfloor training and F1 participation, he would select F1. It helped build Aston Martin’s sports-car branding. Operational efficiency wasn’t of paramount importance, but brand recognition was.
On the other hand, Ford was built around an ‘economies of scale’ policy. As a result, Ford would have chosen shopfloor training. It made them more cost-efficient. Ford and its acquired companies’ operational policies were incoherent with one another. To compound matters, their differing price points attracted different sets of customers. Different customers meant their marketing policies were incoherent too. Overall, Ford’s decision to acquire those companies was incoherent with how the rest of Ford worked. An inability to execute coherent actions eventually led to the sale of all these brands to various competitors, at a loss.
Allow me to speculate a bit. Maybe, Ford’s then-CEO didn’t receive or overruled marketing and operations’ opinions on the deal. Perhaps, the CEO, COO, and the CMO’s offices didn’t coordinate well enough.
Rumelt believes, Coordinated action is a tactical necessity for coherence. Strategic priorities can and do often directly conflict with or impede day-to-day activities. Uncoordinated action is practically unavoidable. Rumelt believes centralization of strategic decision-making is the only practical solution.
Cordinated action is “an exercise in cenralized power, used to overcome the natural workings of a system.” Such coordination “would not occur without the (guiding) hand of strategy.”
The imposition of coordination cannot be ad-hoc. It needs to be driven by sub-policies and organizational design. Let’s consider marketing in a product company. Performance marketers should be instructed to seek approval from a PMM or a similar custodian of marketing strategy before publishing copy. Lacking such designed coordination, messaging may be incoherent. Rumelt means something similar when he refers to organization design.
Rumelt concedes there are costs to enforced coordination. A big one is a lack of specialization. Teams cannot focus and therefore specialize in one area when they need to spend time coordinating with others. For example, having technical resources involved in the sales process can take time away from fixing bugs. But it may be strategically crucial since engineering needs to build empathy for customers. Rumelt advises the reader to be mindful of this trade-off. He recommends applying only 'essential amount of coordination' to strike a balance between specialization and coordination.
Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination.
Here’s my perspective - middle management can’t be too rigid about coordination. Sadly, managing poor coordination is an unwritten part of the JD. Often it is euphemized as ‘must handle ambiguity well.’ Middle management tends to find the work of enforcing coordination demeaning. This is a wrong notion. As frustrating as it might be, it is a strategic necessity.
Building relationships with your stakeholders can make coordination easier. For example, PMMs can help the product team with competitive or customer research. The product team may be more inclined to help you when you request product usage data over a slack dm. With particularly uncooperative stakeholders, don’t be afraid to escalate. But! Escalations can’t make you look frustrated. They shouldn’t get overly personal, either. Instead, they should be objective statements of facts and their consequences. Escalations need to clarify the following.
Strategic initiative
Implications of poor coordination (deadline missed, metric not achieved)
What the stakeholder needs to give you
Stakeholders’ obstacles.
Any previous attempts.
This chapter ends the book’s foundational section called ‘Good Strategy/Bad Strategy’. This section focused on what makes strategies good or bad.
The next section focuses on what Rumelt calls ‘Fundamental Sources of Power’ in business. This section shows you how good strategies can be created. The first source of power - leverage is described in the next chapter. Click here to read.
TL;DR
The following comprise the ‘kernel’ of a strategy—fun fact: You can share just this section too.
Diagnosis - A diagnosis must identify key obstacle(s) and concentrate action on only the crucial aspects. Consulting frameworks are a great way to create a diagnosis.
Guiding policy - Guiding policies outline an overall approach to overcoming obstacles in a diagnosis. They channel effort in a general direction without defining a specific course of action.
Coherent action - Devise sub-policies and design an organizational structure that creates coordinated action. They lead to coherence in decision-making. Such coordination is only possible when it is imposed centrally. Impose centralized coordination judiciously. Otherwise, it distracts from day-to-day activities. As a mid-level manager, build relationships that create coordination instead of enforcing it. Don’t be afraid to escalate when needed. Escalate without emotion and use facts.
Source
Great Quotes From The Chapter
Sometimes the same idea expressed differently hits better.
“At a minimum, a diagnosis names or classifies the situation, linking factors into patterns and suggesting that more attention be paid to some issues and less to others.
“An especially insightful diagnosis can transform one’s view of the situation, bringing a radically different perspective to bear.”
“The diagnosis for the situation should replace the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects.”
“Like the guardrails on a highway, the guiding policy directs and constrains action without fully defining its content.”
“A guiding policy creates advantage by anticipating the actions and reactions of others, by reducing the complexity and ambiguity in the situation, by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation.”
“Strategic actions that are not coherent are either in conflict with one another or taken in pursuit of unrelated challenges.”