Richard Rumelt Quotes

The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.

Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.

It is hard to show your skill as a sailor when there is no wind.

A leader’s most important job is creating and constantly adjusting this strategic bridge between goals and objectives.

The first step of making strategy real is figuring out the big ‘aha’ to gain sustainable competitive advantage—in other words, a significant, meaningful insight about how to win.

A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity—a flurry of fluff masking an absence of substance.

A strategy coordinates action to address a specific challenge.

A strategy is like a lever that magnifies force.

Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles.

Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organization does not do as it is about what it does.

The most basic idea of strategy is the application of strength against weakness. Or, if you prefer, strength applied to the most promising opportunity.

If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.

The discipline of analysis is to not stop there, but to test that first insight against the evidence.

Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impracticable. It uses high-sounding words and phrases to hide these failings.

At the core, strategy is about focus, and most complex organizations don’t focus their resources. Instead, they pursue multiple goals at once, not concentrating enough resources to achieve a breakthrough in any of them.

A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them.

Strategy is visible as coordinated action imposed on a system. When I say strategy is “imposed,” I mean just that. It is an exercise in centralized power, used to overcome the natural workings of a system. This coordination is unnatural in the sense that it would not occur

the language of business strategy: identify your strengths and weaknesses, assess the opportunities and risks (your opponent’s strengths and weaknesses), and build on your strengths.

A good strategy includes a set of coherent actions. They are not “implementation” details; they are the punch in the strategy. A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.

Unlike a stand-alone decision or a goal, a strategy is a coherent set of analyses, concepts, policies, arguments, and actions that respond to a high-stakes challenge.

Without constant attention, the design decays. Without active maintenance, the lines demarking products become blurred, and coherence is lost.

Nevertheless, the doctrine that one can impose one’s visions and desires on the world by the force of thought alone retains a powerful appeal to many people. Its acceptance displaces critical thinking and good strategy.

The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.

When someone says “Managers are decision makers,” they are not talking about master strategists, for a master strategist is a designer.

Strategies focus resources, energy, and attention on some objectives rather than others. Unless collective ruin is imminent, a change in strategy will make some people worse off. Hence, there will be powerful forces opposed to almost any change in strategy. This is the fate of many strategy initiatives in large organizations.

Strategy does not eliminate scarcity and its consequence—the necessity of choice. Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others. There is difficult psychological, political, and organizational work in saying “no” to whole worlds of hopes, dreams, and aspirations.

A strategy is, like a scientific hypothesis, an educated prediction of how the world works.

good strategy has an essential logical structure that I call the kernel. The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.

You will have a much harder time dealing with a gnarly challenge if you have not distilled it down to a crux. No one solves a problem they cannot comprehend and hold in their mind.

The truth is that venture capital is invested not in plans but in the individuals who have proposed the venture and have committed themselves to running it.

Many people call the guiding policy “the strategy” and stop there. This is a mistake. Strategy is about action, about doing something. The kernel of a strategy must contain action.

Bad strategy is long on goals and short on policy or action.

Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it.

form of bad strategic objectives occurs when there is a scrambled mess of things to accomplish—a “dog’s dinner” of strategic objectives.

the kernel of strategy—a diagnosis, a guiding policy, and coherent action—applies to any complex setting.

To obtain higher performance, leaders must identify the critical obstacles to forward progress and then develop a coherent approach to overcoming them.

Simply being ambitious is not a strategy.

A great deal of strategy work is trying to figure out what is going on. Not just deciding what to do, but the more fundamental problem of comprehending the situation.

bad strategy is the active avoidance of the hard work of crafting a good strategy.

Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination.

the deeper meaning of focus—a concentration and coordination of action and resources that creates an advantage.

many effective strategies are more designs than decisions—are more constructed than chosen.

Design always involves a certain amount of trial and error, and hardware trials and errors are much more costly.

Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.

the main impediment to action is the forlorn hope that certain painful choices or actions can be avoided—that the whole long list of hoped-for “priorities” can all be achieved.

Strategy cannot be a useful concept if it is a synonym for success. Nor can it be a useful tool if it is confused with ambition, determination, inspirational leadership, and innovation.

Nevertheless, strategy is primarily about deciding what is truly important and focusing resources and action on that objective. It is a hard discipline because focusing on one thing slights another.

In a changing world, a good strategy must have an entrepreneurial component. That is, it must embody some ideas or insights into new combinations of resources for dealing with new risks and opportunities.

If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And if you cannot assess a strategy’s quality, you cannot reject a bad strategy or improve a good one.

A design-type strategy is an adroit configuration of resources and actions that yields an advantage in a challenging situation. Given a set bundle of resources, the greater the competitive challenge, the greater the need for the clever, tight integration of resources and actions. Given a set level of challenge, higher-quality resources lessen the need for the tight integration of resources and actions. These

we should seek coordinated policies only when the gains are very large. There will be costs to demanding coordination, because it will ride roughshod over economies of specialization and more nuanced local responses.

I don’t actually know what I know until I work to write it down. The process of writing reveals contradictions, weak arguments, and places where more data is needed to back up an opinion. And it helps sort out the important from the less important

Strategic coordination, or coherence, is not ad hoc mutual adjustment. It is coherence imposed on a system by policy and design. More specifically, design is the engineering of fit among parts, specifying how actions and resources will be combined.

Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others. There is difficult psychological, political, and organizational work in saying “no” to whole worlds of hopes, dreams, and aspirations.

Given that background, I was interested in what Steve Jobs might say about the future of Apple. His survival strategy for Apple, for all its skill and drama, was not going to propel Apple into the future. At that moment in time, Apple had less than 4 percent of the personal computer market. The de facto standard was Windows-Intel and there seemed to be no way for Apple to do more than just hang on to a tiny niche. In the summer of 1998, I got an opportunity to talk with Jobs again. I said, “Steve, this turnaround at Apple has been impressive. But everything we know about the PC business says that Apple cannot really push beyond a small niche position. The network effects are just too strong to upset the Wintel standard. So what are you trying to do in the longer term? What is the strategy?” He did not attack my argument. He didn’t agree with it, either. He just smiled and said, “I am going to wait for the next big thing.

A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And if you cannot assess a strategy’s quality, you cannot reject a bad strategy or improve a good one.

When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance. Unless leadership offers a theory of why things haven’t worked in the past, or why the challenge is difficult, it is hard to generate good strategy.

Despite the roar of voices wanting to equate strategy with ambition, leadership, “vision,” planning, or the economic logic of competition, strategy is none of these. The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.

This particular pattern—attacking a segment of the market with a business system supplying more value to that segment than the other players can—is called focus. Here, the word “focus” has two meanings. First, it denotes the coordination of policies that produces extra power through their interacting and overlapping effects. Second, it denotes the application of that power to the right target.*

Today, as then, many effective strategies are more designs than decisions—are more constructed than chosen. In these cases, doing strategy is more like designing a high-performance aircraft than deciding which forklift truck to buy or how large to build a new factory. When someone says “Managers are decision makers,” they are not talking about master strategists, for a master strategist is a designer.

In many situations, the main impediment to action is the forlorn hope that certain painful choices or actions can be avoided—that the whole long list of hoped-for “priorities” can all be achieved. It is the hard craft of strategy to decide which priority shall take precedence. Only then can action be taken. And, interestingly, there is no greater tool for sharpening strategic ideas than the necessity to act.

The best answer to this puzzle is that the real surprise was that such a pure and focused strategy was actually implemented. Most complex organizations spread rather than concentrate resources, acting to placate and pay off internal and external interests. Thus, we are surprised when a complex organization, such as Apple or the U.S. Army, actually focuses its actions. Not because of secrecy, but because good strategy itself is unexpected.

The peril of a potent resource position is that success then arrives without careful ongoing strategy work. Own the original patent on the plain-paper photocopier, or own the Hershey’s brand name, or the Windows operating system franchise, or the patent on Lipitor, and there will be many years during which profits will roll in almost regardless of how you arrange your business logic. Yes, there was inventive genius in the creation of these strategic resources, but profits from those resources can be sustained, for a time, without genius.

It is often said that a strategy is a choice or a decision. The words “choice” and “decision” evoke an image of someone considering a list of alternatives and then selecting one of them. There is, in fact, a formal theory of decisions that specifies exactly how to make a choice by identifying alternative actions, valuing outcomes, and appraising probabilities of events. The problem with this view, and the reason it barely lightens a leader’s burden, is that you are rarely handed a clear set of alternatives. In the case at hand, Hannibal was certainly not briefed by a staff presenting four options arranged on a PowerPoint slide. Rather, he faced a challenge and he designed a novel response. Today, as then, many effective strategies are more designs than decisions—are more constructed than chosen. In these cases, doing strategy is more like designing a high-performance aircraft than deciding which forklift truck to buy or how large to build a new factory. When someone says “Managers are decision makers,” they are not talking about master strategists, for a master strategist is a designer.

Strategy cannot be a useful concept if it is a synonym for success. Nor can it be a useful tool if it is confused with ambition, determination, inspirational leadership, and innovation. Ambition is drive and zeal to excel. Determination is commitment and grit. Innovation is the discovery and engineering of new ways to do things. Inspirational leadership motivates people to sacrifice for their own and the common good.1 And strategy, responsive to innovation and ambition, selects the path, identifying how, why, and where leadership and determination are to be applied.

The kernel of a strategy contains three elements: A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical. A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis. A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy.

Treating strategy like a problem in deduction assumes that anything worth knowing is already known—that only computation is required. Like computation, deduction applies a fixed set of logical rules to a fixed set of known facts. For example, given Newton’s law of gravity, one can deduce (calculate) the period of Mars’s orbit around the sun. Or given the costs and capacities of tankers, pipelines, and refineries, one can optimize the flow of oil and refined product within an integrated oil company. If everything worth knowing is already known, the problem of action reduces to crank winding.

Executives who complain about “execution” problems have usually confused strategy with goal setting. When the “strategy” process is basically a game of setting performance goals—so much market share and so much profit, so many students graduating high school, so many visitors to the museum—then there remains a yawning gap between these ambitions and action. Strategy is about how an organization will move forward. Doing strategy is figuring out how to advance the organization’s interests. Of course, a leader can set goals and delegate to others the job of figuring out what to do. But that is not strategy. If that is how the organization runs, let’s skip the spin and be honest—call it goal setting.

Success leads to laxity and bloat and this leads to decline. Few avoid this tragic arch. Only where there is starvation will you find a tightly crafted and integrated set of actions and policies.

Good strategy grows out of an independent and careful assessment of the situation, harnessing individual insight to carefully crafted purpose. Bad strategy follows the crowd, substituting popular slogans for insights.

In many situations, the main impediment to action is the forlorn hope that certain painful choices or actions can be avoided—that the whole long list of hoped-for “priorities” can all be achieved.

Good strategy is coherent action backed up by an argument, an effective mixture of thought and action with a basic underlying structure I call the kernel.

Paccar’s strategy is based on doing something well and consistently over a long period of time. That has created difficult-to-replicate resources: its image, its network of experienced dealers, its loyal customers, and the knowledge embedded in its staff of designers and engineers. This position and these kinds of slow-build resources are simply not available to companies, mesmerized by the stock market, who want big results in twelve months.

A design-type strategy is an adroit configuration of resources and actions that yields an advantage in a challenging situation. Given a set bundle of resources, the greater the competitive challenge, the greater the need for the clever, tight integration of resources and actions. Given a set level of challenge, higher-quality resources lessen the need for the tight integration of resources and actions. These principles mean that resources and tight coordination are partial substitutes for each other. If the organization has few resources, the challenge can be met only by clever, tight integration. On the other hand, if more resources are available, then less tight integration may be needed.7 Put

It is not easy to hold this kind of quality leadership for three big reasons. First, no one will believe you have the longest-lasting trucks until they have already lasted a long time on the road. It’s a reputation that takes a while to earn and can be lost quickly. Second, designing a very high-quality piece of machinery is not a textbook problem. Designers learn from other designers over time, and the company accumulates these nuggets of wisdom by providing a good, stable place to work for talented engineers. Third, it is usually quite difficult to convince buyers to pay an up-front premium for future savings, even if the numbers are clear. People tend to be more myopic than economic theory would suggest.

Attention, like a flashlight beam, illuminates one subject only to darken another.

One analysis, the Princeton Project on National Security, succinctly described the situation: “While the Bush administration’s 2002 National Security Strategy did articulate a set of U.S. national goals and objectives, it was not the product of a serious attempt at strategic planning.… The articulation of a national vision that describes America’s purpose in the post–September 11th world is useful—indeed, it is vital—but describing a destination is no substitute for developing a comprehensive roadmap for how the country will achieve its stated goals.”2

Behind almost all of these forces and events lay the indirect competitive logic that Marshall and Roche expressed in 1976: use your relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you.

This process of justifying expenditures as counters to Soviet expenditures conditioned U.S. actions on Soviet strengths, expressed as threats, not on Soviet weaknesses and constraints. We had a war strategy—a catastrophic spasm—but no plan about how to compete with the Soviet Union over the long term.” Soft-spoken, Marshall watched my eyes, checking that I understood the implications of his statements. He took out a document, a thin sheaf of paper, and began to explain its meaning: “This document reflects thoughts about how to actually use U.S. strengths to exploit Soviet weaknesses, a very different approach.

The idea of charismatic leadership dates back to Max Weber (1864–1920), the father of sociology. Describing leaders, he found it necessary to distinguish between formal leaders and those who led by personal charisma. The latter, he wrote, seemed “endowed with supernatural, superhuman, or at least specifically exceptional powers or qualities … not accessible to the ordinary person.”5

Traditionally, charisma was associated with religious and political leaders, not CEOs or school principals. This began to change in the mid-1980s. The tipping point was the appearance of two books in 1985: Warren Bennis and Bert Nanus’s Leaders: The Strategies for Taking Charge and Bernard Bass’s influential Transformational Leadership: Industrial, Military, and Educational Impact. These authors broke with tradition and argued that charismatic (now “transformational”) leadership can be learned and practiced in settings ranging from schools to corporations to art museums. The transformational leader, they argued, unlocks human energy by creating a vision of a different reality and connecting that vision to people’s values and needs. These works were followed by a raft of books and articles in a similar vein: The Leadership Challenge: How to Get Extraordinary Things Done in Organizations (1987), The Transformational Leader: The Key to Global Competitiveness

The Values: Fill in a statement describing the company’s values. Make sure they are noncontroversial. Dow’s values are “Integrity, Respect for People, and Protecting Our Planet.” Enron’s were “Respect, Integrity, Communication and Excellence.

The coordination of action provides the most basic source of leverage or advantage available in strategy.

A word that can mean anything has lost its bite. To give content to a concept one has to draw lines, marking off what it denotes and what it does not. To begin the journey toward clarity, it is helpful to recognize that the words “strategy” and “strategic” are often sloppily used to mark decisions made by the highest-level officials. For example, in business, most mergers and acquisitions, investments in expensive new facilities, negotiations with important suppliers and customers, and overall organizational design are normally considered to be “strategic.

Whenever a company succeeds greatly there is a complementary story of impeded competitive response.

Having conflicting goals, dedicating resources to unconnected targets, and accommodating incompatible interests are the luxuries of the rich and powerful, but they make for bad strategy. Despite this, most organizations will not create focused strategies. Instead, they will generate laundry lists of desirable outcomes and, at the same time, ignore the need for genuine competence in coordinating and focusing their resources. Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organization does not do as it is about what it does. CHAPTER TWO DISCOVERING

I met with Chad Logan a few days after our first get-together. I told him that I would explain my point of view and then let him decide whether he wanted to work with me on strategy. I said: I think you have a lot of ambition, but you don’t have a strategy. I don’t think it would be useful, right now, to work with your managers on strategies for meeting the 20/20 goal. What I would advise is that you first work to discover the very most promising opportunities for the business. Those opportunities may be internal, fixing bottlenecks and constraints in the way people work, or external. To do this, you should probably pull together a small team of people and take a month to do a review of who your buyers are, who you compete with, and what opportunities exist. It’s normally a good idea to look very closely at what is changing in your business, where you might get a jump on the competition. You should open things up so there are as many useful bits of information on the table as possible. If you want, I can help you structure some of this process and, maybe, help you ask some of the right questions. The end result will be a strategy that is aimed at channeling energy into what seem to be one or two of the most attractive opportunities, where it looks like you can make major inroads or breakthroughs. I can’t tell you in advance how large such opportunities are, or where they may be. I can’t tell you in advance how fast revenues will grow. Perhaps you will want to add new services, or cut back on doing certain things that don’t make a profit. Perhaps you will find it more promising to focus on grabbing the graphics work that currently goes in-house, rather than to competitors. But, in the end, you should have a very short list of the most important things for the company to do. Then you will have a basis for moving forward. That is what I would do were I in your shoes. If you continue down the road you are on you will be counting on motivation to move the company forward. I cannot honestly recommend that as a way forward because business competition is not just a battle of strength and wills; it is also a competition over insights and competencies. My judgment is that motivation, by itself, will not give this company enough of an edge to achieve your goals. Chad Logan thanked me and, a week later, retained someone else to help him. The new consultant took Logan and his department managers through an exercise he called “Visioning.” The gist of it was the question “How big do you think this company can be?” In the morning they stretched their aspirations from “bigger” to “very much bigger.” Then, in the afternoon, the facilitator challenged them to an even grander vision: “Think twice as big as that,” he pressed. Logan

A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.

compounds, the obvious attractor state for the power industry is

The List: Good Strategy, Bad Strategy by Richard Rumelt Why: Especially because it will show you how to identify bad strategy The Five Dysnfunctions of a Team by Patrick Lencioni Why: Learn most recognised tendencies of dysfunctional teams (in a storified format) Storyworthy by Matthew Dicks Why: Why storytelling matters in everything we do and how to tell a solid story Never Split the Difference by Christopher Voss Why: Learn the fundamentals of having a competitive edge in any discussion Understanding Michael Porter by Joan Magretta Why: The absolute fundamentals of organisational success - big or small Crossing the Chasm by Geoffrey Moore Why: If you are curious about what it takes to continue growing and scaling a technology company throughout its lifecycle 7 Powers by Hamilton Helmer Why: You can read it once every year. You can pick any failed venture/product and do a post-mortem of why it failed through the lens of this book (learning the value of building and sustaining moats) Build by Tony Fadell Why: This book can be a great friend as you navigate every fork/decision in your career Super Thinking by Gabriel Weinberg and Lauren McCann Why: You can pick your pet mental models from this book and apply in any situation in your life; the pet mental models can keep evolving as you evolve

This section of the book explores a number of fundamental sources of power used in good strategies: leverage, proximate objectives, chain-link systems, design, focus, growth, advantage, dynamics, inertia, and entropy.

We use the word “culture” to mark the elements of social behavior and meaning that are stable and strongly resist change.

Social herding presses us to think that everything is OK (or not OK) because everyone else is saying so. The inside view presses us to ignore the lessons of other times and other places, believing that our company, our nation, our new venture, or our era is different. It is important to push back against these biases. You can do this by paying attention to real-world data that refutes the echo-chamber chanting of the crowd—and by learning the lessons taught by history and by other people in other places.

McCracken’s “grow by 50 percent” is classic bad strategy. It is the kind of nonsense that passes for strategy in too many companies. First, he was setting a goal, not designing a way to deal with his company’s challenge. Second, growth is the outcome of a successful strategy, and attempts to engineer growth are exercises in magical thinking.

Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others.

good strategy includes a set of coherent actions. They are not “implementation” details; they are the punch in the strategy. A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.

Scientists had worked up three or four theories about how the moon was formed. The lunar surface might be soft, the powdery residue of eons of meteoric bombardment.

concepts and actions were in conflict rather than being coherent.

inspirational leadership, and innovation. Ambition is drive and zeal to excel. Determination is commitment and grit. Innovation is the discovery and engineering of new ways to do things. Inspirational leadership motivates people to sacrifice for their own and the common good.1 And strategy, responsive to innovation and ambition, selects the path, identifying how, why, and where leadership and determination are to be applied.

Too many people start with goals and other visions of a desired end state. Start with the challenge, and diagnose its structure and the forces at work. Once you do that, your sense of purpose and the actions you consider will change. In that diagnosis, find the crux. That is the most critical part of the challenge that you can actually expect to solve. Don’t pick a challenge you cannot yet deal with—attack the crux of the situation, build momentum, and then reexamine your position and its possibilities.