Strategy

1. Diagnosis

The diagnosis defines the challenge. It simplifies overwhelming complexity into a comprehensible problem.

Good diagnosis:

• Names the critical factors
• Frames the situation in a way that suggests action
• Is based on insight, not just observation

Example:

• Bad: "We face a competitive market"
• Good: "Our high cost structure makes us vulnerable to low-cost competitors in the value segment, while our brand doesn't command premium prices in the luxury segment. We're stuck in the middle."

2. Guiding Policy

The guiding policy is an overall approach to overcome the obstacle identified in the diagnosis.

Good guiding policy:

• Creates advantage by anticipating actions of others
• Channels action without specifying everything
• Makes trade-offs explicit

Example:

• Bad: "We will be customer-focused"
• Good: "We will focus exclusively on the professional segment, abandoning consumer sales, and compete on service rather than price"

3. Coherent Actions

Coherent actions are feasible, coordinated activities that implement the guiding policy.

Good coherent actions:

• Are specific and actionable
• Reinforce each other
• Are coordinated, not scattered

Example:

• Bad: "Improve quality, reduce costs, increase innovation, expand market share"
• Good: "Exit the consumer product line by Q2, retrain sales force on enterprise selling, invest the freed-up resources in 24/7 support infrastructure, launch enterprise-only features in Q3"

Bad Strategy

Bad strategy isn't just the absence of good strategy. It has its own characteristics:

Hallmark 1: Fluff

"Fluff is superficial restatement of the obvious combined with a generous sprinkling of buzzwords."

Example: "Our strategy is to be a customer-centric organization that leverages synergies across our portfolio to deliver innovative solutions that maximize shareholder value."

Translation: Nothing. Word salad.

Hallmark 2: Failure to Face the Challenge

If you can't name the challenge, you can't have a strategy for it.

Example: "Our strategy is to grow revenue by 20% per year."

What's missing: Why aren't we growing? What's in the way? What will we do differently?

Hallmark 3: Mistaking Goals for Strategy

Goals are not strategy. Strategy is how you'll achieve goals.

Example: "Our strategy is to be #1 in our market."

What's missing: How? What will you do? What trade-offs?

Hallmark 4: Bad Strategic Objectives

Objectives should be focused and feasible. Bad objectives are:

• A long list of "priorities" (if everything is priority, nothing is)
• Blue-sky goals disconnected from action
• Impossible given current resources

Example: "Our priorities are: quality, innovation, customer satisfaction, employee engagement, sustainability, market leadership, and operational excellence."

What's missing: Which one matters most? What will you sacrifice?

Sources of Power

Good strategy creates advantage. Rumelt identifies sources of power:

Leverage

"Strategic leverage arises from a mixture of anticipation, insight into what is most pivotal or critical in a situation, and making a concentrated application of effort."

Find the pivot point. Apply force there.

Proximate Objectives

Objectives that are close enough to be feasible and far enough to matter.

Too proximate: "Answer customer calls within 3 rings" Too distant: "Become the global leader" Just right: "Within 18 months, be the clear #1 choice in the SMB segment in North America"

Chain-Link Systems

Systems where every link must be strong. The weakest link limits the whole.

Implication: Don't invest in strengthening strong links. Fix the weakest link.

Focus

Concentrate resources. Don't spread thin.

"The most basic idea of strategy is the application of strength against weakness."

The Rumelt Test

When evaluating strategy, ask:

1. Is there a diagnosis? Does it name the real challenge? Or is it vague?
2. Is there a guiding policy? Does it make trade-offs? Or is it "be excellent"?
3. Are actions coherent? Do they reinforce each other? Or is it a to-do list?
4. Is it fluff? Buzzwords without meaning?
5. Is it just goals? "Be #1" is not strategy.
6. Does it face the challenge? Or avoid naming what's hard?
7. Are objectives proximate? Achievable yet meaningful?
8. Is focus present? Or trying to do everything?

When Reviewing Strategy

Apply these checks:

• Diagnosis names the actual challenge (not vague)
• Guiding policy makes trade-offs explicit
• Actions are specific and coordinated
• Actions reinforce each other (not scattered)
• Not fluff (no empty buzzwords)
• Not goals masquerading as strategy
• Challenge is faced, not avoided
• Objectives are proximate (achievable)
• Resources are focused, not spread thin
• Weakest links identified (chain-link thinking)

Strategy Development Process

Rumelt's approach to developing strategy:

1. Diagnose First

Don't jump to solutions. Understand the problem.

Questions:

• What is the challenge?
• Why does it exist?
• What's keeping it from being solved?

2. Look for Leverage

Find pivot points where focused effort creates disproportionate results.

Questions:

• What's the crux—the hard part that, if solved, unlocks everything?
• Where can concentrated effort have outsized impact?

3. Design Coherent Action

Actions must work together. Each action should reinforce others.

Questions:

• Do these actions conflict with each other?
• Do they build on each other?
• Is anything missing that would prevent success?

4. Test for Bad Strategy

Apply the hallmarks:

• Is this fluff?
• Am I avoiding the challenge?
• Are these just goals?
• Are objectives scattered or focused?

Common Mistakes

"We need a strategy" - You need a good strategy. Most strategy is bad.

"Our strategy is to win" - That's a goal. How?

"We'll improve everything" - That's not strategy. What will you not do?

"Let's brainstorm our strategy" - Strategy comes from insight, not consensus.

"Here are our strategic priorities" (lists 12 things) - If everything is priority, nothing is.

When NOT to Use This Skill

Use a different skill when:

• Analyzing industry forces → Use competition (Five Forces, positioning)
• Analyzing competitive moats → Use moats (7 Powers framework)
• Navigating crisis → Use leadership (wartime leadership)
• Managing team operations → Use management (OKRs, leverage)

Rumelt is the strategy quality skill—use it to distinguish good strategy from bad and ensure diagnosis-policy-action coherence.

Sources

• Rumelt, "Good Strategy Bad Strategy" (2011)
• Rumelt, UCLA Anderson lectures
• Rumelt, "The Perils of Bad Strategy" (McKinsey Quarterly)

"Bad strategy is not simply the absence of good strategy. It grows out of specific misconceptions and leadership dysfunctions." — Richard Rumelt