The kernel of good strategy

The purpose of strategy is to offer a potentially achievable way of overcoming a key challenge. So what does a good strategy actually consist of? According to business professor Richard Rumelt in his book Good Strategy, Bad Strategy, a good strategy has at its essence three parts:

  • “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.”

Examples

Rumelt offers the example of a medical doctor. In this case, the challenge appears as a set of signs and symptoms together with a history. For example, the patient, a 12-year-old girl, shows up with a sore throat, a fever, red and swollen tonsils, and swollen neck glands. The doctor administers a rapid strep test, which comes back positive.

  • Diagnosis: the doctor names a disease or a pathology. “Strep throat. That’s what’s going on here.”
  • Guiding policy: the doctor determines a therapeutic intervention designed to meet the diagnosis. “We’ll beat back the A Streptococcus bacterial infection with antibiotics, rest, and fluids.”
  • Coherent actions: the doctor makes a specific set of prescriptions for diet, rest, and medication. “Take 150 mg of penicillin every 6 to 8 hours for 10 days. Drink 6 glasses of water per day. Get lots of rest.”

We can also look at how Elon Musk steered SpaceX. In this case, the challenge was to make humans an interplanetary species in order to escape human annihilation during the next mass extinction event on Earth.

  • Diagnosis: SpaceX was founded on this premise. What’s preventing humans from colonizing other planets? The critical bottleneck is cost. It’s simply too expensive to get to the nearest habitable planet (Mars). The main source of expense is that we don’t reuse rockets — we let them burn up in the atmosphere after delivering their payload into space. It’s as expensive as air travel would be if we burned the 747 and made a new one each time. “SpaceX believes a fully and rapidly reusable rocket is the pivotal breakthrough needed to substantially reduce the cost of space access.”
  • Guiding policy: Sell launch services to fund the design and development of the technologies needed to return a rocket back to Earth intact.
  • Coherent actions: SpaceX undertook a years-long set of actions, lambasted by many as quixotic, to develop and test the components necessary for reusable rockets. Departing from 60s-era technology, it developed a series of rockets, starting small and expanding to larger and more capable rockets, constantly subsuming more of the supply chain to cut out the cruft of middlemen and contractors.

Bad strategy

Rumelt cautions against bad strategy, which can be identified by its four hallmarks: fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives.

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