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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

Some takeaways:

1. Goals, ambitions, visions, missions, values—none of these things are a strategy. Strategies are fundamentally about what you’ll do in response to a challenge. Richard says you should replace the term strategy altogether and just call it an “action agenda.”

2. The “kernel” of any strategy comprises three parts: diagnosis, a clear definition of the challenge at hand; guiding policies, your overall approach to dealing with the challenge; and coherent actions, the set of specific steps you’ll take to implement the guiding policies and overcome the challenge.

3. The most common cause of bad strategy is a weak diagnosis. The second most common is confusing goals with strategy.

4. When forming strategy from scratch, look for the “crux” of your problem. The crux on a rock climb is the hardest part of the climb. If you can’t get past it, you shouldn’t do that climb in the first place. What’s the hardest part of your challenge?

5. Identifying and utilizing sources of power can give a competitive advantage in strategy. Power can come from various sources, such as asymmetry, reputation, leverage, growth, or specialized knowledge.

6. The job of a founder is to find an important and solvable problem and then solve it for as many people as possible.

Listen now on Apple, Spotify, Overcast, and YouTube.

Find the transcript for this episode and all past episodes at: https://www.lennyspodcast.com/episodes/. Today’s transcript will be live by 8 a.m. PT.

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

Referenced:

• China’s Xi says ‘reunification’ with Taiwan is inevitable: https://www.cnbc.com/2023/12/31/chinas-xi-says-reunification-with-taiwan-is-inevitable.html

• The Crux: How Leaders Become Strategists: https://www.amazon.com/Crux-How-Leaders-Become-Strategists/dp/1541701240

• Good Strategy/Bad Strategy: The Difference and Why It Matters: https://www.amazon.com/Good-Strategy-Bad-Difference-Matters/dp/0307886239

• Fundamental Issues in Strategy: A Research Agenda: https://www.amazon.com/Fundamental-Issues-Strategy-Research-Agenda/dp/0875843433/

• Strategy, Structure, and Economic Performance: https://www.amazon.com/Strategy-Structure-Economic-Performance-Richard/dp/0875841090

• There’s more than the CIA and FBI: The 17 agencies that make up the U.S. intelligence community: https://www.latimes.com/nation/la-na-17-intelligence-agencies-20170112-story.html

• Programme for International Student Assessment: https://www.oecd.org/pisa/

• Gerstner: Changing Culture at IBM—Lou Gerstner Discusses Changing the Culture at IBM: https://hbswk.hbs.edu/archive/gerstner-changing-culture-at-ibm-lou-gerstner-discusses-changing-the-culture-at-ibm

• Marvin Lieberman on LinkedIn: https://www.linkedin.com/in/marvin-lieberman-2a6b72/

• S&P 500: https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview

• Battle of Tora Bora: https://en.wikipedia.org/wiki/Battle_of_Tora_Bora

• Milton Friedman: https://en.wikipedia.org/wiki/Milton_Friedman

• The Louvre: https://www.louvre.fr/en

• How does SpaceX build its Falcon 9 reusable rocket?: https://www.sciencefocus.com/space/how-does-spacex-build-its-falcon-9-reusable-rocket

• Charles Darwin: History’s most famous biologist: https://www.nhm.ac.uk/discover/charles-darwin-most-famous-biologist.html

• Donald Rumsfeld: https://www.defense.gov/About/Biographies/Biography/Article/602800/

• Bush: The Decider-in-Chief: https://www.cbsnews.com/news/bush-the-decider-in-chief/

• Woodrow Wilson: https://www.whitehouse.gov/about-the-white-house/presidents/woodrow-wilson/

• How the Sinking of Lusitania Changed World War I: https://www.history.com/news/how-the-sinking-of-lusitania-changed-wwi

• Nokia: https://www.nokia.com/

• The Rise and Fall of Nokia: https://www.hbs.edu/faculty/Pages/item.aspx?num=46041

• Salesforce: https://www.salesforce.com/

• These New Windows Let the Summer Breeze In, But Block the Street Noise: https://www.smithsonianmag.com/smart-news/these-new-windows-let-the-summer-breeze-in-but-block-the-street-noise-7906121/

• Stop it! (Bob Newhart): https://www.youtube.com/watch?v=jvujypVVBAY

• The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business: https://www.amazon.com/Innovators-Dilemma-Revolutionary-Change-Business/dp/0062060244

• Playing to Win: How Strategy Really Works: https://www.amazon.com/Playing-Win-Strategy-Really-Works/dp/142218739X

• Steve Jobs: https://www.amazon.com/Steve-Jobs-Walter-Isaacson/dp/1982176865

• Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company: https://www.amazon.com/Only-Paranoid-Survive-Exploit-Challenge/dp/0385483821

• Titan: The Life of John D. Rockefeller, Sr.: https://www.amazon.com/Titan-Life-John-Rockefeller-Sr/dp/1400077303/

• Yellowstone on Paramount+: https://www.paramountnetwork.com/shows/yellowstone

• Smart telescopes: https://milehighastro.com/collections/smart-telescopes

• Cassandra Clare: https://cassandraclare.com/

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.