Good Strategy, Bad Strategy - Richard Rumelt - (No Fluff!)

what is a good definition of strategy that is practical and not gibberish not only will I give you an answer to this question but you'll also discover why you've often felt confused or cringed when hearing about other companies strategies if you're anything like me if you look around you'll notice that the word strategy is used a lot and is made to mean many different things so a few months ago I started obsessively asking myself What is strategy and especially how do I codify the process of creating a strategy after going through various books and references

amongst a lot of data and confusion out there I found some very interesting insights I want to make a series of videos about this because they can enhance your strategic abilities in your business decisions to outperform the competition and stand out in the market like the top 1% of entrepreneurs and strategists I don't know about you but I've also felt inadequate when hearing others strategies because I felt there was something wrong I found them too complicated vague or inconsistent but everyone else seemed to be okay with them so maybe it was me I thought who

wasn't prepared enough the truth however is that many of the strategies passed off as such aren't actually strategies at all they're full of fluff and errors there's plenty of bad strategy out there understanding this has been a huge relief for me so in addition to defining what a strategy is we'll also look at how to recognize bad strategies the insights in this video are based on the book good strategy bad strategy written by one of the world's most famous strategists Richard rumelt according to rumelt the core of a strategy is always the same identifying the

critical factors of a situation and designing a way to coordinate and focus actions to address those factors therefore a strategy is more than just a way to reach a goal a good strategy recognizes the challenges ahead and finds a way to overcome them with a coordinated approach many people associate strategy only with the big picture overall direction chosen disconnected from specific actions but this definition is quite incomplete because it leaves a gap on how to actually implement it strategy has a logical structure which rumelt calls the kernel consisting of three elements a diagnosis a guiding

policy and coherent action the initial diagnosis defines why something needs to be done the guiding policy defines what needs to be done while the definition of coherent actions explains how it should be done now before delving into the details of this correct definition of strategy and explaining its three components let me clarify what bad strategy is we can summarize cases of bad strategy into four categories which I'm sure you've encountered one fluff here people talk in a complicated and confusing way to make simple things seem more important than they actually are they often use fancy

words to make it seem like they're talking about something smart here's a real example from an American Bank that says our fundamental strategy is one of customer Centric intermediation what here's another example our strategic imperative is to leverage our world-class capabilities and Innovative mindset to deliver unparalleled value and transformative outcomes for our diverse Global customer base again what two failure to face the challenge a bad strategy doesn't recognize or understand the problem clearly if you don't get what the problem is you can't figure out if a strategy is good or how to make it better

without seeing and studying the things that are getting in your way you don't really have a strategy you might just have a big goal a budget or a list of things you hope will work out for example imagine your sales are going down a bad strategy would be to add another sales Channel instead of trying to figure out why the sales are dropping and fixing that you might ask who would make such a mistake F Well lots of businesses do think about Blockbuster for instance when Netflix started getting traction Blockbuster didn't really understand the challenge

and just launched a few online services without a real analysis of the commitments and investments in technology required and we all know how that ended three mistaking strategy for something else people get really mixed up about what strategy means some think it's about having a big Vision being a good leader planning things out or setting goals but strategy isn't any of those things for instance most corporate strategic plans are merely predictions of budgets and market shares over 3 or 5 years or here on YouTube I see many content creators promising to reveal their exact strategy

for acquiring customers only to explain their tactics step-by-step actions they take four bad strategic objectives a leader sets strategic goals to achieve something and that's fine however these goals are ineffective when they fail to address important problems or are not feasible for example you may have encountered managers or other entrepreneurs who set unrealistic goals without defining what changes will be made to achieve them a company that has grown by 10% every year might set a goal to grow by 50% this year in terms of Revenue and customer acquisition there is nothing wrong with being ambitious

but how will they do it it's unclear and the only thing the company does is organize a motiv course to encourage staff to push and commit more it's not difficult to foresee that in that way they won't obtain a result much different from what they used to do right maybe at this point various instances come to mind where you've observed all of this but the question is why is there so much bad strategy out there the thing is creating a good strategy requires making choices instead of having vague aspirations you need to make a specific

decision and focus on a path and have the strength to say no to other potential opportunities or choices and the act of making this choice is difficult and painful for many leaders when you Channel your forces and resources into One Direction it often happens that you change the routines and habits of many people within the company which initially may not yield immediate results or may even make things worse before the strategy takes effect that's why strategy and changes are usually opposed especially in large organizations where there are many different interests now that we've seen what

is not a strategy let's delve into room El's definition with its three basic elements diagnosis guiding policy and coherent actions the diagnosis defines or explains the nature of the challenge explaining why something needs to be done it could be a goal to achieve or a problem to solve a good diagnosis confronts the overwhelming complexity of the situation you're facing and simplifies it identifying the fundamental aspects to consider so first you need to understand what's happening rather than immediately decide what to do like a doctor who before providing treatment to a patient examines and analyzes the

situation for instance you might have a business that relies on traffic generated from Google analyzing the situation you notice that the traffic is decreasing you need to understand why has the algorithm changed and penalized the site are people using Google less because there are viable AI Alternatives nowadays was the site writing a market Trend that is now fac fading you realize that based on the analyses you conduct and the answers you provide to questions like these your strategy could change significantly the better you become at analyzing situations the better strategies you'll create because there's a

subjective element to all of this after conducting the analysis you move on to the guiding policy which is the general approach chosen to manage or overcome the identified obstacles and achieve the selected goal essentially it explains what you do for example Wells Fargo's guiding policy which they call strategy is to leverage their Network effect to cross- sell various Financial products to customers the more products they sell the more they can get to know the customers and serve them better many like Wells Fargo call The Guiding policy strategy but it's not the same thing The Guiding

policy is just one of the three elements necessary for a good strategy or in the previous example of website traffic after establishing that the problem relates to your outdated content you could set a guiding policy aimed at identifying a new trend relevant to your site to capitalize on and create new content about so once you've determined what to do it's time to move on to the how defining the coherent actions this isn't about getting into the nitty-gritty details it's about establishing the set of actions that will be taken to implement the guiding policy established these

steps must be coordinated and consistent with each other what you don't want is to have various disconnected actions or project projects that create dispersion and often conflict with each other for instance regarding the earlier website example a set of disjointed and incorrect actions would be to hire a new writer to work on content B redesign the website and Graphics Rebrand the business and launch a Facebook ads campaign instead a set of coordinated and correct actions would be research the new market trends relevant to your industry identify the new trend to capitalize on that fits your

audience while continuing to create content about the old Trend that your readers are loyal to begin creating content for the newly identified Trend gradually increase the new content and decrease the old content while monitoring the results until a complete transition is complete at this stage I'd like to point out two things firstly many details are missing in the set of actions described such as how to do them when to do them in what order by when Etc these will be addressed during the planning phase which is a subsequent step but not part of the strategy

secondly the kernel does not include the vision hierarchies of goals and objectives references to time span Etc these are important but accessory elements to the strategy now armed with this information you can evaluate the effectiveness of strategies you come across immediately identifying whether they are full of fluff or have real substance but most importantly you can use this three-step approach to create your own business strategies in my opinion this already brings a a lot of clarity and removes confusion but this is just the beginning yes because in the next video I'll explain the levers to

use to refine your strategic skills you'll find the video here as soon as it's ready in the meantime if you haven't already subscribe to the channel to be notified as soon as it's published to the founders success