The Kernel of Good Strategy
Every real strategy has three elements: diagnosis, guiding policy, action
The Kernel is the bare-bones center of any good strategy. Rumelt argues that a good strategy is coherent action backed up by an argument, and the kernel provides the essential structure of that argument. It strips away the noise of visions, missions, goals hierarchies, and buzzwords to reveal the three indispensable elements that every real strategy must contain.
The three elements are: (1) a diagnosis that defines or explains the nature of the challenge, simplifying the overwhelming complexity of reality by identifying what is critical; (2) a guiding policy that provides an overall approach for dealing with the challenge, channeling action without fully defining it; and (3) a set of coherent actions designed to carry out the guiding policy, coordinated with one another to focus organizational energy.
Rumelt uses examples ranging from medicine (diagnosis, therapeutic approach, prescriptions) to foreign policy (analogies to past situations, containment policy, military/diplomatic actions) to small business (corner grocery store choosing customer segments). The kernel applies universally because it captures the fundamental logic of strategy itself rather than any particular domain.
- A diagnosis must simplify reality by identifying the critical aspects of the challenge, not just name performance goals
- A guiding policy is not a goal or vision but a method of grappling with the situation that rules out vast arrays of possible actions
- Coherent actions must be coordinated and mutually reinforcing, not a laundry list of unrelated initiatives
- Strategy is about deciding what is truly important and focusing resources on that objective, which necessarily means slighting other things
- The kernel leaves out visions, goal hierarchies, time spans, and scope deliberately because these are supporting players, not the core
- Diagnose the ChallengeAsk 'What is going on here?' and identify the critical aspects of the situation. Name or classify the challenge using metaphor, analogy, or an established framework. A good diagnosis simplifies complexity, defines a domain of action, and promises leverage over outcomes rather than just predicting them.Pro tipA diagnosis is a judgment, not a fact. It cannot be proven correct. The best diagnoses reframe the situation in a way that suggests leverage points and actionable responses, as Lou Gerstner did when he rediagnosed IBM's problem from 'too integrated' to 'failing to use its unique integrated skills.'WarningAvoid diagnoses that merely restate performance goals ('we need to grow revenue') or that name problems without identifying their structure. A diagnosis of 'we need more profit' tells you nothing about what to do.
- Formulate a Guiding PolicyChoose an overall approach for overcoming the obstacles highlighted in the diagnosis. The guiding policy channels action in certain directions without defining exactly what shall be done. It should create advantage by anticipating others' behavior, reducing complexity, exploiting leverage, and enabling coherent actions.Pro tipA good guiding policy is like guardrails on a highway, directing and constraining without fully defining. Stephanie the grocer chose 'serve the busy professional who has little time to cook' which immediately revealed which of her hundreds of possible actions were relevant and which were not.WarningDo not confuse a guiding policy with a vision or aspiration. Wells Fargo's vision of satisfying all customers' financial needs is not a strategy. Its guiding policy of cross-selling to exploit network effects is.
- Design Coherent ActionsSpecify a coordinated set of actions and resource allocations that implement the guiding policy. Actions must be mutually reinforcing and focused, not a scattered list of independent initiatives. Strategic coordination is coherence imposed on a system by policy and design.Pro tipTest coherence by asking whether your actions build on each other or cancel each other out. Ford's simultaneous pursuit of brand differentiation (buying Jaguar and Volvo) and economies of scale (putting them on a common platform) was incoherent because the actions directly contradicted each other.WarningA list of things requiring top-management approval is not a strategy. Three unrelated good ideas (close a plant, increase advertising, launch a feedback program) may each be sound operational management but do not constitute a strategy unless they coordinate to address a specific challenge.
When Lou Gerstner arrived at IBM in 1993, the dominant view was that IBM was too integrated for a fragmenting industry and should be broken up. Gerstner changed the diagnosis: IBM's problem was not integration but failure to exploit its unique cross-domain expertise. The guiding policy became to offer customers tailored IT solutions leveraging IBM's broad capabilities. The coherent actions shifted IBM from hardware systems engineering to IT consulting, using outside hardware and software as needed.
George Kennan diagnosed the Soviet Union as fundamentally opposed to capitalism with no possibility of sincere accommodation, but also realistic about power. His guiding policy was containment: vigilant counterforce at constantly shifting points. The coherent actions over decades included NATO, the Berlin Airlift, missile placements, and various diplomatic and military maneuvers.
Facing competition from a 24/7 supermarket with lower prices, Stephanie diagnosed her challenge as needing to draw customers who passed by daily. She adopted the guiding policy of serving the busy professional with little time to cook. This immediately clarified that she should add a second checkout for the 5pm rush, expand parking, replace student snacks with prepared take-home foods, and staff adequately after work hours rather than staying open late.
Rumelt developed the kernel concept through decades of teaching strategy at UCLA Anderson School of Management and consulting with organizations ranging from startups to the Department of Defense. His colleague John Mamer, after sitting in on ten class sessions, observed that every strategy case discussion boiled down to a single question: 'What is going on here?' This insight crystallized Rumelt's thinking about diagnosis as the foundational element. The kernel concept was also sharpened by Rumelt's frustration with the proliferation of 'bad strategy' that substituted goals, visions, and slogans for actual strategic thinking.