Joe: Alright Lewis, I have a challenge for you. Give me your best impression of a terrible, buzzword-obsessed CEO explaining his company’s new strategy. Go. Lewis: Oh, I love this game. Okay, ahem. "Team, moving forward, our strategy is to leverage our core competencies and operationalize our synergistic paradigms. We will proactively re-contextualize our value-creation matrix to achieve customer-centric, blue-sky growth across all key verticals. Any questions?" Joe: That is terrifyingly accurate. And you've just perfectly diagnosed the problem at the heart of a fantastic book, Good Strategy/Bad Strategy: The Difference and Why It Matters by Richard P. Rumelt. Lewis: I feel like I should get a consulting fee for that. Joe: You should. But Rumelt, who The Economist once named one of the 25 most influential management thinkers alive, would say you just delivered a masterclass in what he calls "bad strategy." He argues that most of what we see in boardrooms and PowerPoints isn't strategy at all. It's a kind of performance art. Lewis: A performance art that I have perfected over many, many years. Joe: Exactly. And that performance has a name. Rumelt’s first hallmark of bad strategy is what you just demonstrated: Fluff. It's the use of inflated, esoteric language to create the illusion of high-level thinking when there's absolutely nothing underneath. Lewis: "Customer-centric intermediation." I've seen that on a slide. I still have no idea what it means. Joe: Nobody does! And that's just the first of what I like to call the Four Horsemen of Bad Strategy.

Lewis: The Four Horsemen. That sounds suitably apocalyptic for most corporate strategy meetings. What are the other three? Joe: After Fluff, Rumelt points to three others. The second is a failure to face the actual challenge. The third is mistaking goals for strategy. And the fourth is setting bad strategic objectives. But the failure to face the challenge is maybe the most dramatic. Lewis: You mean just completely ignoring the giant, flaming problem in the middle of the room? Joe: Precisely. Rumelt tells this incredible story about International Harvester back in the late 1970s. This was a titan of American industry, the fourth-largest corporation at one point. But it was in trouble. So, they hire a new CEO, Archie McCardell, to turn things around. Lewis: Okay, classic turnaround story. Bring in the new guy to shake things up. Joe: Right. And McCardell's team produces this massive "Corporate Strategic Plan." It's got everything you'd expect: detailed projections, market share targets, plans to cut costs and boost revenue. It’s a beautiful document. Lewis: I can picture the binders. Heavy, glossy paper. Joe: Exactly. But the plan had one tiny omission. It completely failed to mention what Rumelt calls the "elephant in the elevator": International Harvester had the worst labor relations in American history. Their work rules were so inefficient that their profit margins were half of their competitors'. The entire system was broken from the inside. Lewis: Wait, hold on. Their grand strategy to fix the company didn't mention the one thing that was actually breaking the company? Joe: Not a word. They focused on external goals—market share, new products—while ignoring the internal cancer. And the result was a catastrophe. McCardell forced a six-month strike, failed to get any real concessions, and the company collapsed. They lost over 3 billion dollars, closed 35 of their 42 plants, and shed 85,000 workers. Lewis: That's staggering. It’s like having a New Year's resolution to run a marathon, but your actual problem is that both your legs are broken. You're focusing on the goal, not the obstacle. Joe: That's the perfect analogy. And that’s the third hallmark: mistaking goals for strategy. A goal is "we will grow 20%." A strategy is the coherent plan for how you'll overcome the obstacles to achieve that growth. International Harvester had goals, but they had no strategy for dealing with their broken legs.

Lewis: Okay, so we know what bad strategy looks like. It's a binder full of fluff that ignores reality. What does good strategy look like? Is it just... not doing that? Joe: It's more than that. Rumelt gives us a beautifully simple and powerful framework. He says every good strategy has a core logical structure, which he calls "the kernel." Lewis: The kernel. I like that. It sounds essential, like the heart of the thing. Joe: It is. And it has just three parts. First, a Diagnosis. You have to figure out and articulate what the critical challenge is. What's really going on here? Second, a Guiding Policy. This is your overall approach for dealing with the challenge you've diagnosed. It's the guardrails for your actions. And third, a set of Coherent Actions. These are the specific, coordinated steps you'll take to carry out the guiding policy. Lewis: Diagnosis, Guiding Policy, Coherent Actions. That actually sounds... manageable. Almost like common sense. Joe: It does, but its power is in its ruthless application. The best example is Steve Jobs's return to Apple in 1997. It’s easy to forget, but Apple was in a death spiral. It was ninety days from bankruptcy. BusinessWeek had run a cover story titled "The Fall of an American Icon." Lewis: I remember that. Everyone thought they were done. The product line was a total mess. You couldn't figure out which computer to buy. Joe: Exactly. So Jobs comes back. What's his diagnosis? It wasn't some grand, visionary statement. It was brutally simple. He told Rumelt in an interview, "The product lineup was too complicated and the company was bleeding cash." That's it. That's the diagnosis. Lewis: No talk of changing the world or thinking different? Joe: Not yet. The immediate diagnosis was, "We are dying because we are confusing our customers and ourselves." From that diagnosis came the guiding policy: radical simplification. We will focus our energy on just a few products and make them great. Lewis: And the coherent actions? Joe: They were brutal and they were coordinated. He cut 70% of the product line. He killed the Newton, the printers, the servers. He consolidated fifteen desktop models down to one. He took a $150 million investment from Microsoft—his arch-rival—to signal that Office would still be on Mac, which was a critical action to keep the platform alive. Every move was coherent with the guiding policy of simplification to stop the bleeding. Lewis: Okay, but here's the pushback I've heard, and it's a fair one. It's easy to call that a brilliant strategy in hindsight. At the time, weren't people just saying he was a tyrant gutting the company he founded? A lot of critics feel Rumelt's examples are a bit too perfect because we already know they worked. Joe: That's a fantastic point, and Rumelt addresses it. The genius of Jobs's strategy wasn't that he could predict the future and see the iPod coming. The genius was in the coherence of the kernel. He correctly diagnosed the present problem—chaos—and applied a focused, logical solution. Most companies in that situation would have tried to do a little bit of everything. They'd hedge their bets. Jobs's strategy was powerful because it was so focused and disciplined. It wasn't about seeing the future; it was about having the courage to impose a logical structure on the present chaos. That's what makes it good strategy, regardless of the outcome.

Lewis: That makes sense. The courage to actually do it. Which brings up the big question: if the kernel of good strategy is this simple—diagnosis, policy, action—why do so many incredibly smart people in powerful positions produce such terrible, fluffy strategies like the one at International Harvester? Joe: Because, as Rumelt argues, bad strategy isn't an intellectual failure. It's a failure of will. It's the active avoidance of the hard, painful work of making choices. Lewis: It’s easier to write a fluffy mission statement than to tell half your company their projects are being cancelled. Joe: Infinitely easier. Strategy is choice. And choice means saying "no." It means prioritizing one goal, one department, one future over another. And that creates conflict. It makes people unhappy. So, many leaders try to create a "strategy" that accommodates everyone. The result is a set of vague, mom-and-apple-pie goals that nobody can disagree with, but that also achieve nothing. Lewis: It's a political document, not a strategic one. Joe: Exactly. There's a great, tragic case in the book about Digital Equipment Corporation, or DEC, in the early 90s. They were a minicomputer giant getting killed by the rise of the personal computer. They knew they had to change, so the senior executives held a big off-site meeting. Lewis: The classic strategy retreat. I feel a bad outcome coming. Joe: You're right to. Three clear, but conflicting, strategies emerged. One group said, "We're a hardware company, let's focus on making better 'Boxes'." Another said, "Our strength is our customer relationships, let's become a 'Solutions' provider." A third said, "Our real genius is in our chip technology, let's focus on 'Chips'." Lewis: All sound plausible. What did they choose? Joe: They chose none of them. The CEO, Ken Olsen, couldn't get a consensus. Each choice would have meant sidelining a powerful group of executives. So instead of making a hard choice, they issued a press release filled with... fluff. A vague, amorphous statement about being committed to high-quality products and leadership in data processing. Lewis: Oh no. It's the corporate equivalent of "We'll circle back on that." Joe: It is. And by trying to do everything, they did nothing. The company continued its decline and was eventually sold for parts. They failed because leadership was unwilling to make a choice. Bad strategy was a comfortable hiding place. Lewis: So that’s why we get those awful, generic vision statements. "Our vision is to be the leading global provider of excellent solutions." It's a statement designed to avoid having a strategy, because a real strategy would mean picking a direction and leaving other directions behind. Joe: You've nailed it. It's the seduction of the template. It feels like you're doing strategy, but you're actually just filling in blanks in a way that offends no one.

Joe: And that really brings us to the core of Rumelt's entire argument. Strategy isn't a vision board. It's not a list of ambitious goals. It's not about positive thinking. It's a specific tool for overcoming a specific, high-stakes challenge. Lewis: It’s a lever, not a wish. It’s about finding the one spot where a focused push will make the biggest difference. Joe: A perfect way to put it. And the reason good strategy is so rare and feels so unexpected when you see it—like with Jobs at Apple—is that it requires a leader to do two things that are profoundly difficult for humans: first, to look at a complex, messy reality and create a simple, coherent story about what's happening—the diagnosis. And second, to have the courage to focus all the organization's energy on that one story, even when it means making painful, unpopular choices. Lewis: So if we're sitting in a meeting and we want to avoid the fate of International Harvester or DEC, what's the one thing we should take away from this? What's the practical action? Joe: I think Rumelt would say you can cut through the noise by asking two simple, almost childlike questions. First: "What is the single biggest challenge we are actually facing here?" Not the ten challenges, the single biggest one. And second, for any proposed action: "How, specifically, does this action help us overcome that particular challenge?" Lewis: And if you don't get a clear, direct answer... Joe: Then you're probably looking at bad strategy. You're looking at fluff, or goals, or a list of disconnected tasks. You're not looking at a kernel. Lewis: I love that. I'm going to try it. And if you, our listeners, try it and get a response that's just a string of buzzwords, please send it to us. We're collecting the best, most meaningless examples of corporate fluff. It's for, uh, research. Joe: For our synergistic, value-added research paradigm. Lewis: Exactly. Joe: This is Aibrary, signing off.