(2022-05-25) The Crux With Richard Rumelt

Martin Reeves: The Crux with Richard Rumelt Rumelt discusses his new book, The Crux: How Leaders Become Strategists, suggesting that good business strategy is about identifying specific gnarly challenges and finding a way to conquer them.

The crux is an idea that comes from climbing, as you know. It means the hardest pitch or the hardest move on a climb. And the central message of the book is about focusing your strategic thinking on the hardest problem you face that you can actually do something about.

When I wrote “Good Strategy, Bad Strategy,” and that’s over a decade ago... And I was hoping I’d see practice improving because of my book.
Well, not so much. Actually, I think practice has gotten worse in many companies over the years.

their core problem was putting goals first. To put it in simple terms, lots of companies, when they have their strategy retreat or meeting, they start with the financial goals they want to achieve. We want to have a higher stock price. We want to have a higher profit margin. We want to have a higher return on capital. We want sales to expand. This is not a strategy. (goal setting)

There’s nothing wrong with having goals. We all have goals, but it’s a bad place to start because it short circuits the logic.

by looking at challenges, you generate much more interesting strategic questions, actions, and issues than you do if you start with aspirations and goals.

you make another counterintuitive statement about growth — you warn against prioritizing growth, which you say can lead to bad strategy

growth is the outcome of success. And it is the outcome of having, typically, a superior product or superior service, or superior strategy in a market that’s capable of dealing with expanding demand and growth. The problem is when you try to engineer growth through artificial means, through acquisitions, and through pumping up certain activities. you get yourself into trouble.

Good strategy, in the end, is a design created by judgment.

it’s better to start by looking at challenges

You want to narrow the field to — in extreme cases — the single most important thing you can actually do something about. (focus)

And this is your idea of ASCs, addressable strategic challenges. That’s the same thing as the crux, right?

Sort of, yes. They’re connected ideas: there may be several addressable strategic challenges. The crux is narrowing it down to something special

I believe, although some may disagree with me, that the most fundamental concept in strategy is concentration and focus. The oldest strategic teachings are: you focus your strength on where your opponent is weakest, or where the market opportunity is the greatest.

particular executive said he wanted to address longer-term challenges than I was looking at. Which makes sense. I mean, it’s not a crazy thought. But my recommendation for people is that strategy is a journey. You know, if you take the climbing metaphor, you climb to a ledge, you look around. You go up a crack for 10 feet. Then you climb to another ledge, and so on. It’s a series of challenges that you overcome

saying, okay, our long-term strategy is to get to the top. Okay. But it doesn’t tell you what to do at the next ledge. I find that too many companies that I get hired to help, or that I talk with, or that I visit, get bemused by this long-term vision. And it distracts them from concentrating force on the immediate problems that they face.

BCG is an expert at addressing cruxes. It’s given us some of the most useful tools in history for looking at this stuff. And I don’t mean the experience curve and the matrix. I mean all the use of microeconomic analysis, and pulling apart internal operations, and what works and what doesn’t work inside a company

all of that analytical toolkit is in support of the insight about what to do and how to design a solution. And that requires judgment and experience — there’s no other way of getting around it. It requires intellect, judgment, and experience. And you’ve got to bring people with those together.

When you actually work with a group of executives on strategy, you find that a lot of their problems are actually themselves; that their organization isn’t functioning well; that there’s something wrong. That they’re blunting their own actions with cross purposes, with policies that are negating each other. What they’re doing in a strategy conversation is really competing with each other for resources or power.

Strategy isn’t just about product market competition. It’s about your basic capabilities, which are restricted by your organizational ability.

there’s a sad example that I spend some time on, which is Nokia. Which kind of began to fall apart after Apple brought out its iPhone. But you know, if you look more deeply at Nokia, you find that it was organizational dysfunction at a high level that kept the company from being able to respond to this competitive threat. They knew about the iPhone from competitive intelligence. They knew about the touch screen and all of that. They just didn’t have the capability to focus resources on such a thing. They had actually spread their resources across hundreds of different mobile phone designs, partially to keep the mobile phone people from getting too powerful inside the organization!

nice example at the end of the book. And it’s a company that’s in farming, basically farming technology

they begin to see that they’re trying to compete where the value add of their technology is not so high.

And they begin to say, “Well, we ought to really be in the high-value food stuffs and fruits, not in corn. We’ve grown into the wrong places where we have no advantage.

Towards the end of the book, you describe a technique that you use called the “strategy foundry”

The Foundry is challenge-based. And I have a whole chapter on some of the tools that you can use in a Foundry to loosen things up, to get people to rethink things, and to look at the problem in a different and new way

I ask what are the real challenges here? And typically, people will generate eight or ten challenges. And then if you take any one of those and look at it more closely, it breaks into a few more. The most I’ve ever had in a Foundry experience was 27 different challenges identified.

We have to focus and concentrate. We have to find the crux

I believe the essence of strategy hasn’t changed much in several thousand years

Usually it’s not that they don’t know. It’s that there’s a barrier between the way they’re thinking about things and decisive action. They’re hung up in some way. And you can help them with that.