DIAGNOSE Concepts

Kernel of Strategy

There are three important elements in the kernel of strategy according to Richard Rumelt in his book Good strategy, Bad strategy.

1. a diagnosis that defines or explains the nature of the challenge,

2. a guiding-policy for dealing with the challenge,

3. a set of coherent-actions that are designed to carry out the guiding-policy.

Kernel of Strategy - Good Strategy, Bad Strategy by Richard Rumelt

Diagnosis

Richard Rumelt in his book Good Strategy, Bad Strategy, states:

Diagnosis defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical

Key points:

Diagnosis

• defines the challenge. What’s holding you back from reaching your goals?

• it simplifies the reality. Narrate in simple terms.

• may use metaphor or analogy

• should avoid buzzwords or fluff "superficial restatements"

Strategy Lenses

It is a concept often used to discover strategy choices. Their are four lenses:

• Financial - what is required to create value?

• Market - are we playing in the right market with opportunities for growth?

• Competitive Advantage - how to win the target markets?

• Operating Model - can we deliver?

source: McKinsey

Financial lens: Analyzing your financial performance is a good starting point. An outside-in view is highly recommended to this purpose. According to INSEAD:

The Inside-Out approach is guided by the belief that the inner strengths and capabilities of the organization will make the organization prevail. The Outside-In approach is instead guided by the belief that customer value creation, customer orientation and customer experiences are the keys to success.

Things to analyze:

• performance levels to justify current valuation

• what returns to be delivered to exceed expectations - delivering top-quintile returns to shareholders

• peer performance review

Market lens: Identify segments where the business can grow, such as different channels, regions, or demographic segments. Analyze the need for growth of specific products or markets to allocate resources accordingly. For example, millennials vs. boomers, or brick-and-mortar vs. online, or one geographic region vs. another. The goal is to discover market segments that offer growth over time?

Competitive advantage lens: Analyze capabilities to determine if we need a change to win in current and future markets, and if we need a change, which capabilities are critical to success. For example, if the strategy is to move from brick-and-mortar retail to online retail, do we have the necessary digital capabilities? Do we need a digital platform? Do we need to participate in the API economy? A capability map can be a tool to identify capability gaps and develop a roadmap for the future.

Operating model lens: Analyze whether or not the organization is set up for success. Take a close look at people, processes, and technologies to identify gaps and deficiencies. Are we putting resources in the right place?

Further Reading

Seeing your way to better strategy - McKinsey

Good Strategy/Bad Strategy: The Difference and Why It Matters - Richard Rumelt

Business Strategy: Are you inside-out or outside-in by Insead