Leadership · Enterprise

Strategy Kernel (Rumelt)

Richard Rumelt's Strategy Kernel from 'Good Strategy Bad Strategy' argues that most 'strategies' are not strategies at all — they are goals, aspirations, or lists of actions without strategic logic. A real strategy has three parts: a Diagnosis that defines the challenge, a Guiding Policy that outlines the approach to dealing with it, and a set of Coherent Actions that implement the policy. If any part is missing, you don't have a strategy.

When to use this framework

→Testing whether your current 'strategy' is actually a strategy
→Developing a new strategy for a business unit, brand, or function
→Simplifying an over-complicated strategic plan
→Presenting strategy to leadership in a clear, logical structure
→Workshop exercise for aligning a leadership team on strategic direction

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Worked Example

Tesla (circa 2016)

1. Diagnosis

The Challenge

What is the critical challenge facing your organisation? A good diagnosis simplifies complexity by identifying the 1-2 factors that are most important. It is NOT a goal or desired outcome — it is an honest assessment of what's standing in your way.

The critical challenge is that electric vehicles are perceived as either expensive luxury items (Tesla Model S) or cheap, compromised econoboxes (Nissan Leaf). There is no compelling EV for the mass-market consumer who wants a great car that happens to be electric. Until EVs achieve mass-market price parity with ICE vehicles, the transition to sustainable transport will stall at early adopters.

Supporting Evidence

What data, trends, or observations support this diagnosis? Why is this the right framing of the problem?

EV market share in 2016: <1% of global car sales. Tesla Model S average price: $85K (top 5% of car buyers). Nissan Leaf range: 107 miles (range anxiety barrier). Consumer surveys: 78% of car buyers 'interested in EVs' but only 3% willing to pay a >$5K premium. Battery costs declining 20% annually — $190/kWh in 2016, projected $100/kWh by 2023. Key insight: the problem is not technology — it's that no manufacturer has built a desirable mass-market EV because batteries are still too expensive for a profitable $35K car today.

What This Is NOT

What alternative diagnoses did you consider and reject? Why is your diagnosis better than these?

This is NOT about competing with Toyota on hybrid technology (half-measures don't accelerate the transition). This is NOT about being a luxury-only brand (that limits impact). This is NOT about waiting for battery costs to fall — Tesla needs to actively drive that curve down through scale. This is NOT a marketing problem — it's a product and manufacturing challenge that marketing alone cannot solve.

2. Guiding Policy

Guiding Policy

The overall approach to dealing with the challenge. This is not a specific action — it is a policy that channels and constrains action. A good guiding policy rules things out. It says 'we will compete THIS way, not THAT way.'

Build desirability from the top down — start with premium, fund the development of mass-market, and own the entire EV value chain (batteries, charging, software) to achieve cost advantages that traditional automakers cannot match. Use each product generation to fund the next, more affordable one, while building the charging infrastructure that eliminates range anxiety.

What This Rules Out

A good guiding policy says no to things. What does your policy explicitly rule out or deprioritise?

Rules out: partnering with existing dealers (direct sales model only). Rules out: licensing battery technology to competitors (vertical integration is the moat). Rules out: building a cheap, compromised EV first (the brand must be aspirational before it can be affordable). Rules out: waiting for government mandates to create demand (Tesla will create demand through product desirability).

3. Coherent Actions

Action 1

A specific, coordinated action that implements the guiding policy. Must be concrete and assignable.

PRODUCT: Launch Model 3 at $35K starting price with 220+ mile range by 2017. Use profits from Model S and Model X to absorb initial Model 3 margin pressure. Target: 500K units/year by 2020. This is the 'iPhone moment' for EVs — a product that's simultaneously aspirational and accessible.

Action 2

A second coordinated action. Together with Action 1, these should reinforce each other.

MANUFACTURING: Build Gigafactory 1 in Nevada to manufacture batteries at scale, driving cell costs down 30% through volume and vertical integration. Own the battery supply chain from raw materials to finished pack. This is the structural cost advantage that makes the $35K price point viable while traditional automakers remain dependent on external suppliers.

Action 3

A third coordinated action. All three actions should be coherent — they should make each other more effective.

INFRASTRUCTURE: Expand Supercharger network to 10,000+ stations globally by 2018. Make long-distance EV travel as convenient as gas by placing chargers every 100 miles on major routes. This eliminates the #1 purchase barrier (range anxiety) and creates a proprietary ecosystem advantage that competitors cannot easily replicate.

4. Coherence Check

Coherence Check

Do the three actions reinforce each other? Does the guiding policy logically follow from the diagnosis? Could a competitor easily copy this strategy? If so, it's not distinctive enough.

Strong coherence. The three actions reinforce each other powerfully: the Gigafactory (Action 2) reduces battery costs, making the Model 3 price point (Action 1) viable. The Supercharger network (Action 3) eliminates range anxiety, making Model 3 buyers confident in their purchase. And Model 3 volume (Action 1) justifies Gigafactory scale (Action 2) and Supercharger network expansion (Action 3). The guiding policy (top-down desirability + vertical integration) directly addresses the diagnosis (EVs seen as expensive or compromised). A traditional automaker could not easily copy this because they lack: (a) the brand permission to sell direct, (b) the battery manufacturing scale, and (c) the willingness to cannibalise their ICE business. The strategy's distinctive power comes from doing all three simultaneously.

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