Richard P. Rumelt Quotes

A strategy coordinates action to address a specific challenge. It is not defined by the pay grade of the person authorizing the action.

The enhanced ability to obtain external funding and ... capacity to deploy capital internally to the most promising of a wide range of divisional ventures.

Back in the mid-1990s I was researching strategy in the global electronics industry. I interviewed 20 to 30 executives, CEOs, and division managers and asked fairly simple questions. Which company was the leader in their market? How did that company become the leader? What’s their own company’s strategy?

In 1805, England had a problem. Napoléon had conquered big chunks of Europe and planned the invasion of England. But to cross the Channel, he needed to wrest control of the sea away from the English. Off the southwest coast of Spain, the French and Spanish combined fleet of thirty-three ships met the smaller British fleet of twenty-seven ships. The well-developed tactics of the day were for the two opposing fleets to each stay in line, firing broadsides at each other. But British admiral Lord Nelson had a strategic insight. He broke the British fleet into two columns and drove them at the Franco-Spanish fleet, hitting their line perpendicularly. The lead British ships took a great risk, but Nelson judged that the less-trained Franco-Spanish gunners would not be able to compensate for the heavy swell that day. At the end of the Battle of Trafalgar, the French and Spanish lost twenty-two ships, two-thirds of their fleet. The British lost none. Nelson was mortally wounded, becoming, in death, Britain’s greatest naval hero. Britain’s naval dominance was ensured and remained unsurpassed for a century and a half.

When organizations are unable to make new strategies — when people evade the work of choosing among different paths in the future — then you get vague mom-and-apple-pie goals everyone can agree on. Such goals are direct evidence of leadership’s insufficient will or political power to make or enforce hard choices.

I consider myself a mainstream researcher in the field of business policy, and the ideas I want to describe in this paper concern the foundations of a theory of business strategy that is rooted in economics. But is such a paper, whatever its merits, really appropriate at a conference entitled 'Non-traditional Approaches to Policy Research'? Surprisingly, it is. The use of economic theory to model and explicate business strategy, as it is understood within the field of business policy, is distinctly non-traditional.

The kernel of strategy contains three elements:

Changes don't come along in nice annual packages, so the need for strategy work is episodic, not necessarily annual.

In summary, uncertain imitability obtains shen creation of new production functions is inherently uncertain and when either causal ambiguity or property rights in unique resources impede imitation and factor mobility.

Nelson’s challenge was that he was outnumbered. His strategy was to risk his lead ships in order to break the coherence of his enemy’s fleet. With coherence lost, he judged, the more experienced English captains would come out on top in the ensuing melee. Good strategy almost always looks this simple and obvious and does not take a thick deck of PowerPoint slides to explain. It does not pop out of some "strategic management" tool, matrix, chart, triangle, or fill-in-the-blanks scheme. Instead, a talented leader identifi es the one or two critical issues in the situation—the pivot points that can multiply the effectiveness of effort—and then focuses and concentrates action and resources on them.

[In related businesses] common skill, market or resource applies to each.

This study partitions the total variance in rate of return among FTC Line of Business reporting units into industry factors (whatever their nature), time factors, factors associated with the corporate parent, and business-specific factors. Whereas Schmalensee (1985) reported that industry factors were the strongest, corporate and market share effects being extremely weak, this study distinguishes between stable and fluctuating effects and reaches markedly different conclusions. The data reveal negligible corporate effects, small stable industry effects, and very large stable business-unit effects. These results imply that the most important sources of economic rents are business-specific; industry membership is a much less important source and corporate parentage is quite unimportant.

The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.

A major advancement in the strategy field is the development of models where firm heterogeneity is an endogenous creation of economic actors.

It is commonly accepted that successful performance of a firm hinges on restricting activities to cultivating a related and familiar range rather than 'bold moves into uncharted'.