According to Richard Rumelt, Professor and author, a good strategy has an underlying structure built on a foundation based on what he calls the kernel. 

The kernel contains three parts: 

A diagnosis that defines or explains the nature of the challenge, This diagnosis  simplifies the complexity of the challenge by identifying certain aspects of the situation as critical,

A guiding policy that deals with the identified challenge. This policy is an overall approach designed to overcome the obstacles in the diagnosis.

A plan of coherent actions according to the guiding policy. These steps are coordinated with one another to work together in accomplishing the guiding policy.

For businesses, the challenge is usually dealing with change and competition.

The first step is diagnosing the specific structure of the challenge rather than simply naming goals. 

The second step defines your guiding policy to create leverage or advantage.

The third step creates your action plan to implement the guiding policy.  

This kernel is the bare-bones center of a strategy. Note: it leaves out visions, hierarchies of goals and objectives, references time or scope, and ideas about adaptation and change. All of these are necessary to support the strategy.  

Diagnosis

At a minimum, the diagnosis names or classifies the situation, linking acts into patterns and suggesting more attention required for some issues and less for other problems. An insightful diagnosis can transform one’s view of the situation and open up radically different perspectives. 

 When a diagnosis identifies a specific situation, analogous examples can become instructive. 

Starbucks coffee, for example, had declining profits in 2008. The problem was: 

diagnosis 1, An issue of managing expectations, 

diagnosis 2, A need to search for a new growth platform, 

diagnosis 3, An eroding competitive advantage. 

Each diagnosis suggests a range of things to do. But, none of these diagnoses may be correct. Therefore, diagnosis is a judgment about the meaning of facts.

Their problem, however, was il structured, meaning no one could be sure how to define the problem. There was no prominent list of promising approaches or actions, and the connections between most actions and outcomes were unclear relative to the problem. Therefore the diagnosis was an educated guess about what was determined to be necessary.

A strategic diagnosis does more than explain a situation — it also defines an area of action. The diagnosis of a good strategy promises leverage over the outcome.

A diagnosis is generally a metaphor, analog, or reference to an earlier diagnosis or framework that has already gained acceptance.

When he became CEO of IBM, Lou Gerstner changed the company’s diagnosis from focusing on too many different products to one company but focused on the customer rather than the hardware.  

The Guiding Policy

The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis. It is “guiding” because it channels action in specific directions without defining every need.

CEO Gerstner’s diagnostic of IBM is an example of a guiding policy. The guiding policies direct and constrain action without fully defining its content. Guiding policies are not goals; they represent a way to solve the problem or situation and at the same time rule out a group of possible actions.  

A good strategy is not just what you are trying to do; It is also why and how you are doing it. The guiding policy draws on the sources you can use to gain an advantage. 

A guiding policy creates an advantage by anticipating the actions and reactions of others. Reducing complexity also lets you gain leverage by concentrating your efforts.   

Coherent Action

Many people refer to the guiding policy as the strategy and stop there. Wrong. Strategy is about action. Doing something, The kernel of strategy must contain action; It doesn’t have to include all activities, but enough to implement the strategic concept.  

The planed actions within the kernel of strategy should be coherent, meaning they should be consistent and coordinated. The coordination of movement provides the most fundamental source of leverage or advantage available in strategy.

Strategic actions that are not coherent are either in conflict with one another or taken to pursue other unrelated challenges.

Conclusion

This concept of the kernel of strategy is not easy to execute and takes considerable time. But, it is critical to a company’s success and continued success over time. Don’t wait to do this later. Start from day one and keep a record. 

Remember, this initial strategy is a hypothesis and must be tested, adjusted as necessary, and validated. Also, modified as industries, technologies, markets, and customers change,