Chapter 4
Strategy as an Ongoing Journey
Perhaps the most liberating insight in Rumelt's work is that strategy isn't a long-range sketch of a desired destination but rather an ongoing journey through a sequence of challenges. Like mountain climbing where you tackle each problem as it appears, real business strategy involves confronting and solving critical challenges as they emerge. This approach requires leaders to remain flexible, maintain situational awareness, and be willing to pivot when circumstances demand it.
Salesforce.com's development perfectly illustrates this evolution. Marc Benioff's vision was to simplify by putting all software in the cloud, allowing anyone with a web browser to access CRM for a monthly fee - no local servers, installation charges, or IT department needed. When initial attempts to sell directly to individuals faltered, he offered free access for up to five users per company with a $50 monthly fee for additional users. This "freemium" model became a cornerstone of SaaS business strategy, demonstrating how tactical adjustments can lead to industry-wide transformation.
As the company evolved, it navigated multiple strategic pivots. Initially targeting large enterprises, Salesforce recognized the untapped potential in small businesses and adjusted its approach. During the dot-com crash, when many competitors failed, Salesforce adapted its pricing model to ensure survival. The company then expanded beyond basic CRM functionality, transforming into a comprehensive cloud platform through innovations like AppExchange (an "iTunes for business"), custom coding tools, and social networking features. Each expansion represented a strategic response to emerging market opportunities and customer needs. By 2021, Salesforce had grown to 60,000 employees, achieved a market valuation of $243 billion, and ranked second on Fortune's "best companies to work for" list.
Ryanair's journey offers another compelling example of strategic adaptation. After an initial failure competing with Aer Lingus on the London-Dublin route, CEO Michael O'Leary visited Southwest Airlines and experienced what he called "the road to Damascus" moment. This led to Ryanair's dramatic reinvention with a bare-bones cost structure even more extreme than Southwest's model. The airline began flying to secondary airports, eliminated complimentary services entirely, and pioneered ancillary revenue streams through baggage fees and in-flight sales. These strategic choices, though initially controversial, proved transformative. By 2019, Ryanair had become Europe's largest budget carrier, serving 40 countries with 7.7 billion in revenue and 885 million in profit, demonstrating how radical strategic shifts can lead to market leadership.
These examples illustrate how successful strategy must continuously evolve in response to market dynamics, competitive pressures, and technological changes. An effective strategy process becomes the entrepreneurial task of solving challenges and seizing opportunities along the way, not merely restating a vague overall purpose. This requires leaders to maintain strategic flexibility while staying true to their core competitive advantages, creating a balance between consistency and adaptation that drives sustained success.
Chapter 5
Focusing Where You Can Win
The key to strategy is focusing on challenges where you can win rather than wasting resources on unwinnable situations. This principle is exemplified by Admiral Harold Stark's "Plan Dog" memo from 1940. With Germany having conquered France and Japan allied with Nazi Germany while invading China, US military planners faced potential war in both Europe and Asia. Stark's crucial insight was that America couldn't effectively fight two world wars simultaneously. He outlined four strategic options, and President Roosevelt chose option D ("Plan Dog"), which prioritized Europe over Asia. This "Germany First" strategy was codified in a March 1941 agreement with Britain.
Often the crux of a strategic challenge isn't an external threat but conflicts among our own ambitions. When multiple values and desires create overlapping constraints, there may be no feasible action satisfying all objectives. These "null sets" typically lead to myopic vacillation between competing priorities.
The Vietnam War exemplifies this problem. President Johnson didn't want to "lose Vietnam" but also didn't want to distract from his Great Society programs. His administration wanted to maintain America's reputation as a reliable ally without engaging in a major war. They bombed North Vietnam while ruling out key targets, and pursued a war of attrition despite knowing the North's greater willingness to sustain casualties. Secretary McNamara recognized this contradiction by 1968, exploding that despite repeated troop requests, "Nobody knows whether it will make any difference... There is no plan to win the war."
I call what passes the joint filters of critical importance and addressability an ASC (addressable strategic challenge). The number of ASCs that can be simultaneously worked depends on organization size and resource depth. Working with Mark Kott at O-I, we found that judgments on these dimensions often differ, requiring either hierarchical resolution or valuable discussion about why opinions diverge.
The discipline of addressability encourages breaking complex challenges into smaller chunks, one of which can be tackled today. As Georges Doriot said, "Without action the world would still be an idea."
Chapter 6
The Growth Paradox
Growth challenges are the most common diagnosis I hear from company leaders, though slowing growth often naturally results from maturing products or saturated markets. For massive companies like Walmart, doubling size becomes nearly impossible. True growth challenges involve competitive pressures, organizational agility limitations, and entrepreneurial insight.
There's an important distinction between company size growth and share price growth. The stock market evaluates companies not on absolute performance but on how they perform against expectations - similar to grading students on how they beat forecasts rather than actual achievement. Stock prices follow earnings as long as growth is slow compared to market returns, but dramatic price movements occur when growth unexpectedly accelerates or decelerates.
Despite seeming obvious, delivering exceptional value to an expanding market remains the fundamental formula for business success. When working with Varnico, a food-processing industry service provider whose CEO was under pressure to "get the share price moving," I showed him data revealing no clear association between revenue growth and total shareholder return. The key to increasing company value is unexpected growth that hasn't been bought through acquisitions or accounting tricks.
Like Strunk's command to "Omit needless words" in writing, businesses must "Omit needless activities" to grow effectively. S&P Global exemplifies this principle. Under CEO Harold McGraw III and CFO Jack Callahan, the company transformed from a publishing conglomerate to a focused financial information powerhouse. They sold Business Week to Bloomberg, divested broadcasting and education businesses, construction publications, and J.D. Power. Though revenues initially dropped from $6.2 billion to $4.2 billion, the concentrated focus on financial data allowed them to develop new products with margins reaching 50% by 2019.
Reaction time is also critical in competitive situations - the first capable response often wins. John Boyd's insights from Korean War air combat, where American F-86 Sabres consistently downed superior Russian-flown MiG-15s, revealed the importance of going around the "Boyd Loop" (observation, orientation, decision, action) faster than opponents. In business, this quickness manifests in customer responsiveness and product development cycles.
Chapter 7
The Power Dimension of Strategy
Strategy inherently involves exercising power - making some activities, people, and departments more important than others. This reality often makes people uncomfortable in an era that emphasizes visionary leadership and shared purpose over directed action. When Swedish academics gasped at the mention of "exercise of power" in strategy, it revealed a broader intellectual discomfort with acknowledging human agency in organizational systems.
The CEO of WebCo, Sharon Thompson, exemplified this common discomfort. She sought a vision/mission/strategy statement that would simultaneously inspire and provide specific direction so "everyone will know what to do." Her statement described providing web commerce software across multiple platforms with developer support, but failed to address the actual market challenges she faced. WebCo was burning capital while trying to serve too many customer segments across three programming languages. Despite understanding the competitive landscape, Sharon lacked the appetite for exercising executive power to focus the company's limited resources.
By contrast, Stan Hastings demonstrated how to build executive power as a newly hired CEO at MetalCo. Though brought in to fix the troubled Electrometals Division and pursue growth markets, he faced resistance from the head of the cash-generating Metal Division. Rather than confronting this power center directly without board support, Stan took an indirect approach. He fired the head of Electrometals, personally managed its turnaround for seven months, then sold it to acquire promising new businesses. With these successes and strengthened board backing, he finally gained enough executive power to fire the Metal Division head and begin improving its operations.
Nora Frank, head of R&D for nautical products at GrandCo, built executive power from a position of limited authority. Trapped in a dysfunctional organization where manufacturing, sales and marketing were all under separate leadership with no profit-and-loss responsibility below the CEO level, she created a "virtual division" to coordinate nautical product strategy. Starting with allies in marketing and sales, she assembled a cross-functional team that developed virtual P&L statements and coordinated planning. Over four years, this group gained approvals for product extensions from yachts to commercial vessels, eventually securing budget for fleet products. The new CEO, impressed with her entrepreneurial approach, formalized her virtual division and put her in charge.
Chapter 8
Creating Coherent Action
Coherent actions support rather than contradict each other, and at their best, work synergistically to create additional power. Petzl exemplifies this through its intense product focus on equipment for "anyone who is trying to move up or down under the constraints of gravity." Founded by caver Fernand Petzl in the 1970s and later led by his son Paul, the company built its reputation on quality and trust - essential when customers trust their lives to the equipment. This coherence is demonstrated through their rapid response to the New York Fire Department's request for a building-escape system, developing the Exo personal evacuation system and quickly fixing issues discovered during training.
By contrast, the space shuttle represents a case of incoherent strategy despite being an engineering marvel. Though it completed 133 successful missions, it never achieved its goal of making space access cheap and easy. Two fundamental problems plagued it: fabricated cost estimates and design by committee. NASA's 1972 claim of reducing launch costs to under $100 per pound ended up being $28,000 per pound in reality. The design suffered from trying to satisfy everyone - NASA wanted deep space exploration, Werner von Braun wanted a flying space plane, the Air Force demanded wings, and Congress wanted low costs.
Similarly, the United Nations' seventeen Sustainable Development Goals from 2015 demonstrate how easily organizations can set objectives that lack coherence. Though each goal represents an admirable aspiration, they frequently contradict each other. Healthy oceans (Goal 14) conflicts with fishing livelihoods that address poverty and hunger (Goals 1 and 2). Energy access (Goal 7) conflicts with climate action (Goal 13) under current technology.
While specialized companies like Southwest Airlines, Netflix's DVD-by-mail business, and IKEA demonstrate tightly knit coherent strategies, larger organizations can't match that level of coherence. Instead, they should at least meet "minimum coherence" - ensuring actions don't directly conflict. Examples of incoherence include basing competitive edge on development while cutting R&D, adopting trendy marketing for stable products, outsourcing software while claiming data wizardry as a strength, or claiming to support free speech while shutting down political sites.
Chapter 9
Diagnosis: The Heart of Strategic Thinking
Strategy is problem-solving, and you cannot solve a problem you haven't understood. Diagnosis seeks to understand why challenges have become salient, what forces are at work, and why difficulties persist. This work employs tools of analogy, reframing, comparison, and analysis to understand what's happening and what's critical.
Outsiders have advantages in organizational diagnosis, as they can ask "dumb questions" without looking foolish. Diagnosis involves repeatedly asking "what" and "why" about challenges. The most powerful diagnostic tool is reframing - changing how a situation is viewed. Senior leaders' frames focus attention on certain issues and measurements; diagnosis requires testing and adjusting these frames.
In 2016, I met with QuestKo's CEO to discuss strategy. Their "strategic plan" was a colorful PowerPoint full of positive promises about growth and value but lacking strategic substance. When I asked "Why is this difficult?" the executives slowly revealed actual problems: declining performance, poor integration among five acquired divisions, low customer satisfaction ratings, and disjointed systems. The turning point came when we reframed from setting motivational goals to identifying a critical winnable challenge: improving customer satisfaction. This became the crux when the CEO realized it could also help integrate the divisions.
Steve Jobs diagnosed a value denial - something people would want but couldn't buy: a pocket-sized combination web browser and phone. After success with iTunes and iPod in 2001, Apple began exploring both a phone-iPod hybrid and a portable "book" computer. The breakthrough came in 2005 when engineer Bas Ording created the rubber-band inertial scrolling interface. Seeing this, Jobs pivoted: "My God, we can build a phone out of this." His diagnosis was that technology had reached the point where a true web-browsing phone was possible, and people would pay for it.
Diagnosis often relies on analogy, but the key is having multiple reference points and carefully checking how their logic maps to your situation. When Apple introduced the iPhone in 2007, many industry experts predicted failure based on a flawed analogy to the PC business. They believed mobile phones would follow the same pattern as PCs, where IBM's open architecture led to commoditization and thin margins for hardware makers while Microsoft and Intel captured most profits. But this analogy failed because Apple hadn't made IBM's intellectual property mistakes, the consumer smartphone market was fundamentally different from business-driven PC adoption, and Apple's closed ecosystem approach proved superior for the mobile experience.
Chapter 10
The Strategy Foundry: A New Approach
The Strategy Foundry represents a fundamentally different approach from traditional strategic planning. Rather than producing long-term budgets, it's a process enabling a small executive group to practice challenge-based strategy, identify the crux of their problems, and develop coherent actions to overcome critical obstacles.
For a Strategy Foundry to succeed, senior executives must commit to a challenge-based approach rather than having predetermined answers. The team must understand this is neither a financial exercise nor about setting budget-like performance goals. The process works best with a small group of senior executives meeting off-site for two to five days, with a facilitator who has conducted confidential pre-interviews to surface opinions participants might hesitate to state openly.
The foundry employs several specialized tools, including deferred judgment (preventing premature convergence on solutions), exposed beliefs (presenting judgments without attribution), written questions and answers (providing confidential insights), attention to history (examining what has worked well and what hasn't), and starting with the challenge rather than goals.
When groups get bogged down in details, the "instant strategy" exercise breaks through by having each participant write down one focused, actionable recommendation in a single sentence. These anonymous suggestions sometimes reveal unexpected directions, as with XRSystems, where "automotive sensors" emerged as a wild card that took the company in a profitable new direction.
Finding Addressable Strategic Challenges (ASCs) is one of the most powerful foundry tools. Modern organizations give little attention to the costs of complexity - each new initiative draws attention and cognitive resources from others, blunting their effectiveness. The foundry process boils situations down to a few challenges that are both important and addressable, where the crux typically resides.
Strategy is fundamentally about focus. Most organizations gradually defocus, trying to do fifty different things and doing none well. Proximate objectives - specific tasks with reasonable chances of success in the short term - provide powerful focus. These aren't performance goals but accomplishable tasks that can be completed fairly soon. Nothing motivates better than winning, and tackling important objectives successfully sets the stage for the next battle. Good strategy evolves through a series of proximate objectives rather than pursuing a distant vision.
Two-faced management - agreeing to strategic decisions in meetings but undermining them afterward - can derail implementation. "Swearing in" helps instill commitment by having participants gather in a circle and affirm that their strategic choices are binding until the next foundry. They pledge not to disparage these decisions to others, not to undermine them, and to support one another in accomplishing them.
The public face of strategy should avoid listing numerous goals and instead focus on a few key priorities (no more than three). Good strategy documents shouldn't try to mention everything important or have "a present under the Christmas tree for each interested party." True strategy is about focus, not about documenting everything everybody does.
