When President Kennedy set the goal of putting Americans on the moon, he settled many conflicting debates about America’s role in space and how to compete with the Russians. He defined a clear challenge — land a man on the moon before the end of the decade.

At the Jet Propulsion Laboratory, engineers were struggling to design the Surveyor probe—a robotic scout that would test-land on the lunar surface so future manned landers could follow. But the scientific community was divided over what the moon’s surface was really like. Some believed it was covered in deep, powdery dust; others thought it was a chaotic jumble of boulders or jagged, scorched spikes. The paradox was that engineers couldn’t design a probe to measure the surface until they knew what kind of surface they were landing on.

In 1964, I worked at JPL for Phyllis Buwalda, the director of Future Mission Studies. The scientific ambiguity about the moon’s surface annoyed her. Her memorandum on the lunar surface described it as hard and grainy, with moderate slopes, scattered small stones, and occasional boulders. In effect, she specified that the moon would resemble the Southwestern desert.

This was not a statement of truth. No one knew the truth. Her memorandum was a working specification. When I questioned her—pointing out that we had no real knowledge of the lunar surface—she replied simply: “The engineers can’t work without a specification. If it turns out to be much more difficult than this, we won’t be spending much time on the moon anyway.”

Phyllis’s working specification was a deliberate resolution of ambiguity into an actionable description. It was the bridge from “we don’t know” to “we are building.” Her specification passed on to the engineers a simpler problem—not one that was easy, but one that was solvable. With that assumption in place, design work could begin.

It took time and effort, but two years later, JPL’s Surveyor 1 landed in the Moon’s Ocean of Storms. It revealed a surface closely resembling Phyllis’ specification.

Some leaders and managers have found a different way to get “unstuck.” Instead of trying to understand every detail of these complex challenges, they make two key decisions that help them move forward.

Step 1. Identify a critical challenge. The leader identifies a critical difficulty that is currently blocking progress. This is often a creative choice rather than a deduction. This choice moves the conversation from a general desire to “be better” to a specific labeling of what is standing in the way. Analysis can inform this judgment, but in the end, it is an act of courage. In a jungle of tangled issues, opportunities, and challenges, a leader says, “This is the issue we must address to move forward.” Don’t let anyone fool you—-there is no surefire way to make such choices and always be right. But, deferring until things are clear is almost always wrong. The hoped-for clarity is revealed by the the successes of your competitors.

Step 2. Create a working specification.
Defining the critical challenge still leaves enormous ambiguity about what actually to do. The second step is to create a working specification—a simplified representation of reality that is good enough to organize action. This is a deliberate choice to specify a pattern of work that the organization is well equipped to handle. It is not a claim of absolute truth, but a functional reality that provides the direction necessary for productive effort.

A great Working Specification is never an idealized blueprint; it is an exercise in resource constraint. It requires a cold-eyed audit of what your organization is actually optimized to do. The architecture of a good specification relies on three parameters:

• Tractability Over Ambition: The specification must translate an important challenge or opportunity into an everyday task that utilizes existing organizational literacy. It does not ask the rank-and-file to invent a completely new capability or shift their skills overnight. Instead, it forces the problem back into a framework that the team already knows how to execute, stabilize, and scale. It intentionally trades a fraction of grand ambition for immediate, coordinated tractability.

• Hard Boundaries vs. Broad Metrics: Rather than issuing a vague performance target or a high-level metric—which leaves the team debating how to achieve it—a good Working Specification introduces a hard, binary constraint. This narrowing of the field of play forces the organization’s technical or operational capability to focus purely on execution and engineering, rather than on philosophical interpretation.

• The Ambiguity-Absorption Index: A specification must absorb the exact type of uncertainty that frontline execution units are least equipped to handle. The leader stands at the boundary, takes the hit of the unmapped environment, and passes downward a simplified, bounded problem matched to specific competence of the team.

Unfortunately, too many leaders do not do this. Why doesn’t this kind of powerful simplification happen more often?

I have seen this hesitancy to sharply define the key job to be done all too frequently in my own consulting practice. Leaders who should be creating a working specification instead rely on the rhetoric of ambition and the indirect tools of goal-setting and performance reviews. In doing so they are unconsciousness following the precepts of a particular management doctrine.

Over the past fifty years, two ideas have come together to shape what is now the dominant, yet limited, approach to management. The first is Peter Drucker’s concept of “management by objectives,” which involves guiding actions through negotiated performance targets instead of strict instructions. The second is “transformational leadership,” the belief that leaders should inspire and energize people through a compelling vision, rather than by dictating tasks. Together, these ideas have shifted the role of top management to one of setting direction and motivating, leaving the actual work to emerge organically and often unpredictably.

Most entrepreneurs are resistant to this drug. They usually have an intimate familiarity with the work-processes of their companies.

While Phyllis Buwalda was resolving the physics of a landing, the same logic applies to resolving the evolution of a technology or market. OpenAI and the race for artificial intelligence provide just such an example.

In 2015, deep learning was accelerating rapidly. The founders of OpenAI wanted to bet on deep learning and also work on preventing AI from becoming an existential risk. The creation of that company was a classic Step 1.

Research on deep learning continued until Google published the 2017 paper introducing the Transformer architecture. At first, most people thought the Transformer was just a clever way to translate languages. But at OpenAI, researcher Alec Radford had a different idea. He started tinkering with the Transformer, stripping it down to a simple, almost playful challenge: could a computer learn to guess the next word in a sentence, all by itself? When the first results rolled in, Ilya Sutskever, OpenAI’s Chief Scientist and one of the company’s founders, realized they might be onto something big.

Sutskever’s Step 2 was to cut through the noise. Instead of wasting time in endless debates about the mysteries of human thought, he told his team to focus on something they could build and measure. He pulled the lab away from scattered theory and pointed everyone in a single direction: forget everything else and see how far the Transformer and next-word prediction could take them—especially if they threw massive computing power and data at the problem.

Many experts thought this was a dead end. In 2018, most believed that relying on something as simple as next-word prediction was a neat party trick—not sufficient to build real intelligence. Critics insisted that true AI had to be built on complex logic and sprawling knowledge databases.

But Sutskever didn’t get bogged down in these arguments. He was comfortable with not having all the answers. Instead, he took a leap of faith—what if intelligence could emerge from a system trained to guess the next word, over and over, on a truly grand scale?

Suddenly, the impossible seemed practical. OpenAI’s team was no longer trying to recreate the human mind but to make steady progress on a doable task. By swapping out philosophical soul-searching for a clear, measurable task, OpenAI gave thousands of researchers something concrete to work toward—and, almost by accident, discovered new ways for machines to reason.

[To get a deeper sense of this fascinating story, watch Ilya Sutskever’s “The Exciting, Perilous Journey Toward AGI” on YouTube]

Sutskever was enforcing a Working Specification at OpenAI. At NVIDIA, CEO Huang did so twice.

Jensen Huang has applied the two-step leadership move twice at the same company, fifteen years apart. Each time, the situation was different. The logic was identical.

The first occasion came in 1996, after NVIDIA’s first two products had failed. The company had bet on proprietary graphics architecture and a multimedia convergence strategy — and lost. Thirty-five competitors were vying for the PC graphics market. Intel had just entered the market. A startup called 3Dfx was dominating with its Voodoo chip.

Huang’s Step 1 was to identify what the real challenge was and what it was not. NVIDIA was not a multimedia company. It was not a console gaming company. It was a 3D graphics chip company for the PC, and it had to win that specific battle or cease to exist. In a jungle of conflicting possibilities, he named the one that mattered.

His Step 2 was a working specification precise enough to organize action across a small, stressed organization. NVIDIA would abandon its proprietary “surfaces” approach and embrace the DirectX standard triangles geometry. It would design its chips directly for Microsoft’s DirectX API rather than hedging its bets. In a chip industry geared to Intel’s 18-month release cycle, it would organize its engineers into three overlapping development teams to sustain a six-month release cycle. And it would design its own software drivers through simulation and emulation, rather than delegating that work to board manufacturers.

These specifications were concrete enough that engineers knew exactly what problem they were working on. The result was the RIVA 128, released in 1997, which saved the company. NVIDIA went from near failure to market leadership in four years.

The second occasion came in 2012-2013, when Huang faced a different kind of crisis. NVIDIA had spent seven years and enormous resources building CUDA, a programming platform that allowed scientists and researchers to use its graphics chips as general-purpose parallel computers. The investment had not paid off. CUDA downloads were declining. Profits were flat. An activist investor, Starboard Value, had taken a position in the company and was questioning whether Huang’s strategy made sense. Some board members were wavering. Fidelity, NVIDIA’s largest outside shareholder, told Huang directly that his case for CUDA was not persuasive.

His Step 1 was the decision to defend CUDA anyway — to declare, under sustained institutional pressure, that this unpopular bet on scientific computing was the right problem to be working on. Huang flew to Boston and New York to make his case to shareholders. He did not win them over but did retain the support of the board. In a jungle of competing arguments, Huang defined the way forward.

Soon after, a researcher named Bryan Catanzaro showed Huang that he could train an AI neural network hundreds of times faster on CUDA than on conventional processors. Huang spent a weekend immersed in the subject and emerged convinced that the entire company had to reorganize around this opportunity.

Step 2 began when he wrote O.I.A.L.O. on his whiteboard: Once In A Lifetime Opportunity. He sent an email telling his organization that NVIDIA was no longer a graphics company. He gave Catanzaro the authority to access any of the 8,000 NVIDIA employees to build cuDNN — a software library that would make CUDA the foundation of AI development. This project was to supersede everything else.

Neither of Huang’s Step 2 moves was a prediction about the future. In 1997, he did not know whether DirectX would win. In 2013, he did not know that neural networks would become a dominant paradigm of computing. What he imposed in each case was a workable representation of the situation — one concrete enough to organize action, durable enough to survive the uncertainty that remained.

The outcome of the second bet is now familiar. NVIDIA’s chips became the critical infrastructure of the AI era, and the company reached a valuation exceeding $3 trillion. But as with the moon landing, the result flowed from the specification, not from foresight about what the future would bring.

When dealing with coordination issues within their organization, leaders often resort to new cross-departmental structures, teams, and committees. However, a clear working specification on how work will be done can often sidestep the tangled web that such remedies create. A particularly clear example comes from Amazon under Jeff Bezos.

In the fourth quarter of 2002, Amazon surprised investors by reporting its first net profit since going public five years earlier. Given such signs of market success, most CEOs would not look for internal challenges.

But Bezos did. His Step 1 action was to recognize an internal challenge. Over time, Amazon’s internal systems had grown separately, becoming more isolated from one another. The applications became more complex and harder to couple. Coordination was harder.

In Step 2, he imposed a working specification. All teams would expose their functionality through well-defined APIs. Systems would communicate with one another only through these interfaces. There would be no “informal” workarounds. Most importantly, every API would be designed so that it could, potentially, be exposed to outside developers.

This was not a detailed blueprint of the final architecture. It was a simplifying rule that defined what was doable. Instead of managing an increasingly complex web of systems, teams now had a clear marching order: build services that could stand alone and communicate through standardized interfaces.

With this working specification in place, coordination improved and development accelerated. Over time, this architecture enabled Amazon to offer these services externally, becoming the foundation of Amazon Web Services.

Bezos could have followed mainline management practices and issued Amazon-wide performance goals, or “North Star” metrics. He could have organized cross-unit teams to cross silos or hosted “lunch and learn” huddles. Instead, he imposed a simple working specification that harnessed existing skills to jobs they could accomplish.

Two Examples from IKEA and Domino’s Pizza

In the 1950s, Ingvar Kamprad chose to scale his furniture brand without incurring the prohibitive costs of shipping and breakage. The “standard” move would have been to set efficiency goals for the shipping department. Instead, Kamprad imposed a Working Specification: Every product must fit in a flat box.

This specification restructured the entire company. It resolved ambiguity in global transport by making the customer the final assembly team. Designers and suppliers no longer tried to make the “best chair”; they focused on making a good chair that could be collapsed into a flat pack.

In the 1970s, the pizza industry was coming into its own with a focus on taste and quality. Tom Monaghan of Domino’s decided that the real challenge, at least the challenge he wanted to address, was customers’ frustration with the uncertainty of waiting times for pizza delivery.

His Step 2 was a striking Working Specification: 30 minutes or it’s free. This wasn’t just a sales pitch; it was a specification that forced every store manager to stop debating “perfection” and start working toward a single metric. It narrowed the field of play so drastically that it defined exactly how the kitchen should be laid out and how the delivery radius should be drawn.

Like Kamprad’s insight into how to deal with the challenge of global shipping, Elon Musk had insights into how to make rockets reusable and avoid the bureaucratic tangle of being a prime contractor.

When Musk began working on the problem of space launch costs, there was deep uncertainty about how to reduce them. The aerospace industry had long accepted that rockets were expendable. The physics of reentry were harsh. The Space Shuttle was supposed to be reusable, but it still had to be refurbished after each use. Thousands of silica tiles had to be inspected individually. Its RS-25 engines were often completely rebuilt.

Musk had an insight. Fuel was less expensive than rockets. Maybe, like in the old science-fiction movies, a rocket could carry enough fuel to turn around and descend tail-first, firing its engines to slow itself down. This approach would trade fuel for simplicity, avoiding the need for fragile thermal protection systems. His Step 1 was to create SpaceX to build such a rocket.

Musk’s Step 2 was a series of focused policies. SpaceX rockets would be completely redesigned, built in a low-cost, spare manner. They would not be adapted from intercontinental ballistic missiles. SpaceX would not be one of thousands of contractors. Its vehicles would not try to satisfy the Air Force by flying around the globe. Musk saw the challenge as engineering, not high science. The first step in the quest would be an intense, single-minded focus on reducing costs.

To reduce costs, Musk focused on simplicity in engineering and manufacturing and on limiting the number of subcontractors. The Falcon 9 used an Ethernet data bus rather than a custom design. The in-house machine shop produced special shapes for much less than an aerospace contractor would charge. The focused approach made it easier to attract good engineers. Working at big contractors was basically boring because most of the job was running subcontracts and dealing with the government. The engineers at SpaceX were stressed but not bored.

This working specification enabled progress. In 2015, Falcon 9 became the first rocket to reach orbit and land vertically. The cost savings were remarkable: by 2018, Falcon 9’s cost per pound to low-Earth orbit was twenty-three times lower than the space shuttle’s. Later, Falcon Heavy halved the Falcon 9’s cost per pound.

Musk did not resolve the uncertainty about reusability in advance. He imposed a workable representation of the problem—one that allowed focused effort and learning.

Learning to see the pattern

Once you understand the idea behind a Working Specification, it becomes visible. It’s the mark of a leader who won’t let their organization wander aimlessly, hoping to “do better,” but instead clearly defines what needs to get done.

See it in Ron Johnson’s design for the Apple Store, where he rejected the industry’s warehouse model. He specified that the store was not a place to store inventory, but a stage for solutions. By defining the store as a theater, he gave the staff a simplified reality where their job was to perform a service, not to move boxes.

Or look at Arthur Levitt at the SEC. Instead of leaving “investor protection” vague, he required that legal documents be written in plain English. He didn’t wait for endless debates about transparency—he just said, use the active voice and short sentences. That gave everyone a clear example to follow.

See it in Paul Polman at Unilever, who resolved the ambiguity of long-term strategy by simply abolishing quarterly earnings reports. He re-specified the firm’s timeline, removing the mechanism that forced short-term thinking.

Michael Joseph at Safaricom brought banking to millions by deciding that a simple text message could count as currency. At Toyota, Taiichi Ohno didn’t just tell people to aim for “fewer defects.” He made it simple: if there’s a problem, stop the assembly line immediately. Both leaders turned fuzzy goals into clear, actionable steps.

In each case, the leader functioned as a complexity filter. They didn’t just set a direction; they defined the “physics” of the work. They took a world of infinite variables and reduced it to an actionable constraint. They didn’t wait for the fog to clear—they defined a Working Specification and started walking.

The Work of Leadership

Just as people in 1964 didn’t fully understand what the Moon’s surface was really like, leaders today rarely have all the answers about the challenges they face. Still, leadership means having the courage to identify and define the most important challenge for their team or organization. Are customers changing their habits? Is innovation slowing down? Does new technology represent a risk or an opening? Are obstacles coming from competitors, internal politics, or simply from sticking to old ways?

In complex situations, uncertainty is always part of the picture. Leaders have to manage the stress of not knowing everything and give their teams a clear, workable path forward. This comes down to two things: identifying a critical challenge and outlining a practical plan to tackle it.

These plans aren’t perfect. They aren’t the final word, and they’ll change as people learn more and new information comes in. But without a working plan, organizations waste energy and get stuck—chasing lots of metrics or getting lost in endless what-ifs and analysis. Real progress starts when there’s a clear problem to solve. Good leaders help their teams move from confusion to action.

When a leader lays out a concrete plan, it’s not just about motivating the team—it’s about making it possible, actually, to get things done. By turning big, vague questions into clear, doable tasks, leaders give their organizations what they need most: a problem they can solve.

Whether it’s shifting from a messy software project to a simpler version, deciding that all furniture should be flat-packed, or setting one clear goal for a new technology, the job is always the same. A leader must absorb the buzzing confusion of reality and, in its place, define a clear task the organization is equipped to carry out.

Ed once explained to me that he imagined himself reading the main text on a stage with a “Greek Chorus” chanting the lines on the right.

For those who don’t know, Marquis de Lafayette was born to a French noble family in the Auvergne. At 18 he began to express sympathy for the American colonists’ arguments against Britain. Despite the anger of his family and the policies of France, he left to fight in the American Revolution. He fought in several battles, and stayed with George Washington at his camp at Valley Forge.

America’s debt to Lafayette was remembered with the formation of the the Lafayette Escadrille in 1916, a group of American volunteer fighter pilots helping WWI. Later, when the U.S. officially entered the war in 1917, Colonel Charles Stanton famously said “Lafayette, we are here” at Lafayette’s grave-site in Paris.

The video detailed his supposed defensive positioning—35% cash, gold-mining stocks, and Nasdaq puts (QQQ). Roughly 160,000 other viewers watched it.

It was entirely fabricated. The voice was AI-generated. The script was synthetic. The authority was borrowed.

Verification

A check of Duquesne Capital’s Q4 2025 13F filing (submitted mid-February 2026) tells a very different story. The filing disclosed roughly $4.5 billion in long U.S. equity positions, including holdings in biotech names such as Natera and Insmed, exposure to financials through XLF, positions in the equal-weight S&P 500 (RSP), Brazil (EWZ), Alcoa, airlines, and increased exposure to large technology companies such as Alphabet and Amazon.

A 13F does not disclose cash balances, short positions, or derivatives. But it does reveal a manager’s long U.S. equity exposures. Whatever one thinks of those positions, they are not a 35% cash-and-gold defensive posture.

Two clicks down in the video description, a disclaimer appeared: “Fan-made educational content. Not affiliated with Stanley Druckenmiller or Duquesne Capital. AI-generated voices. Not financial advice.” This legal hedge was buried. The impersonation was not. On screen, the voice declared: “I’m Stanley Druckenmiller.”

The Pattern

This is not an isolated incident. In late 2025, Berkshire Hathaway issued a public warning about AI-generated videos impersonating Warren Buffett. Elon Musk has been repeatedly deepfaked in thousands of scam advertisements promoting fraudulent crypto or trading platforms. Ray Dalio, Jeff Bezos, and UK financial commentator Martin Lewis have appeared in fabricated interviews endorsing nonexistent schemes.

The format is consistent: confident tone, macro warnings, precise predictions, specific allocations. The production quality is high. The emotional trigger is fear or FOMO. The sophisticated investor was never the target. The marginal viewer was.

The Economics

The economics of cost and revenue explain the proliferation. A script can be generated by ChatGPT or Claude. Voices can be cloned using services such as ElevenLabs. Editing can be done with inexpensive tools like CapCut or InVideo. The total cost can be under ten dollars. A 30-minute video can be assembled in a few hours by a single operator or a small team.

Finance content commands relatively high advertising rates. Depending on the category, a 100,000-view video can generate several thousand dollars in ad revenue before affiliate commissions. Multiply this across channels and iterations, and the model scales.

YouTube requires disclosure of certain AI-generated content and can demonetize deceptive videos. But enforcement is uneven and largely reactive. The creators remain anonymous unless compelled by court order. The risk is low. The margins are attractive. Thus, supply grows.

The Structural Shift

Most commentary on this focuses on deception: a famous investor was impersonated, and viewers were misled. Platforms should respond. But that framing misses the deeper shift.

For decades, credibility in the finance function was a costly signal. It required a track record, capital at risk, institutional oversight, reputational exposure, and the possibility of legal liability. Those costs constrained supply. They created scarcity. Authority was difficult to manufacture and expensive to sustain.

Now the appearance of that authority can be produced for the price of a sandwich. This is not merely a technological curiosity. It is a collapse in the cost structure of persuasion.

When the cost of computing fell, entire industries were reorganized. When the cost of publishing fell to near zero, editorial gatekeeping lost its function as a barrier to entry. When newspapers lost their advertising revenue stream to Google, they lost their editorial independence. Today, the cost of manufacturing a credible-seeming financial authority has dropped to near zero. When a key input cost collapses, entry barriers fall. Supply explodes. Quality variance widens. The signal-to-noise ratio deteriorates.

The Consequence

No single deepfake video will crash markets. But the information environment in which financial decisions are made has shifted. Authentic commentary must now compete with unlimited synthetic authority—indistinguishable in voice, tone, and visual polish to the casual observer.

Paradoxically, genuine credibility may become more valuable in such an environment. Transparent reasoning, verifiable track records, institutional accountability, and primary-source disclosure may command a premium precisely because synthetic substitutes are everywhere.

But that premium will not arise automatically. The cost of manufacturing credibility has collapsed. By contrast, the cost of discernment has not. So, the burden has shifted—from institutions to audiences. And 160,000 viewers just learned how cheap authority has become.

She appeared in Pathways: Navigating the Internet and Extremism, a counter-extremism educational game funded by the UK Home Office and designed to steer teenagers away from anti-immigration views. In the game, Amelia represented “wrongthink.” Avoid her, and the player remains within approved boundaries. That was the intention. What followed was not.

The Escape

On January 9, 2026, Amelia escaped her instructional context. Her likeness was extracted. AI tools were used to animate her. The “wrong-think” character was inverted and redeployed as a narrator of precisely the arguments the training material was designed to discourage.

Within days, “Ameliaposting” moved from hundreds to thousands of posts per day. Variants proliferated: stylised animations, AI-generated reinterpretations, mash-ups. What began as a local counter-extremism resource became an international meme node.

A state-funded character intended to deter right-wing speech was captured, inverted, scaled, and weaponised using mainstream generative tools available to anyone. She became an icon—not as a warning, but as a heroine. The very behaviors the Pathways game tried to pathologize were now celebrated. The Home Office did not suppress “wrongthink.” They gave it a mascot.

The new “wild” Amelia spread virally on X. Unlike the official version, wild Amelia promotes a core message of British nationalism centered on resisting mass immigration, preserving traditional "British values," and reclaiming cultural sovereignty from multiculturalism, government incompetence, and globalist influences.

The Diagnosis

One easy explanation is that youth are rebellious and will mock any school-assembly-style lecture. That’s true, but misses the point. What happened with Amelia was not mere mockery. It was a strategic failure by the Home Office rooted in a gross misunderstanding of the terrain.

The Home Office treated its audience as a passive target—push a message, and the target absorbs it. This is the assumption behind most institutional communication, and it has always been partly wrong. But the degree to which it is wrong has changed dramatically.

In previous decades, subverting a government campaign required resources: a printing press, a pirate radio station, and capital. Hijacking a narrative was expensive. Today, it is nearly free. The crowd deployed tools like Grok and ElevenLabs to generate thousands of new images and voice clips of Amelia—not as a cautionary tale, but as a heroine. By the time the Home Office understood what was happening, the meaning of the character was no longer theirs to define.

This is the part that matters for strategy. The original Home Office character and game were expensive to produce. In a previous era, Amelia would have been hard to mimic because only institutions could afford that level of polish.

Generative AI broke that link. When the social media seized Amelia, they did not strip away her basic look. But the moral polarity flipped. Designed to signal “don’t go there, she was now saying “go there.”

A key appeal of wild Amelia is her reasonable tone, femininity, and focus on traditional symbols of British life: the pub, Harry Potter, and the Union Jack.

This co-optation spread to Europe (e.g., Dutch "Emma," German "Maria") and even real-world protests where people cosplay as her.

The problem here is not about one botched game. It is the collapse of a particular kind of strategic asset. For decades, institutions have relied on production quality as a signal of legitimacy. Professional design, polished video—these were barriers to entry. They separated official communication from fringe noise.

Those barriers are gone. The tools to replicate institutional legitimacy are now available to anyone with a laptop. The uniform of authority can be donned by anyone who wants it.

This creates a new strategic reality for any institution that relies on communication as a tool of influence. You cannot treat your audience as an inert object. In human systems, the object pushes back—and now it pushes back with the same production tools you used to push in the first place.

In Amelia's case, the Home Office attempted to use a fixed asset to control an adaptive system. They ignored their adversary’s capacity to react and underestimated how quickly that reaction could scale. These are not exotic errors. They are the most common errors in strategy: assuming the other side will hold still and failing to anticipate the tools at their disposal.

Suppressing these tools is not a realistic option. You cannot ban the mathematics behind image generation. Once a character like Amelia is released, her meaning becomes contestable in everything but law.

The lesson is not that institutional communication is futile. Any strategy premised on controlling a narrative must now account for the fact that the audience has the same production capabilities as the institution. The asymmetry that once protected official messaging has evaporated. Strategies that ignore this will not just fail; they will arm their adversaries.

But strategy is problem-solving, not ceremony. And the problem is that Tesla’s total worldwide deliveries declined in both 2004 and 2025. In Europe, cheaper models and broader EV adoption are reducing Tesla’s relative share. In China, domestic rivals are expanding rapidly and squeezing Tesla’s position.

In the U.S., Tesla faces saturation among early adopters, an aging product lineup, repeated price cuts that have weakened brand coherence, and a broader cooling of consumer enthusiasm for electric vehicles. While the company is maintaining production of its models 3, Y, and Cybertruck, shipments of these remain in decline.

To understand Tesla’s situation, recognize the trap it walked into. For two decades, the West—and Tesla in particular—succumbed to a predictable appetite for low-cost manufacturing and rapid valuation growth. China exploited this appetite, luring firms into deep dependency on its industrial base.

The Shanghai Gigafactory was Tesla’s specific lure, providing margin-rich scale at exactly the moment the company needed it. The move propelled Tesla’s valuation, but also a massive transfer of learning from Tesla’s early Fremont experience.

By the time Tesla stockholders finished celebrating quarterly gains, China had developed a parallel ecosystem—BYD, Xiaomi, Geely—capable of flooding much of the world with electric vehicles produced at a cost structure Tesla cannot match.

The Diagnosis

Musk is now confronting a hard strategic truth: you cannot “solve” a trap once it has sprung; you can only exit the terrain.

Musk’s immediate move is not a total exit, but a clinical amputation. With the models S and X accounting for less than 3% of sales, they have become legacy products that require ‘sentimental’ maintenance, while Chinese rivals like Lucid and BYD surpassed their technical specs at lower prices. If he spends the billions required to refresh them, he wastes capital on a segment that no longer drives the stock’s $1.4 trillion “AI” valuation. And these models have occupied up to 20% of prime Fremont factory real estate, while their sales have fallen by 30-50% year-over-year.

Thus, Tesla cannot move forward without shedding the very products that made it a household name. In dropping these premium products, he is also physically clearing the Fremont floor for the migration into robotics. This move is giving up on the pretense that Tesla is a luxury automaker.

It is likely that, as volumes continue to decline, Tesla will have to discontinue additional EV models. That will be giving up on Tesla as a consumer automaker altogether.

By retooling the Fremont lines for Optimus robots and autonomous “Cybercabs,” Elon Musk is pursuing a migration strategy. He is leaving what has become a war of attrition to seek advantage in a domain where Tesla’s strengths in software, systems integration, and physical manufacturing might matter more than cost alone.

This is not a single move but a sequence. Tesla is first disengaging from a battle of attrition and second, recentering its capabilities around autonomy and robotics.

Whether this recombination produces a durable advantage remains unclear. China has repeatedly shown that it can absorb learning and attack integrated systems as effectively as it can attack modular ones. Thus, this migration to new territory may prove to be just another exposed position. Much will depend on the frictions of trade barriers and safety regulations that may surround both autonomous vehicles and true robots. Today, the future of this move remains obscured by regulatory uncertainty and unresolved technical issues.

The disengagement may be rational. It may even be necessary. But it is not voluntary—and it is not yet proof of advantage. It is the price of survival.

[The terms in bold type are basic strategic primitives. I will have more to say about them in future posts.]

You are looking at the original operating system of modern strategy.

The Boston Consulting Group was the first advisory firm fully specialized in strategy. Founded in 1963 by Bruce Henderson, it soon began sending essays called Perspectives to executives around the world.

These were not long reports or “press releases.” Henderson’s Perspectives arrived on executives’ desks printed on textured, heavy paper in this specific shade of dusty green. There were no photographs. There was only a title, a premise, and an argument.

I remember them clearly. Those green pamphlets were brief but dense with insight. They respected your intelligence, not your patience. The quality and originality of the thinking were the sales pitch.

When I first met Henderson in late 1966, he was excitedly exploring the implications of what he named The Experience Curve. He told me:

“The key issue is how some firms outperform their competitors and maintain their lead. The standard explanation is economies of scale, but that cannot explain how leaders stay ahead. The experience curve explains it.”

His Perspectives on the experience curve shaped thinking about strategy for a decade, as did the subsequent Perspectives on the product portfolio.

Henderson promoted the idea that effective strategy grows out of comprehending the forces at work in a situation—out of a clear diagnosis. Today, the modern business world has largely forgotten this.

Strategy is not planning. It is not simply setting goals.

A “Perspective” is different. A Perspective is a distinct way of seeing a challenge. It triggers the realization that the problem you thought you had is not the problem you actually have.

I am renaming this publication The Rumelt Perspectives to align my work with that standard.

You will notice the design of this site has changed. The “Rusty Green” you see on the buttons and links is not a decoration; it is a citation. It is a nod to that paper stock from 1967.

It is a reminder to me, and a promise to you, that we are not here to add to the noise. We are here to parse gnarly situations and define a way forward.

Welcome to The Rumelt Perspectives.

The mission remains unchanged. The essays here examine strategy as problem solving: the role of diagnosis, the search for the Crux, and the focused application of strength in business and affairs.

We are simplifying the title to align the writing with the Rumelt Advisory practice. The goal is clarity—making the purpose visible while preserving the standards and point of view you expect.

Thank you for reading.

The fastest train in the U.S. is the Amtrak Acela Express, connecting Washington D.C., New York City, and Boston, with a top speed of 149 mph. Unfortunately, this speed is only obtained on less than 8 percent of its route, making its average speed only slightly higher than that of an automobile (66 mph from NYC to Boston, and 88 mph from Washington, DC to NYC).

Outside of the U.S., there are approximately 25 high-speed rail (HSR) and almost all have average speeds considerably higher than those of automobile travel. China boasts the fastest and most extensive HSR network, with 28,000 miles of service operating at speeds of up to an astonishing 286 mph. Spain, Japan, and France follow with 2465, 1940, and 1740 miles of service, respectively, at speeds just under 200 mph. Germany offers just over 1000 miles of service at speeds up to 217 mph. Sizable high-speed services are offered in Italy, South Korea, Taiwan, and Russia.

The U.S. not only lacks any genuine bullet train but also hosts the most notable failure in such projects.

In 1993, the California Legislature created the California Intercity High-Speed Rail Commission with the remit to provide a comprehensive feasibility study of a high-speed train network. In 1996, the Commission’s work was handed off to the newly formed California HSR Authority (CHSRA). Twelve years later, in 2008, the State Assembly wrote, and the voters passed, Proposition 1A which raised about $10 billion in general obligation bonds to design and build an HSR link between Los Angeles and San Francisco, mandated by law to provide a travel time of 2 hours and 40 minutes or less at an estimated total cost of $30 billion and a target opening between 2015 and 2020.

Today (2025), 32 years after the HSR Commission was formed, and 17 years after the bond financing was obtained, and after the expenditure of about $16 billion, not a single mile of high-speed track has been laid. No operator has been selected. No contracts for rolling equipment have been tendered.

Most of the spending has been recent, going for the preparation of railbed infrastructure—guideways, viaducts, and underpasses—in California’s Central Valley. Completing this limited HSR project through California’s farming heartland (Bakersfield to Merced) is expected to cost $35 billion. That is $154 million a mile, about three times the global average for HSR over similar easy terrain. The most recent estimate of the total cost to build a full California system has increased to $113 billion, with no clear source of funding. HSR service in the Central Valley is predicted to begin in another seven years (2032).

Other nations, many less wealthy, have built successful HSR systems. So, the fiasco in California demands explanation. There is no single reason for this debacle, and one can point to hubris and various forms of political and managerial incompetence. Dan Wang, in his fascinating new book, Breakneck[1], notes that modern China is ruled by mostly engineers with a proclivity to build, while in the U.S., the commanding heights are held by those trained in law who specialize in process and obstruction. Acknowledging that, I believe there is a parallel straightforward explanation for this debacle: Bad Strategy.[2]

A strategy is a mix of policy and action designed to surmount a high-stakes challenge. It is a form of problem-solving where the strategist both identifies key problems and chooses which among them deserve focused attention and effort.

Unfortunately, many organizations, and especially governments, skip real strategy and move directly from ambition and aspiration to a business plan. The focus tends to be on the cost, rather than on overcoming the obvious impediments.

The history of HSR in California shows this pattern. From its inception in 1996, the California HSR Authority (CHSRA) aspired to create a complex web of HSR service that connected most of the major cities in the state. There is nothing wrong with having this ambition, but an ambition is not a plan. To move from ambition to strategy, the Authority would have to focus on the key impediments to accomplishing this ambition and develop a strategy to begin dealing with the most important ones.

One does not have to be a brilliant analyst to see the key impediments to building HSR in California. In describing them, I plainly have the benefit of hindsight. But each was obvious at the start to anyone who looked beyond the hype.

The Key Challenges

Bypass Pork Barrel Politics. California, like New York State and the Federal Government, became prone to treating large projects as giant “Christmas” events with a gift under the tree for everyone. The State Water Project awarded contracts and favorable terms to certain agricultural areas to secure votes, creating imbalances that continue to plague the system. Freeways were redesigned to provide development opportunities to favored entities.

California’s major projects often begin with a clear core purpose, such as moving people, supplying water, or reducing emissions. However, to gain legislative approval, secure bond funding, or withstand legal challenges, they are frequently decorated with additional benefits for various regions and interest groups. This often results in increased costs, delays, and a loss of focus.

The costs of projects are frequently underestimated to expedite their approval. Flyvbjerg[3] refers to this as the “edifice complex,” where purposeful overstatement of benefits is employed to promise something for everyone. Willie Brown, former Speaker of the California Assembly and Mayor of San Francisco, expanded on this by saying[4] “the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in.”

Resist the Pressure to Serve Everyone at Once. The promise of HSR is quick travel between a few focal points. This is a key lesson on how many other nations have developed HSR: start simple. That is, create a high-speed link for a strong city-pair. Prove the concept, then expand. In Japan, it was Tokyo-Osaka, in France, it was Paris-Lyon. The logic is to bypass small towns, preserving speed and keeping it simple.

Indonesia operates a 220 mph bullet train connecting Jakarta and Bandung, with 62 45-minute trips daily. It does not try to serve all the towns in between these points. Some of CHSRA’s earliest plans reflected this lesson by focusing on linking San Francisco and Los Angeles along the fairly straight corridor near Interstate Highway 5.

However, keeping it simple is challenging. Keeping to this discipline runs counter to the “serve everyone” pattern of most services. Education, police, water and power, highways and streets, and more, serve most of the population. A simple, yet expensive, investment aimed at only serving LA-SF would run counter to the “serve everyone” pattern.

Nail Down the Right-of-Way. The California Environmental Quality Act (CEQA) is a statute, passed in 1970, that gives any affected person or city the right to sue if an Environmental Impact Report (EIR) is, in their view, “inadequate.” Additionally, under Article XI of the California Constitution, charter cities have the authority to govern local city affairs, including land use and zoning regulations. This can make arranging an HSR route extremely challenging. One might have to deal with multiple lawsuits based on EIRs and have to negotiate with each city on issues related to permits, right-of-way access, and community approvals.

Acquire the Skill to Build and Operate HSR. A major challenge is that the U.S. has no domestic true HSR experience. No engineer, no contractor, no government agency had ever designed, built, or operated a European or Japanese class system. The temptation will be to hire US-based contractors to somehow solve this problem. However, research and experience have shown that having standards, internal government experience and competence, and deploying repeatable designs are the keys to lower costs and rapid deployment. But all of these are lacking. The Federal Government has never established any standards for HSR, and even the best large U.S. engineering and project management firms, like Parsons Brinckerhoff, have no direct HSR experience.

Obtain Reliable Funding. A key challenge is that if the funding available is not sufficient to cover the project, its scope and shape will be constantly renegotiated to draw in new funds or investors. And, these constant renegotiations greatly delay and complicate the project.

What Actually Happened?

In its early studies (1996-99), the CHSRA examined several north-south HSR routes. The primary focus was on a Los Angeles-San Francisco service with two possible alignments: (a) along the spine of Interstate 5 (I-5) on the west side of the state and (b) through the Central Valley, serving California’s farming heartland cities of Bakersfield, Fresno, and Merced.

As created, the CHSRA was a political animal with appointees from each region of the state. This meant each had an obligation to obtain benefits for their region. The early plans were soon modified to move the LA-SF route to the Central Valley, to offer service to Palmdale, Bakersfield, Fresno, and Merced along the way. This added 80 miles to the LA-SF route and at least 20 minutes to the travel time—up from 2h 20m to 2h 40m, if speeds of 220 mph could be sustained outside of stops. CHSRA board member Richard Katz famously dismissed the direct route near the I-5 by saying[5] “If you went up the I-5, you’d get a lot of votes from the cows in Coalinga.”

The Authority’s first Environmental Impact Report (2005) identified the Central Valley as the preferred route. The rationale was that serving these towns was politically and socially necessary, even if it was slower and more costly. The problem with this framing was that it ignored the challenge of acquiring right-of-way. The I-5 option could use land already committed to transportation, free of private interests and utility connections. The Central Valley route, by contrast, would embroil the project in a myriad of negotiations, lawsuits, payoffs, and more to create a route.

California’s first substantial funding for HSR arrived in 2008 via Proposition 1A, raising about $10 billion in bonds. It was passed with 53% voting “Yes.” Proposition 1A wrote into law LA-SF rail travel times of 2h 40m or less, no operating subsidies, and “a high-speed train system that connects San Francisco Transbay Terminal to Los Angeles Union Station and Anaheim” with, if feasible and if it does not harm the primary route, links to the state’s other major population centers, including Sacramento, the San Francisco Bay Area, the Central Valley, Los Angeles, the Inland Empire, Orange County, and San Diego.

CHSRA did reach out for advice from experienced HSR companies. There were exploratory talks with France’s SNCF in 2006. At that time, the French had 30 years of experience in successful HSR. After Proposition 1A passed, SNCF submitted a detailed proposal. Their main point was that the route should use the land already committed to I-5 highway, simplifying the route, avoiding disputes with landowners, and minimizing utility conflicts. Their plan would serve the Central Valley cities via spur connections into the main line. Additionally, they offered help in financing, building, and operating the system and promised LA-SF travel times of 2h 20m. However, CHSRA leadership was politically committed to the more complex Central Valley option and rejected the SNCF proposal. CHSRA Chairperson Tom Richards, who had been a Fresno-based real estate developer, stated that the system had to serve 85% of California residents, adding that[6] “The key to HSR is to connect as many people as possible.” Unfortunately, Richards’ opinion ignored the bulk of international learning and experience on the subject.

The French pulled out in 2011. Dan McNamara, a project manager for SNCF, said that “SNCF was very angry. They told the state they were leaving for North Africa, which was less politically dysfunctional. They went to Morocco and helped them build a rail system.” (Morocco’s high-speed service began seven years later in 2018).

As the CHSRA project unfolded, the Legislative Analysts' Office repeatedly warned (2008, 2016, 2018) that the project scope was being driven by political pressures rather than engineering efficiency.

Between 2008 and 2014, the Cities of Atherton, Menlo Park, and Palo Alto, together with local groups, sued CHSRA, claiming that its “environmental” reports did not adequately analyze the noise, vibration, and other impacts on their communities. The Sacramento Superior Court agreed, and CHSRA had to revise its EIR and, later, revise it again. This forced years of delay. A critical outcome was the adoption of a “blended” design, which required HSR trains to travel over some existing standard track at significantly slower speeds.

Further struggles to define the route ensued as, between 2011 and 2014, various farmers and other landowners in the Central Valley sued over environmental impacts on land, water supplies, and local communities. Again, a court supported their claims, and significant costs and delays ensued. Additional suits followed from Tulare and Kings County, Bakersfield, Shafter, and various environmental coalitions.

In 2009, the Japanese government and JR Central had shown interest in exporting Shinkansen technology to California, with the Japanese Ministry of Infrastructure offering partial funding. JR Central highlighted its safety record and high speeds, promoting its approach. However, the political agreement to settle lawsuits by Atherton and Menlo Park with a “blended” approach forced JR Central to reconsider. JR Central’s philosophy favored dedicated high-speed tracks, viewing shared tracks as unsafe and incompatible with their technology. The growing delays over “environmental” lawsuits and landowner objections also cast doubt on the project’s financial feasibility. JR Central withdrew in 2012.

By design, CHSRA was a small political agency with no experienced engineers, no builders, and no operators on staff. After the unsuccessful talks with the French and Japanese, CHSRA decided to outsource technical expertise to large U.S. engineering and project management firms. However, these firms’ experience was in highways, subways, and airports, not HSR.

Additionally, the decision to choose an operator for the system was postponed to a later date. CHSRA also assumed that once infrastructure was built, it would issue competitive tenders for the trains and equipment, ultimately sourcing from major global companies such as Alstom (France), Siemens (Germany), or Hitachi/Kawasaki (Japan). Under “Buy America” rules, these suppliers would need to establish assembly plants in the U.S., presumably in California.

To summarize, no California HSR service is near completion. It took 20 years after the creation of the CHSRA for physical construction of the roadbed to begin in earnest. Today, building the short 170-mile link between Bakersfield and Merced (a city of only 90,000) is projected to cost more than the original estimates for the entire LA-SF system. With no operator and no rolling stock in sight, it is doubtful that service will ever begin. Central Valley politicians, on the other hand, point to the creation of construction jobs as a success.

Could a Good Strategy Have Been Implemented?

To create a viable strategy for California HSR in 1996, the State would have had to do things differently.

Instead of a political coordinator like CHSRA, it should have created an HSR company, such as France’s SNCF or Spain's ADIF, one that is insulated from local pork-barrel “Christmas” politics. Let’s call it CalFast.

The enabling legislation would declare CalFast to be of “statewide critical concern,” providing explicit preemption of CEQA and local city veto rights. (This was done by the California Legislature for the Sacramento Kings Arena, the LA Olympics projects, and Inglewood Stadium).

Or, the California Legislature should create law ensuring that CalFast is protected by federal law (the Interstate Commerce Commission Termination Act). Additionally, the Assembly should declare that the HSR project is a matter of “statewide concern,” preempting the veto powers of local cities and authorities.

Had such protections been in place, Atherton and Palo Alto could not have blocked routing, rail, and speed choices. Cities and various politically connected landowners and real estate developers could not have defined the details and scope of the project.

To take project funding out of the annual political horse-trading game, financing should be structured as a “completion guarantee package.” This would entail (a) a bond issue as in Proposition 1A; (b) a dedicated revenue stream, such as a statewide fuel surcharge, to fund additional bonds; (c) explicit federal-state cost sharing as was done with the Interstate Highway Act; (d) guaranteed financing from contracted system operators.

CalFast should award a design-build-operate contract concession to an experienced operator such as SNCF, Renfe, Ferrovie dello Stato Italiane, or JR Central. The contract would require technology transfer to CalFast engineers and the workforce. The concessionaire should commit to long-term operations with performance benchmarks and financial risk-sharing.

Building should be, as much as possible, on existing corridors (such as the median of I-5 as suggested by SNCF), eliminating haggling over land use and utility relocations.

The enabling legislation would have funded the entire first leg, not just some preliminary work. This would have freed it from annual legislative appropriations, which forced horse-trading over routes and other issues.

The initial approach would focus on a single, shorter high-demand corridor, such as San Francisco to San Jose or LA to San Diego. The goal would be to establish standards and gain competence, securing an early success to foster support for future expansion. This plan should have resisted the political pressure for “all stations everywhere.”

The first service could have been launched by 2020. California could have become the U.S. authority on HSR, selling its competence to other areas.

What Can Be Done Now?

California has already committed to serving all the towns in the Central Valley, to “blend” its HSR network near major cities, and to fund “bookend” projects that electrify existing rail services. It is unlikely that its political climate will change much in the near future, with commitments to participation, equity, and green economics remaining part of the mix.

This situation requires the injection of outside expertise in the design, building, and operation of HSR, as well as access to actual HSR equipment. One obvious source of this expertise is Trenitalia, the main passenger division of Ferrovie dello Stato Italiane (FS), the Italian state-owned (joint-stock) transport company.

Trenitalia builds and operates Italy’s HSR (Frecce or “Arrow”) lines. Unlike the HSR purists, Trenitalia operates trains at 186 mph on dedicated lines, trains at 155 mph on a mix of high-speed and conventional tracks, and trains at 124 mph on upgraded conventional lines. Trenitalia also runs HSR services between Milan and Paris and HSR services in Spain (Madrid-Barcelona-Seville). In addition, it owns and operates ordinary rail services in Greece, Germany, and the UK.

A contract for operations should be signed as soon as possible with an experienced operator. Building a system and stations without strong input from an experienced HSR operator is like having a highway system built by people who have never driven automobiles.

One benefit of working with Italians on this project is that their history is one of gradual modernization rather than leaping full-bore into HSR. Italy spent many years gradually modernizing its network of trains and stations, gradually increasing the speed of service. Given that California is already investing in HSR funds to upgrade and utilize its existing rail infrastructure, this is a natural fit.

1] Wang, Dan. Breakneck: China's Quest to Engineer the Future. W. W. Norton, 2025.

[2] Rumelt, Richard P. Good Strategy/Bad Strategy: The Difference and Why it Matters. Crown Business, 2011.

[3] Flyvbjerg, Bent. Megaprojects and Risk: An Anatomy of Ambition. Cambridge University Press, 2003.

[4] Quoted in Smith, Steven J. “A Bay Bridge Fit for Willie Brown,” Next City, 2013. https://nextcity.org/urbanist-news/a-bay-bridge-fit-for-willie-brown.

[5] Quoted in the Los Angeles Times, “High-speed rail officials rebuffed proposal from French railway,” July 9, 2012.

[6] Quoted in Vartabedian, Ralph. "How California’s bullet train went off the rails." The New York Times 9 (2022).

Learn to Find the Crux

The Crux of a strategic challenge is the central paradox that makes it difficult. It is described in more detail in my book The Crux: How Leaders Become Strategists. For example, IBM’s current crux is that its dominant position with large international corporations also ties it to the most conservative buyers of new information services. Intel’s crux is that its whole business system, including its specialized foundry, was carefully designed to produce the highest-performing, power-hungry, very fast CPUs. However, demand has shifted to lower-power mobile systems and high-power AI GPUs, which are composed of thousands of processors.

Most of the time, you can deduce the crux of a problem by simply listening to a few of the key executives involved. They will not tell you the central paradox, but dance around it in their descriptions of the situation. I recall an interview with a board member of a top European bank. He stated that their ambition was to become, “on the one hand,” the retail bank of choice for affluent individuals and, “on the other hand,” the investment bank of choice for large corporations. Why did he use “two different hands” to describe this ambition? Because an investment bank’s job is to sell new securities at as high a price as possible, and a retail bank’s job for wealthy clients is to invest their money in well or underpriced securities. So, there is a potential conflict between these businesses.

Often, the crux lies in the tension between a company’s potential and its organizational structure or internal doctrine. For example, in 1990, Amgen had outgrown its start-up beginnings and asked for a review of its research portfolio. Upon examination, it was found to have approximately 5,000 different research projects underway. When I questioned this situation, top management said that it was part of the company’s attempt to maintain a “small company entrepreneurial” atmosphere. “Small companies are great,” I said, “but you are now a big company and may be missing the punching power that size can provide.”

Crux challenges are not “solved” by applying preset frameworks. Rather, crux challenges are felt, examined, and explored, triggering a search for ways of resolving the tension. Writing about how hard design problems are solved, industrial design specialist Kees Dorst nicely described dealing with what I call the crux of a problem:1

Experienced designers can be seen to engage with a novel problem situation by searching for the central paradox, asking themselves what it is that makes the problem so hard to solve. They only start working toward a solution once the nature of the core paradox has been established to their satisfaction.

Like a designer, that strategist feels a sense of blockage or constraint when examining the crux. It draws our attention because it could be a source of leverage and advantage — if only the crux could be breached, much progress could be achieved.

Here are some more examples of my views of cruxi for well-known companies:

Apple. Its strength lies in tightly integrated hardware-software ecosystems, high margins, and customer lock-in. However, the same integration model makes it more challenging to compete in rapidly evolving, open AI ecosystems that favor modularity, open models, and experimentation. Paradox: Its design philosophy is at odds with the chaotic, open-ended innovation now powering generative AI.

Tesla. It pioneered EVs by being nimble, vertically integrated, and tech-forward. However, it now faces a wave of competition from legacy automakers and Chinese firms that are catching up in performance and surpassing it in cost and scale. Paradox: Its scale advantages are eroding just as it needs to transition into a mature, mass-market manufacturer, something it once disrupted.

Boeing. Its financialization and cost-cutting culture helped it please shareholders but undermined its engineering culture and safety reputation. Paradox: Fixing quality requires long-term investment in people and processes, which reduces the short-term profitability that Wall Street loves. Boeing must regain trust while under financial pressure in an industry with almost no margin for error.

Disney. Its strength lies in IP franchises and brand stewardship. But its streaming transition is costly and dilutes traditional content quality, while its political entanglements alienate segments of its diverse consumer base. Paradox: To grow and modernize, Disney must alienate parts of the legacy audience that built its brand. Balancing growth, values, and universality is becoming nearly impossible.

Top management will usually be loath to discuss the central paradox. They typically look for actions that yield immediate payoffs. An appreciation for the crux challenge can help guide such companies towards actions they are willing to consider, which also address, at least partially, the crux challenge.

Learn to Make Conclusions from Data with Care

The strategist is always interested in more information, both to develop an accurate diagnosis and to present facts and arguments to executives. Knowing how to interpret and present data well is essential. But be aware that most senior managers are suspicious of complex data analysis. They tend to believe that more sophisticated analyses provide more hidden ways to manipulate the conclusion.

In seeking out data and making data-driven arguments, there are several common pitfalls you should know how to avoid. The most important are these:

Confirmation Bias. This is the inclination to seek out or accept information that aligns with one’s preexisting beliefs while ignoring opposing evidence. A simple solution is to intentionally seek out data that contradicts a belief and critically evaluate the validity of this conflicting information.

A prominent example was the issue of Iraq’s secret program to produce weapons of mass destruction. In 1991, after the end of the First Gulf War, Iraq’s secret nuclear weapons program was discovered by the International Atomic Energy Agency (IAEA) and inspectors from the United Nations Special Commission (UNSCOM). This program was dismantled under the supervision of the UN. The CIA faced embarrassment for its prior ignorance of this program.

In 1999, Ahmed Alwan al-Janabi, an Iraqi, defected to Germany, seeking asylum. He claimed to be a chemical engineer connected to Iraq's covert biological weapons program. He disclosed the presence of mobile biological weapons labs and asserted that Iraq could quickly produce WMDs. German intelligence (BND) communicated these claims to U.S. and British agencies. However, there was no supporting evidence, and no U.S. intelligence official had interacted directly with al-Janabi. The DIA (Defense Intelligence Agency) cautioned that al-Janabi might be fabricating the story to gain a prominent role in a new Iraqi government. Embarrassed at having missed Iraq’s earlier nuclear program a decade prior, the CIA accepted al-Janabi’s assertions, which became a key justification for the Second Gulf War. This was a clear example of accepting information that aligned with predispositions. Later, in 2011, al-Janabi admitted inventing the story.

Survivorship Bias. Conclusions drawn solely from successful or visible examples, while neglecting failures. Business literature is rich with insights stemming from successes alone. For example, mutual fund companies often promote their overall performance by showing the performance of currently active funds. However, this approach overlooks underperforming funds that have been closed or eliminated from the records. More generally, as many have said, “The victors write history.”

Regression Fallacy. Regression to the mean" describes the phenomenon where exceptional outcomes are typically followed by more average ones. The "regression fallacy" occurs when people incorrectly link this natural occurrence to external factors, overlooking the simple fact that extreme results are seldom sustained. A key illustration of this concept is found in Jim Collins’ well-regarded book, Good to Great.2 Collins began by analyzing Fortune 500 companies from 1965 to 1995, seeking those that clearly transitioned from average to outstanding performance. To qualify as good, a company had to report average or below-average stock returns over a fifteen-year span. To achieve greatness, a company needed to generate stock returns that were three times higher than the S&P average. Ultimately, Collins concluded that his findings suggested lasting excellence arises from steady, disciplined actions aligned with a clear and realistic strategic vision, supported by leadership that is both humble and resolute.

Predictably, according to the law of regression to the mean, not all these so-called "great” companies stayed great. For instance, Circuit City had to file for bankruptcy, Fannie Mae experienced a downturn and went into federal conservatorship, Wells Fargo found itself in a challenging situation due to a fake-accounts scandal, Pitney Bowes faced difficulties as digital technologies took the lead over paper mail, Gillette went through an acquisition and began contending with lower-cost rivals, and Nucor saw increased competition on a global scale in the steel industry.

Jim Collins deserves great credit for identifying this problem with his initial book. He later authored How the Mighty Fall, where he acknowledged the decline of certain of his "great” companies. He nicely outlined the stages of their decline, beginning with hubris and concluding with capitulation. Regrettably, most readers do not proceed beyond Good to Great.

Sampling Errors or Biases. For example, drawing customer insights from only highly engaged customers, rather than a representative group. For instance, as Lotus 1-2-3 lost market share to Excel, Lotus management nonetheless took pride in having a very loyal customer base. As another example, in political polling, there are often significant sampling biases, as people who do not wish to provide an opinion are underrepresented, as are young voters and residents in rural areas.

Confusing Correlation with Causation. This involves presuming that a correlation between two variables implies that one directly causes the other. For example, highly profitable companies often have more diverse boards. But does diversity lead to profitability or vice versa? In many markets, market share and profitability are correlated; however, it's unclear whether one influences the other or if both stem from a hidden factor, such as competitive success. Though many studies have highlighted the link between business profitability and market share, Robin Wensley and I conducted a thorough study revealing that neither causes the other. Instead, they both result from effective new-product features or marketing initiatives.

Reference Group Neglect. This occurs when individuals or organizations assess their own strengths without factoring in their competitors' abilities. Freshman college students often find themselves taken aback by their relatively poor performance in challenging subjects, having based their self-assessment on their prior high school experiences. In the mid-1970s, U.S. auto manufacturers were astonished by the achievements of Japanese competitors. Detroit automakers misjudged the increasing capabilities of Toyota, Honda, and Nissan, perceiving them as merely low-cost, low-quality brands. They overlooked Japan’s advancing proficiency in lean manufacturing, quality control (Kaizen), and fuel efficiency.

A foundational paper in this area is Camerer, C., & Lovallo, D. (1999). Overconfidence and Excess Entry: An Experimental Approach. American Economic Review, 89(1), 306–318.

Understand Deals

If you do strategy work for a corporation, you will almost certainly get involved in deals---acquisitions, mergers, and spinoffs. Some of these make both strategic and financial sense, especially when a company is acquiring critical technological skills or patents. Unfortunately, many deals, especially the large ones, destroy value for the acquirer. On average, the shareholders of the target company consistently benefit from most mergers and acquisitions, while the shareholders of the acquiring company usually suffer.

Why, then, do CEOs engage in large deals that destroy value? The most common reasons are a focus on accounting results rather than value, overestimating synergy, and the simple desire to grow.

Accounting Illusions. A few years ago, I was interviewing the CEO of a growing consumer food company. He had exquisite offices with antique French furniture and a polished assistant who served excellent coffee and good conversation while I waited for the interview. My research at the time was on conglomerate acquisitions, and I wondered why the CEO had acquired a wholly unrelated plumbing hardware company. At the interview, he explained that by paying cash for the company, he had increased his earnings per share by 12.5 percent. His PE (price-earnings) ratio was 20, whereas the acquired company’s was 10. The analysis was straightforward (simplified numbers):

You should notice that in the cash transaction, there were no new shares issued so the boost to EPS is larger. A high PE company acquiring a lower PE company thus receives a boost in earnings per share, even if the price paid exceeds the value received. However, unless there is some synergy or additional gain to the deal, the combination is value-destroying if he paid more than $250,000 for the target company. And in this case, he had paid a 30 percent premium.

If the transaction had been done with stock, it would still be value-destroying but there would be a smaller bump to EPS because of the increase in shares outstanding.

The other illusion comes from simply having a high (too high) stock price. I told this story about high valuations in The Crux: How Leaders Become Strategists:

I well recall a February 1998 gathering of telecommunications company leaders in Scottsdale, Arizona, led by Salomon Smith Barney analyst Jack Grubman. There were ten or fifteen shaded tables with a CEO and their helpers at each. The industry was recently deregulated, and with the new Internet booming, valuations were skyrocketing. Grubman was urging larger companies to bulk up quickly before it was too late. I was able to overhear the conversation at the table next to me where the CEO of a fairly large company was being advised to grab Winstar Communications. Winstar was putting small broadband antennas on rooftops all across the country, promising to bypass the copper wires of the telephone companies. The CEO looked at the paperwork and said, “This is very pricey. Yes, Winstar’s sales are up this year, but losses are growing and equity is negative. At $45 a share, that’s well over $1 billion for the company.” The Salomon Smith Barney banker pushing Winstar nodded and then said, “Yes, but your paper is also sky high.”The argument being made was that Winstar’s stock was well overpriced but that the potential buyer’s stock was also way overpriced, so why worry? The CEO didn’t bite, and he was right. Winstar had grown fast using debt. But its revenues couldn't cover its expenses, especially interest, and it went bankrupt in 2001.

Non-Existent Synergies. The standard justification for a merger or acquisition is that the combined company will be worth more than the sum of its parts, a phenomenon known as synergy. One problem is that expected synergies are rarely quantified. This is undoubtedly because their magnitude is usually less than the premium over market value paid for the target company.

The most common “synergy” sought is usually just scale. For example, Sprint acquired Nextel in 2005, seeking to create a combined wireless carrier with the scale to compete with AT&T and Verizon. However, the network technologies were incompatible, and the branding differed. Customer service was poorly integrated, and its quality deteriorated. Sprint had to write down nearly $30 billion on the deal. The problem with merging complex firms is that management systems, compensation, and culture have to be harmonized. Importantly, there can only be economies if the combined firm has fewer top leadership positions. Working all of this out requires skill and a firm hand. Few companies are good at this.

In Good Strategy/Bad Strategy: The Difference and Why It Matters I related a story about a potential merger between Telecom Italia and UK-based Cable & Wireless.

The board of directors of Telecom Italia had asked me to interview the senior investment banker packaging the deal. They were becoming disenchanted with TI’s CEO and were curious as to the outside rationale for the deal. I met the lead investment banker in a small conference room in Milan and asked him about his perspective on the deal's purpose.

“Economies of scale” was his immediate answer.

“But these companies operate in totally different regions,” I responded. “Where are the economies of scale in combining a Caribbean operator with one in Italy, or Brazil?”

“Telecom Italia,” he replied, “needs to move traffic from South America to Europe. Cable & Wireless has cables that can handle that traffic.”

This response surprised me. It was a flunking response to a standard question in an MBA course midterm exam. You don’t need to own a cattle ranch to get fertilizer for your rose garden and you don’t need a $50 billion merger to move communications traffic. I suggested that a contract would suffice.

He responded by explaining that by “scale,” he meant “cash flow.” The combined company would have much larger cash flow than either alone. When I questioned the need for more cash flow, his final argument was that “With more cash flow, you can do a bigger deal.”

Side Payments. In large deals, a significant amount of money changes hands. Investment bankers’ fees are often in the tens of millions, and top executives may be guaranteed top positions in the combined firm, along with large equity stakes, golden parachutes, and other forms of compensation. In a big deal, these side payments may barely appear in the total reckoning, but loom very large to the individuals involved.

Pay Attention to Management and Organization

Most writing on strategy assumes that it is about winning a battle with an enemy or competitor by using superior resources, position, or cleverness. But in about half of my work with clients, the problem is internal. The main internal challenges are inertia and poor management. These are not simply issues of implementation or organization. They are strategic because they are critical impediments to change, adaptation, and innovation.

One fact about modern business and government is the vast amount of inertia. Most people work and live by routines, doing today what was seemingly good enough yesterday. Whether it was General Motors’ slow decline to its bankruptcy in 2009, or the 20 years the U.S. spent fighting in Afghanistan, organizations resist changing their routines even as poor results accumulate. The strategist must pay attention to what breaks inertia. It takes more than the wolf at the door—often the wolf has to be in the cabin and biting legs. Or, it takes major reorganizations—usually new blood, breaking things into smaller pieces, eliminating cross-subsidy comforts, and cutting coordinating committees.

To understand inertia, you must look beyond most stories of business or military success. Inertia is often underrepresented in these narratives because it leads to death and, consequently, a gradual erasure from history. In my experience, there are four basic sources of organizational inertia:

Myopia. This is a focus on the near term. When turnover is high or an individual manager expects to move or retire soon, the future becomes less relevant. Top management's discounting of the results promised in lower-level proposals also induces myopia. Attention to immediate earnings rather than longer-term value also induces myopia.

Hubris. This is overweening pride in past success and the associated practices. It leads to a denial of the need for change.

Failed Creative Response. Action may be hindered when events unfold too quickly. U.S. firms withdrew from early liquid crystal technology as Japanese firms advanced far ahead in a short time. Often, the reaction is to double down on unsuccessful policies instead of acknowledging the need for significant change.

Political Deadlocks. Managers rarely act to unseat themselves or terminate their own departments. Change will be fought by those who will lose power or influence. Politics may block change when different individuals or groups hold sincere but differing beliefs about the nature of the problem or its solution.

Bad management is another internal block to effective strategy. If people in the organization do not routinely identify and solve problems and tackle inefficiencies, then there is bad management. Copying the methods of currently successful companies can easily lead to poor management, as these companies often lack market checks on costly, ineffective methods. Another source of bad management is the proliferation of KPIs (Key Performance Indicators). In some organizations, almost every proposed plan or strategy is immediately turned into several KPI’s for each person, followed by monthly reviews about how each is doing on these goals. The KPI systems are designed to manage a stable business. They create incentives for keeping various metrics on planned tracks. However, if a strategy requires breaking new ground, exploring new territory, or expanding the organization’s skillset, then KPIs become insufficient and may even be detrimental. The issue is that the system incentivizes a focus on predicted targets rather than the collaborative problem-solving needed to explore new territory.

Competent management stays involved in the routine problem identification and solving that the organization must embrace. It is not only a judge of performance; it actively coaches and participates in the practices and routines that sustain the organization, maintaining connections with its customers, suppliers, and the technical base. Trying strategic moves in a firm with bad management is pushing on a wet noodle.

Building a Career

The most common career path in strategy is having a “strategy” role within a commercial, government, or military organization. Unfortunately, outside of the military, it is rare for this role to be about strategy. In most cases, the job involves transforming financial projections into PowerPoint presentations that outline goals and forecast outcomes. The “strategies” will generally be to expand into new territories, cut costs and expenses, increase revenue, and develop new versions of existing products. There will be little or no mention of competitive reactions or of other types of challenges that must be faced and overcome.

A somewhat more interesting version of the corporate strategy job is being a consulting unit within a diversified company. In this case, you will be charged with reviewing the strategies developed by business units and suggesting improvements or changes. Still, in most complex companies, the language of strategy remains the same---hoped-for financial outcomes coupled with the steps to be taken move from the current financial condition to an improved set of results.

A third type of strategy work in a large company focuses on deal-making. That is, on working on mergers, acquisitions, and spin-offs, usually in conjunction with an investment bank.

The standard fast track into being a strategist is to work for a top three strategy consulting house: McKinsey, BCG, or Bain. The second tier can also launch a career: LEK, Oliver Wyman, Strategy& (PwC), EY-Parthenon, and Kearney. Finally, there are a few boutique consulting firms that do specialized areas of strategy well: OC&C Strategy Consultants, Simon-Kucher & Partners, Innosight and The Bridgespan Group.

A number of global consulting firms claim strategy practices, but few, if any, have actual C-suite access. In a company that mainly focuses on accounting or systems implementation, it is best to try working with a lead who has top access at a smaller client. At a good firm, you will be stretched and gain experience in strategy analysis and in how to present to senior client leadership. From there, you may ascend the internal ladder, split to work for a key client, or form your own boutique.

Another track is to write a breakthrough article or book. The article or book can get you on the speaker circuit, which can lead to consulting work. Beware that following this track is like trying to be a rock star. You must have your own song—your personal point of view—not simply echoing the ideas of others. And, the odds of success are low.

A fifth track is the academy. Obtaining a PhD in business is easier than securing a job at a reputable institution, which, in turn, is easier than achieving tenure, which is easier than securing a promotion to a full professorship. By then, you may have become so academic that you have little to say to business people. With effort (and no rewards from the college or university), you can use that perch to write for practitioners and begin consulting.

Finally, if you have a decent entrepreneurial talent, start your own business and be its strategist.

Enhance Your Judgment by Reading Widely and Often

A valued skill for strategy is the ability to judge what may happen next and how an action may alter this outcome. There are various levels of skill and sophistication in making these judgments. The simplest judgments are about what another person will do or how they will react to a comment, suggestion, or directive. A more complex skill involves assessing the actions and reactions of a team or group. Predicting how customers will respond to a new product may be even harder. At an even higher level is judgment on how political actors, the economy, the larger public, and even whole nations will act or react to an event or proposition.

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Good strategists build such skills through practice and by a keen interest in the experiences of other leaders, companies, armies, societies, and nations. Much can be learned from other people, both privately and at gatherings. Still, there is no substitute for steadily consuming newspapers, selected articles, and books. In doing so, beware of the Internet’s memory hole: the World Wide Web first awoke in 1991, and browsers did not appear until 1993. It can be a struggle to research events that occurred before 1995.

Once people can read books, they can educate themselves on almost anything. When I went to college in 1960, I had to read a book a week in my history and literature courses. By 2012, when I asked graduate students at UCLA to read a book, they went to the dean to complain. If schools won’t educate you, then you must educate yourself.

In A Strategist’s Basic Bookshelf, I provide a reading list that mixes military, political, and business strategy sources. Some are easy and inviting, while others demand more concentrated attention to unfamiliar background events or archaic narrative styles. One reason for reading books rather than outlines or listening to podcasts is to see the myriad of details about events, people, and their interactions. These supplement your real-world experience and hone your judgments about how people appraise and react to others’ actions and to events. In addition to building judgment, steady reading will build your knowledge base about ideas and events. This will strengthen your ability to reason by analogy and to use ideas and facts in advancing your arguments.

For example, Thucydides' History of the Peloponnesian War is somewhat challenging for the modern reader, yet it reveals valuable insights into human and political interactions. Demosthenes (the Athenian general, not the orator) is a fascinating case. Skilled in light-infantry tactics and ambush, he was respected for his success against Sparta at the Battle of Pylos (425 BC). He was sent to Sicily to reinforce the struggling Sicilian Expedition after political enemies had recalled General Alcibiades to face trial. In Sicily, Demosthenes attempted a surprise nighttime attack but failed due to a lack of organization and coordination. He then suggested a withdrawal, but co-general Nicias refused. Subsequently, almost all of the Athenian forces were destroyed, and the two Athenian generals were captured and executed. The failure of the Sicilian Expedition was a strategic defeat for Athens. That weakness played a significant role in its eventual defeat a decade later by Sparta (405 BC). A modern parallel is German General Friedrich Paulus (Stalingrad, 1942-42). To a lesser extent, so is General William Westmoreland (Vietnam).

Cohen and Gooch’s Military Misfortunes is a gripping analysis of military failure that offers profound lessons for all types of organizations. The chapter on antisubmarine strategy resonates with me because of my mother. In 1942, she worked in Washington, D.C., and later recounted standing on Virginia Beach, near the north end around Cape Henry Lighthouse, and seeing the fires of burning U.S. ships in the near distance. “Men were dying right there on our coast,” she recalled, “and it seemed no one could stop it.” That year, sinkings outpaced new construction and threatened U.S. support for Britain and, consequently, for the war in Europe. Cohen and Gooch attribute this catastrophe to a failure to adopt the already well-developed methods of antisubmarine warfare established by the British. During 1940, they had developed a centralized clearing house for all possible intelligence on submarine locations, which coordinated air and naval forces against them. They also developed depth charges, the slow-sinking bombs featured in naval war movies. However, the U.S. Navy only adopted the depth charges; the remainder of the system conflicted with the Navy’s disdain for coordination with aircraft and its doctrine of independent command for each captain. You will find parallels for this in nearly all business attempts to learn from the practices of other firms.

Clayton Christensen’s The Innovator’s Dilemma is a must-read. He writes: “the logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.” Not all his background on disk drives has stood the test of time, but the basic thesis has. Firms become captive to serving their existing customers with their existing methods, resisting new, usually less profitable innovations. Apply this concept to the U.S. government if you dare.

To become a strategist, it is good to expose yourself to ideas about the concept of strategy itself. But, as in most professional fields, real skill grows from studying the skilled performances of others. This explains the importance of histories and biographies in this list. In the Bookshelf, I include only a few books on business strategy. When reading about business strategy, you should avoid works that claim to provide “winning” strategies and other simple formulas for success and profit. The idea that we can all be like the winners if we only follow their example is the oldest scam in popular culture. Also, avoid modern books on “leadership”—these are almost all about perfecting oneself to project a compelling vision. They are not about actually leading anyone.

Know Something Well

In Part 1 of this series, I argued that the best real-world strategists begin by managing. A complementary starting point is developing expertise and deep experience in a field grounded in reality rather than abstractions. The purpose is to cultivate mental muscles for solving real-world problems by manipulating and combining known elements, sometimes in innovative ways, to meet tough constraints.

I have been a tinkerer since the age of 13, designing and building radio transmitters, receivers, reflecting telescopes, and various other gadgets and machines. With no budget, I combed junk yards and factory discard heaps for materials.

I earned an M.S. in electrical engineering, writing a thesis on optimal lifting entry in the Martian atmosphere. That got me a job at the Jet Propulsion Laboratory as a spacecraft designer. At JPL, we designed and built unmanned spacecraft on missions to the Moon (Ranger, Surveyor) and Mars (Mariner). At JPL, I learned real engineering from people who designed, built, and flew actual things. On what seemed to be a whim, I was asked to do a conceptual design for a mission to Jupiter. Given a weight constraint of 1600 pounds, how should a spacecraft bound for Jupiter look? A larger antenna weighed more but required less electrical energy. On the other hand, the larger antenna required more accurate pointing at the Earth to communicate, which, in turn, required more attitude control gas. A radioisotope electrical generator using Plutonium-238 would last a decade or more, but had to be shielded to protect other electrical and scientific instruments. Or, one could use less shielding and put it on an arm, holding it at a distance. However, that, in turn, would require more work for the attitude control system. Fussing with these and other design problems developed my own skills at problem definition and crafting solutions.

I developed an ambition to lead the NASA manned Mars project, which was expected to launch in 1984. So, I left JPL in the fall of 1965 to study management at the Harvard Business School. At that moment, a Caltech Ph.D. student, Gary Flandro, discovered that a rare alignment of the outer planets—Jupiter, Saturn, Uranus, and Neptune—would occur in the 1970s. This event happens about once every 175 years. With clever guidance, a spacecraft could swing by each planet, using its gravity to change direction to visit the next. That turned my Jupiter study into a real mission called Voyager, and the rest is history.

Some strategists cut their teeth as project managers, real estate developers, video game designers, engineers, and more. Their accomplishments as strategists usually echoed and built directly on their practical experience.

• Henry Ford was a self-taught mechanic as a boy, worked as a machinist, and became chief engineer at Edison Illuminating before turning his attention to automobiles.

• Marc Benioff built his first computer at age 12 and sold a program he wrote (“How to Juggle”) at 14. At 15, he started Liberty Software, developing video games for the Atari. He interned at Apple during college, writing assembly language programs for Macintosh. All this, plus his work at Oracle, prepared him for starting and building Salesforce.com.

• Elon Musk earned two college degrees at the University of Pennsylvania: a BS in Physics and a BA in Economics. He learned about business as a founding partner of PayPal. This experience and technical background were essential in building his strategic insight, leading to Tesla, SpaceX, and Starlink.

• James Dyson meticulously created, constructed, and evaluated more than 5,000 vacuum prototypes prior to finalizing his cyclone vacuum. He then worked to establish global intellectual property protections and position his vacuum as fundamentally different rather than just a minor upgrade. The combination of sleek design and superior performance altered consumer expectations, leading to the emergence of a new premium segment in a previously saturated market.

• Fred Smith took to the skies in his youth, learning to fly as a boy, and at 15, he was operating crop dusters. While in Vietnam as a 2nd Lieutenant in the Marine Corps, he led a platoon on search-and-destroy missions. Following a transfer, he conducted hundreds of counterintelligence missions flying Broncos and A-4 Skyhawks. Upon returning to the U.S., he assumed control of his father-in-law's aircraft maintenance business, transitioning it from maintenance to buying and selling pre-owned corporate jets. Then, he conceived a bold strategy—Smith imagined a fleet designed to transport packages overnight between airports, with sorting and distribution handled at a central hub. To circumvent federal shipping regulations, the new venture would have to own its aircraft. The proposal eventually raised $91 million in venture capital. FedEx transformed the quick delivery of envelopes and packages, becoming a name recognized in every household.

• John D. Rockefeller began trading agricultural products early in his career, learning about storage and transportation. By the 1860s, he was working in oil refining in Cleveland, finding ways to cut costs through quality control and scale economies. While the romance in the business lay in drilling for oil, Rockefeller’s experiences in refining and logistics led him to believe that significant gains could be made by restructuring the fragmented refining and distribution businesses. He bought out small mom-and-pop refiners, began to consolidate distribution, and systematically eliminated less efficient competitors. Widely disparaged as a “robber baron,” you are almost never told how his efficiencies cut the price of a gallon of kerosene from 58 to 7 cents a gallon.

• General George S. Patton trained in military history, tactics, and leadership at West Point and was strongly influenced by classical military historians and theorists. He maintained detailed notebooks on his analyses and reactions to the ancient Greek and Roman historians (Thucydides, Xenophon, Polybius), Clausewitz’s On War, Sun Tzu’s The Art of War, and works on Napoleon. He learned important strategic lessons from General Pershing during WWI, where he led the first U.S. tank units in combat.

The critical point is to have practical experience with analysis, creativity, and problem-solving within constraints. Studying books and articles or listening to lectures can be informative, but they are not sufficient.

Practice by Analyzing Current Strategic Situations

Would-be strategists usually spend too much time studying strategy concepts and theories. The best way to develop the intellectual skills needed for strategy work is to practice. Short of running a company or being an advisor, the best practice is to work on a complex current situation at least twice a month.

• Choose a current issue and identify the key forces at work—economic, social, political, and/or technological.

• What key paradox or challenge must be resolved to move ahead?

• What are your forecasts for how the situation will evolve over the next few months and years?

• What would be your advice to one of the key actors?

Here is an example from recent news stories (May 2025):

The EU strives for a sustainable future, targeting net-zero emissions by 2050. Central to this shift are electric vehicles (EVs), solar panels, and wind turbines, all of which rely on key raw materials such as lithium, cobalt, nickel, and various rare earth elements (REEs). Currently, more than 85% of these materials are processed or mined in China. African nations, particularly the DRC, South America (especially Chile), and Indonesia, are key mining regions but are politically somewhat unstable or present challenges for the EU’s “ethical” sourcing regulations. Domestic European mining faces significant environmental pushback and regulatory delays. Meanwhile, China is cutting exports of certain minerals in response to EU and U.S. trade moves.

Analyze this situation, identify the key challenge, and recommend a course of action to the EU Head of Energy Transformation. (Get a Hint).

Here is another example of a current problem:

In 2024, Apple rolled out its new AI system, “Apple Intelligence,” featuring a built-in assistant called CoreAI that runs directly on devices like iPhones, Macs, and the Vision Pro, supported by a private cloud backend. While the experience feels smooth and secure — in classic Apple fashion — developers and tech observers have found it surprisingly limited. CoreAI lacks the ability to combine images, text, and voice like some of its competitors and struggles with tasks that require deeper reasoning or creativity. It’s also quite closed off: customization is minimal, and API access is restricted. Apple seems more focused on keeping everything efficient and private rather than pushing the boundaries of what AI can do. Meanwhile, Google’s Gemini 2 delivers rich, multimodal interactions; OpenAI is building a full developer ecosystem with GPT; and Meta’s LLaMA 3 is open-sourced and widely adaptable. All this raises a tough question: Is Apple falling behind in the AI race?

What is the conflict at the core of this challenge? What would you advise Tim Cook to do? [Get a Hint]

And, here is a third current problem:

IBM aims to be a frontrunner in “Trusted AI for the Enterprise.” Its pitch to CIOs is “Run trusted AI, your way, without losing control.” Its core products are:

• WatsonX, a platform for building, training, tuning, deploying, and governing AI models, especially in enterprise situations.

• Granite Models are IBM’s family of foundation AI models trained on public and enterprise-relevant data for enterprise AI. They are not better than GPT-4 on reasoning, but are smaller, cheaper, deployable in sensitive environments, and auditable by enterprises.

• OpenShift + Red Hat is IBM’s key cloud deployment backbone giving its clients the option to run cloud systems where they want, with full control.

Despite the quality of these product offerings, IBM is confronted with significant challenges. OpenAI and Microsoft lead mainstream AI adoption, while Google DeepMind excels in research advancements. Anthropic and Meta are gaining developer attention through their open models and APIs. Additionally, IBM’s brand is often linked to legacy systems and “slow innovation." While its AI products are accurate, auditable, and compliant, they lack cutting-edge appeal and broad visibility.

As a strategy advisor to the Chief Product Officer at IBM, your role is to evaluate IBM’s position in the AI landscape and propose a strategic approach to enhance adoption, shift perceptions, and safeguard long-term competitive advantage. [Get a Hint]

As you engage in these practice sessions, be sure to write down your analysis and recommendations. (Don’t wait too long after May 2025). This will allow you to compare your judgment with events as they unfold in the future. When people or organizations do not record their expectations, no matter what actually happens next, they tend to say, “I thought that might happen.” Having a proper record of expectations is essential for learning from errors and mistakes.

Helicopter Judgment

A common weakness in strategy work is a fascination with the “big picture,” forgetting the importance of the detailed issues and opportunities at the working level. I call the ability to work at both levels helicopter judgment. Can you soar above the trees to view the whole forest and then plunge back down for a boots-on-the-ground perspective?

For instance, take the IBM AI practice case discussed in the previous section. From a height of 5,000 feet, one can observe the present competitive landscape in AI highlighted in that example. Ascend even higher, and you may gain an even broader perspective. Companies such as IBM and PwC have conventionally capitalized on their expertise in data processing. However, AI models that harness open-source or readily available data could diminish the competitive advantage that consulting firms have historically relied upon. Expertise and analytical capabilities become broadly and cheaply accessible, eliminating consultants’ primary competitive advantage. As AI reasoning approaches or surpasses human capabilities, the reliance on human judgment may be greatly reduced, particularly in structured or semi-structured decision-making tasks.

Now, take the helicopter down to ground level. Imagine you can interview IBM technical specialists who deliver solutions to clients and interview the clients as well. At AT&T, for example, you find that IBM helped the company migrate its internal software applications to its own private cloud. Here, AT&T uses “AI” to help schedule network maintenance. However, its main gains from AI have been in code generation, a tool developed with Microsoft, and in fraud detection, using tools developed by H2O.ai, a developer of open-source machine learning systems. This should give you a different view of the challenges facing IBM. Go down even further and sit next to a technician working to access WatsonX. What issues does she face?

You develop helicopter judgment by practicing it in your own work. If you do not yet have that kind of access, the poorer alternative is to practice helicopter judgment by reviewing and analyzing historical records. Here are two places to start:

• Despite having over 50 percent of the global smartphone business in 2007, Nokia lost the battle to Apple. Get mixtures of high-level and low-level views by reading “The Strategic Decisions That Caused Nokia’s Failure,” “Who Killed Nokia? Nokia Did,” and “What Could Have Saved Nokia, and What Can Other Companies Learn?”

• Operation Market Garden was an Allied battle fought during World War II in the German-occupied Netherlands in the fall of 1944. It featured the first major combat use of British and American airborne forces. The aim was to seize bridges across the Rhine to gain access to northern Germany. It is generally considered to have been a dramatic failure. Read about the high-level and low-level views on HistoryNet.

Think Again

A fundamental tool for sharpening your reasoning is applying contrary thinking to your ideas. When you struggle with a complex challenge, the idea of a way through or around it rushes into your mind with a welcome feeling. It is a great feeling, and you are sure it is an excellent idea because ... well … it is your idea. A difficult but valuable discipline is to critique your own ideas. This practice is the secret to much better thinking. (This thinking tool is not new, but has been recently popularized by Adam Grant.1)

For example, I recently asked an economist friend about President Trump’s tariffs. He immediately said that tariffs ran against sound economic theory. Free trade, he said, made everyone better off. A week later, he called me and said he had second thoughts about the free trade concept. He said that he realized the theory did not include national security considerations. It had nothing to say about becoming dependent on critical inputs from a large military competitor.

The “think again” tool is usually applied to one’s own ideas. However, it holds equal value when considering the statements and assumptions of others. Most people quickly formulate an alternative thought or opinion when they disagree with someone else’s argument or position. The more unusual skill is thinking critically about arguments that you initially accept. For example, here is a quote from the Webpage of a consulting company:

[We have] been studying the relationship between strategy and execution for years. We have found that the most iconic enterprises — companies such as Apple, Amazon, Danaher, IKEA, Starbucks, and the Chinese appliance manufacturer Haier, all of which compete successfully time after time — are exceptionally coherent. They put forth a clear winning value proposition, backed up by distinctive capabilities, and apply this mix of strategy and execution to everything they do. Any company can follow the same path as these successful firms, and an increasing number of companies are doing just that.

This quote contains two arguments. The last one is that any company can do this. This is obviously not true. Diversified companies like Honeywell International cannot magically become coherent.

The paragraph’s main argument is that success and strategic coherence go together. This sounds reasonable and will be familiar to most MBA students. Business strategy courses are replete with these firms. Coherence among policies is given much credit for their competitive success and for the size of their economic moats. Michael Porter has written several times about how coherent “activity systems” are a key to effective strategy.2 (Southwest Airlines, Progressive Insurance, IKEA, Zara).

But is coherence a secret sauce for success? This argument may be an example of survivorship bias: focusing analysis on the successful rather than those who have failed and disappeared. To see this, consider Kodak. Its strategy was to standardize and dominate the film and chemical photography ecosystem. Its distinctive capabilities in film chemistry, processing, and retail distribution provided unmatched coherence for decades. However, Kodak’s coherent film-based strategy became obsolete during the digital photography revolution.

Or consider Pan American Airways or Pullman Company (railway sleeping cars). Both had carefully designed coherent strategies for luxury transportation. The rise of non-coherent but lower-cost competitors drove both out of business.

(These cases are examples of the thinking tool counterexample. It is a powerful way of analyzing the truth of a proposition in argument, formal logic, and mathematics. A truth claim can be disproved by citing a counterexample.)

By questioning this common argument about coherence and success, one can uncover the idea that strong coherence may hinder adaptation when the world changes around you. (See my Substack article on Intel about this.)

Bullet Time

The larger parts of the human brain deal with cognition, vision, hearing, language, memory, and reasoning. The smaller limbic portions deal with fear, anger, threat, and flight—specifically the amygdala, hypothalamus, and the hippocampus. Limbic bypass is the skill of short-circuiting your own emotional over-reactions without deadening this part of your senses. Your emotional response to what is happening tells you (a) about what other people think and intend and (b) about your midbrain’s assessment of the threat to you. You need to be aware of the emotions in the situation, but you also need to keep your limbic system from triggering a strong limbic response—anger, fear, or withdrawal.

There are several tricks for performing limbic bypass. (a) Give yourself a pause of five or six seconds before responding to an emotional trigger. This lets the instant adrenaline-fueled surge fade. (b) Ground your senses: take a sip of water, or feel your feet on the floor, or examine the wall's texture. (c) Name your emotion and analyze it: “I feel angry because he insults me. He does it to build his credibility. He may be insecure about something.”

Functional Analysis is the skill of being aware of the emotions and purposes of other people in a small group setting. Like limbic bypass, a key part of functional analysis is disabling your value judgment (good or bad) about what others say. If Melanie proposes a new committee, skip over your immediate dislike of the suggestion. Why is she doing this? How does she feel about it? What does she hope to gain? By not judging, but analyzing, you gain perspective on what is happening. Basically, functional analysis is understanding each person’s interests, being aware of their emotional state, and recognizing their coping strategy. For example, Bob may be interested in having his forecast accepted as good work and may be annoyed at the criticism implicit in the discussion. He may be coping (poorly) by offering a false choice: “Well, if you don’t like the forecast, we can start over from the beginning.”

Developing the skills of limbic bypass and functional analysis will help you become a more effective manager, advisor, or leader. The only way to gain these skills is through practice. Choose a task-based small group of which you are a member. Choose a short time interval (10 minutes) and work on both functional analysis and limbic bypass. As you gain practice at these skills, you may experience a sense of time slowing down, allowing you more time to understand what is going on in the group. I call this slowdown “bullet time,” after the time slowdown as Neo dodges bullets in The Matrix.

Speaking

The strategist, whether leader or advisor, must speak effectively. There are many sources for advice on this, but it is hard to do better than Aristotle’s treatise Rhetoric, written about 2600 years ago. He defined rhetoric as the art of persuading an audience. The core principles are

• Ethos (credibility). Speakers should establish credibility and trustworthiness through sincerity, expertise, and evidence of good moral character.

• Pathos (emotion). Speakers must recognize and appeal to the audience’s emotions and values.

• Logos (logic). Speakers should support their arguments with evidence, facts, and reasoning.

Four less well-understood tricks of effective speaking are: (1) Speak more slowly than your normal pace. (2) Don’t just gaze at the room. Look directly at the eyes of a person in the audience, pause, then another, pause, and so on around the room, synchronizing your gaze with your spoken sentences or clauses. (3) See yourself as a character in a play. You are not your everyday self, but a character actor playing the part of a great speaker. (4) To the extent possible, prepare the room in advance. You want the audience to engage with you, not some monitor or screen. The ideas come from you, not the visual aids.

Learn Your Strengths and Weaknesses

Knowing yourself, especially your strengths and weaknesses, is essential in almost any professional role. Can you listen to both the substantive and emotional messages when interacting with someone else? Are you more of a talker or a writer? Are you drawn to analyzing and diagnosing complex situations? Can you read or hear a complex argument and boil it down to its essentials? Do others find you someone they can confide in? Do you deliver on your promises and commitments? Do you know what you want out of your life and career?

It would be convenient if we learned about our own strengths and weaknesses from experience. But most of us are biased observers of ourselves. The most powerful way to learn about oneself comes from a coach who has expertise and your interests at heart. General Dwight Eisenhower’s experience in North Africa in 1943 was a good example of this.3

In 1941, General George C. Marshall (4-star) served as Chief of Staff of the U.S. Army and was the principal military advisor to the president. In late 1941, he appointed Brigadier General Eisenhower (1-star) as his chief of staff. In this role, Eisenhower became the chief architect of U.S. strategy for the European and Pacific wars. Before the war, Eisenhower consistently advocated for relieving peace-time officers of their commands and replacing them with those who were capable and willing to lead the fight. Coached and supported by Marshall, Eisenhower advanced quickly, earning his second and third stars in March and July of 1942. 
     In February 1943, he was promoted to full General, gaining his fourth star, and was appointed to command Allied forces in North Africa. Eisenhower traveled to the Tunisian front to personally inspect defenses, morale, and evaluate commanders. At II Corps headquarters, he found that its commander, General Fredendall, had assigned his troops the task of constructing a vast underground bunker approximately 70 miles behind the front lines. Eisenhower observed the ineffective positioning of troops defending Kasserine Pass and noted that the tanks defending Sidi Bou Sid and Sbeitla were scattered in static positions, making them vulnerable to encirclement. Following this inspection, Eisenhower took no action, seeking solitude, hoping that Fredendall would rectify these issues.
     When German Field Marshall Erwin Rommel attacked Sidi Bou Sid and Sbeitla just five days later, U.S. forces were surrounded and overwhelmed. Over 170 tanks were lost. Rommel subsequently attacked Kasserine Pass, breaking through U.S. defenses and forcing them back 50 miles. In this battle, approximately 300 Americans were killed, 3,000 were wounded, and another 3,000 were taken prisoner. The Germans experienced about 1,000 casualties. General Omar Bradley described the battle as “a complete disaster.” It would take a year for Americans to overcome the scorn of the British.
     Following this defeat, General Eisenhower still refrained from taking action to relieve Fredendall. Instead, he asked General Harmon to “take over.” Harmon reported back that Fredendall “was no damn good. You ought to get rid of him,” but he declined the position after making that recommendation. Eisenhower hesitated again and reached out to his mentor, General Marshall.
     Marshall provided tough feedback, reprimanding Eisenhower for not taking swift action to remove an inadequate officer. He stressed the necessity of immediate action in combat (contrasted with staff work) and the importance of quickly learning from mistakes. After this conversation, Eisenhower quickly relieved Fredendall and replaced him with General George S. Patton. He then reorganized the command structures. With a clearer understanding of Eisenhower's strengths and weaknesses, Marshall began positioning Eisenhower as a “political” General, assigning him to lead the Allied war effort centered in Britain, where he had to coordinate among the Allied nations' political and military interests and plans. At this job, he distinguished himself greatly, but was never again given direct field command.

In the absence of such a trusted coach or advisor, the alternative is to keep a record of your expectations, actions, and their outcomes. This is an old idea, usually credited to Ignatius of Loyola (1491-1556), the founder of the Jesuits. He practiced and taught daily journaling, reviewing decisions and actions, evaluating outcomes against intentions, and reflecting. Peter Drucker4 promoted this method as “feedback analysis” and argued that it is a powerful method of identifying one’s strengths and weaknesses. Drucker’s fascinating observation was: “I have been practicing this method for 15 to 20 years now, and every time I do it, I am surprised. The feedback analysis showed me, for instance—and to my great surprise—that I have an intuitive understanding of technical people, whether they are engineers or accountants or market researchers. It also showed me that I don’t really resonate with generalists.”

Enhance Your Judgment by Reading Widely and Often

A valued skill for strategy is the ability to judge what may happen next and how an action may alter this outcome. There are various levels of skill and sophistication in making these judgments. The simplest judgments are about what another person will do or how they will react to a comment, suggestion, or directive. A more complex skill involves assessing the actions and reactions of a team or group. Predicting how customers will respond to a new product may be even harder. At an even higher level is judgment on how political actors, the economy, the larger public, and even whole nations will act or react to an event or proposition.

Good strategists build such skills through practice and by a keen interest in the experiences of other leaders, companies, armies, societies, and nations. Much can be learned from other people, both privately and at gatherings. Still, there is no substitute for steadily consuming newspapers, selected articles, and books. In doing so, beware of the Internet’s memory hole: the World Wide Web first awoke in 1991, and browsers did not appear until 1993. It can be a struggle to research events that occurred before 1995.

Once people can read books, they can educate themselves on almost anything. When I went to college in 1960, I had to read a book a week in my history and literature courses. By 2012, when I asked graduate students at UCLA to read a book, they went to the dean to complain. If schools won’t educate you, then you must educate yourself.

In A Strategist’s Basic Bookshelf, I provide a reading list that mixes military, political, and business strategy sources. Some are easy and inviting, while others demand more concentrated attention to unfamiliar background events or archaic narrative styles. One reason for reading books rather than outlines or listening to podcasts is to see the myriad of details about events, people, and their interactions. These supplement your real-world experience and hone your judgments about how people appraise and react to others’ actions and to events. In addition to building judgment, steady reading will build your knowledge base about ideas and events. This will strengthen your ability to reason by analogy and to use ideas and facts in advancing your arguments.

For example, Thucydides' History of the Peloponnesian War is somewhat challenging for the modern reader, yet it reveals valuable insights into human and political interactions. Demosthenes (the Athenian general, not the orator) is a fascinating case. Skilled in light-infantry tactics and ambush, he was respected for his success against Sparta at the Battle of Pylos (425 BC). He was sent to Sicily to reinforce the struggling Sicilian Expedition after political enemies had recalled General Alcibiades to face trial. In Sicily, Demosthenes attempted a surprise nighttime attack but failed due to a lack of organization and coordination. He then suggested a withdrawal, but co-general Nicias refused. Subsequently, almost all of the Athenian forces were destroyed, and the two Athenian generals were captured and executed. The failure of the Sicilian Expedition was a strategic defeat for Athens. That weakness played a significant role in its eventual defeat a decade later by Sparta (405 BC). A modern parallel is German General Friedrich Paulus (Stalingrad, 1942-42). To a lesser extent, so is General William Westmoreland (Vietnam).

Cohen and Gooch’s Military Misfortunes is a gripping analysis of military failure that offers profound lessons for all types of organizations. The chapter on antisubmarine strategy resonates with me because of my mother. In 1942, she worked in Washington, D.C., and later recounted standing on Virginia Beach, near the north end around Cape Henry Lighthouse, and seeing the fires of burning U.S. ships in the near distance. “Men were dying right there on our coast,” she recalled, “and it seemed no one could stop it.” That year, sinkings outpaced new construction and threatened U.S. support for Britain and, consequently, for the war in Europe. Cohen and Gooch attribute this catastrophe to a failure to adopt the already well-developed methods of antisubmarine warfare established by the British. During 1940, they had developed a centralized clearing house for all possible intelligence on submarine locations, which coordinated air and naval forces against them. They also developed depth charges, the slow-sinking bombs featured in naval war movies. However, the U.S. Navy only adopted the depth charges; the remainder of the system conflicted with the Navy’s disdain for coordination with aircraft and its doctrine of independent command for each captain. You will find parallels for this in nearly all business attempts to learn from the practices of other firms.

Clayton Christensen’s The Innovator’s Dilemma is a must-read. He writes: “the logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.” Not all his background on disk drives has stood the test of time, but the basic thesis has. Firms become captive to serving their existing customers with their existing methods, resisting new, usually less profitable innovations. Apply this concept to the U.S. government if you dare.

To become a strategist, it is good to expose yourself to ideas about the concept of strategy itself. But, as in most professional fields, real skill grows from studying the skilled performances of others. This explains the importance of histories and biographies in this list. In the Bookshelf, I include only a few books on business strategy. When reading about business strategy, you should avoid works that claim to provide “winning” strategies and other simple formulas for success and profit. The idea that we can all be like the winners if we only follow their example is the oldest scam in popular culture. Also, avoid modern books on “leadership”—these are almost all about perfecting oneself to project a compelling vision. They are not about actually leading anyone.

Know Something Well

In Part 1 of this series, I argued that the best real-world strategists begin by managing. A complementary starting point is developing expertise and deep experience in a field grounded in reality rather than abstractions. The purpose is to cultivate mental muscles for solving real-world problems by manipulating and combining known elements, sometimes in innovative ways, to meet tough constraints.

In my case, I was a tinkerer since the age of 13, designing and building radio transmitters, receivers, reflecting telescopes, and various other gadgets and machines. With no budget, I combed junk yards and factory discard heaps for materials. I earned an M.S. in electrical engineering, writing a thesis on optimal lifting entry in the Martian atmosphere. That got me a job at the Jet Propulsion Laboratory as a spacecraft designer. At JPL, we designed and built unmanned spacecraft on missions to the Moon (Ranger, Surveyor) and Mars (Mariner). At JPL, I learned real engineering from people who designed, built, and flew actual things. On what seemed to be a whim, I was asked to do a conceptual design for a mission to Jupiter. Given a weight constraint of 1600 pounds, how should a spacecraft bound for Jupiter look? A larger antenna weighed more but required less electrical energy. On the other hand, the larger antenna required more accurate pointing at the Earth to communicate, which, in turn, required more attitude control gas. A radioisotope electrical generator using Plutonium-238 would last a decade or more, but had to be shielded to protect other electrical and scientific instruments. Or, one could use less shielding and put it on an arm, holding it at a distance. However, that, in turn, would require more work for the attitude control system. Fussing with these and other design problems developed my own skills at problem definition and crafting solutions.

I developed an ambition to lead the NASA manned Mars project, which was expected to launch in 1984. So, I left JPL in the fall of 1965 to study management at the Harvard Business School. At that moment, a Caltech Ph.D. student, Gary Flandro, discovered that a rare alignment of the outer planets—Jupiter, Saturn, Uranus, and Neptune—would occur in the 1970s. This event happens about once every 175 years. With clever guidance, a spacecraft could swing by each planet, using its gravity to change direction to visit the next. That turned my Jupiter study into a real mission called Voyager, and the rest is history.

Some strategists cut their teeth as project managers, real estate developers, video game designers, engineers, and more. Their accomplishments as strategists usually echoed and built directly on their practical experience.

• Henry Ford was a self-taught mechanic as a boy, worked as a machinist, and became chief engineer at Edison Illuminating before turning his attention to automobiles.

• Marc Benioff built his first computer at age 12, selling a program he wrote (“How to Juggle”) at 14. At 15, he started Liberty Software, developing video games for the Atari. He interned at Apple during college, writing assembly language programs for Macintosh. All this, plus his work at Oracle, prepared him for starting and building Salesforce.com.

• Elon Musk earned two college degrees at the University of Pennsylvania: a BS in Physics and a BA in Economics. He learned about business as a founding partner of PayPal. This experience and technical background were essential in building his strategic insight, leading to Tesla, SpaceX, and Starlink.

• James Dyson meticulously created, constructed, and evaluated more than 5,000 vacuum prototypes prior to finalizing his cyclone vacuum. He then worked to establish global intellectual property protections and position his vacuum as fundamentally different rather than just a minor upgrade. The combination of sleek design and superior performance altered consumer expectations, leading to the emergence of a new premium segment in a previously saturated market.

• Fred Smith took to the skies in his youth, learning to fly as a boy, and at 15, he was operating crop dusters. While in Vietnam as a 2nd Lieutenant in the Marine Corps, he led a platoon on search-and-destroy missions. Following a transfer, he conducted hundreds of counterintelligence missions flying Broncos and A-4 Skyhawks. Upon returning to the U.S., he assumed control of his father-in-law's aircraft maintenance business, transitioning it from maintenance to buying and selling pre-owned corporate jets. Then, he conceived a bold strategy—Smith imagined a fleet designed to transport packages overnight between airports, with sorting and distribution handled at a central hub. To circumvent federal shipping regulations, the new venture would have to own its aircraft. The proposal eventually raised $91 million in venture capital. FedEx transformed the quick delivery of envelopes and packages, becoming a name recognized in every household.

• John D. Rockefeller began trading agricultural products early in his career, learning about storage and transportation. By the 1860s, he was working in oil refining in Cleveland, finding ways to cut costs through quality control and scale economies. While the romance in the business lay in drilling for oil, Rockefeller’s experiences in refining and logistics led him to believe that significant gains could be made by restructuring the fragmented refining and distribution businesses. He bought out small mom-and-pop refiners, began to consolidate distribution, and systematically eliminated less efficient competitors. Widely disparaged as a “robber baron,” you are almost never told how his efficiencies cut the price of a gallon of kerosene from 58 to 7 cents a gallon.

• General George S. Patton trained in military history, tactics, and leadership at West Point and was strongly influenced by classical military historians and theorists. He maintained detailed notebooks on his analyses and reactions to the ancient Greek and Roman historians (Thucydides, Xenophon, Polybius), Clausewitz’s On War, Sun Tzu’s The Art of War, and works on Napoleon. He learned important strategic lessons from General Pershing during WWI, where he led the first U.S. tank units in combat.

The critical point is to have practical experience with analysis, creativity, and problem-solving within constraints. Studying books and articles or listening to lectures can be informative, but they are not sufficient.

Practice by Analyzing Current Strategic Situations

Would-be strategists usually spend too much time studying strategy concepts and theories. The best way to develop the intellectual skills needed for strategy work is to practice. Short of running a company or being an advisor, the best practice is to work on a complex current situation at least twice a month.

• Choose a current issue and identify the key forces at work—economic, social, political, and/or technological.

• What key paradox or challenge must be resolved to move ahead?

• What are your forecasts for how the situation will evolve over the next few months and years?

• What would be your advice to one of the key actors?

Here is an example from recent news stories (May 2025):

The EU strives for a sustainable future, targeting net-zero emissions by 2050. Central to this shift are electric vehicles (EVs), solar panels, and wind turbines, all of which rely on key raw materials such as lithium, cobalt, nickel, and various rare earth elements (REEs). Currently, more than 85% of these materials are processed or mined in China. African nations, particularly the DRC, South America (especially Chile), and Indonesia, are key mining regions but are politically somewhat unstable or present challenges for the EU’s “ethical” sourcing regulations. Domestic European mining faces significant environmental pushback and regulatory delays. Meanwhile, China is cutting exports of certain minerals in response to EU and U.S. trade moves.

Analyze this situation, identify the key challenge, and recommend a course of action to the EU Head of Energy Transformation. (Get a Hint).

Here is another example of a current problem:

In 2024, Apple rolled out its new AI system, “Apple Intelligence,” featuring a built-in assistant called CoreAI that runs directly on devices like iPhones, Macs, and the Vision Pro, supported by a private cloud backend. While the experience feels smooth and secure — in classic Apple fashion — developers and tech observers have found it surprisingly limited. CoreAI lacks the ability to combine images, text, and voice like some of its competitors and struggles with tasks that require deeper reasoning or creativity. It’s also quite closed off: customization is minimal, and API access is restricted. Apple seems more focused on keeping everything efficient and private rather than pushing the boundaries of what AI can do. Meanwhile, Google’s Gemini 2 delivers rich, multimodal interactions; OpenAI is building a full developer ecosystem with GPT; and Meta’s LLaMA 3 is open-sourced and widely adaptable. All this raises a tough question: Is Apple falling behind in the AI race?

What is the conflict at the core of this challenge? What would you advise Tim Cook to do? [Get a Hint]

And, here is a third current problem:

IBM aims to be a frontrunner in “Trusted AI for the Enterprise.” Its pitch to CIOs is “Run trusted AI, your way, without losing control.” Its core products are:

• WatsonX, a platform for building, training, tuning, deploying, and governing AI models, especially in enterprise situations.

• Granite Models are IBM’s family of foundation AI models trained on public and enterprise-relevant data for enterprise AI. They are not better than GPT-4 on reasoning, but are smaller, cheaper, deployable in sensitive environments, and auditable by enterprises.

• OpenShift + Red Hat is IBM’s key cloud deployment backbone giving its clients the option to run cloud systems where they want, with full control.

Despite the quality of these product offerings, IBM is confronted with significant challenges. OpenAI and Microsoft lead mainstream AI adoption, while Google DeepMind excels in research advancements. Anthropic and Meta are gaining developer attention through their open models and APIs. Additionally, IBM’s brand is often linked to legacy systems and “slow innovation." While its AI products are accurate, auditable, and compliant, they lack cutting-edge appeal and broad visibility.

As a strategy advisor to the Chief Product Officer at IBM, your role is to evaluate IBM’s position in the AI landscape and propose a strategic approach to enhance adoption, shift perceptions, and safeguard long-term competitive advantage. [Get a Hint]

As you engage in these practice sessions, be sure to write down your analysis and recommendations. (Don’t wait too long after May 2025). This will allow you to compare your judgment with events as they unfold in the future. When people or organizations do not record their expectations, no matter what actually happens next, they tend to say, “I thought that might happen.” Having a proper record of expectations is essential for learning from errors and mistakes.

Helicopter Judgment

A common weakness in strategy work is a fascination with the “big picture,” forgetting the importance of the detailed issues and opportunities at the working level. I call the ability to work at both levels helicopter judgment. Can you soar above the trees to view the whole forest and then plunge back down for a boots-on-the-ground perspective?

For instance, take the IBM AI practice case discussed in the previous section. From a height of 5,000 feet, one can observe the present competitive landscape in AI highlighted in that example. Ascend even higher, and you may gain an even broader perspective. Companies such as IBM and PwC have conventionally capitalized on their expertise in data processing. However, AI models that harness open-source or readily available data could diminish the competitive advantage that consulting firms have historically relied upon. Expertise and analytical capabilities become broadly and cheaply accessible, eliminating consultants’ primary competitive advantage. As AI reasoning approaches or surpasses human capabilities, the reliance on human judgment may be greatly reduced, particularly in structured or semi-structured decision-making tasks.

Now, take the helicopter down to ground level. Imagine you can interview IBM technical specialists who deliver solutions to clients and interview the clients as well. At AT&T, for example, you find that IBM helped the company migrate its internal software applications to its own private cloud. Here, AT&T uses “AI” to help schedule network maintenance. However, its main gains from AI have been in code generation, a tool developed with Microsoft, and in fraud detection, using tools developed by H2O.ai, a developer of open-source machine learning systems. This should give you a different view of the challenges facing IBM. Go down even further and sit next to a technician working to access WatsonX. What issues does she face?

You develop helicopter judgment by practicing it in your own work. If you do not yet have that kind of access, the poorer alternative is to practice helicopter judgment by reviewing and analyzing historical records. Here are two places to start:

• Despite having over 50 percent of the global smartphone business in 2007, Nokia lost the battle to Apple. Get mixtures of high-level and low-level views by reading “The Strategic Decisions That Caused Nokia’s Failure,” “Who Killed Nokia? Nokia Did,” and “What Could Have Saved Nokia, and What Can Other Companies Learn?”

• Operation Market Garden was an Allied battle fought during World War II in the German-occupied Netherlands in the fall of 1944. It featured the first major combat use of British and American airborne forces. The aim was to seize bridges across the Rhine to gain access to northern Germany. It is generally considered to have been a dramatic failure. Read about the high-level and low-level views on HistoryNet.

Think Again

A fundamental tool for sharpening your reasoning is applying contrary thinking to your ideas. When you struggle with a complex challenge, the idea of a way through or around it rushes into your mind with a welcome feeling. It is a great feeling, and you are sure it is an excellent idea because ... well … it is your idea. A difficult but valuable discipline is to critique your own ideas. This practice is the secret to much better thinking. (This thinking tool is not new, but has been recently popularized by Adam Grant.1)

For example, I recently asked an economist friend about President Trump’s tariffs. He immediately said that tariffs ran against sound economic theory. Free trade, he said, made everyone better off. A week later, he called me and said he had second thoughts about the free trade concept. He said that he realized the theory did not include national security considerations. It had nothing to say about becoming dependent on critical inputs from a large military competitor.

The “think again” tool is usually applied to one’s own ideas. However, it holds equal value when considering the statements and assumptions of others. Most people quickly formulate an alternative thought or opinion when they disagree with someone else’s argument or position. The more unusual skill is thinking critically about arguments that you initially accept. For example, here is a quote from the Webpage of a consulting company:

[We have] been studying the relationship between strategy and execution for years. We have found that the most iconic enterprises — companies such as Apple, Amazon, Danaher, IKEA, Starbucks, and the Chinese appliance manufacturer Haier, all of which compete successfully time after time — are exceptionally coherent. They put forth a clear winning value proposition, backed up by distinctive capabilities, and apply this mix of strategy and execution to everything they do. Any company can follow the same path as these successful firms, and an increasing number of companies are doing just that.

This quote contains two arguments. The last one is that any company can do this. This is obviously not true. Diversified companies like Honeywell International cannot magically become coherent.

The paragraph’s main argument is that success and strategic coherence go together. This sounds reasonable and will be familiar to most MBA students. Business strategy courses are replete with these firms. Coherence among policies is given much credit for their competitive success and for the size of their economic moats. Michael Porter has written several times about how coherent “activity systems” are a key to effective strategy.2 (Southwest Airlines, Progressive Insurance, IKEA, Zara).

But is coherence a secret sauce for success? This argument may be an example of survivorship bias: focusing analysis on the successful rather than those who have failed and disappeared. To see this, consider Kodak. Its strategy was to standardize and dominate the film and chemical photography ecosystem. Its distinctive capabilities in film chemistry, processing, and retail distribution provided unmatched coherence for decades. However, Kodak’s coherent film-based strategy became obsolete during the digital photography revolution.

Or consider Pan American Airways or Pullman Company (railway sleeping cars). Both had carefully designed coherent strategies for luxury transportation. The rise of non-coherent but lower-cost competitors drove both out of business.

(These cases are examples of the thinking tool counterexample. It is a powerful way of analyzing the truth of a proposition in argument, formal logic, and mathematics. A truth claim can be disproved by citing a counterexample.)

By questioning this common argument about coherence and success, one can uncover the idea that strong coherence may hinder adaptation when the world changes around you. (See my Substack article on Intel about this.)

Bullet Time

The larger parts of the human brain deal with cognition, vision, hearing, language, memory, and reasoning. The smaller limbic portions deal with fear, anger, threat, and flight—specifically the amygdala, hypothalamus, and the hippocampus. Limbic bypass is the skill of short-circuiting your own emotional over-reactions without deadening this part of your senses. Your emotional response to what is happening tells you (a) about what other people think and intend and (b) about your midbrain’s assessment of the threat to you. You need to be aware of the emotions in the situation, but you also need to keep your limbic system from triggering a strong limbic response—anger, fear, or withdrawal.

There are several tricks for performing limbic bypass. (a) Give yourself a pause of five or six seconds before responding to an emotional trigger. This lets the instant adrenaline-fueled surge fade. (b) Ground your senses: take a sip of water, or feel your feet on the floor, or examine the wall's texture. (c) Name your emotion and analyze it: “I feel angry because he insults me. He does it to build his credibility. He may be insecure about something.”

Functional Analysis is the skill of being aware of the emotions and purposes of other people in a small group setting. Like limbic bypass, a key part of functional analysis is disabling your value judgment (good or bad) about what others say. If Melanie proposes a new committee, skip over your immediate dislike of the suggestion. Why is she doing this? How does she feel about it? What does she hope to gain? By not judging, but analyzing, you gain perspective on what is happening. Basically, functional analysis is understanding each person’s interests, being aware of their emotional state, and recognizing their coping strategy. For example, Bob may be interested in having his forecast accepted as good work and may be annoyed at the criticism implicit in the discussion. He may be coping (poorly) by offering a false choice: “Well, if you don’t like the forecast, we can start over from the beginning.”

Developing the skills of limbic bypass and functional analysis will help you become a more effective manager, advisor, or leader. The only way to gain these skills is through practice. Choose a task-based small group of which you are a member. Choose a short time interval (10 minutes) and work on both functional analysis and limbic bypass. As you gain practice at these skills, you may experience a sense of time slowing down, allowing you more time to understand what is going on in the group. I call this slowdown “bullet time,” after the time slowdown as Neo dodges bullets in The Matrix.

Speaking

The strategist, whether leader or advisor, must speak effectively. There are many sources for advice on this, but it is hard to do better than Aristotle’s treatise Rhetoric, written about 2600 years ago. He defined rhetoric as the art of persuading an audience. The core principles are

• Ethos (credibility). Speakers should establish credibility and trustworthiness through sincerity, expertise, and evidence of good moral character.

• Pathos (emotion). Speakers must recognize and appeal to the audience’s emotions and values.

• Logos (logic). Speakers should support their arguments with evidence, facts, and reasoning.

Four less well-understood tricks of effective speaking are: (1) Speak more slowly than your normal pace. (2) Don’t just gaze at the room. Look directly at the eyes of a person in the audience, pause, then another, pause, and so on around the room, synchronizing your gaze with your spoken sentences or clauses. (3) See yourself as a character in a play. You are not your everyday self, but a character actor playing the part of a great speaker. (4) To the extent possible, prepare the room in advance. You want the audience to engage with you, not some monitor or screen. The ideas come from you, not the visual aids.

Learn Your Strengths and Weaknesses

Knowing yourself, especially your strengths and weaknesses, is essential in almost any professional role. Can you listen to both the substantive and emotional messages when interacting with someone else? Are you more of a talker or a writer? Are you drawn to analyzing and diagnosing complex situations? Can you read or hear a complex argument and boil it down to its essentials? Do others find you someone they can confide in? Do you deliver on your promises and commitments? Do you know what you want out of your life and career?

It would be convenient if we learned about our own strengths and weaknesses from experience. But most of us are biased observers of ourselves. The most powerful way to learn about oneself comes from a coach who has expertise and your interests at heart. General Dwight Eisenhower’s experience in North Africa in 1943 was a good example of this.3

In 1941, General George C. Marshall (4-star) served as Chief of Staff of the U.S. Army and was the principal military advisor to the president. In late 1941, he appointed Brigadier General Eisenhower (1-star) as his chief of staff. In this role, Eisenhower became the chief architect of U.S. strategy for the European and Pacific wars. Before the war, Eisenhower consistently advocated for relieving peace-time officers of their commands and replacing them with those who were capable and willing to lead the fight. Coached and supported by Marshall, Eisenhower advanced quickly, earning his second and third stars in March and July of 1942. 
     In February 1943, he was promoted to full General, gaining his fourth star, and was appointed to command Allied forces in North Africa. Eisenhower traveled to the Tunisian front to personally inspect defenses, morale, and evaluate commanders. At II Corps headquarters, he found that its commander, General Fredendall, had assigned his troops the task of constructing a vast underground bunker approximately 70 miles behind the front lines. Eisenhower observed the ineffective positioning of troops defending Kasserine Pass and noted that the tanks defending Sidi Bou Sid and Sbeitla were scattered in static positions, making them vulnerable to encirclement. Following this inspection, Eisenhower took no action, seeking solitude, hoping that Fredendall would rectify these issues.
     When German Field Marshall Erwin Rommel attacked Sidi Bou Sid and Sbeitla just five days later, U.S. forces were surrounded and overwhelmed. Over 170 tanks were lost. Rommel subsequently attacked Kasserine Pass, breaking through U.S. defenses and forcing them back 50 miles. In this battle, approximately 300 Americans were killed, 3,000 were wounded, and another 3,000 were taken prisoner. The Germans experienced about 1,000 casualties. General Omar Bradley described the battle as “a complete disaster.” It would take a year for Americans to overcome the scorn of the British.
     Following this defeat, General Eisenhower still refrained from taking action to relieve Fredendall. Instead, he asked General Harmon to “take over.” Harmon reported back that Fredendall “was no damn good. You ought to get rid of him,” but he declined the position after making that recommendation. Eisenhower hesitated again and reached out to his mentor, General Marshall.
     Marshall provided tough feedback, reprimanding Eisenhower for not taking swift action to remove an inadequate officer. He stressed the necessity of immediate action in combat (contrasted with staff work) and the importance of quickly learning from mistakes. After this conversation, Eisenhower quickly relieved Fredendall and replaced him with General George S. Patton. He then reorganized the command structures. With a clearer understanding of Eisenhower's strengths and weaknesses, Marshall began positioning Eisenhower as a “political” General, assigning him to lead the Allied war effort centered in Britain, where he had to coordinate among the Allied nations' political and military interests and plans. At this job, he distinguished himself greatly, but was never again given direct field command.

In the absence of such a trusted coach or advisor, the alternative is to keep a record of your expectations, actions, and their outcomes. This is an old idea, usually credited to Ignatius of Loyola (1491-1556), the founder of the Jesuits. He practiced and taught daily journaling, reviewing decisions and actions, evaluating outcomes against intentions, and reflecting. Peter Drucker4 promoted this method as “feedback analysis” and argued that it is a powerful method of identifying one’s strengths and weaknesses. Drucker’s fascinating observation was: “I have been practicing this method for 15 to 20 years now, and every time I do it, I am surprised. The feedback analysis showed me, for instance—and to my great surprise—that I have an intuitive understanding of technical people, whether they are engineers or accountants or market researchers. It also showed me that I don’t really resonate with generalists.”

Having written several books on strategy, I get a stream of email queries. One type asks, “How do I become a strategist?” These tend to come from people working in business or government who want to grapple with more significant issues than the trivia filling their workdays. Others are from business school students who discover that the economic theories and conceptual schemes being taught leave them empty-handed when faced with real-world situations. They ask about what to read, what to study, and how to begin a career in strategy. This short series of notes contains the advice I would like to have given to each person asking that question.

Learn to Ignore Many Ideas About Strategy

To learn strategy it is important to recognize that much of the available writing and advice on strategy is not helpful. If you browse the web, listen to various business “experts,” or peruse numerous popular business books, you’ll encounter misguided and even absurd notions about strategy. It’s essential to learn how to critique and disregard these ideas.

First, skip over the self-improvement literature preaching that success follows intense desire. The classic Think and Grow Rich1 outlines this strategic framework: “A definite purpose backed by burning desire for its fulfillment. . . . .. A mind closed tightly against all negative and discouraging influences...” John Paul Carinci’s An All Consuming Desire to Succeed advocates overwhelming desire as essential to “acting strategically " toward one's goals. These ideas are religious preachments on the efficacy of faith displaced into the world of commerce.

Second, ignore “strategic planning.” It is almost always financial forecasting, not strategy. To make matters more confusing, many works incorrectly describe strategy as a plan to achieve a goal. For example, Google’s search AI defines a business strategy as "a plan that outlines how a company will achieve its goals." This definition of strategy ignores change, disruption, and competitive actions, which are usually the heart of any real strategy. It also takes goals as a given, overlooking that talented strategists define them. If the goal is “grow profit,” then it is banal. If it is more complex, such as “building a mobile banking app to take operational pressure off the branch system,” then it is the heart of the strategy, not just its motivator. A plan is a schedule of tasks to be performed together with the scheduling of logistical and financial supports. By contrast, the idea of a “strategy” connotes a struggle with nature, changes in conditions, an enemy, or a competitor.

The IMD business school Website says, “A business strategy . . . . . is a long-term sketch of the desired strategic destination for a company.” This definition lets the strategist move beyond immediate goals and problems to indulge in dreams of a glorious future.

Strangely, numerous authorities feel the need to compile a list of the fundamental strategies available. They typically start with Michael Porter’s three strategies, although they omit his in-depth examination of the concept of advantage. From Google AI, the basic business strategies are (1) cost leadership, (2) differentiation, (3) focus, (4) growth, and (5) innovation.

To test the concept of five basic strategies, look at Ford in the electric vehicle (EV) industry. Today, Ford faces significant competitive and technical challenges in EV, along with substantial losses from its EV investments. Additionally, it contends with rising input costs and supply chain issues for EV batteries. It lags Tesla and Chinese EV manufacturers in both cost and performance. Which of the above five “strategies” should it adopt?

Or consider Intel. It has recently struggled to match TSMC and Samsung in leading-edge chip manufacturing, experiencing delays and execution problems at 7nm and 10nm nodes. It has lost share in high-margin data-center processors to AMD, NVIDIA, and ARM-based solutions. Would you earn your pay as a strategist by recommending that it choose #5 “innovation” to regain leadership?

I would also advise you to ignore the many articles and guides that require you to expound on your mission, vision, core values, or to set “strategic” goals and objectives. Explaining your mission is a tool for rallying the troops, not a help in determining how to win the battle. The values are always to contribute to society or shareholders, and the goals are almost always more growth, profit, or market share. Like having personal goals to be healthier, wealthier, and happier, such statements are usually a waste of paper (or pixels).

So, What is a Strategy?

I taught strategy using the case method for years, first at Harvard Business School and then at the UCLA Anderson School. Successful companies like P&G in disposable diapers or Southwest in air travel exemplified strategy. If I had to lecture, I emulated colleagues everywhere and discussed the BCG experience curve, later including Porter’s Five Forces. I would also discuss my research on diversification, technological races, and the connection between market share and profitability.

As I began consulting with senior managers, I discovered that my business school frameworks were largely ineffective. Most leaders recognized terms from Porter, McKinsey, BCG, and others, but those frameworks provided little guidance on managing change or responding to competitive thrusts. I noticed that in most companies, the “strategic plans" collected dust on shelves; they were generally despised by those who had to create them and were used solely during board meetings or shown to investors.

Many of my current views on strategy have been learned over time from a few remarkable individuals. From them, I learned that you don’t start with goals; Goals are what you give to subordinates to guide their work. From them, I learned that you start with a deep understanding of the forces at work and identify the nature of the challenge or opportunity. From them, I learned that a strategy is not a plan but a hypothesis about actions that may overcome an obstacle, defeat a competitor, or catch a wave of change at its crest. From them, I gained an appreciation for General George Doriot’s maxim: “Without action, the world would still be an idea.”

I call my perspective challenge-based strategy. The central proposition is that a strategy is a set of policies and actions carefully designed to overcome a high-stakes challenge. In other words, strategy is problem-solving that defines a plan of action. And the challenges are typically competitive moves, disruptive change, or internal inefficiencies. A strategy is not a set of performance goals or a literary form demanding the explication of visions, missions, values, etc. There is no “cookbook” of strategy recipes.

A strategy is not necessarily a long-term commitment. As one set of challenges is met, new ones arise, and new actions must be taken to address them.

Since strategy is a form of problem solving and because you cannot solve a problem you have not defined or analyzed, strategic work begins with identifying barriers and difficulties. Many executives and leaders dislike discussing challenges and impediments, which hinders strategic thinking. In such cases, the strategist's role is to speak truth to power, helping the executive or leader confront the competitive, technological, or managerial challenge.

Determining the forces and issues at work is called diagnosis and is a necessary step in developing a strategy. An able strategist works the problem until the crux is clear—the central paradox that makes the challenge difficult. Clarifying the crux makes inventing a way around or through it easier.2

You cannot create a helpful strategy if you do not analyze the challenge's nature and honestly face its difficulties. For example, take education in Detroit. Nearly 90% of public elementary and middle school students in Detroit struggle with English language proficiency, being either not proficient or only partially proficient. There is even poorer performance in math. Detroit has consistently recorded the lowest proficiency scores among major cities in the last four NAEP testing cycles.

Now, look at the Detroit Public Schools Community District (DPSCD) strategic plan: Blueprint 2027. The plan offers no diagnosis on the reasons for this dismal record. It calls for “a performance-driven culture,” fixing leaky roofs, “Anti-Racist Pedagogy,” and the development of “A competency framework for teachers and staff.” The lack of an honest look at the reasons for this system’s radical underperformance dooms it to more of the same.

After diagnosis, the second critical element in strategy-making is action. Importantly, visions, values, slogans, and goals are not actions; they are wished-for outcomes. An action is a specific task or activity to be performed. Too many attempts at strategy start and stop with goals or sets of KPIs. Strategy is about the tasks that will be undertaken to address the challenge.

The true strategist chooses which challenge among many to accept. Some challenges seem insurmountable with current knowledge and resources. The strategist is not a fool and puts them aside in favor of battles that can be won.

The Best Real-World Strategists Start as Managers

The most effective strategists are usually leaders: CEOs, presidents, four-star generals. That is because they combine analysis, decision, and action in a single person. Unfortunately, the converse is not true. Many leaders are not good strategists. If they are fortunate, they have talented strategic advisors.

The best leader-strategists have usually built their skills on top of ground-level experience in managing something, whether a small business or a platoon.

For example, suppose you inherit a small business like a restaurant or a local machine shop. You want to improve operations and expand sales and profits. To achieve this, you look at what successful competitors do and also experiment with your own ideas. By closely monitoring efficiency, costs, and sales, you discover what works and what does not. Step by step, sales and profits grow. Timely feedback from measures of success is an essential part of this learning process.

This kind of hands-on incremental learning is how Sam Walton learned discount retailing in a small shop. In his first small five-and-dime in Newport, Arkansas, he put a free popcorn machine on the sidewalk and watched floor traffic jump almost immediately.3 It is how Ray Kroc (McDonald’s) learned about efficiencies as a traveling salesman for paper cups. Part of his pitch was convincing soda fountain operators to put drinks in a paper cup for take-out so they could sell to people other than those seated at the counter.4 It is how Steve Jobs (Apple) learned about user-focused design, assembling computers by hand in his garage, and personally selling them.

This mindset—the desire and ability to see ways to improve processes—is known in larger companies by many technical names: Kaizen, systems thinking, continuous improvement, Lean, Six Sigma, and more. It is not generally seen as “strategy” because most people equate strategy with a grand design. Nevertheless, companies and armies that have been built by this process may come to be seen as examples of successful strategy. Years of continually adjusting, testing, imagining, and implementing clever improvements in how things are done can produce an extraordinarily effective, tough competitor.

For instance, the After-Action Review (AAR), created by the U.S. Army, serves as a structured debrief following missions or exercises. During an AAR, the team reviews what was intended to occur, what actually transpired, the reasons for any discrepancies, and identifies ways to improve for the future. This straightforward practice fosters a continuous feedback loop, fostering a culture that scrutinizes even successful missions to find areas for enhancement, preventing the repetition of mistakes, and promoting the sharing of innovations.

Another example is Toyota’s original Kaizen system. On its assembly lines, any worker could pull an “andon” cord to halt production if they noticed a problem or had a suggestion for improvement. Toyota employees submitted over one million improvement ideas each year, with an impressive ~90% implemented in the plants. The accumulation of these small changes enabled Toyota to achieve world-class efficiency and quality.

For the military, there comes a time when the development of skills, routines, and capacities is actually put to the test in combat. At that point, continuous learning is not enough. Generals and officers with official “strategy” and “intelligence” designations must craft a fully realized strategy for movement, fire, logistics, and more. Similarly, in business, there may come a time when the leader transcends incremental improvements and envisions a more radical change in operating and competing.

For example, by 1964, Sam Walton ran a chain of successful five-and-dime stores in rural towns. But Gibson Discount Centers was expanding, bringing the big-city discount idea to small towns. Walton became a great strategist when, unlike J.C. Penney, he embraced discounting with the radical new idea of building huge stores in small towns. The low prices, he wagered, would draw shoppers from surrounding areas and away from travel to cities.

For another illustration, consider Ray Kroc. He became fascinated with the McDonald brothers’ hamburger fast food shops in California and convinced them to allow him to franchise their brand and practices. After opening his pilot store in Des Plaines, Illinois, he dedicated a year to mastering its management, perfecting his French fry recipe, and improving hamburger preparation. He then demonstrated his strategic prowess by tackling the challenges of consistency and scalability that arose from rapid growth. Kroc implemented a stringent franchise system, standardizing the supply chain, quality, and food preparation procedures through comprehensive operational manuals. Although companies like White Castle and Howard Johnson's had already explored franchises and large-scale expansion, Kroc’s innovation transformed franchising into a highly controlled, replicable, and efficient business model. He set unprecedented benchmarks for uniformity, operational discipline, centralized supply chains, and real estate management.

For Steve Jobs, the crucial shift that transformed him from a talented product development manager to a strategist came in two steps. First, in 1996 he saved Apple from bankruptcy or asset sale by dramatic cuts in the product line and development engineering. His second strategic feat was creating a cohesive business ecosystem centered on Apple’s core technologies. This pivotal change was the digital hub strategy, which began with the launch of the iPod and iTunes ecosystem in the early 2000s. Jobs had realized that Apple's future depended not merely on standalone products but on creating value through a tightly integrated user experience, linking hardware (Mac, iPod), software (iTunes, Mac OS), and content (music, media). This ecosystem approach turned Apple products into a reinforcing network that increased customer lock-in, drove adoption, and enhanced profitability.

Well-managed companies may struggle with effective strategic leadership during changing times. Take J.C. Penney as an example. Founder James Cash Penney began his journey as a clerk in a dry goods store before launching his own business, where he honed skills in inventory management, customer relations, and pricing. Over time, he built a thriving national retail chain focused on small towns. He resigned from the board in 1958. However, as discount retailers like Walmart emerged, J.C. Penney needed more than solid management; it required a new strategy. Unfortunately, after years of poor decisions and misguided changes, the company filed for bankruptcy in 2020.

Another example is Digital Equipment Corporation (DEC). Co-founder Ken Olsen initially trained as an electrical engineer, then gained electronics, computing, and management expertise at MIT’s Lincoln Laboratory. In 1957, he helped establish DEC with the goal of creating smaller, simpler computers, known as minicomputers. Olsen gained business insights through hands-on experiences. His practical approach to product development and sales significantly strengthened DEC’s minicomputer division, enabling it to become a prominent player in the industry during the 1960s and 1970s. However, despite its initial success, DEC struggled to adapt to the personal computer revolution and the emergence of open, standardized platforms. While Olsen excelled in management, the company lacked an adept strategist, leading to a rapid decline in market share, culminating in its acquisition by Compaq in 1998.

To learn strategy, you should read some basic source books. This list presented here mixes military, political, and business strategy sources. Some are easy and inviting, while others demand more concentrated attention to unfamiliar background events or archaic narrative styles.

I include only a few books on business strategy. When reading about business strategy, you should avoid works that claim to provide “winning” strategies and other simple formulas for success and profit. The idea that we can all be like the winners if we only follow their example is the oldest scam in popular culture. Also, avoid modern books on “leadership”—these are almost all about perfecting oneself to project a compelling vision. They are not about actually leading anyone.

Classic Military and Political Strategy

Sun Tzu, The Art of War (5th century BC). Considered one of the most impactful strategy books ever written, this early Chinese work is believed to have been authored by General Sun Tzu during the Eastern Zhou dynasty. It contains 13 chapters that present insights on leadership, deception, terrain, and the art of achieving victory without direct confrontation. The Art of War shaped the course of East Asian military practices for centuries and has influenced Western military thought and other fields. Its teachings (e.g., “subdue the enemy without fighting”) are still part of the curriculum in military academies and business schools, with many modern executives applying Sun Tzu’s principles as frameworks for competitive strategy and negotiation.

Thucydides, History of the Peloponnesian War (5th century BC). Thucydides was an exiled Athenian general. His eyewitness account details the conflict between Athens and Sparta (431–404 BC). It illustrates power dynamics, coalition politics, and the interplay between war and humanity. If nothing else, read Pericles' funeral oration (Ch. VI) and the description of the aftermath of the debacle in Sicily (Ch. XXIV). Thucydides provides a cautionary tale about employing war as a policy tool, with insights into the pitfalls of excess and the “Thucydides Trap” involving rising and ruling powers. His theory of motives—“fear, honor, interest”—and the renowned Melian Dialogue remain influential in strategy and international relations education.

Kautilya (also known as Chanakya), The Arthashastra (circa 3rd century BC). Often referred to as “the Indian Machiavelli,” Kautilya was a prominent mentor who guided Chandragupta Maurya in establishing an empire. The Arthashastra covers statecraft, foreign relations, economics, and warfare. It promotes a pragmatic and often ruthless approach to governance, encompassing tactics such as espionage, diplomacy, and military strategies. After being lost for centuries, it was rediscovered in 1905 and contains many concepts that resonate in Machiavelli’s The Prince.

Niccolò Machiavelli, The Prince (1513). Written as a concise guide for rulers on gaining and maintaining power, it was developed by a Florentine diplomat during Italy’s volatile city-state politics. The reader is struck by his brutal honesty. Paying homage to skill, he also recognizes that it only achieves when the situation is ripe. Thus, in explaining how Cyrus conquered Persia, he says, “It was necessary that Cyrus should find the Persians discontented with the government of the Medes, and the Medes soft and effeminate through their long peace.” Recognized as a foundational text in modern political strategy and realist philosophy, the term “Machiavellian” has become a descriptor for pragmatic statecraft. Few works in political philosophy are as significant to grand strategy and diplomacy.

Miyamoto Musashi, The Book of Five Rings (1645). A reflective piece written by the legendary samurai in his later years, focusing on sword fighting and strategy. While it is mainly centered on individual combat, the five chapters—“Earth,” “Water,” “Fire,” “Wind,” and “Void”—encapsulate principles that apply to warfare and competition in general. Musashi promotes the idea of adaptability and an “indirect” method to unsettle adversaries. Over time, Five Rings has become a strategy classic, studied by individuals in business, sports, and various competitive domains. Musashi’s belief that the warrior's path aligns with the strategist's has echoed well beyond 17th-century Japan.

Carl von Clausewitz, On War (1832). A comprehensive analysis of warfare from the perspective of a Prussian general involved in the Napoleonic Wars. Posthumously published by his wife, On War explores ambiguity and uncertainty and emphasizes the importance of political objectives. Clausewitz stated that “war is a mere continuation of policy by other means,” encapsulating his argument that military strategy serves political purposes. On War remains an influential work on military strategy that is relevant and thought-provoking for contemporary strategic discourse. Pay particular attention to his chapter on surprise: “It lies more or less at the foundation of all undertakings, for without it the preponderance at the decisive point is not properly conceivable.”

Antoine-Henri Jomini, Summary of the Art of War (1838). As a contemporary of Clausewitz, Baron de Jomini was a Swiss military officer who served Napoleon. His Art of War outlines Napoleonic battlefield strategies through prescriptive formulas (such as lines of operation and points of decision) and promotes the idea of warfare as a systematic science. Jomini’s contributions significantly influenced military practices in the 19th century. Few authors impacted military operations before 1870 as profoundly as Jomini, whose theories were instrumental for many generals during the U.S. Civil War. He supported the idea of concentrated force targeting enemy weaknesses and using interior lines—principles that became foundational in military academies. However, after 1870, Clausewitz’s theories eclipsed Jomini’s work, and his writings are less commonly studied today. Nonetheless, reading Jomini provides insight into strategy teaching in the 1800s and contrasts with Clausewitz’s perspectives.

Alfred Thayer Mahan, The Influence of Sea Power upon History, 1660–1783 (1890). This seminal work by U.S. Navy Captain A.T. Mahan outlines how maritime dominance shaped the destinies of major powers, particularly Britain’s rise. Mahan argues that a state’s strength and prosperity hinge on its naval and commercial capabilities. This book had a profound impact, regarded by scholars as the most significant single volume on maritime strategy, embraced by all major navies. It triggered the naval arms race leading to World War I. The Mahanian principles—developing battleship fleets, capturing coaling stations, and controlling critical chokepoints—shaped naval strategies for the British Empire, Imperial Germany, the United States, and Japan. Additionally, the concept of Sea Power contributed to the evolution of U.S. strategic thinking as America emerged as a great power, especially the relationship between economic power and global military policy. Mahan’s analysis of England’s landed aristocracy is fascinating: “Such a class, whatever its defects otherwise, readily takes up and carries on a sound political tradition, is naturally proud of its country's glory, and comparatively insensible to the sufferings of the community by which that glory is maintained. It readily lays on the pecuniary burden necessary for preparation and for endurance of war. Being as a body rich, it feels those burdens less. Not being commercial, the sources of its own wealth are not so immediately endangered, and it does not share that political timidity which characterizes those whose property is exposed and business threatened—the proverbial timidity of capital.”

B.H. Liddell Hart, Strategy: The Indirect Approach (1954). Liddell Hart advocates for the “indirect approach,” which focuses on targeting the enemy’s vulnerabilities and disrupting their balance rather than engaging in direct confrontation. Criticizing the costly frontal assaults of World War I, he played a significant role in shaping armored warfare in the interwar period. This work is regarded as a foundational text in military theory, often mentioned alongside the works of Sun Tzu and Clausewitz. Liddell Hart emphasizes the importance of flexibility, surprise, and the psychological impact on opponents. While some of his assertions, such as the indirect influence on the German Blitzkrieg, may be debated, his succinct prose and broad range of examples solidify this book’s status as a significant contribution to modern strategy.

Thomas C. Schelling. The Strategy of Conflict (1960). This work integrates game-theoretic analysis with military and political strategy. Schelling, an American economist and planner during the Cold War, utilizes game theory to explore themes of conflict and cooperation through various examples, including nuclear deterrence, bargaining, and limited war. He discusses ideas such as credible commitments, deterrence based on the threat of mutually assured destruction, focal points, and the rationality of irrational behaviors. Emerging from the Cold War arms race backdrop, the book offers fresh insights into war prevention. The Strategy of Conflict transformed the field of strategic studies, earning him a Nobel Prize in economics for his analyses of conflict and cooperation. Its clear explanations (such as the “Chicken” game and negotiation standoffs) remain relevant in diplomatic and business strategies.

Sir Lawrence Freedman, Strategy: A History (2013). Lawrence Freedman is Emeritus Professor of War Studies at King’s College London. This book explores the evolution of strategic thought from ancient times up to the 21st century. Freedman examines strategy across various fields, including warfare, politics, social movements, and business, illustrating how this concept has “pervaded every sphere of life.” He begins with survival strategies among primates and progresses through the ideas of influential thinkers such as Sun Tzu, Machiavelli, Clausewitz, and Marx, along with contemporary corporate intellectuals like Peter Drucker. Freedman wonders whether we can genuinely influence history or are merely subject to chance and circumstance. Although academic, the book remains engaging. It serves as both an intellectual history and a critical exploration of the attainability of strategic goals, making it a good follow-up for those familiar with the primary classical texts.

John Lewis Gaddis, On Grand Strategy (2018). This book reflects on statecraft and how to reconcile lofty ambitions with realistic capabilities. The Yale historian, known for his Cold War expertise, draws on his extensive experience co-teaching a well-regarded “Grand Strategy” seminar. He intertwines stories of notable leaders and thinkers—from Herodotus, Thucydides, and Augustus to Queen Elizabeth I, Napoleon, and Lincoln, among others. The narrative uses Isaiah Berlin’s fable of the fox and the hedgehog (representing multiple small ideas versus one dominant idea) to illustrate strategic thinking. The book is engaging and rich with stories. For professionals in defense and security, On Grand Strategy serves as an introductory guide on conceptualizing and implementing strategy. Gaddis highlights the importance of balancing resources with goals, maintaining adaptability, and learning from historical victories and failures.

Henry Kissinger, Leadership: Six Studies in World Strategy (Political, 2022). “Leaders,” writes Henry Kissinger, “think and act at the intersection of two axes: the first, between the past and the future; the second, between the abiding values and aspirations of those they lead. They must balance what they know, which is necessarily drawn from the past, with what they intuit about the future, which is inherently conjectural and uncertain. This intuitive grasp of direction enables leaders to set objectives and lay down a strategy.” In Leadership, Kissinger examines the lives of six prominent leaders: Konrad Adenauer, Charles de Gaulle, Richard Nixon, Anwar Sadat, Lee Kuan Yew, and Margaret Thatcher. He explores the strategies each exemplified. Combining historical insight, public experience, and personal knowledge, Kissinger provides a unique perspective since he engaged in many of the events he recounts. The book benefits from insights and judgments that only Kissinger could offer, concluding with his thoughts on global order and the crucial role of leadership in today’s world.

Eliot A. Cohen and John Gooch, Military Misfortunes: The Anatomy of Failure in War (Military, 1990). What causes competent armies to fail? Cohen and Gooch provide insights into this question in their analysis of failed military operations. It offers fascinating battlefield stories and innovative explanations for the factors that weaken armies. This book has established itself as the definitive examination of the unforeseen disasters that strike presumably capable militaries. The chapter on the early failure of the U.S. in dealing with the German submarine war in 1940 is a must-read. The 2006 edition features a new Afterword reflecting on America's errors in Iraq, Somalia, and the War on Terror.

Business and Corporate Strategy (20th–21st Century)

Alfred Sloan, My Years with General Motors (1963). This is one of the few business books that can be called a classic. Bill Gates called it out as the best book to read on business. Business Week listed it as number one on its “indispensable” reading bookshelf. The core lessons of the book are in how Sloan created the product policy (strategy) that took GM to the top of the heap in the automobile industry, and his analysis of the distinct roles of corporate management and those of the operating divisions.

Michael E. Porter. Competitive Strategy (1980). Now in its 60th printing, Competitive Strategy continues to be a vital resource in business education. Porter’s “Five Forces” model flipped industrial organization economics to a businessperson’s point of view. Thus, corporate profit flowed from positioning in and within an industry characterized by rivalry, buyer power, supplier power, ease of entry, and availability of substitutes. A must-read for anyone working in business strategy. His follow-on book, Competitive Advantage, is more nuanced and also a must-read.

Clayton M. Christensen, The Innovator’s Dilemma (1997). This book delves into how successful companies can crumble under the pressure of “disruptive innovation.” Christensen explains that market leaders, focused on current customer needs, often overlook emerging technologies that initially underperform, enabling new entrants to seize market leadership. This paradox—the “innovator’s dilemma”—awakened a generation of business leaders to the fear of disruption, becoming one of the most impactful business texts ever published.

Chan Kim and Renée Mauborgne, Blue Ocean Strategy (2005). A best-selling book aimed at helping companies find “blue oceans”—new, unexplored markets—rather than battling competitors in the saturated “red oceans” of existing industries. The book is essential reading because of its widespread influence—over 4 million copies sold and translations in 47 languages. Its central idea advocates for making competition irrelevant by achieving significant leaps in value, as companies like Cirque du Soleil and Southwest Airlines exemplify. Although some critics argue that “blue oceans” eventually turn red when others replicate the approach, the principles within the book have firmly established themselves in the business world.

Richard Rumelt, Good Strategy/Bad Strategy: The Difference and Why it Matters (2011). This book offers a realistic view of what constitutes an effective strategy. A UCLA professor and experienced consultant, Rumelt was frustrated by the buzzwords and vague vision statements frequently presented as “strategy.” He delineates the core components of a solid strategy: a clear assessment of the issue, a guiding policy, and coherent actions. In contrast, he critiques “poor strategy” as mere fluff, idealistic objectives, or a disjointed list of unconnected initiatives. Upon its release, the book “immediately struck a chord” and has since become a highly regarded text on business strategy.

Biographies — Military and Political

Robin Lane Fox, Alexander the Great. Robin Lane Fox’s very readable biography examines Alexander's extraordinary campaigns, emphasizing how strategic audacity, deliberate risk-taking, and inventive logistical strategies empowered a small Macedonian army to seize tremendous Persian lands.

Adrian Goldsworthy, Caesar: Life of a Colossus. Read this to learn about Caesar and about Roman history. He is quite good on Caesar’s military campaigns and Roman generalship. He also highlights how Caesar’s talent for coalition-building, navigating Roman political systems, and bold military tactics allowed him to conquer Rome and transform Western civilization.

Jack Weatherford, Genghis Khan and the Making of the Modern World. Weatherford revamps the traditional image of Genghis Khan by highlighting the strategic advancements brought by the Mongols, such as meritocracy, information systems, psychological tactics, and swift movements. These approaches enabled an extraordinary conquest and effective governance of the largest contiguous land empire, transforming global trade, diplomacy, and administration.

Andrew Roberts, Napoleon: A Life. Roberts provides an in-depth review of Napoleon Bonaparte’s military and political strategies, uncovering the techniques that shaped his groundbreaking warfare tactics, operational flexibility, logistical control, and capacity to dominate battlefields. The biography highlights the idea of "strategic tempo," illustrating how swift decision-making and continuous offensive initiatives revolutionized European warfare.

Ron Chernow, Grant. Chernow’s work showcases Ulysses S. Grant’s strategic genius in maneuver warfare, emphasizing his steadfast and unwavering pursuit of objectives despite challenges. The biography provides insights into Grant's quiet proficiency in operational flexibility, accurate evaluations of enemy weaknesses, and an unyielding drive for victory.

Jean Edward Smith, Eisenhower in War and Peace. This examination of Eisenhower delves into the intricacies of coalition warfare, highlighting Eisenhower's adept coordination of multinational operations, his management of rival personalities, and his logistics-driven, timely, and consensus-oriented strategy. The biography underscores Eisenhower's ability to balance diplomatic priorities with military aims, which laid the groundwork for contemporary coalition strategies.

Andrew Roberts, Churchill: Walking with Destiny. Roberts vividly illustrates Winston Churchill’s strategic insight and leadership, showcasing his talent for motivating national resilience and resolve. The book emphasizes Churchill’s foresight regarding strategic threats, effective communication techniques, psychological grasp of leadership, and key decisions that influenced British and global strategies during WWII.

Doris Kearns Goodwin, Team of Rivals: The Political Genius of Abraham Lincoln. Goodwin’s biography explores Lincoln’s remarkable political skill, demonstrating how his choice to include political adversaries in his cabinet fostered greater unity during the Civil War. The book highlights Lincoln’s psychological insight, political timing, adept rivalry management, and the patient quest for strategic consensus, turning political challenges into strategic advantages.

Ezra F. Vogel, Deng Xiaoping and the Transformation of China. Vogel provides in-depth analysis of Deng Xiaoping’s pragmatic strategy, emphasizing his patience and methodical approach to implementing economic reforms that turned China into a global economic powerhouse. Deng’s careful incrementalism, strategic ambiguity—described as "crossing the river by feeling the stones"—and his ability to balance ideological rigidity with practical flexibility exemplify strategic adaptability.

Anthony Sampson, Mandela: The Authorized Biography. Sampson’s comprehensive biography showcases Nelson Mandela’s remarkable strategic patience, moral leadership, and knack for fostering consensus while navigating intricate political changes. Mandela’s clear strategy for pursuing national reconciliation—utilizing symbolic gestures and a long-term vision to oversee significant societal transformation—makes this work essential for understanding strategic leadership in political environments.

Robert Coram, Boyd: The Fighter Pilot Who Changed the Art of War. Coram’s insightful biography of John Boyd unveils the development and influence of Boyd’s groundbreaking OODA (Observe-Orient-Decide-Act) loop framework, which has reshaped contemporary military and business strategies. Boyd’s emphasis on agility, adaptability, and swift decision-making cycles demonstrates how strategic innovation stems from intellectual discipline and practical experimentation.

William Manchester, American Caesar: Douglas MacArthur 1880–1964. Manchester’s biography explores Douglas MacArthur’s strategic bravado, engaging leadership, and the careful equilibrium between military aspirations and geopolitical circumstances. It offers valuable perspectives on MacArthur’s operational boldness, the complexities and advantages of charismatic leadership, and the strategic difficulties tied to civil-military relations during crucial historical events.

Biographies—Business

Ron Chernow, Titan: The Life of John D. Rockefeller, Sr. Chernow’s comprehensive biography reveals Rockefeller’s groundbreaking strategic vision behind Standard Oil, the first major industrial monopoly. Through detailed documentation, Chernow showcases Rockefeller’s vertical and horizontal integration innovation, his amazing operational efficiency, disciplined cost management, and clever application of economies of scale. The book illustrates how Rockefeller methodically eliminated competitors and utilized strategic partnerships and regulatory insights, offering a key example of corporate strategic thinking.

David Nasaw, Andrew Carnegie. Nasaw paints a detailed picture of Carnegie’s strategic brilliance in steel production, illustrating how he transformed manufacturing via vertical integration, from sourcing raw materials to transporting and distributing finished goods. Carnegie’s strong focus on cost management, commitment to technological advancements, and strategic investments in efficiency developed lasting competitive advantages, establishing core strategic concepts regarding efficiency, scale, and market supremacy.

Walter Isaacson, Steve Jobs. Isaacson offers unique insights into Jobs’ intricate personality and strategic mindset. The biography highlights Jobs’ talent for predicting consumer needs, intense focus on user experience, relentless drive for product simplification, and unwavering demand for seamless hardware and software integration. Isaacson illustrates Jobs' view of innovation as a strategy.

Brad Stone, The Everything Store: Jeff Bezos and the Age of Amazon. This biography explores Bezos’ strategic long-term vision, emphasizing his core principle of customer obsession, dedication to operational excellence, and unwavering reinvestment in Amazon’s essential infrastructure and logistics. Bezos' strategic choices—including platform diversification, competitive pricing, swift iteration, and significant investments like AWS—demonstrate the effectiveness of persistent long-term strategic execution and illustrate how customer-focused innovation leads to ongoing market disruption.

Sam Walton and John Huey, Sam Walton: Made In America. Walton’s straightforward autobiography unveils his key strategic insights, focusing on disciplined cost control, decentralized decision-making, innovation in supply chains, and constant experimentation with store formats. His unwavering drive for everyday low prices, logistical efficiency, and flexible inventory management transformed retail strategy, illustrating how operational creativity, frugality, and the ability to scale strategically support lasting competitive advantage.

Jack Welch and John A. Byrne, Jack: Straight from the Gut. Welch compellingly depicts his overhaul of General Electric by emphasizing strategic clarity and strict competitive benchmarks. His approaches—such as the "number one or number two" principle, proactive divestment of underachieving segments, and fostering leader empowerment—demonstrate how strategic discipline, effective talent management, cultural alignment, and stringent performance metrics were supposed to result in a nimble, competitive organization. One has to look at what happened after Welch to make a fully informed judgment on his approach.

Lee Iacocca and William Novak, Iacocca: An Autobiography. Iacocca’s compelling account of Chrysler’s brink of failure and rejuvenation presents a strategic framework for crisis leadership, turnaround management, and innovative marketing strategies. He emphasizes the urgent need for clear strategy, decisive action, inventive product approaches, and effective stakeholder engagement, showing how strategic bravery can turn around fortunes in times of severe challenge.

Ashlee Vance, Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future. Vance’s biography offers crucial insights into Musk’s strategic vision, analyzing how Musk persistently utilizes vertical integration, rapid innovation, and the development of disruptive technologies. His strategic reasoning—encompassing risk-taking with ambitious deadlines, direct engagement with consumers, and constant technological advancements—showcases the effectiveness of daring, integrated strategies in transforming entire industries.

Louis V. Gerstner Jr., Who Says Elephants Can't Dance? Gerstner’s compelling description of IBM’s remarkable turnaround offers essential insights into corporate reinvention, clear strategy, and adaptive leadership. His method involved shifting IBM’s focus from hardware supremacy to comprehensive services, restructuring the corporate culture, and synchronizing strategic execution via decisive organizational changes. His narrative highlights the importance of realistic strategy, swift execution, and integrated cultural and strategic changes during crises.

Bryce G. Hoffman, American Icon: Alan Mulally and the Fight to Save Ford Motor Company. A detailed examination of Mulally’s disciplined and structured approach to transforming Ford during a time of crisis. Mulally emphasized strategic simplicity through the "One Ford" plan, maintained ruthless transparency, concentrated intensely on execution, and fostered cultural accountability. This illustrates the effectiveness of coherent, well-communicated strategies paired with disciplined operational execution. Mulally’s strategic methodology shows how clarity, alignment, and consistency can steer a company through significant disruption and challenges.

The United States does not have an office or agency dedicated to analyzing the longer-term competition among major powers. The closest equivalent has been the Pentagon’s Office of Net Assessment (ONA), which has served as the DoD’s internal think tank for strategic foresight for over 50 years. However, it is now being disbanded. This opens the door for creating a replacement with a broader remit: the longer-term multifaceted competition among nations.

Closing the ONA

In March 2025, Defense Secretary Pete Hegseth ordered the reassignment of ONA personnel and the cancellation of its contracts, effectively closing the small office that provided independent, long-term evaluations of U.S. and adversary capabilities​. The reasoning behind the decision to shut down was explained as a move to focus resources on the most critical national security challenges. It's unlikely that financial factors influenced this decision, as the ONA budget was relatively small by DoD standards, ranging from approximately $10 to $20 million annually.

This decision has sparked intense debate among the national security community about the future of ONA’s critical roles in strategic planning and long-term assessments. ONA was characterized by its unique obligation to look ahead 20 years, analyzing emerging threats, trends, and military competition to shape U.S. defense policy​. One strategist noted, “Shuttering a department that was vital to victory in the Cold War? That’s a great way to lose the battles of tomorrow.”1​ Senator Jack Reed (D-RI) criticized the choice as "shortsighted," cautioning that eliminating ONA might weaken U.S. military readiness.2 He highlighted the office's crucial function in providing independent, long-term strategic evaluations essential for national security.

Senator Chuck Grassley (R-IA) saw the closure of ONA as a triumph. He had long expressed concerns that ONA failed to conduct numerous formal net assessments and that it financed academic research unrelated to its primary mission. Additionally, he was notably critical of ONA’s agreements with Professor Stephen Halper, who served as an FBI informant during the discredited Crossfire Hurricane probe into Russian interference in the 2016 presidential election.

With ONA being decommissioned, a critical question now arises: where should this kind of long-term thinking be housed, who should perform it, and with what mandate?

The Legacy of Net Assessment

The architect of net assessment at the DoD was Andy Marshall. The ONA’s most significant contribution was shifting the Cold War conversation away from evaluating military balance by counting the number of tanks, planes, troops, and nuclear weapons each side had. Instead, Marshall brilliantly spearheaded a re-imagining of the Cold War as a long-term competition, focusing attention on both Soviet weaknesses and strengths.

Perhaps the most consequential document written by ONA was “Strategy for Competing with the Soviets in the Military Sector of the Continuing Political-Military Competition,” authored by Marshall and Roche in 1976. Discussions with Defense Secretary Donald Rumsfeld had encouraged the authors to provide a longer-term strategic analysis for guiding DoD policy. Marshall’s interest in the longer-term competition originated from his work at RAND Corporation (1969-71). Their joint interest in studying “strengths and weaknesses” and in “distinctive competencies” arose from their acquaintance with the language and logic of business strategy as taught at the Harvard Business School.

The 1976 paper called for a strategy for competing with the Soviet Union over the long haul. In reviewing the 1976 paper, this author wrote:3

Marshall and Roche's idea was a break with the budget-driven balance-of-forces logic of 1976. It was simple. The United States should actually compete with the Soviet Union, using its strengths to good effect and exploiting Soviet weaknesses. There were no complex charts or graphs, no abstruse formulas, no acronym-jammed buzz speak: just an idea and some pointers on how it might be used—the terrible simplicity of the discovery of hidden power in a situation.

One of the programs undertaken within this framework was forward basing U.S. missiles in Europe. The idea was simple—imposing rather than bearing economic costs. The increased accuracy of forward basing forced the Soviet Union to make disproportionately large investments in missile defense. Another was Ronald Reagan’s “Star Wars” initiative, a direct application of Marshall and Roche’s observation that “selectively advertising dramatic technology applications (thus exploiting the fact that "time is discounted" in world perceptions, i.e., announcing the technology is inferred as possessing the power attendant to deploying it).”

Intellectually independent of the armed services, the ONA was less bureaucratic and more willing to ask uncomfortable questions (e.g., “Are we actually winning this competition?”). Its critical contribution was focusing on the broader competition rather than the budget and weapons procurement issues that absorbed most of the DoD’s bandwidth. As Krepinevich and Watts noted, the “Pentagon's many bureaucracies and power centers were too consumed by the internal competition with one another over budget shares and their own agendas to focus dispassionately on these larger strategic questions that formed the core of ONA's assessments.”4

The Mission of Competitive Assessment

It is essential to maintain the capacity to focus on broader, long-term competition. This entails closely analyzing a competitor’s strengths and limitations as well as our own. Importantly, the activity must address the overarching rivalry among nations, considering economic, political, industrial, social, demographic, educational, and health aspects. I propose naming this new agency the Office of Competitive Assessment, or OCA.

Andrew Marshall’s key insight was a focus on the politico-military competition between the U.S. and its adversaries, with special attention to weaknesses as well as strengths. Today, the evolving situation in the world requires a broader commission: a focus on the multifaceted competition among nations. There are three compelling reasons for this broader remit.

1. The Internet, widespread smartphones, and social media have accelerated and intensified the influence of events on public attitudes and beliefs. Non-military and non-state actors can now utilize imagery and rhetoric to engage citizens locally and globally. For instance, over the past year, the conflict between Hamas/Iran and Israel has been influenced as much by visuals and propaganda as by military actions. Looking ahead, if China employs military force to take Taiwan, its and our future global reputations will be significantly shaped by the online images, personal stories, and narratives that follow such an event.

2. During the Cold War, the U.S. and NATO were seen as symbols of economic, technological, and industrial strength by much of the world, with its institutions held in high regard. However, times have shifted. Currently, our education and healthcare systems appear more costly and less effective than those in many other countries. It's concerning that a considerable number of young individuals are ineligible for military service due to being overweight, undereducated, or having criminal records. Furthermore, many internationally prefer not to face the rampant drug addiction and homelessness that have affected numerous U.S. cities. Negative perceptions also stem from the high murder rates in Chicago and the escalating racial tensions of the last decade. Residents from Europe, China, and Morocco question why the U.S. has yet to develop a high-speed train system.
   
   Such considerations are not trivial when examining long-term competition. Our citizens and other people are attracted to strength, achievement, and coherence, and are disaffected by their absence. The Cold War with the Soviet Union was not resolved through direct military conflict, but by the gradual loss of internal support for the trajectory of Soviet civilization. Looking ahead to a long-term competition with China, and in the absence of a spasm war, such issues may play a significant role.

3. Industrial systems' capacity, speed, and resilience have always been a key feature of competition between nations. The U.S. industrial system was nearly preeminent worldwide for almost one hundred years. With the rise of China and the offshoring of so much U.S. manufacturing, industrial capacity has become a critical issue. China’s shipbuilding capacity is at least 100 times larger than the U.S. The U.S. Navy struggles with limited shipbuilding capacity and a declining workforce—it is looking for over 100,000 experienced personnel but cannot find them. The capacity to produce modern weapons remains limited—it is estimated that it will take over 30 months to replace the Javelin missiles sent to Ukraine, and artillery shells had to be “borrowed” from South Korea to support Ukraine. In a long-term competition between civilizations, these are obvious weaknesses that an adversary’s strategists will exploit.
   
   Industrial capacity encompasses more than just facilities and equipment. It also includes the speed at which innovations can be integrated, new facilities established, and the skill level of the workforce. While the U.S. developed new aircraft and missile systems in approximately five years during the 1955- 65 period, today it may take 25 to 30 years to introduce a new platform. There is evidence suggesting that China is developing new weapons systems two to five times faster than the U.S.
   
   China graduates six times as many engineers per year as the U.S., with about one-third of Chinese undergraduates majoring in engineering (versus roughly 6% in the U.S.). Whereas American engineers focus on design and innovation, the much larger cadre of Chinese engineers and technicians provides a vast pool of people specialized in the “know how” of manufacturing.

The role of the OCA would be to study and develop the precursors to U.S. national strategy by creating competitive assessments of comparative strengths and weaknesses and their evolution over longer time spans. (In Washington, anything longer than a presidential administration is longer-term.) In this regard, it is essential to be sure that such assessments include elements that may have appeared less significant in the past:

1. The education and talent mix of the populace.

2. The overall physical and mental health of the populace.

3. The overall ability of society to withstand, adapt, respond to, and recover from both nature-derived and human-made adversities (resilience)

4. The strength and breadth of the industrial base and the speed with which new facilities can be created and products produced.

5. Technological trends and evolving technical leadership.

6. The levels of respect and/or distrust held by opponents and allies.

Assessments Role in Strategy

The mission of the OCA would be to create competitive assessments of the relative strengths and weaknesses of the U.S. and its actual or potential adversaries. Such assessments are the precursors to actual strategies aimed at curing or exploiting these imbalances.

The OCA may occasionally suggest certain curative strategies, but that is not its primary mission. The reason for this constraint is the widespread misuse and mistrust of the word “strategy” in U.S. government. This distrust stems from the unfortunate displacement of the term from its original meaning—an approach to grappling with an opponent—to the long-winded descriptions of hoped-for outcomes that pass for “strategy” in much of government and business.

For example, the Obama administrations National Security Strategy (2010) included a section on education. It read:

The United States has lost ground in education, even as our competitiveness depends on educating our children to succeed in a global economy based on knowledge and innovation. We are working to provide a complete and competitive education for all Americans, to include supporting high standards for early learning, reforming public schools, increasing access to higher education and job training, and promoting high-demand skills and education for emerging industries. We will also restore U.S. leadership in higher education by seeking the goal of leading the world in the proportion of college graduates by 2020.

This rather standard strategy-speak has glaring deficiencies that most reasonable people quickly sense. First, it provides no diagnosis as to why the U.S. has “lost ground” in education. One cannot solve a problem without knowing its causes. Secondly, “leading the world in the proportion of college graduates” is a preposterous goal if secondary education is failing. Its accomplishment would only destroy the value of college education.

As a more recent example, the Biden-Harris 2022 National Security Strategy framed the overall situation as a conflict between the values of democracy and autocracy.5 The key threats are Russia, China, and climate change. It then calls for “Transformative Cooperation” with other nations that share U.S. interests; A more “Prosperous World;” A “Stronger Military” based on joint integration across all domains, regions, and policies; And, working internationally to counter climate change.

What the 2022 NSS did not do, and why it failed to drive coherent action, is recognize the difficulties and challenges. Some of these are implicit yet unmentioned within the stated ambitions, while others have simply been overlooked. For example: Will European allies truly join forces with the U.S. in opposing a Chinese takeover of Taiwan? The U.S. has been calling for “jointness” for many years. Why is this so difficult, and what is actually being done to make it work this time?

There was no mention of the critical problem noted in Foreign Policy that “Every advanced weapon in the U.S. arsenal—from Tomahawk missiles to the F-35 fighter jet to Aegis-equipped destroyers and cruisers and everything in between—is absolutely reliant on components made using rare-earth elements”6 that come almost exclusively from China. With regard to climate change being an “existential threat,” will the world’s poorer countries really agree to stay poor rather than burn wood, coal, and oil for energy?

When one recognizes a specific difficulty it invites a specific action response. By avoiding the mention of specific difficulties or challenges, the NSS sidestepped the pressure to call out identifiable actions. Thus, the NSS relied on statements of hubristic goals and ambitions. The consequent banality is the source of the widespread general contempt for “strategy.”

The basic answer to this concern is to force a challenge-based approach. That is, a strategy should be seen as a mix of policy and action designed to overcome one or more high-stakes challenges. It is not a “bridge between ends and means” or a list of goals and desired outcomes. Rather, it is a form of problem-solving. And, since one cannot solve a problem that has not been defined, diagnosis and assessment are necessary.

The key mission of the OCA should be identifying, analyzing, and assessing the importance of national challenges arising out of an assessment of the strengths and weaknesses of the U.S. and its actual and potential adversaries. (Thus, the connection between challenge-based strategy and the traditional practice of “net assessment” is straightforward.)

A hard won lesson from work on strategy in many organizations is that many critical challenges are internal. It is difficult to grapple successfully with an adversary or competitor if internal interests and processes pull resources and energy in other directions. A delicate job of the ONS will be to comprehend and analyze our own weaknesses without being hung out to dry in the process.

Although critical challenges can often be identified through a well-done assessment, not every critical challenge can be addressed with current skills and resources. Some must be deferred or replaced with the challenge of developing the necessary skills and resources. This refinement is essential in moving from analysis to action.

Diagnosis and Assessment

We identify critical challenges by diagnosing the situation. Diagnosis means analyzing human and material forces' existing structure, underlying policies and intentions, and their potential effectiveness. This is, in essence, preparatory work for an assessment of comparative advantage.

Identifying critical challenges in national strategy work is more complex than in simpler settings. This complexity arises from the intricate dynamics of the international system and the significance of non-military factors, particularly political, demographic, economic, and technological aspects.

When considering the future, there are two conflicting temptations. The first is to describe it in terms of our aspirations and desired states of being. Thus, “Making the world safe for democracy” continues to be a national vision restated in different terms by U.S. leaders after more than a century. Having a “lethal” military is the current flavor of this snack. The second temptation is envisioning the future as a continuation of the present—a “Cold War” forever. The obvious support for this temptation is that it calls for more of the same forever. Unfortunately, it leaves the nation unprepared for significant disruptions. Or, for actually winning the competition, as happened in 1992.

The complexity of forecasting in national security suggests the need for three separate streams of analysis and planning. They are:

1. The surprise-free scenario. That is, if current conditions and trends continue into the future, what challenges and opportunities does the nation face?

2. The achievable futures. That is, what are the possible quasi-stable longer-term arrangements of international powers and forces? For example, if current trends toward strengthening defense over offense persist, and if the shift toward a multi-polar world continues, there is a future in which the US leverages its defensible geographic position and resource base in a world fracturing into continental powers that accept mutual vulnerability to nuclear weapons.

3. The potential disruptions. Much of modern business and military strategy has been in response to the unforeseen consequences of disruptive change. The rifled musket altered tactics during the U.S. Civil War; the machine gun in WWI; the aircraft carrier in WWII; atomic weapons since; precision strikes in 1991; drones in Ukraine in 2022. Looking to the future, we do not yet comprehend the impact of AI, cyber-warfare, EMP strikes, space issues, mass immigration, or declining birth rates.

The purpose of such studies and look-aheads is to identify the key challenges and opportunities the nation may encounter. Useful actioni-taking arises from recognizing these challenges.

Where Should the OCA Be Placed?

Situating the Office of Competitive Assessment within the U.S. government requires striking a balance between autonomy and access to power. If longer-term competitive assessment does not have a secure place within the government, it will not happen. And, without careful structure, the OCA could become another “strategic” planning office among many—without unique leverage or influence.

• The Project on National Security Reform has proposed establishing a Center for Strategic Assessment and Analysis within the White House. This placement would elevate the NSO’s functions to the highest level of government. The proposal draws inspiration from President Eisenhower's Planning Board of the 1950s, which provided long-range strategic guidance. The concept mirrors China's Central National Security Commission, established by Xi Jinping in 2013 to centralize strategic planning. However, this solution faces practical challenges: maintaining continuity across administrations and ensuring staffing with qualified experts rather than political appointees. Eisenhower’s Planning Board did not survive into the Kennedy administration. Placing it next to OMB within the Office of the President would be effective if it were insulated from budget battles and the election cycle.

• The precursor to ONA (Net Assessment Group, 1971) was placed in the National Security Councit (NSC). A new OCA could also be placed there. The NSC sits at the intersection of foreign, defense, economic, and domestic security policy making. It is, however, essentially reactive, managing today’s crises. NSC staff are often political appointees or heavily influenced by short-term political priorities. Most staff turn over every two years. The OCA might struggle to maintain independence and long-term focus. Also, many critics have seen the NSC as too large and too operational. Both Obama and Trump have worked at slimming it down.
  

  Another issue is that Biden expanded its focus to include domestic issues such as climate change, labor rights, and racial equity. Critics contended that this broadened scope diverted attention from traditional national security concerns and introduced partisan objectives into security deliberations. In response, Trump has cut staff and refocused the NSC. However, this history does not speak to the necessary stability to house the OCA.

• Another potential solution lies in reviving a congressional analytical capability, such as the former Office of Technology Assessment, which provided technology-focused guidance to lawmakers until its dissolution in 1995. Given the OCA’s broad mandate to assess challenges beyond the military, this is a natural fit.

  
  When the OTA operated, it provided analyses that assisted Congress in navigating the technological terrain of the late 20th century, including the computer revolution, the emergence of genomics, and global environmental challenges. Its shutdown in 1995 was a product of immediate political considerations. There have been recent proposals for a new OTA (the “Congressional Office of Technology”)—its backers want access to all members of Congress and coordination with other technology programs. Such constraints which would not be appropriate for some of the sensitive work of the OCA.

• Within the DoD, some suggest expanding the role of the Joint Chiefs of Staff in strategic assessment. In 2016, the J-8 considered creating a dedicated assessment team; however, this proposal then sparked jurisdictional tensions with the ONA. More recent discussions have explored embedding long-term assessment capabilities within existing structures—perhaps under the Under Secretary of Defense for Policy or the Cost Assessment and Program Evaluation office. However, the Joint Staff and services naturally focus on near-term planning and operations, lacking a mandate to challenge established thinking. Obtaining truly independent analysis will be difficult as long as the services continue to control this staff’s careers and promotions. Furthermore, as James Baker noted, military-led assessments risk being overly optimistic about U.S. capabilities, potentially lacking the critical perspective that civilian analysts provide.

  
  If the OCA is established within the DoD, it should be accompanied by a grant of autonomy similar to that enjoyed by the ONA in the past and by DARPA today. Furthermore, it must be protected from efforts to limit its scope to politico-military affairs.

Who Should Staff the OCA?

The OCA should consist of an elite, eclectic mix of experts in warfare, economics, technology, and society–individuals capable of envisioning the future 15-25 years ahead to identify potential shifts in power dynamics. The team must carefully balance civilian and military elements, remain small yet formidable, and establish mechanisms to challenge its own thinking. To be free from day-to-day parochial agendas and daily tasks, it must report directly to top leadership.

The formula that worked for ONA was having Andy Marshall as the ongoing leader, supported by a small rotating group of staff analysts and the engagement of outside analysts, along with contracts with selected think tanks. One key element of this formula was that staff were not directly assigned to the ONA; instead, Marshall recruited specific individuals. Many key staff members were military officers nearing retirement, holding the rank of Colonel or below. This approach brought in a valuable mix of experience while alleviating concerns about future promotions.

ONA's historical successes and similar organizations like RAND, the UK’s Joint Intelligence Committee (JIC), and the UK’s SONAC highlight these principles. The JIC is a small group of senior officials and heads of intelligence agencies tasked with assessing threats related to military, criminal, technical, or other areas. SONAC is the Secretary of State’s Office of Net Assessment and Challenge, a core team of 25 people that provides independent advice to the UK Ministry of Defense.

By attracting top talent across disciplines and fostering a culture of rigorous debate, OCA could equip national leadership with thorough, forward-looking competitive assessments. Such an office would help ensure that we are guided by a genuinely comprehensive evaluation of military, economic, educational, and social strengths and weaknesses – both our own and those of our rivals.

A rotating board of influential experts should accompany the core analytical engine of the OCA. These individuals ought to be thoughtful leaders drawn from the military, intelligence, State Department, Congress, and business sectors. The board's purpose is to evaluate the reasoning behind OCA’s analyses and to quietly cultivate its audience of supporters and followers. The board should comprise nine members or fewer.

The Question

Intel, the company that put the “silicon” in Silicon Valley, the technological powerhouse Gordon Moore and Andy Grove built, has fallen from grace and has become a candidate for dramatic restructuring. This raises one of recent history's most dramatic business strategy questions: What went wrong?

The dominant narrative in the financial press is that “financialization” damaged Intel. That is, a focus on stock buybacks and dividends rather than R&D hurt the company. This is basically wrongheaded as the story told here will demonstrate.

A second common narrative is that the board was filled with generalists who lacked understanding of the semiconductor business. This has been true, but was not the central issue.

A third common explanation is that bureaucracy strangled innovation. Intel certainly had bureaucracy, but was it the critical problem?

A fourth explanation is that Intel was “disrupted from below” by the ARM ecosystem which arose within the mobile space. This has an element of truth but does not explain Intel’s stumbles in graphics, AI, and its dramatic loss of leadership in its core CPU business in the 2016-24 era.

The hard truth is that Intel engaged in one of the world’s most coherent specialized and successful business strategies over almost three decades. It was this internally coherent specialization that led to its misses and failures.

Recent Events

In late 2024, Intel’s board gave CEO Pat Gelsinger the classic “quit or we will do it for you” ultimatum. Gelsinger had returned to Intel in 2021 to tackle the task of fixing everything, and the board had approved his ten-year turnaround plan. But just three years in, the negative numbers, the falling stock price, and the AI frenzy gripping the tech sector pushed the board to pull the plug.

Some say the board panicked, driven by short-term financial considerations. But to be fair, the numbers were ugly. Intel had lost $16.6 billion in a single quarter, marking the most significant loss in its history. Revenue decreased by 30% compared to 2021. More crucially, Intel’s yield on new chips continued at less than 10%, while competitor TSMC’s yield seemed to be achieving three times better results. Was there any daylight at the end of this tunnel?

Following Gelsinger's departure, months of discussion ensued about potential deals with TSMC, spinning off the foundry business, or other restructuring options. Nevertheless, in March 2025, Intel’s board appointed Lip-Bu Tan as CEO. Tan had previously served on Intel’s board, was a long-time technology investor, and had decades of experience in the semiconductor and software industries. Like Gelsinger before him, he promised to restore Intel’s semiconductor foundry business to its former luster and lead the company to a significant position in AI.

The Beginning: DRAMs To Microprocessors

In 1968, Gordon Moore and Robert Noyce left Fairchild to establish Intel. Their first hire was Andy Grove, who later became CEO in 1987. Noyce had invented the integrated circuit, and three years earlier, Moore had written an article for Electronics Magazine noting that advances in lithography allowed the number of transistors on a wafer to double every year. Since costs were primarily per wafer, the cost per transistor was halved with each doubling. (A decade later, he revised this to every two years.) This consistent reduction in the cost, size, and power consumption of each transistor became known as “Moore’s Law.”

Intel’s first product was a memory chip. As the company grew, it began to implement the benefits of Moore’s Law. By the mid-1970s, the company dominated the rapidly growing DRAM memory chip market. Then, in 1971, Intel began producing its first microprocessor: the 4-bit 4004, designed to function in a calculator. Intel soon realized this programmable chip was a general-purpose device with potential uses beyond calculators. It produced the 8-bit Intel 8080 in 1974, key in inaugurating the “home computer” revolution (e.g., the Altair 8800). By 1978, it produced the 8086, which exhibited the original “x86” architecture, a design that IBM adopted for its 1981 Personal Computer.

Intel's memory (DRAM) market position deteriorated significantly during the early 1980s. Its market share dropped from over 80% in the 1970s to just 2-3% by 1984, primarily due to competition from Japanese manufacturers. These competitors sold high-quality DRAM chips at lower prices, and the products of different companies became indistinguishable commodities.

The impact on Intel was severe. Intel’s earnings per share plummeted to $0.01 in 1985, followed by a $173 million loss in 1986. In response, it implemented layoffs and closed plants. Grove and Noyce began discussing the famous decision to exit the memory business, initially driving the company’s success. This choice was facilitated by the fact that the microprocessor business was both profitable and expanding.

Intel’s struggle to compete effectively against Japanese DRAM producers was part of a broader leadership shift in selected manufacturing areas from the United States to Japan, and later to Korea, Taiwan, and China. Japanese producers operated more automated chip foundries and invested significantly more in both the statistical and human aspects of tighter process control. This resulted in fewer defective chips per wafer and lower costs per chip. (Grove later acknowledged that he could not match the Japanese quality control, referring to it as a “manufacturing shock.”) Furthermore, Intel maintained a bloated management structure compared to its Japanese competitors. Its 1986 Annual Report stated that the company was “left with an overhead structure appropriate to the $2–3 billion company we aimed to be rather than the $1.0–1.5 billion company we were becoming.”

Interestingly, Grove evaluated the DRAM business using fully allocated costs, rather than just direct costs. (For most years, DRAM revenue did cover direct costs.) An alternative could have been to follow the suggestions of some Intel engineers and build a modern low-overhead $100 million plant to produce 1-megabit DRAMs to the highest global standards. While this wouldn't generate large profits, it would keep Intel at the forefront of semiconductor manufacturing efficiency. However, such a move would have conflicted with the management and strategy concepts that were popular at that time. Success, it was taught, stemmed from having a technical edge or differentiation advantage, not from competing on cost.

The Wintel Standard and Pushing Moore

The remarkable success of IBM’s PC and its clones spurred demand for Intel’s x86 processors. These machines combined the x86 architecture with Microsoft’s operating systems, creating a de facto standard for small computers. As IBM’s prominence waned, the Intel chip and the Microsoft operating system defined this family of computers, regardless of brand. When Microsoft Windows emerged, this lock-in became known as the “Wintel” standard.

During the 1990s and early 2000s, Intel enjoyed fabulous profit margins. While most chip makers had gross margins ranging from 3% to 22%, Intel’s were 50% to 60%. Much of this profitability was clearly due to the Wintel standard. At the same time, managers within the company attributed much of the company’s success to its mastery of Moore’s Law.

In practice, Moore's Law was implemented as a coordinated roadmap for the semiconductor industry, encompassing lithography, materials, EDA tools, ASML lithography equipment, and Applied Materials manufacturing machinery. Each node in the roadmap represented the smallest feature size on a microchip, measured in nanometers (nm).

Despite the availability of this standard roadmap, Intel managed to stay approximately 18 months ahead of its competitors in the quest for the next process node between 1990 and 2009, as evidenced by the transitions from 90nm to 65nm, 45nm, and 32nm. Its smaller features enabled industry-leading transistor speeds. Thus, Intel CPUs (like the Pentium, Core 2 Duo, and Core i7) consistently led industry-standard benchmarks for single-thread performance and power efficiency.

If the industry coordinated on a standard “roadmap,” how could Intel outpace rivals like IBM and AMD in the race to the next node?

Intel’s Focused Strategy

At the center of the strategy was Intel’s commitment to operating its own semiconductor foundry. Many other semiconductor companies had transitioned or were transitioning to fabless models, relying on merchant foundries such as TSMC and GlobalFoundries. Having its own fab allowed Intel to avoid coordination delays and maximize optimization opportunities that fabless competitors faced. However, and more importantly, it enabled close coordination between circuit design and manufacturing process engineering. This close coordination focused intently on the speed and performance of its x86 CPUs.

As a manufacturer, Intel made substantial investments in process R&D. For instance, in 2011, Intel spent $8.4 billion on R&D, exceeding competitor AMD’s annual revenue. Nearly all of this investment was aimed at enhancing x86 CPU speed and power. In contrast, support chips were produced using less advanced processes and nodes. This included platform controller hubs (I/O including USB), integrated graphics, and network interface controllers (Ethernet).

Intel established a close integration between circuit design and fabrication processes by employing highly customized design rules. Users of merchant foundries were required to adhere to the rules provided by the foundry, which were designed to ensure first-pass silicon success. In contrast, Intel developed advanced lithography processes in tandem with design, frequently overcoming timing bottlenecks by aligning process and design efforts.

Intel developed and maintained proprietary chip design tools for routing (where metal connections are laid out), placement (where logic gates are situated), timing analysis, and power and thermal analysis. In particular, Intel’s custom power grids required logic that commercial design tools could not manage.

Because Intel controlled both chip design and fabrication, it could simply ban the use of designs that created problems for lithography by imposing design rules that a merchant fab could not so easily enforce. As one analysis noted, “Intel is very comfortable with incredibly restrictive design rules since they are a microprocessor manufacturer and not a pure-play foundry. Intel can micromanage every aspect of design and manufacturing...”​1

In practice, this meant that Intel's chip layouts tended to be grid-like and uniform, boosting yields on cutting-edge processes while constraining circuit designers to a limited range of geometries. This tight integration also allowed Intel to take risks with new materials and transistor structures, such as high-k dielectrics, strained silicon, and FinFETs, ahead of other foundries.

Funding this level of foundry skill and design integration did not come cheaply. Intel spent heavily on research for process and design. For example, in 2011, Intel’s R&D spending was $8.4 billion, more than AMD’s total revenue that year. This spending was worthwhile as long as the market rewarded a performance edge in x86 CPUs.

The Costs of Intel’s Focused Strategy

Intel attempted to expand its product scope at least three times, each failing. These forays included high-performance graphics processors (GPUs), mobile chipsets, and AI chips. There were several intertwined reasons for this lack of success.

Intel’s intense focus on CPU performance hindered its development of more complex multi-function chips and systems. When attempting to compete with NVIDIA’s graphics GPUs in 1998, Intel’s i740 fell short because Intel’s design rules were optimized for high-speed CPUs rather than GPUs. While CPUs require tight, fast logic, GPUs necessitate wide data paths and high memory throughput. Intel designers typically used structured, automated digital layout software not programmed to accommodate GPU-specific circuits like shading pipelines and rasterization engines. Intel’s metal layout and transistor sizing rules prevented the i740 from achieving the wide data paths and custom logic blocks NVIDIA engineers had hand-tuned.

In the mobile market, Intel was slow and late in providing an integrated SoC (system on a chip) solution. Mobile phone manufacturers sought a complete system that included a CPU, power management, wireless communication, Wi-Fi and Bluetooth radios, screen image processing, high-quality image processing for the camera, position and motion sensors, and more. While Qualcomm (and Apple) supplied all these on a single chip, Intel could not provide a fully integrated solution. Its Medfield (2012) and Clover Trail (2013) offerings used an x86-based CPU but failed to integrate an LTE modem, advanced image processing, Wi-Fi and Bluetooth radios, power management, or a sensor hub.

As new market opportunities appeared in high-performance graphics and mobile devices, Intel planners tended to see faster, cheaper, smaller versions of the x86 CPU as eventually overtaking competitors’ designs. This mindset was evident in its attempts to design mobile SoCs around the x86 and create GPUs as arrays of x86 cores.

Intel’s high profit margins in x86 CPUs financed an expansive administration reluctant to invest in lower-margin opportunities. Historically, Intel maintained strict profitability criteria for new ventures, which limited investments in areas seen as low-margin or risky. One notable example was CEO Otellini’s rejection of Apple’s request to manufacture its iPhone processor. Other instances included the lack of focused effort in graphics GPUs until very late and an unwillingness to fully commit to integrated mobile SoCs and modems for the mobile market.

A Failed Bet at 10nm

During the mid-2010s, the chip industry began to face the limits of lithography using the then-standard 193nm wavelength ultraviolet (UV) tools. Engineers used various techniques to create small (< 20nm) features with 193nm light. Masks were distorted so that their interference patterns would indirectly produce the desired shapes. Near features were patterned in separate steps so that each would not interfere with the other. The wafer was immersed in pure water to sharpen images. The hoped-for solution to these difficulties was extreme ultraviolet (EUV) lithography, using light with a wavelength of 13.5nm. But EUV technology had not yet matured, and no one could predict when it would be available.

In this environment, Intel’s technical leaders began to voice skepticism about EUV lithography being ready in time for its 10nm node planned for 2016-17. Because Intel prided itself on leadership in the highest power and performance chips, its technical leaders developed a strategy for succeeding at 10nm with 193nm UV lithography. The basic idea was aggressive multiple patterning and new techniques like self-aligned quadruple patterning (SAQP) and even quintuple/sextuple patterning on specific layers. New materials such as cobalt were adopted for interconnects. Intel also introduced COAG (Contact Over Active Gate), positioning the contact directly atop the transistor gate to conserve space, and utilized a design featuring a “single dummy gate.”

Intel believed that these methods would allow it to significantly increase transistor density (~2.7× over 14nm), effectively outpacing competitors' plans. Intel insiders referred to their 10nm as a “7nm-class” technology. The expectation was that even if TSMC or Samsung rolled out EUV a bit later at their 7nm, Intel’s 10nm (on schedule for 2016–2017) would still achieve higher transistor density and smaller die sizes first. Intel officials expressed confidence that its multi-patterned 10nm would provide economic benefits that foundries, hampered by multi-pattern costs or EUV delays, might not be able to match.

By 2018, Intel’s expectations were challenged. Low yield rates for its 10nm node restricted production and angered buyers. At the same time, TSMC successfully ramped up a 7nm process in 2018 and planned a modest EUV-based 7nm+ for 2019, while Samsung was gearing up its EUV-based 7nm for release the same year. Thus, as competitors began to adopt EUV, Intel was stuck resolving issues with its 10nm process and postponed its 7nm node to the early 2020s. Intel was no longer ahead. It wound up with refreshed 14nm products competing with 7nm offerings from rivals.

Intel started using EUV for its 7nm node, aiming for production in 2021. However, production issues emerged again, pushing back volume production to late 2023. The main challenges included mask defects, partly caused by Intel’s dependence on its proprietary design rules, software, EDA tools, and workflows. In contrast, the shift to EUV demanded considerably more collaboration with external partners (including ASML, Cadence, Synopsys, etc.), which conflicted with Intel’s specialized approach.

A New World

In 2025, Intel is opening its foundry to other chip designers and challenging TSMC’s 2nm node with its 18A (1.8nm) process node.

The technical bet at 18A uses EUV patterning combined with two process innovations: PowerVia and RibbonFET. The PowerVia idea moves power to the back of the wafer, a potential gain in efficiency, especially for high-performance CPUs and AI chips. RibbonFET is expected to increase performance per watt and be better than TSMC’s nanosheet methods. As in the past, Intel is trying to stay ahead of competitors with process innovations.

A successful implementation of 18A would mark a significant milestone for Intel. However, the company must address several intricate challenges beyond simply reaching the technical node to reclaim long-term industry leadership.

• Customer Trust. Its past 10nm and 7nm struggles have damaged Intel’s customer credibility, especially for its merchant foundry business.

• Non-Central x86. To be successful as a merchant, Intel will have to put aside its aversion to alternative processor designs. It cannot count on the x86 architecture to take it into the future.

• Competition. TSMC has emerged as the dominant high-volume high-performance foundry. Samsung’s foundry has carved out a position as a lower-price leader. Regaining leadership from these competitors will be difficult.

• Ecosystem. For Intel to thrive in the merchant foundry industry, it must build a strong, adaptable, and competitive ecosystem of tools, libraries, and IP to entice customers used to TSMC or Samsung’s offerings. Relying on its conventional proprietary design rules and practices will not suffice. Intel must facilitate the seamless and dependable integration of essential IP blocks (e.g., ARM cores, GPUs, high-speed I/O) that customers anticipate.

• Costs. Intel must manage capital efficiency and trim its traditionally large management structure.

The basic meaning of the word “strategy” comes to us from ancient Greece. In the 5th century B.C., Athens would elect ten strategoi (στρατηγοί) who would meet periodically at the Strategeion, a small structure in the Agora—a central public space. There they would consider how the city-state should deal with important issues—perhaps the Spartans or Persians were planning an attack, or a plague had broken out, or that the cities’ finances were in ruin, or that missing cooperation was required to build a new temple. The picture below shows me standing at the site in what remains of the Agora in modern Athens.

Thus the proper age-old meaning of “strategy” is a set of actions designed to surmount a high-stakes challenge. Whether one is playing chess, conducting a political campaign, directing a business, or leading a military, one’s strategy is a pattern of action guided by an understanding of countervailing forces: the actions of competitors and enemies, the vicissitudes of nature, and the frictions and inertia inherent to social systems.

Tragically, in the last three decades the word “strategy” has been hijacked and replaced by the “Standard Narrative.” In far too many companies, in almost every U.S. government agency, and in most universities and non-profits, the word “strategy” now denotes a particular literary form. It is a form eliciting groans of boredom and deep feelings of wasted time and effort, but which seemingly cannot be abandoned.

The Standard Narrative starts with a statement of values (e.g., excellence, saving the planet, and, today, inclusion) and goes on to enunciate broad ambitions.

For example, the Biden-Harris 2022 National Security Strategy (NSS) frames the overall situation as a conflict between the values of democracy and autocracy. The key threats are Russia, China, and climate change. It then calls for “Transformative Cooperation” with other nations that share U.S. interests; A more “Prosperous World;” A “Stronger Military” based on joint integration across all domains, regions, and policies; And, working internationally to counter climate change.

What the 2022 NSS does not do, and why it fails to drive coherent action, is recognize difficulties and challenges. Some of these are implicit yet unmentioned within the stated ambitions and others have been simply skipped. For example:

• Will European allies really join forces with the U.S. in opposing a Chinese takeover of Taiwan?

• The U.S. has been calling for “jointness” for many years. Why is this so difficult and what is actually being done to make it work this time?

• There is no mention of the challenge noted in Foreign Policy that “Every advanced weapon in the U.S. arsenal—from Tomahawk missiles to the F-35 fighter jet to Aegis-equipped destroyers and cruisers and everything in between—is absolutely reliant on components made using rare-earth elements” that come almost exclusively from China.1

• With regard to climate change being an “existential threat,” will the world’s poorer countries really agree to stay poor rather than burn wood, coal, and oil for energy? For example, despite a U.S.-Japan deal to give Indonesia $20 billion for renewables, the Indonesian government is investing in more coal plants.

By avoiding the mention of specific difficulties or challenges, the Standard Narrative NSS sidesteps the pressure to call out identifiable actions. When one recognizes a specific difficulty it invites a specific action response. Thus, the NSS relies on statements of hubristic goals and ambitions. The consequent banality is the source of the widespread general contempt for “strategy.”

The Standard Narrative also courts banality by seeking to include all activities within its scope. Thus, for example, the NASA “strategy” says that it seeks to understand the earth and its climate, the sun, the solar system, and the universe, explore the moon and deep space, develop a human spaceflight economy enabled by a commercial market, safeguard explorers, enhance space access, innovate and advance transformational space technologies, drive sustainable aviation, attract a talented and diverse workforce, and build the next generation of explorers.

Walking down a hallway in this kind of organization one will see a poster proclaiming these ambitions and another asking “Do you know how your job fits into the strategy?” Of course, if the strategy is a description of what all units and all employees do, it cannot focus on solving the critical challenges facing it.

At NASA, there should be a serious question as to why it remains in the rocket business now that commercial alternatives are available at less than one-tenth the cost. More crucially, can NASA find a way to stop being a Congressional jobs program in which “lawmakers” specify which rockets it will build (and, implicitly, by which contractors) and then complain when the program is over budget and too slow?

The same issue arises in private companies. In too many cases, a company’s “strategy” is only expressed as a series of ambitious goals. In The Crux: How Leaders Become Strategists I describe one such situation like this:2

We had a four-and-a-half-day foundry during which basic guiding policies were hard fought and developed after flying in key experts on day three. As we began to conclude, I had the three key tasks we had developed described on large paper easels in the front of the room. One of the participants then asked, “But where is the strategy?”

“What do you mean?” I questioned back.

“Well, three years ago we had a strategy that was distributed to everyone and covered a lot more detail about what we wanted to do.”

“You mean this?” I asked, pointing to the paper document that was the three-year-old “strategy” pinned to the wall.

“Yes, that,” he said.

I moved over to the document with my red marker in hand. I read each of the ten lines aloud and asked the group whether that objective had been met.

“Did you continue to lead the industry, as it says on line one?” I asked. The answer was no because market share had been lost. I put a red X next to the line.

“Did you maintain the highest safety standards?” Yes, checkmark. 

“Did you increase profitability?” No, a red X.

“Did you penetrate the Chinese market?” Not really, a red X.

“Did you maintain high employee morale and confidence?” Well, with 15 percent layoffs, that was an interesting question. Red X.

“Did you dramatically reduce carbon-based energy usage?” Keeping it level is not a reduction. Red X.

When I stopped, there were eight red X’s.

“Is this the kind of strategy you want to again publish?” I asked. “A document full of pious objectives few of which will be met in the next three years?”

That executive complained that the key action steps we had designed—actually tasks to be accomplished—were far from his company’s Standard Narrative. In his case, the Standard Narrative was a public statement of values and goals to which everyone in the company could relate.

Employees and investors have come to expect such Standard Narratives describing the organization’s basic activities and key priorities. The harm arises when this is confused with an actual strategy—one that identifies key challenges and maps out actions to overcome them.

In my client practice, to deal with the inertia of an expected Standard Narrative, I now push the word “strategy” into the background. Instead, I have a group work on what I have come to call an “Action Agenda.” I do this with some regret since I have been a teacher and consultant on strategy for over fifty years. But many of my clients are caught in a simple trap—they want to harness the power of real strategy but they also seem to need a Standard Narrative to satisfy employees, legislators, and investors. And, to fill the “strategy” page on their Websites.

Nowadays most of my work with clients consists of conducting a Strategy Foundry.3 This is a two-to-four-day intense meeting of a small group (less than ten) of organizational leaders aimed at identifying the key barriers to improvement and designing action steps to overcome those barriers.

The idea of the Foundry arose with the gradual realization that most organizations did not need further deep analysis to do strategy work. What they needed was a focus on challenge and action. Their problem was not insufficient knowledge, but (a) thinking of strategy as the Standard Narrative, and (b) being unable to grasp the gains from implementing the unrecognized simplicities of effective action. As Dominic Cummings insightfully remarks,4

The gains from implementing the unrecognised simplicities of effective action (e.g real clarity of priorities, really fighting the entropy of talent in large organisations) come mostly over longer time horizons than the costs and problems. This is why these simplicities are, as Charlie Munger says, ‘unrecognised’ and why we live in a world where there is perpetually vast amounts of apparently low-hanging fruit in politics that are incredibly hard to pick and eat.

In many cases, the barrier to effective action is not insufficient IQ or analysis—it is the logjam of competing interests, the powerful frictions of interpersonal and interdepartmental competition, and the natural inertia of complex organizations. Coherent action is deferred until the wolf is at the door. Or, actually past the door and in the cabin.

The power of a well-facilitated Strategy Foundry is in having a group of executives pierce the veil of each others’ expectations and reach what might be a fairly private consensus on what is actually both important and actionable. Usually, it requires a focus on problem-solving which leads to a set of fairly simple actions. The difficulty in getting there is breaking the habit of mistaking goals for strategy and the tradition of having a present under the Christmas tree for each interested party.

Nowadays, I call the output of a Strategy Foundry an “Action Agenda.” I do this to emphasize the centrality of action. When a group has to focus on actual tasks rather than goals, it is immediately and painfully clear that one cannot undertake too many actions at once. I also do this to break the almost automatic reflex of creating another Standard Narrative. The organization can, if it must, have a banal published "strategy" and, at the same time, leadership can create a powerful Action Agenda. This set of key tasks does not have to be made public or endlessly repeated to employees.

One experiment in education was Nasser’s education reforms in Egypt during the 1950s. Primary school was mandated for both men and women. University fees were minimized and good jobs in the government were guaranteed to all having a college degree. Yet, this idealistic program did not really work. It created generations of paper chase, with schools focusing on credentials rather than education. Yes, Egypt, poorer than Iran or Turkey, has many more college graduates per capita. But the government could not fulfill the guaranteed jobs promise. So, the lack of a vigorous private sector left huge numbers of educated young Egyptians without work or without sufficient income to marry and have a family.

The Original Industrial Revolution

Before the Industrial Revolution in about 1750, most of humanity was poor. There was no “problem of development” because no country was “developed.” Most people in the world lived in poverty at the subsistence level. They lived on the land and had little or no savings. Most were illiterate serfs, laboring for the benefit of great landowners. For most of history, all over the world, most people’s lives were a continual struggle for existence itself. By modern standards, perhaps 95 percent of humanity lived in extreme poverty. Today that number is about 10 percent, having dropped sharply in the last 20 years as China finally developed a market economy. The change from 1750 to today is astounding. It did not come about from charity or income or wealth redistribution. It came about from technology-powered surges in productivity and innovation in social systems.

The concept of “development” has its origins in the Industrial Revolution. This revolution and its aftermath produced the most significant change in the human condition since the invention of agriculture 10,000 years ago.

The Industrial Revolution started in Britian (and the Netherlands) in the 1700s. It started there because those societies had become freer, had developed a system of private property, and had thrown off the yoke of having the church or king define what was knowable or doable. Patents had evolved from being royal grants of privilege to a laissez-faire system, and finally to a clear monopoly grant for a publicly described technique.

Also, Britain was running short of wood. It had a lot of coal, but to dig up coal one had to pump water out of deep pits. Newcomb’s 1712 “atmospheric” steam pump did the job, but terribly inefficiently. That inefficiency seemed a challenge to Scotsman James Watt. In 1750 he designed and built the first real steam engine with a reciprocating piston moving in both directions. He used old canon boring machinery to shape the cylinder. By 1776, it was being installed in commercial enterprises. That machine, combined with Henry Maudslay’s later invention of precise boring and of machine tools, really ignited the industrial revolution.

Why didn’t the industrial revolution happen a thousand years earlier? And why did it first happen in Britain and not everywhere? There are five basic enemies of technological progress.

1. The first is the quasi-religious belief that all worth knowing is already known, especially as represented by some presumed earlier “golden age” or revealed divine knowledge.

2. The second is a dictatorial social order which pre-defines the roles people can take on, what they can own or take credit for, and what transactions they can undertake.

3. The third is an extractive mindset—that there is a fixed amount of wealth and that one can only advance by taking from others and that anyone’s gain is someone else’s loss.

4. The fourth is a social and political system enforcing fixed patterns of work and commerce. One cannot invent steam-driven ships if the sailing ship guild has a lock on shipbuilding. One cannot improve public education if huge unions have political control over the system. One cannot build a high-speed train in the US if hundreds of interest groups can each go to court to block it.

5. The fifth barrier is a level of social disorganization, violence, and extortion that limit returns to investment or innovation.

In Europe, before 1700, these forces quieted innovation for a thousand years as the church came to define what was acceptable knowledge. The feudal class system defined the social order. There were even sumptuary laws defining the permitted dress for different classes. Kings granted “patents” protecting different guilds and products from any competition.

In China, the “Golden Age” of invention and development ground to a halt in the 1400s as the Ming Dynasty began to exert complete control over most aspects of life. Private property laws were absent and the new code restricted travel outside of China as well as mandating heavy fines for anyone switching professions.

In the Islamic world, technological progress slowed in the thirteenth century as the literal worship of Islam’s zenith made innovation vaguely heretical.

Japan closed itself in about 1600, avoiding contact with outsiders as the aristocrats of the Edo era struggled to maintain the existing social order.

India presents a more complex case. Under the Mughal (Muslim) empire (approx. 1500-1720) India was the world’s leading exporter of textiles. Socially, the ruling Mughals regarded the conquered Hindu kings and princes as simply landowners. Plus, the Hindu social structure was divided into castes which tended to limit social and occupational mobility. With the collapse of the Mughal rule in the early 1700s, India might have been able to follow a path to development, but its internal wars, the caste system, and falling under British colonial rule (first by the East India Company) all combined to freeze things in place. Plus, Britain moved to limit imports of Indian fabrics to protect its own newly industrialized fabrics industry.

The industrial revolution began in Britain because of a unique mixture of science, education, private property, some social mobility, and trade. In Britain, a robust trade-based middle class developed which the nobility accepted rather than repressed. Thus, an educated middle-class person like James Watt could enthusiastically get his hands dirty with coal, steam, and steel and invent the steam engine.

The lessons for today are pretty clear. Society must allow smart people to work at the “coal face” where technologies advance. It must not place dogma and “accepted truth” above actual observation and manipulation. And society must permit returns of wealth and status to the innovators. And societies must permit change, even though the short-term result is that some people are worse off. And governments must invest in infrastructure that permits the safe and speedy movement of ideas, people, and goods.

Challenges to Development

Working with a government on the problem of economic development one is faced with deep issues of causality. What causes economic growth? What blocks it from happening? The theories about this abound and many are destructive. For example, the USSR’s philosophical basis was the Marxist teaching that capitalism exploited the workers. But trying to sell this proposition globally to peasant economies, where there weren’t any capitalists, was not going well. So, in the late 1960s, they changed the theory to argue that the fight was against colonialism and racism. Their recommendation was, of course, revolution, and Marxism. The modern echo of that teaching is the claim that capitalism is the source of racism, a doctrine that remains alive and well among many U.S. progressive groups. It is a doctrine that ignores Asian beliefs about ethnic superiority, the Hulu vs. Tutsi genocide in Rwanda, the slavery of Pygmies to Bantu peoples in the Congo, and the long-standing cultural obsessions with skin color in Arab countries and in much of India.

Early in my career, I spent some time talking to economists at the London School of Economics and the Harvard economics department. Their take on the issue of development was “capital formation.” Countries were poor because they didn’t have capital (investable savings). The recommendation was for specialized lending institutions that could feed capital into promising ventures.

In the 1970s I was able to visit and interview the head of the Industrial Bank of India. The head of the bank told me: “We have the capital to lend, but too few projects that warrant investment. I have plenty of Ph.D. engineers who have designed some sort of chemical or fertilizer plant, but I don’t have a team that knows how to run such a plant or operate it commercially.”

The infrastructure missing in many “developing” countries is not just capital, or schools and roads, but the whole society of skilled people we take for granted in industrialized countries. Not the concepts taught at MIT or UCLA, but hands-on skills like welding stainless steel, building a refractory furnace to melt glass without imparting impurities, multi-color precision printing on metal for a can company, cold-welding aluminum, or making many of the precision parts that go into an automobile.

The idea that the problem of development was “racism” or “capital” turned out to be an expensive and damaging intellectual error. In Asia we saw Japan, Singapore, South Korea, and now China, break the poverty barrier and develop social and technical infrastructures just as fine as any in the West. Doing this required a critical mass of powerful people to take seriously the creation of technical skills together with a sharp reduction in corruption. Surprisingly, many of these newly developed economies saw rises in agricultural productivity as millions moved off the land and into factory work.

Other poorer countries would like to emulate these Asian Tigers. Trying to give them strategy advice is frustrating because the mindset of leadership in many of these stable societies of poverty tends to be “extractive.” That is, the main pursuit of the middle and upper classes is the division of the pie. Colonialism came and displaced some of the traditional elites, but on its departure, the home-grown elites remain. There is, in these societies, a fundamental unspoken assumption that there is a certain amount of “stuff” and the issue is its division. Even when the underclass revolts and takes charge, they merely redistribute the farmland and small businesses among themselves, with no net gain to the nation. It was the same in Europe for many centuries. Mokyr and Voth note that “large parts of Europe’s early modern history read like one long tale of gridlock, with interest groups from local lords and merchant lobbies to the Church and the guilds squabbling over the distribution of output.”1

Violence and Extortion

A further challenge to development is a high level of violence. Roving gangs, armed “rebels,” large criminal syndicates, and organized extortion blunt incentives to invest or invent. It makes little sense to spend time or capital trying to organize a business if men with guns are going to take any earnings.

Extortion is a softer form of violence. Extortioners coerce payments by threatening loss or violence. When I was in high school in Queens, New York, the younger students were shaken down each day by Gino and his two friends. We had to cough up lunch money or be beaten. My friend, Robert, complained to his home-room teacher who confronted the small gang. Gino broke the teacher’s arm. After that, the school administration put a system of hall monitors in place. The hall monitors got to skip a class in return for their work. Gino and his gang were the monitors.

Extortion and protection are always closely related because the physical or political power to protect is, at the same time, the power to coerce, and vice versa. As people have learned over and over again through the millennia, the governments, armies, and police that are created to protect also have the power to extract payments and force behavior.

After the Soviet Union collapsed, organized crime came out of the shadows and took center stage. Old smuggling routes became “supply chains” and vast tracts of previously state-owned oil, gas, and minerals were simply grabbed. At the same time, thousands of men, trained in violence by the KGB and the military, became unemployed. Some of these joined criminal organizations, and some formed the new wave of protection companies receiving fees to hold criminal gangs at bay and physically protect senior executives. As criminal activity skyrocketed in the early 1990s, protection organizations also grew in number. Roughly one-half of the CEOs of private protection firms came from the KGB, the MVD (state police), and the GRU (military intelligence).2

Many private protection companies were also closely connected with criminal groups. Adris, for example, provided protection to the Baskin & Robbins ice-cream chain while being directed by the malyshevskaya gang. Such groups engaged in an odd form of unplanned mutual support, each using violence to promote the demand for the others’ services.

Vladimir Putin, no novice at the use of force, made the control of organized crime a key priority of his administration. There were great strides at breaking the oligarchs’ hold on key industries—oil, gas, telecommunications, and weapons. Still, the roots of organized crime in Russia pre-date the 1917 revolution and the state will not totally erase them. In fact, having a certain amount of organized crime helps the central government maintain order. Stay in Putin’s favor and the state has the muscle to protect you and your interests. Fall out of Putin’s favor, the state may suddenly be too weak to protect you from the still-active criminal organizations.

In the United States, organized crime is not a major threat outside of the drug trade. On the other hand, like the Russian gangs and protection companies, the legal industry supports a system of mutually supportive extortion and protection operations. As any experienced businessperson knows, most lawsuits are threats, designed to be settled rather than tried. Much legal innovation consists of inventing new ways to threaten others with loss. To defend against these threats, expensive attorneys and experts must be retained. And, the more expensive the defense, the more effective the threat of suit. All of this is “legal,” of course, but it wastes talent and resources and lessens the returns to useful work and innovation. 

Can the Problem Be Solved?

Development is not a problem of capital shortage. Its key enemy is an extractive social system and barriers to new methods which both focus inventive minds on methods of dividing a fixed pie, skimming, extortion, and on the violent taking of property. The complete story of how a society escapes these forces has not yet been told.  

What surprised me were the attitudes of many of my Iranian students. These men (and a few women) averaged about 28 years old and held the U.S. in very high regard—almost awe. Americans had landed on the moon, we were the world’s leading economic and military power. They did not understand why the U.S. was withdrawing from Vietnam. One expressed it in words I still clearly recall: “How can the most powerful country in the world be driven out by a bunch of poor peasants?” Another wanted to know why the U.S. politicians and media were spinning the Paris Accords as “peace.” It seemed clear to them that North Vietnam, supported by the Soviet Union, would re-equip and invade the South.

I attempted to explain that large segments of the U.S. public had become disenchanted with the war in Vietnam, seeing the death and destruction as pointless. These Iranian students were oddly disinterested in geopolitics or the morality of violence. They were, however, greatly impressed by how a supposedly great power was being defeated by a supposedly backward country. I tried to explain that if the U.S. were the imperialist power it was caricatured to be, it would have unleashed hell in Vietnam and made it a colony. The U.S. makes mistakes, I said, but it genuinely stands for freedom. Mahmoud, one of my best students, said “All of us want freedom and better lives. But if you do not know how to make it happen, or if you cannot hold back the men with guns, then your ideals are just empty words. I came to this school to learn the `magic’ of the Americans. Perhaps there is no magic after all.”

Mahmoud’s words were the soft sound of a domino falling. The theory, first articulated by President Eisenhower in 1954, was that if one country in a region fell into the Communist sphere of influence, then others would follow, like a row of dominoes. The inglorious end of the Vietnam War did not produce a cascade of takeovers or regime changes in Asia. But, in Iran, and many other lands, there came a still ongoing shift in belief about U.S. power, competence, values, and behavior. And one center of that shift has been the Islamic world, where a primary virtue is constancy of purpose, and the efficacy of force is seldom questioned.

Today, no one talks about dominoes anymore. But I hear one softly fall each time one more element of America’s special luster and charisma is lost. The formula for their continued fall is simple: blustering commitments to goals the nation has neither the patience nor competence to attain; buying and abandoning allies based on the vagaries of beltway politics, growing chaos and crime on the domestic front, the incompetent withdrawal from Kabul, and generally unleashing violence around the world without being honest about the amount of force necessary to produce a decisive result.

When I met Helms, he had just been pushed out by President Nixon because he refused to help cover up the Watergate affair. He was in Iran for a week, mulling what would soon be his new position in the hinterlands—ambassador to Iran. Helms was concerned with how the U.S. embassy staff tended to live apart from ordinary Iranians and wanted to talk about how we avoided that kind of insularity at my school.

We talked about my work at the school and I tried to explain the students’ reactions to our curriculum. They wanted very much to become professional managers. They wanted to believe that our way of looking at business—as a profession—made sense. But it was an uphill battle because everything in their culture and social life told them a different story—that success was not earned. Rather, it was granted by those with position and power.

Helms told me that I was really trying to be a missionary, trying to preach the gospel of capitalism in a country that had been, one generation ago, stuck in the Middle Ages. He said:

Your students listen to you because you are an emissary of a rich and powerful society. We have created wealth and power in a new way—a way that seems almost magical to people caught in traditional culture. Very few societies protect private initiative and private enterprise and very very few build great companies like IBM or Sears. In much of the world, the only way to get wealth is by inheritance, war, or skimming.

“Skimming?” I asked. He explained:

Where there are large flows of money, you will find skimmers. It is hard to make a living as a farmer here in Iran, but those who can get close to the billions in oil money flows can become remarkably wealthy by skimming off just a bit.

As he spoke, Helms moved his hand in a shallow horizontal sweeping motion, as if diverting a little water from a fast-moving stream.

The bigger the flow, the more they can skim without anyone making a fuss. In traditional societies, it was the king’s taxes. Here in the Middle East, it’s oil.

Helms’ dictum that “the bigger the flow, the more they can skim” helps explain the dynamics of Washington D.C. and Wall Street.

In Washington, the U.S. income tax has produced the largest concentrated flow of money in human history—a skimmer’s paradise. Most of what a congressperson does today is not lawmaking but institutionalized skimming. That is, diverting some of the vast torrents of federal spending towards their district or to their campaign supporters.

Wall Street has to be the center of the next largest money flow, a place where skimming has been regularized in the form of proprietary trading and computerized front-running (high-frequency trading).

Skimming on a large scale can impoverish whole societies. Based on its resources and the talents of its people Russia should be a very rich country. Yes, its living standards have improved since the end of the USSR. But, despite the privatization of huge amounts of resources and companies, household wealth in Russia has not increased. According to a recent study, this has been because of a vast unrecorded transfer of wealth out of Russia, mainly to Europe, by a small number of people. The researchers found that unrecorded wealth in offshore centers amounted to about 85% of national income by 2015, i.e., roughly as much as the total recorded financial assets of [all] Russian households.”1 Skimming on a vast scale. 

After five months of “openness,” the trap closed. Mao ordered that criticism was forbidden. People who had spoken out were labeled “Rightists.” Denunciations began and Mao set an official quota of 10% of all intellectuals to be identified as Rightists. Many of those denounced became suicides, their families outcasts. Some were executed.

Mao’s cleverness was in letting his enemies self-identify themselves, saving him the cost of ferreting them out. He said, “How can we catch the snakes if we don’t let them out of their lairs?”1 Most of the people who fell into Mao’s trap were naïve. Courage also played a role, but one must note that speaking out ceased after the “hundred flowers” were plowed under.

In the economic theories prized by my academic colleagues, no one is naïve. Everyone is very clever. But the truth is that a large segment of the citizenry is naïve, innumerate, or subject to problems of self-control. Unprincipled competitors can, like Mao, exploit these human weaknesses, enriching themselves without benefit to society. And, the iron logic of competition may force other companies to follow suit.

I met Toby Walters when I was a consultant to and board member of the Bank Insurance Network, a company that was trying to distribute low-cost insurance through banks. Toby worked in Florida and sold life insurance via mail solicitations. In the direct-mail insurance business, a hit rate of 2 per 1000 was normal. That is, for every 1000 letters sent out, 2 of the recipients ended up buying. Toby’s company had an astounding hit rate of 50 per 1000, twenty-five times the industry norm. Toby’s company wasn’t huge, but it was very profitable. “How do you do this?” I asked.

Toby Walters explained that he bought lists of potential customers from banks like SunTrust. There was nothing special about that. Banks normally sell lists of their clients to marketers. The marketer pays one fee for a simple list of names and addresses, a higher fee to get their birthdays, and so on.

Toby then told me that he focused on customers who had bought credit-life insurance. We both knew what that meant. Credit-life insurance is sold by the bank as an optional add-on to a new consumer loan. The credit-life insurance policy pays off the loan if the borrower dies before the loan has been fully paid. The key is that credit life is a guaranteed issue policy—there is no health checkup. If you are under 60 it is automatically granted. The catch is that it is very expensive, much more expensive than normal term life insurance. Unless you are terminally ill, it doesn’t pay to buy credit-life insurance. So, the people buying it were self-identified as either very ill or naive.

Toby continued:

I buy a list of credit-life customers and their loan paid-up dates. These are people who have already shown their interest in life insurance. I wait until a month before the paid-up date and then send a letter. It says “Your life-insurance is about to expire. Re-insure now.

Toby knew his product was overpriced, but he only marketed to people who had already signaled their interest in buying insurance combined with a lack of sophistication about price. Like the speakers at Mao’s “hundred flowers” seminars, Toby’s customers had self-identified themselves as targets and Toby exploited that fact.

More generally, there are sellers who routinely exploit buyers’ lack of knowledge, their inertia, and their lack of self-control. You will find them in industries ranging from pay-day loans and low teaser-rate mortgages to tobacco and crack cocaine. It is part of the dark side of freedom and business.

I am reminded of human weakness every time my cell phone rings with some person or recording telling me that “the social security office needs information” or that someone has just bought an Apple iPad for me and delivery information is required. These calls would not happen if there were not people credulous enough to respond.

Other examples are the growing problems of drug and Internet addictions. Both have been amplified by lowered prices and ease of access. In both cases, once the unwary person signals their interest in the product the trap closes, and other sources of joy, spirit, and ideas are neglected. In the case of social media, the feedback loop between what is seen and what is then presented explains at least a part of the current balkanization of society. I would love to suggest a simple policy remedy for these social dysfunctions. But I suspect that the ultimate answer is the traditional one—-a society must seek more for its children than that they “be happy” or “be successful.” The young need to be taught to see and resist certain temptations.