Naming strategic challenges: the call to action

What is a strategic challenge?

It's the hurdle your strategy has to prove itself against. It sits between where you are today and where you want to go, and it can't be cleared by simply trying harder at what you already do.

A challenge is therefore neither a problem nor a goal. A problem is something someone can solve. A goal is a hoped-for outcome. A challenge describes the tension in between and forces a decision.

Naming it clearly is a call to action. It gives your vision its direction and creates the sense of urgency that later forms the core of your narrative. Without it, goals sound arbitrary, because no one understands what they're answering.

You can see the difference in how the room reacts. A well-named problem gets nods of agreement. A well-named challenge creates unease, because everyone in the room senses that a decision will follow, and that it will affect them.

A strategy rarely starts from zero. You operate in a field of tension between your own realities and those of your environment, and the challenges name exactly the places where that tension hurts.

How do you understand the effects of a finding?

By separating cause from effect. That sounds academic, but in practice it decides whether the action you derive pulls the right lever at all.

An example from the book makes it tangible. Suppose profit per unit on a product has risen over five years while market share has fallen. What follows from that?

Competitive theory suggests a positive link between market share and profitability, and empirically, companies with higher share are more profitable on average. So is share the cause, or are both figures driven by some third factor?

Take your time with this test and resist the first plausible explanation. The first explanation is usually the one that fits the company's existing view best, which makes it the one least likely to be true.

There are at least three readings: unit costs have come down. New competitors have entered. Or you deliberately pulled out of unprofitable segments and share fell by design. Each reading leads to a different challenge, and only one of them is right.

How do you assess opportunities and risks?

For each option, you estimate two figures. The opportunity comes from the potential for revenue growth or cost savings, rated on a simple scale from zero to three.

Risk is captured in two parts: how large would the damage be, and how likely is it to occur? Both figures stay deliberately rough, because false precision does more harm than good here.

Combining them gives you an opportunity-risk profile for each option. The options with the greatest risk and those with the highest likelihood are the two groups your challenges come from.

Watch for shifts in the rules of success. The most important column in this assessment isn't the number, it's the question of whether an option changes the rules by which your market is won. Those options are the riskiest, and at the same time the only ones that shift a position for good.

How do you phrase a challenge?

As a sentence with an opponent and a consequence. The book gives examples that hit the right tone.

• "Our competitors are extending their cost leadership over us, and we're losing market share in our core business."
• "Our product portfolio is too sprawling and weighed down by loss-makers."
• "We have to adapt our sales channels to reach new customer segments at all."

Each of these sentences names something that won't get better on its own. That's exactly what sets it apart from a goal.

Phrase the challenges together as a team, not in the preparation. A sentence the management brings along gets accepted. A sentence the team wrestled out together gets defended.

How many challenges make sense?

Three to five. There are usually several you have to face, but every additional one dilutes attention.

If you end up with eight, one of two things has usually happened. Either you wrote down symptoms that trace back to the same cause. Or operational topics slipped in that may be pressing but don't require a strategic decision.

Also check whether a challenge is even within your control. "The skills shortage is getting worse" describes a situation. "We're losing candidates to competitors who make offers faster" describes something you can change, and only the second version belongs on the list.

A useful filter is the question: could this be solved in day-to-day business if someone spent two months on it? If yes, it doesn't belong on this list.

Sort what remains by urgency, not by size. The challenge that becomes existential in three years belongs ahead of the one that's uncomfortable tomorrow, if the first one needs five years of lead time.

What do you do with the challenges?

They become the bridge into the next part of the workshop. Every challenge raises the question of which option you'll answer it with, and from that, piece by piece, your vision takes shape.

For each challenge, also spell out what happens if you do nothing. That sentence is uncomfortable, and it's the most powerful part of the whole narrative, because it makes the cost of hesitating visible.

At the same time, the challenges are the heart of your communication. When you explain the strategy later, the narrative doesn't start with the goal. It starts with the challenge, because only then does it become clear why the goal is this one and not another.

So capture the challenges word for word and don't change the wording later without reason. A sentence circulating in three versions loses exactly the force it was written for.

Make sure every challenge is grounded in at least one insight from the situation analysis. If you can't find a finding to back a challenge, it comes from your gut, and that isn't automatically wrong. It just needs to be said out loud.

And review them explicitly in your annual look back. A challenge that is no longer one after two years should be struck from the list, and that's a good sign. One that stands unchanged is an uncomfortable one.