A company can be very good at what it does and still be heading in the wrong direction. Strong results, efficient operations and reliable delivery usually signal a well-run business, and they also build confidence in the decisions that produced them. Over time, that confidence makes the business model itself harder to question.

VARTA illustrates the problem well. The German battery manufacturer has more than 130 years of engineering history and is one of relatively few companies able to produce rechargeable button cells. Its CoinPower cells went into Apple’s AirPods, and its Nördlingen plant was built largely around that demand.

When Apple ended the supply agreements, VARTA was exposed. Reports cited cost competition from Chinese manufacturers that German production found increasingly hard to match. Weak demand, currency effects and a complex corporate structure also played a part, so the loss of Apple alone does not explain what followed. It does show how the business had been shaped. A plant designed around one customer can run efficiently for years, and its dedicated capacity, tuned processes and scale are exactly what make it hard to redeploy once that customer leaves.

A strategic bet that looked like a capacity decision

Building a plant around a single customer’s product is a bet on that customer’s future sourcing decisions. Inside most companies, it does not look like one. It arrives as a capacity plan, a capex request or a response to an order forecast, and it is reviewed on the terms those formats invite: payback period, utilization, unit cost. Each of those tests can be passed with distinction while the underlying bet goes unexamined, because none of them asks what happens if the customer stops buying.

Many of a company’s most consequential strategic decisions are taken this way. They enter the organization through an operational channel, they are judged by operational criteria, and their strategic weight only becomes visible when the assumption behind them fails.

Same dependency, different outcomes

GT Advanced Technologies invested heavily in sapphire production after its 2013 agreement with Apple. The expected business did not materialize, and the company filed for bankruptcy protection in October 2014. The investment rested on a commercial opportunity that depended largely on one customer’s product decisions.

Dialog Semiconductor faced a variation of the same problem. Apple accounted for a large share of its revenue, and signs that Apple was developing its own power management chips put Dialog’s future in question. Dialog negotiated a technology and engineering transfer agreement with Apple and worked to broaden its customer base. Renesas acquired the company in 2021 for approximately €4.9 billion.

The three cases differ in circumstance and outcome, and they are not fully comparable. What they share is a dependency that became a strategic risk well before it showed up as an operational problem. Dialog acted while it still had room to move. By the time such a risk reaches the financial results, most of that room is usually gone.

Why strong performance hides the risk

Operational performance is measured in detail. Costs, delivery, quality and utilization are tracked, and when one falls behind target someone is expected to explain why. Strategic assumptions get no comparable scrutiny. A company can depend on one customer for most of its revenue, compete in a market where cost advantage is shifting, or invest in a capability its customer may later bring in-house, and still post excellent results while those exposures grow.

Operational issues demand attention now, while strategic risks are uncertain and tend to mature beyond the current planning cycle. When the numbers are good, challenging the direction feels unnecessary. Operational excellence shows how well the business runs under its current assumptions and says nothing about whether those assumptions still hold. A business can improve its efficiency year after year without becoming any less vulnerable to the decision of a single customer.

Measuring the dependency where it sits

Most companies already track customer concentration in revenue terms. Under IFRS 8, listed companies must disclose when a single customer accounts for 10 percent or more of revenue. That figure is useful, but it describes the income statement. VARTA’s exposure sat largely in its factory.

A more revealing measure is asset concentration: the share of fixed assets, production capacity and specialized capability whose output has only one realistic buyer. Revenue concentration can fall within a year if a company wins new customers. Asset concentration moves far more slowly, because a line built for one product rarely converts cheaply to another. It is the better indicator of how much room the company would have if its largest customer left.

For each significant production asset, management can ask who else could buy what it makes, how long redeployment would take and what it would cost. Where the honest answer is “no one, years, and most of the original investment”, the asset is a strategic position and deserves to be reviewed as one, alongside its utilization and unit cost.

Concentration remains a legitimate choice. A dedicated line can make good commercial sense, and a large customer can provide the scale needed to compete. The point is to make that choice visible and to revisit it while results are strong, when the company has more financial room and more time to act than it will have in a downturn.

Running the business and questioning its direction

Operational excellence matters, but it cannot compensate indefinitely for a business model that is losing relevance or becoming more exposed to forces the company does not control. The difficult part is recognizing when a strength has started to create a weakness. VARTA’s dedicated capacity was a source of efficiency and, at the same time, the reason it had so little flexibility when Apple left.

The companies best placed to handle change understand which dependencies they have chosen, what those choices cost and how they would respond if circumstances shifted. That understanding rarely comes from operational reviews. It has to be built into the way strategic decisions are recognized in the first place, including the ones that arrive looking like something else.

The core theory of economics rests on the fact that all resources are limited. The same holds for the institutions that keep today’s economic system turning. Capital is limited. Time is limited. Human resources are limited. For this reason, the purpose of strategy is to make a conscious choice of direction among options that seem unlimited.

So what is the “strategy” that finds its way into so many sentences in business life? And more importantly, what is it not?

At the foundation of strategy lies identifying the real challenge an institution faces and making a conscious choice in response to it. A sound strategy first gives an honest answer to the question “what is the main obstacle ahead of us?” Then it determines which area to focus on and what to give up.

The two strongest references in the strategy literature point to the same place. Michael E. Porter sees the essence of strategy as “choosing what not to do.” Richard P. Rumelt sees it as “honestly diagnosing the real challenge.” One puts giving things up first, the other puts diagnosis first, but both speak of the same discipline: using limited resources for a conscious choice.

This is because strategy does not only answer the question “what will we do?” It also answers a question that matters at least as much: “what will we not do?” An institution’s competitive stance often shows less in the areas it chooses than in the areas it is able to give up. Which direction resources flow is a strategic decision, and so is which direction they do not flow.

Kodak’s story is instructive in this respect. Throughout the 1990s, the company tried to move in several directions at once: leadership in digital imaging and protecting profitability in the traditional film business. Yet Kodak itself had invented the digital camera in 1975 and received the patent in 1978. In other words, technologically it was far ahead of its industry. However success in digital imaging meant directly destroying its own profitable film business. The company wanted to protect both businesses at the same time. It lost money in digital for years, and in film it lost market share to Fuji. Kodak struggled not because it failed to see digital photography, but because, even though it saw it, it could not decide what to sacrifice. When it filed for bankruptcy in 2012, it had plenty of initiatives, targets and plans. What was missing was strategy.

Many companies fall into the same pattern. Instead of developing focused strategies, they list a set of desired outcomes: growing more, increasing efficiency, being innovative, achieving customer focus, or entering new markets. These statements sound right but give no direction on their own. Unfortunately, they are not strategies, only goals or plans.

That is why strategy does not mean prioritizing everything at the same time. Running after every opportunity or trying to solve every problem is not strategy. Strategy does not scatter a company’s energy, it focuses it. It selects which problem is truly worth solving and concentrates resources on that point.

Under the banner of strategy, many conversations turn out to consist of nothing but plans and goals. Without awareness of this distinction, such a conversation feels perfectly natural. What is said sounds reasonable, but it does not solve a problem, because the absence of strategy is often packaged in the language of strategy.

At Corax & Company, this is why strategy work begins with one question: what is the real challenge the institution faces, and what conscious choice will be made in response? For an institution that sees opportunity in every area, there is no direction to choose, only scattered energy. Strategy is the work of turning that scatter into a conscious choice.