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Volume 21, Number 5 • Copyright ©2004 Business Book Review, LLC • All Rights Reserved

Breakthrough
How Great Companies Set Outrageous
Objectives—and Achieve Them

Bill Davidson

©2004 Bill Davidson

Adapted by permission of John Wiley & Sons, Inc.
ISBN: 0-471-45440-0

Reviewed by Leslie Johnston

Introduction
Author Bill Davidson, a former USC management professor, and now a management and corporate leadership
consultant, bases his 2004 book, Breakthrough on classic examples of high-profile, turnaround businesses such as
IBM, Caterpillar, and American Standard. These companies illustrate successful breakthroughs. No matter how strong
the performance, all corporate success cycles do, eventually, end—unless a company’s leadership has the foresight to
plan for further innovation.
The breakthrough principle—and its potential for either success or failure—is, surprisingly, not based on a company’s
size, resources, market position, or age. The secret that breakthrough companies share is the determined pursuit of what
Davidson describes as “outrageous” objectives. Because most firms go through a success cycle only once, it can be to a
company’s advantage to look at other organizations for lessons that will make an inevitable process more efficient and
more effective.

Business Book Review™ Vol. 21, No. 5 • Copyright © 2004 Business Book Review, LLC • All Rights Reserved
Breakthrough Bill Davidson

MANAGEMENT CAN HAVE ITS CAKE, AND EAT IT leader in substandard (high risk) auto insurance coverage,
TOO not only successfully defended a foray by Allstate, a strong
Breakthrough is, according to Davidson, an innovation number two inner-circle competitor in the standard auto
that triggers superior performance and provides the insurance market, into its niche, but subsequently, as a result
transition from one success cycle to the next. It is a bridge to of employing a breakthrough strategy, turned the tables on
higher market positions, in terms of value share and market Allstate by breaking out of its niche and “storming” into
share. It is innovation that has to occur on an enterprise- the standard auto insurance market. “Many of the most
scale, significant enough to shape an emerging company, or spectacular examples of breakthrough innovation and
to re-invent and redefine an established player. The result is subsequent success cycles originate in the niche master
a completely new business model that exhibits, according zone,” says Davidson. “Allstate’s foray into Progressive’s
to Davidson, “superior operating and
The lofty positions of market and sector champions mark the
profit performance, leading to both a
peak of the success cycle. These orbits, once achieved, are
new corporate profile and a new market
not sustainable without further rocket thrusts.
position for the breakthrough company.”
Although breakthrough can occur anywhere within an segment had triggered a series of forces that would reshape
industry’s structure, from start-up to market leader, the much of the insurance sector. Progressive’s innovative
most common place for a company to “break through” is response to invasion by a larger inner-circle competitor
at the entry point to the market. provides a classic example of the breakout niche strategy.
An alternative to using breakthrough as a bridge to A number of the most successful insurgents in our research
higher market positions is to use it to establish a company sample are breakout niche players—established, secondary
in the position of “niche master”: to focus on “securing competitors who use innovation and industry experience
and defending” a specialized success zone in which the to seize market leadership.”
company can compete successfully, thereby avoiding head- Within a market or industry, breakthrough innovations
to-head competition with the larger primary players in an must fundamentally alter customer service standards, cost
industry. A “niche market master” supplies a distinct market positions, cycle times, and value propositions. In doing
need, and serves a distinct customer set with a distinct so, they lead to “differentiated, disruptive offerings” that
supply and value chain. A number of companies, however, “shatter the competitive equilibrium, creating space for the
have also used breakthrough to make the “niche switch.” breakthrough company.” To accomplish this, breakthrough
Progressive Insurance, for example, which was the niche innovations must come from large-scale, long-term
initiatives that make use of advanced technologies and
radical process innovations to achieve leaps—not just
About the Author
advances—in operating performance, financial results,
Bill Davidson was a tenured professor and market position. It is the nature of breakthrough
of management at the Marshall School innovations that often results in multi-dimensional
of Business at the University of Southern competitive advantages—cost leadership, superior
California from 1985 to 1998. He is the
customer service, and increased market and value share.
author of several other books on manage-
Countrywide Credit, for example, in its breakthrough in
ment, including The Amazing Race and 2020
the home loan market became a cost leader by reducing the
Vision (with Stan Davis), which was selected
as Best Business Book of the Year by Fortune average transaction cost to $748, from an industry average
magazine in 1992. He is currently chairman of $2,357. It became a service leader by achieving dramatic
of MESA Research, a strategy and leadership improvements in customer service, and by reducing loan
services group. approval cycle times by 90 percent or more. It became a
product leader, as well, by adding product enhancements,
For more information, please visit:
such as the ability to lock in interest rates at any point in
www.mesaresearchgroup.com
the cycle. Improvements in quality, service, and product

Business Book Review™ Vol. 21, No. 5 • Copyright © 2004 Business Book Review, LLC • All Rights Reserved Page 2
Breakthrough Bill Davidson

features, according to Davidson, offer superior value to developed at a cost of $30 million, paid for itself in less
the customers while cost and cycle time reductions drive than two years because it did, in fact, streamline the claims
improved margins. process so well, and then served as a springboard for next-
Market leadership comes to firms who can achieve generation services for Progressive. Finally, breakthrough
these kinds of breakthroughs. The first step is to focus strategies drive increased benefits to all stakeholder
on a breakthrough strategy. “Reality tends to favor new groups—at the same time.
entrants,” says Davidson, “yet agile incumbents can seize To make these breakthrough innovations possible,
sources of innovation . . . by thinking about their businessan enterprise principle that both underlies and connects a
from the perspective of a new entrant.” First and foremost, strategic mindset and a leadership philosophy has to be at
breakthrough strategies focus on “outrageous goals,” goals work. For large-scale initiatives to be implemented across
that force companies to consider alternative processes and an entire company, there must be a commitment to a single,
technology platforms. Breakthrough companies are “early integrated plan, or strategy, which is focused on innovation
adopters” of new technology, and are often involved in and outrageous objectives. Breakthroughs cannot be
the developmental stage of new technologies, though they achieved in business environments where entrepreneurship,
typically, according to Davidson, do not invest more than independence, autonomy, and decentralization are the
defining core concepts of the company. This
Progressive Insurance provides customer service that is was the task before Lou Gerstner when he
profoundly superior to its peers while cutting the cost of auto took over IBM in 1993: he had to change
repair at the same time. USAA’s customer satisfaction and the company’s strategic direction, business
loyalty levels are the envy of its industry, as are its costs. model, culture, and management mindset.
the average company; they concentrate their investments Gerstner approached the company from
on leading-edge solutions that support a focused strategy. the customer’s standpoint, and he focused on integrating
In addition, they focus on great leaps forward, rather than business units rather than dismembering them, as many
on incremental improvements. “Breakthroughs focus on IBMers advocated when Gerstner took over the company.
creating tomorrow’s processes, not on improving today’s.” He created a Strategic Leadership Council, in which senior
Breakthrough companies emphasize customer care over leaders met to develop, and then execute, a core strategy
cost reduction, and they make creative use of their human for the company, a strategy that would focus on solutions
resources by providing the flexibility to fundamentally and services. IBM’s “mainframe mindset” had to change
redefine job descriptions and roles to make the best use to a solutions-and-service centered approach. By 1995,
of employees’ talents and skills. Breakthrough strategies IBM was reinforcing its integrated business model with
create new business growth opportunities as a result of innovations built around the power and reach of the Internet.
the technologies and processes the company develops. By 2000, “Old Blue” was once again “Big Blue” by virtue
Progressive Insurance, for example, with its original of being “Breakthrough Blue.”
innovation in claims settlement methods, not only IS YOUR COMPANY A CANDIDATE FOR
repositioned itself in the market, it also dramatically BREAKTHROUGH?
redefined the auto insurance industry. A thorough knowledge of your company—its resources,
It is Davidson’s philosophy that “breakthroughs current profile, core competencies, and core identity—as
smash traditional trade-off logic by offering radical well as knowledge of the external environment in which
gains in multiple dimensions in operating performance.” your company operates, are essential considerations before
Pursuing operating excellence in existing core areas leads, launching breakthrough strategy planning. Firms that have
he predicts, to growth in new areas. And, the investment a decentralized management structure are poor candidates
in infrastructure is paid back quickly from immediate for breakthrough strategies, says Davidson. Key factors
operating gains, which then provides free platforms for new in pursuing a breakthrough strategy are the capacity to
business development. Progressive Insurance’s investment focus on a single, core strategy for three to five years, or
in the automated claims management system (PACMAN), longer, along with continuity in senior leadership. “The
Business Book Review™ Vol. 21, No. 5 • Copyright © 2004 Business Book Review, LLC • All Rights Reserved Page 3
Breakthrough Bill Davidson

fundamental question is who has the insight and gumption says, Davidson, Dell’s breakthrough was more than just
to shape and launch a breakthrough strategy in any market a sales channel innovation. Dell was the first to embrace
and the persistence to stay focused as a team to execute mass customization of PCs. “Dell was the first company to
it.” perfect a now-generic breakthrough strategy that combines
Breakthrough strategies are not for all companies. mass customization; customer-specific product design;
Competitive considerations are extremely important. just-in-time supply chain solutions; and rapid, remote
Companies considering initiating breakthrough strategies fulfillment and service. The result was typical of successful
must consider the core competitive positions, roles, breakthroughs—rapid sales growth and rising margins.”
structures, and dynamics, beginning with the role played Struggles often arise between insurgent companies
by the market leader vis-à-vis a particular company’s (new entrants) and incumbents for market leadership.
position, as well as trend lines for
Few firms enjoy the luxury of being able to choose a mainte-
other competitors. In addition, it is
nance strategy. In most settings, market trends will erode the
also important to understand market
effectiveness of even the most successful strategy foundations
scope and boundaries. Is a business its sooner rather than later.
own universe, or is it part of a larger
market structure? Precise market definition depends To win these struggles, insurgent companies must have
upon three factors: supply side differentiation, demand a breakthrough strategy that delivers results in the
side differentiation, and competitive strategies. “Focused marketplace. Incumbents, on the other hand, can innovate
pursuit of a narrow market becomes hazardous,” Davidson as well. “Established market leaders can make the leap to
says, “if the market in question will be subsumed into a next-generation business models, reshaping themselves and
broader business model.” Understanding the dynamics their markets in the process,” says Davidson.
of globalization and shifts in market boundaries are also
MARKET LEADERS ARE NOT ALWAYS AGILE
essential to planning strategy.
INCUMBENTS
THE PROCESS UNDERTAKEN However, many incumbents find themselves unable to
Once an organization determines that an outrageous keep pace with the changes that will inevitably take place
goal or objective is appropriate for growth, for renewal, or in their market. For Davidson, the “source of paralysis” for
for continued existence, planning a breakthrough strategy market leaders is, generally, allowing existing processes
is the next step. Whatever the goal, says Davidson, profile and practices to become so deeply embedded that they limit
initiatives and operating performance provide the key the company’s ability to adapt to newer, more effective
engines for reaching it. Gains in competitive position models. This trend includes the inability to embrace
and financial results come from these two key drivers. new information systems technology. In addition, says
“Radical innovation in operating performance—process Davidson, dedication to existing channels of distribution
innovations—appears to be the single best driver of can also create resistance to innovation. “To successfully
breakthroughs,” according to Davidson. Toyota, for innovate, an industry incumbent . . . must abandon its
example, achieved great success with the introduction commitment to legacy channels, processes, practices,
of Lexus—a profile innovation—that allowed Toyota to products, technologies, business models, and mindsets.”
expand the company’s profile by entering the upscale, Incumbents often have a choice to make: continue with
luxury auto market. However, the success of that a market model and profit generator that will eventually
breakthrough was due to Toyota’s manufacturing system, become passé (while slowly allowing market share to go
including its Just-in-Time (JIT) inventory. Dell Computer to insurgent companies), or convert to the new order of
is another powerful example of how innovations in business in the industry. The challenge for incumbents is
operating performance carried what was once a marginal to abandon their comfort zones, and their obsession with
competitor to worldwide market leadership in PC sales. day-to-day operations and short-term financial results, and
Breakthrough for Dell came in 1995 when founder Michael move into the new order of business. There is an interesting
Dell focused his company’s sales on the Internet. But, psychological underpinning to executives’ reluctance in
Business Book Review™ Vol. 21, No. 5 • Copyright © 2004 Business Book Review, LLC • All Rights Reserved Page 4
Breakthrough Bill Davidson

moving forward with innovation—a fear that the very provide implementation structure and resources, and
practices and success strategies that built a company’s manage execution in a focused and systematic manner.”
success will in turn render it obsolete or relegate it to the Davidson highlights one variation of this process.
role of a less powerful entity. It may, in fact, take a crisis Occasionally, he says, breakthrough strategies emerge
to shake leaders out of their complacency. after an innovation has occurred. At that time, leadership
Market leaders who are agile incumbents must remain can seize on a broader strategic potential that has resulted
on the offensive against insurgent competitors. Market from the innovation to renew the company’s business model
leaders must develop a mindset that is quick to embrace, and subsequently move toward more ambitious goals.
and to introduce, innovations, and go even further by setting This Davidson calls “leveraging a discrete innovation
the vision and direction for change and innovation in the into a broader breakthrough in profile, market position,
industry. They must always take the high road to “ensure and financial performance.” He offers as example, Vons,
industry peace and prosperity,” define the industry’s a Southern California grocery chain, that pioneered
borders and establish relationships with related industries. point of sale (POS) scanners at checkout counters in the
They must do all in their power to increase “generic” 1970s, introducing the technology years before other
demand for the product or service. They must also look to retailers. Investing in advanced technology not only led
the future, Davidson says, by continuously modernizing to multiple operating benefits (speed, efficiency, service
level, and accuracy of the checkout
Business engineering lies at the heart of breakthrough. process), it also created new business
Corporate and market transformation requires a critical mass growth opportunities. The card readers
of design and engineering effort. captured valuable customer information,
for example, that was used to support a
their offerings, and improving the customer value sophisticated mailing list business for the store’s private-
proposition. Market leaders—incumbents—in short, must label products. Charles Schwab, another of Davidson’s
revolutionize, or be revolutionized. Optimization strategies, breakthrough companies, was the first in the brokerage
such as those practiced by GE, says Davidson, are unlikely business to discover the power of the Internet and to
to support sustained leadership. Nor should incumbents rely combine online technology with the company’s hallmark
on acquisition to renew themselves. Acquisitions, if entered dedication to customer service.
into, says Davidson, should be “component” or “point” More typically, the breakthrough cycle begins of
acquisitions, “where specific elements of a future business necessity when the survival of the company is at stake, as
model or market profile are brought into the organization” in the examples of American Standard, Caterpillar, IBM,
and integrated into the core business of the organization. and Mervyns. In these cases, as with most breakthrough
Strategy should lead to acquisition, not the other way companies, the search for a core strategy that would not
around. Internally generated endogenic growth has more only renew, but in reality, save the company started the new
potential than “out-of-body” exogenic growth (growth by success cycle. Virtually all breakthroughs by incumbents
merger, spin-off, joint venture, etc.). Endogenic growth will are in this category. It is not absolutely necessary for the
create and nurture next-generation business. company to be facing disintegration, but leaders will need
AIM, READY, FIRE to find the weakest link—usually an emerging market
From his study of seventy plus companies, Davidson crisis—and “magnify it to create an atmosphere of crisis,”
identifies a generic pattern for successful breakthroughs: as ADP’s John Gaulding did with the company’s automated
enterprise leaders establish a clear, actionable agenda and claim service, transforming the company before the crisis
focus the company’s resources on an outrageous objective hit.
and a specific set of implementation priorities. “The modus The aim, ready, fire process needed to transform a
operandi practiced by successful breakthrough companies company—and its industry—must follow a highly structured
can be described as aim, ready, fire. They establish a framework in order to manage the transformation. The
clear target and specific initiatives, align the organization, aim phase allows the organization to collect, synthesize,

Business Book Review™ Vol. 21, No. 5 • Copyright © 2004 Business Book Review, LLC • All Rights Reserved Page 5
Breakthrough Bill Davidson

and focus market knowledge and self-knowledge. The an effective death sentence for breakthrough. Failure can
outcome of Phase I, Aim, must be a single, integrated also result from poor strategy, but strategy is ultimately the
strategy with specific, actionable initiatives supported responsibility of the CEO. “Any grand goal,” says Davidson,
by the senior management team. In Phase II, Ready, the “especially those of a financial nature, are pipe dreams
senior team bonds together in support of the strategy, and without grounded performance and profile innovations
then engages the rest of the organization with a message that convert into growth, improved margins, and enhanced
that says, “We are changing, here is why, here is what we market position.”
are aiming to achieve, here is how we plan to do it, and ***
here is your role and our expectations.” Phase III, Fire, is Endnotes by chapter and a subject index
the execution of the strategy. To assist in the successful are provided.
execution, it is desirable for the organization to prioritize its
portfolio of projects and clearly establish the projects critical Remarks
to successful implementation of the breakthrough strategy.
Likewise, an organization should establish a program and Davidson’s greatest contribution in this readable, well-
project management (PPM) function to structure, staff, paced book based on his observation and study of more than
start, support, and secure the projects as prioritized by the 70 companies is to stimulate, even provoke, thought about
senior team. a company’s readiness—and commitment—to moving to
THE LEADERSHIP FACTOR the next level of corporate success. Davidson wants readers
No other single factor carries as much weight in to ask—and be able to answer—“Is my company ready for
determining the success of a breakthrough strategy as the breakthrough?”
senior leader’s role. Davidson goes so far as to say: “The Davidson defines and outlines what breakthrough
question is not so much the quality of the individuals in the is—and is not. He balances the theory, and the practice,
team: rather, it is a question of their ability to work together of breakthrough planning and strategy with specific case
as a team.” Working as a team requires a senior leader who studies, so that the reader is not bored with too much
has the personal capacity to oversee what often may seem theoretical text, nor overwhelmed with too much statistical
like a superhuman effort. A part of this personal capacity data in support of the theoretical text. The book can also
is in-depth operating experience in the company, and in be used as a primer or checklist for would-be breakthrough
the industry. The senior leader must be multi-talented; he companies and CEOs. It is important to note, however, that
or she “must play the combined role of general manager, Davidson’s focus throughout the book is on incumbents,
coach, and quarterback of a professional football team.” The rather than on start-up companies at the entry point to the
senior leader must have a combination of what Davidson market.
refers to as “humanism and directiveness,” a combination Some of Davidson’s most insightful comments involve
of boldness and humility, innovation and groundedness. the paradoxes inherent in breakthrough strategy. An
“The best breakthrough leaders are grounded visionaries,” obsession with core operations and markets—seemingly
says Davidson. to the exclusion of diversification activity—provides
And, if senior leadership deserves the credit for a powerful platforms for growth in new areas (chapter 1).
successful breakthrough, they must also answer for the “Dig down deep enough into the details of your operations,
failure. Davidson points to one single, deadly—but, as apply radical approaches, and perhaps you will break
he says, quite common—“failure factor”: an inability to through to the equivalent of China—a vast new market
align core members of the senior team around a common opportunity.” Likewise, in chapter 6, Davidson shatters
strategy. Other failure factors can include a lack of hands- the almost universally accepted mantra that “no revolution
on ownership and management of the strategy once the was ever led by the establishment.” To illustrate this, he
organization is into the implementation phase. Ironically, cites American Standard, “the oldest, stodgiest company
companies are often acquired during their breakthroughs, we could find,” as perhaps the single best example of
which often result in a loss, or transition of leadership, breakthrough, a company that, according to Davidson,

Business Book Review™ Vol. 21, No. 5 • Copyright © 2004 Business Book Review, LLC • All Rights Reserved Page 6
Breakthrough Bill Davidson

“set world speed records in corporate transformation.” Davidson’s benchmark success stories (ADP’s ACS group
To achieve breakthrough—and this is a key concept—a and Progressive Insurance, for example), employed high
company does not necessarily have to be the initiator of directiveness without a corresponding high humanism. But
change, or innovation, within the industry, but it does have for a successful, sure, and swift execution of breakthrough,
to embrace innovation, and integrate it into its core business. there seems to be no substitute for a combination of
A breakthrough company is a leader, not a follower. directiveness and humanism. Successful breakthrough,
Davidson has organized Breakthrough with an and the resulting market or niche leadership it brings will,
inductive approach. His outline of the specific components eventually, bring a company once again to the need for yet
of breakthrough strategy planning and implementation, another breakthrough. If a company has built a success
along with the accompanying case studies, are concluded cycle based on directiveness and humanism, it should be
in chapter 8 by reflection on the nature of senior leadership well positioned for the next breakthrough effort.
in breakthrough companies, which he has identified as the
single most important factor in the success or failure of
breakthrough. He contrasts his choice for best breakthrough Reading Suggestions
leader, American Standard’s Mano Kampouris, with Ford
Motor Company’s Jac Nasser, whom he also describes as Reading Time: 6-7 hours, 238 pages in book
a superb breakthrough leader. The author develops his basic premises and
What was the difference between American Standard’s instructional guidance on creating a breakthrough strategy
spectacular success, and Ford’s potential transformation, in four chapters: chapters 1, 2, 3, and 7. If you are not
which, in Davidson’s words, “slowed to a crawl?” familiar with the concept of breakthrough, these are the
Nasser seemed to be doing everything right in terms of essential, must read chapters. If you are familiar with
breakthrough planning. He had an in-depth knowledge the concept of breakthrough and with market definition,
of the company’s operations, and he created an ambitious it is possible to read only chapters 1 and 7—chapter 1
vision for the company, which he converted into a series because it gives an overview, particularly of the success
of key initiatives to modernize and globalize Ford’s cycle and of breakthrough strategy principles, and the
operations. He communicated with, prepared, and trained power of breakthrough as evidenced by four companies,
the organization. High-priority projects were launched with Countrywide, Progressive, NBtel, and C.R. England,
the appropriate staffing, resources, and senior support. and chapter 7 because it details the process—the three
At the same time, according to Davidson, Nasser also important phases in the development of breakthrough.
launched a performance culture program that called for Chapter 4 provides moderately detailed examples
forced performance rankings and mandatory retirement for of successful breakthrough companies. Appendix I also
the bottom 10 percent of the company. Ford’s traditional contains bite-size summaries of the core strategies of
corporate culture began to view the transformation efforts 50 companies, including those highlighted in the book.
as too harsh in their handling of people, thereby allowing Davidson does not develop new concepts in chapter 4,
an “us and them” schism to form, which led, ultimately, to but uses this chapter to highlight well-known corporate
Nasser’s replacement. examples. Chapters 5 and 6 discuss market leaders/industry
Davidson’s careful research over 10 years, and with incumbents and their characteristics, and are recommended
more than 70 companies, has led him to believe that although if your company is in that category. Chapter 8 contains
directiveness (command and control) is essential, and that the characteristics of a successful senior manager or
both high executive and high employee turnover are to be CEO, as well as characteristics of those who will not be
expected in the implementation of breakthrough strategies, successful.
humanism (as evidenced by CEOs like Mano Kampouris
and Lou Gerstner with their respect for the individual, and CONTENTS
Chapter 1: Breakthrough Dynamics
their investment in the development of human capital) is
Chapter 2: The Enterprise Principle
a significant accelerator of breakthrough. A number of
Chapter 3: The Strategic Setting

Business Book Review™ Vol. 21, No. 5 • Copyright © 2004 Business Book Review, LLC • All Rights Reserved Page 7
Breakthrough Bill Davidson
Chapter 4: Champions of Breakthrough
Chapter 5: The Mindset of a Market Leader
Chapter 6: Advice to Incumbents
Chapter 7: Aim, Ready, Fire
Chapter 8: The Leadership Factor
Followed by two appendices

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