From “Annual Planning” to “Strategy as a Journey”
Only 1-in-12 companies manage to rise from the middle of the pack to the top. Here’s how to become one of them
Several times a year, top management teams enter the strategy room with lofty goals and the best of intentions: They hope to learn from each other how different parts of their business are faring, and to mount a decisive, coordinated response to changing market conditions.
Then reality intrudes. The strategy room is crowded with egos and competing agendas. Jobs—even careers—are on the line, so caution reigns. The budget process intervenes, too. You may be discussing a five-year strategy, but everyone knows that what really matters is the first-year budget. So most managers try to secure resources for the coming year while deferring accountability for results as far as possible into the future.
We set out to reset the strategy process and tame the social dynamics. How? With data.
Our goal was to develop an objective, external benchmark that will enable CEOs to assess a strategy odds of success before they leave the strategy room, much less start to execute the plan.
The ODDS OF STRATEGY
The starting point for developing such a benchmark is embracing the fact that business strategy, at its heart, is about beating the market. Economic profit—the total profit after the cost of capital is subtracted—measures a company’s success at this by showing what is left after the forces of competition have played out.
Finally, making no bold moves is the usually most dangerous strategy of all. You not only risk stagnation but miss out on the additional reward of growth capital, which mostly flows to the winners.
When you know, ahead of time, the chances of your strategy succeeding, and you can see the levers that matter most to your own business, you can make better choices and mitigate the impact of fear, ambition, rivalry, and bias. A good strategy is still hard to shape, but you can at least navigate toward one based on an accurate map.