It is fashionable to attribute the failure of a business strategy to its poor execution: “It was a great strategy, but the team totally bungled its implementation.” Some people even state that implementing a winning strategy is tougher than coming up with one in the first place.
While the strategy-execution gap is real, we find that many supposedly great strategies fail because their real greatness has not been evidence-tested prior to execution. We find that business strategists too often think that their job is done when they have designed what we call a grand strategy: an overarching vision (e.g., “solving the world’s mobility challenges sustainably”), ambitious goals (e.g., “selling 10 million electric cars by 20xx”) and high-level choices about where and how to compete.
While formulating such a grand strategy is exciting, it has one fundamental limitation. As it is based on averages and estimates (e.g., average growth rates and profitability of a market, overall attainable market share, and assumed advantages of the company), the outcome is at best a hypothesis that subsequently still needs to be validated, adapted and detailed, or possibly even rejected. And such testing must be based on evidence about customer preferences, because the success of a business strategy eventually depends on the choices that customers make rather than on managers’ hopes and wishes. Rigorously eliciting customer preferences and making bottom-up evidence-based revenue and margin estimates is part of what we call operational strategy.
We are not advocating that strategists abandon the time-honored practice of formulating a grand strategy. Quite to the contrary, we are saying that strategy formulation should be an end-to-end process, starting with grand strategy and leading to operational strategy. The latter has to be completed before pushing the “commit now” button. Starting with grand strategy has six merits:
- An efficient process. A company cannot afford the time and cost required for a sequential, exhaustive and evidence-based assessment for each imaginable strategic opportunity. It needs a quick-and-dirty method to screen opportunities. Grand strategy acts as a funnel, discarding business opportunities that are insufficiently promising to take through an in-depth assessment in the subsequent operational strategy.
- Open to out-of-the box ideas. The open discussions taking place in grand strategy generate out-of-the-box ideas that feed the business opportunities funnel. Grand strategy reduces the likelihood that totally new fountains of growth are overlooked by operational strategy.
- Executive team orientation. A grand strategy exercise (e.g., through a series of off-sites) can enable the executive team to make or confirm some fundamental long-term directional choices for the company. The outcome of such exercise does not imply any immediate financial commitments for which the team members can or will be held accountable, but it sets some boundaries “once and for all” (which in practice means for a couple of years). When managing the day-to-day business, it prevents wasting time on discussions about topics that have been closed.
- Executive team bonding. By the same token, a grand strategy exercise helps form a collective intuition as the participants seek to achieve consensus about fundamental choices. In our experience, many of the most successful grand strategy exercises have been those that, in some sense, culminated in the most disappointing outcomes. They were disappointing because ultimately no radically new choices were made while only latent ideas were made explicit. Yet these exercises were successful because they ended up aligning people around common points of reference that turned out to be of enduring value.
- Inspiring power. Grand strategy leads to insights, concepts and expressions that the communications department can gratefully wordsmith into simple, clear and appealing catchphrases for use in internal roadshows, newsletters and other means of communication with the company’s middle managers and other employees. It has been shown that companies whose leaders articulate a clear purpose and get middle managers’ buy-in exhibit superior financial performance.
- Explanatory power. Grand strategy communications can extend to external audiences who do like ambitious concepts and visionary stories. The outcome of a grand strategy exercise can be a powerful tool for company executives to explain their views about the company’s functioning and prospects to investors, partners, customers, regulators, the media, potential recruits and other stakeholders. And they can do so safely because grand strategy statements are statements of intent rather than strategic decisions. Any measurable goals that they may include are so far out in the future and contingent on so many conditions that they do not really constitute a hard yardstick of accountability.
Our message is: yes, a great business strategy can possibly fail because of poor execution; but companies can vastly improve their chance of success by making sure the strategy is well designed. Such design requires an end-to-end process that encompasses both grand strategy (that is, formulating strategic choices as hypotheses) and operational strategy (that is, validating, detailing, adapting or possibly rejecting the hypotheses based on hard evidence about customer preferences).
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