Hope Is Not A Strategy
As anyone who writes a
book can attest, it’s both gratifying and nerve-racking to see how the ideas
resonate with your readers. Since my colleagues and I wrote Strategy Beyond the Hockey Stick, we’ve been circling the globe discussing the research
with the media, at conferences and, most importantly, with business leaders.
Perhaps the finding
that generates the biggest reaction is just how uneven business performance is.
When people look at the Power Curve of economic profit, they’re struck by the steepness of the tails
representing the world’s corporate over- and under-performers, and the broad
middle where the rest resides—a flatland in which companies barely break even
and from which they have only an 8% chance of rising over a decade.
As daunting as that
number—and some others—may be, many
executives are energized by the fact that those odds aren’t fixed. You can
change them in your favour. I want to share with you how some of them are
tilting their odds, as well as their insights that shed new light on some of
our findings.
Don’t waste a strong
trend:
A company with a
struggling commodity business had been trying to sell it, with little success.
Recently, however, a rapidly growing new industrial application for the
commodity has emerged. Rather than sell the business, the company is now
doubling down on it. The executive told us that our findings about the value of riding trends gave his team a jolt to move boldly in this new
direction. “We knew we had to go deep, but the book helped us find the language
to talk to the organization about why we have to go deep,” he said.
Reward noble failure:
One CEO told us that
making big bets on innovations necessary to change the company’s performance
trajectory requires teams that are “almost irrationally mission-driven.” To
foster that mindset, you need to reward success on corporate goals, not individual initiatives, many of which are bound to fail.
“You don’t usually hear the stories about the many people who went off into the
chaos and got eaten by the dragon,” he said. “Instead, you hear the stories of
the people who faced the dragon and took the dragon’s gold.” His company makes
sure not to punish those who dared nobly.
Revamp the approach to
M&A:
I’m surprised how many
business leaders continue to believe that mergers and acquisitions destroy
value. The research that produced this finding was based on widely announced,
large deals, but smaller transactions (which often go unpublicized) can be a
critical performance lever when applied consistently and as part of a broader
strategy rather than opportunistic one-offs. Realizing the benefit of this programmatic M&A approach
has led several executives I met to rethink their approach. One client decided
that to make programmatic M&A work, the company needed a dedicated team to
source and screen numerous targets, creating a pipeline from which it could
draw one or two deals each year. You have to kiss a lot of frogs to find a few
princes.
Check that your big
move is big enough:
The leader of a global
technology company currently in the midst of making multi-billion investments
in new products has keyed in on the benchmarks that determine whether a
strategic initiative can really move the needle. “It makes me think a lot about
making sure that we’re being aggressive enough,” the CEO said. The
winner-takes-all dynamics that the Power Curve demonstrates have made him
review the size of the company’s investments. “The rewards for winning are
massively bigger than the cost of failure. That was the No. 1 thing I took away
from the book,” he said. “We call it, ‘Be the tree.’ In any given industry now,
you see a company that just puts everybody else in the shade.”
Tackle the challenge of
sticky resources:
This topic always comes
up in my conversations with CEOs, because reallocation of resources at a
portfolio level is one of the biggest hurdles in strategy: before you can apply
money and people to the opportunities that can truly boost performance, you
need to free them up. This requires the willingness to tolerate radical
inequality—to say “no” to some businesses so can say “yes” to others. That, in
turn, demands some uncomfortable conversations with your executives. “This is
where the social side really comes in,”
one chief executive observed. “It’s really hard to take resources away from
powerful business unit heads, even when you’re the CEO, because you have to
say, ‘Sorry, you’re either not getting enough return on that money, or your
business isn’t as important as we thought it was when we allocated this money
to you.’” Having data that backs up the rationale for such decisions makes the
conversations easier, she noted. In fact, she has started designating some
resources as “corporate assets”—for example, people who are so valuable to the
company that their time is allocated based on corporate priorities.
Ensure the strategy
room is like a kitchen with the right menu:
During a recent
symposium with board directors, one executive told me that boards need to
strike a delicate balance between being in the kitchen and in the dining room.
“Once you go into kitchen, you lose right to be a food critic,” he said,
meaning that it can be dangerous for boards to get too involved in creating the
strategy that they then need to dispassionately assess. Instead, he felt that
boards can apply empirical benchmarks to make sure that the management’s
kitchen puts the right strategy options on the menu, through the design of
incentives, for example, or the identification of investable opportunities.
“Hope is not a
strategy”:
A CEO expressed her
frustration with executives who ask to discuss potential challenges with their
plans outside the harsh scrutiny of the strategy room. Most strategic plans
look like hockey sticks, she says, “because hope springs eternal” that a projected “base case” will
materialize. Now, when a business leader comes to her asking to take concerns
“offline,” she insists on airing the issue with the full team. “If we’re not
willing to have the tough conversations that have social implications, then
we’re all wasting our time,” she said. “I tell my teams, ‘Hope is not a
strategy.’”
June 14,
2018 – By Chris Bradley
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-strategy-and-corporate-finance-blog/hope-is-not-a-strategy
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