A New Way to Think

1. Strategy and execution are inseparable; both involve making choices under uncertainty

Strategy is about revenue rather than cost, perfection is an impossible standard.

Strategy is about choices. The traditional view that strategy formulation and execution are separate processes is flawed. In reality, both involve making decisions under uncertainty and competitive pressure. Executives should focus on:

• Defining where to play and how to win
• Recognizing that strategy shortens the odds of success but doesn't guarantee it
• Making the logic behind choices explicit so they can be tested and refined

Rather than creating detailed plans, leaders should empower employees throughout the organization to make aligned choices within a clear strategic framework. This allows for faster adaptation as conditions change.

2. Customer loyalty is overrated; focus on creating cumulative advantage

Customers don't make conscious choices; they fall into habits.

Build habitual behavior. Traditional loyalty programs often fail because they ignore how people actually make decisions. Instead of trying to create loyal customers through rewards, companies should focus on:

• Becoming the easiest, most familiar choice
• Designing products and experiences that reinforce habits
• Maintaining consistency in branding, packaging, and user interfaces

The goal is to create a "cumulative advantage" where each interaction makes future interactions more likely. This is why category leaders like Tide detergent maintain dominant market share over long periods despite minimal product differences.

3. Corporate functions need their own strategies to add value

Corporate functions serve customers too: the business units that use their services.

Avoid the servile strategy. Many companies treat corporate functions like HR, IT, and finance as cost centers that simply support business units. This leads to undifferentiated, reactive service that fails to create value. Instead, functions should:

• Define their primary customers and core value proposition
• Determine what capabilities to build internally vs outsource
• Develop metrics to measure their impact on competitive advantage

By articulating a clear strategy, functions can focus on high-value activities, attract top talent, and avoid the threat of outsourcing. They become strategic partners rather than order-takers.

4. Organize knowledge work around projects, not permanent jobs

Knowledge work actually comes primarily in the form of projects, not routine daily tasks.

Embrace flow-to-work. Traditional job structures assume steady, predictable work, but knowledge workers face large swings in workload. To improve productivity:

• Organize around time-bound projects rather than permanent roles
• Create a pool of resources that can be allocated flexibly
• Develop systems to match skills with project needs

This approach, used successfully by consulting firms and Hollywood studios, reduces downtime and allows companies to tackle more high-value initiatives. It also creates opportunities for employees to develop new skills across multiple domains.

5. Culture change requires altering how individuals work together

You can only change it by altering how individuals work with one another.

Focus on interactions. Grand pronouncements about new values rarely change culture. Real transformation happens through small changes to daily work practices. Leaders should:

• Redesign meeting structures and communication norms
• Modify how decisions are made and resources allocated
• Create opportunities for cross-functional collaboration

These "micro-changes" gradually shift the unwritten rules that guide behavior. Over time, they create new shared assumptions about "how things are done around here."

6. Create great choices through imagination, not just data analysis

Creating great choices requires imagination more than data.

Balance analysis and creativity. Many executives overrely on data and analytics when making strategic choices. While rigorous analysis is important, breakthrough strategies often come from imaginative leaps. To generate novel options:

• Use qualitative research to uncover unarticulated customer needs
• Apply analogies from other industries or domains
• Create compelling narratives about future possibilities

The goal is to expand the set of choices beyond incremental improvements to the status quo. Data can then be used to test and refine the most promising ideas.

7. Intervention design is as critical as the innovation itself

The design of the intervention is as critical as the innovation itself.

Plan for adoption. Many potentially transformative innovations fail because not enough attention is paid to how they will be introduced and integrated. Successful intervention design involves:

• Mapping key stakeholders and their interests
• Prototyping and iterating on implementation approaches
• Creating narratives that build support and overcome resistance

By treating the rollout as carefully as the innovation itself, companies increase the odds that their ideas will take hold and create lasting impact.

8. In M&A, give value to get value

You need to give value to get value.

Focus on enhancing competitiveness. Most acquisitions fail because buyers focus on what they can get from the target company rather than what they can contribute. Successful acquirers:

• Identify specific ways they can make the target more competitive
• Avoid overpaying based on optimistic projections
• Invest in integration to realize synergies quickly

The goal should be to create a combined entity that is stronger than either company alone. This requires a clear understanding of each party's strengths and how they can be leveraged to create new sources of value.

Last updated: September 2, 2024