Strategy That Works

1. Close the strategy-to-execution gap for sustainable success

"The greatest danger for most of us lies not in setting our aim too high and falling short, but in setting our aim too low and achieving our mark."

Mind the gap. Many companies struggle with a significant disconnect between their strategic goals and their day-to-day operations. This "strategy-to-execution gap" leads to wasted resources, missed opportunities, and failure to achieve objectives. Closing this gap is critical for sustainable success.

Coherence is key. Companies that successfully bridge the gap exhibit coherence - alignment between their value proposition, capabilities system, and product/service portfolio. This coherence allows them to consistently deliver on their strategic intent through focused execution. Examples include:

• Apple: Seamlessly integrating hardware, software, and services
• IKEA: Delivering affordable, stylish furniture through efficient operations
• Frito-Lay: Dominating snack food markets with superior distribution and innovation

Benefits of closing the gap:

• Greater effectiveness and efficiency
• More focused investments
• Improved employee engagement and understanding
• Sustained competitive advantage
• Higher profitability and shareholder returns

2. Commit to a clear, differentiated identity

"Who do we want to be? What is our chosen value proposition? What can we do amazingly well that no one else can?"

Know thyself. Successful companies have a crystal-clear understanding of their identity - who they are, what they do best, and how they create unique value. This identity goes beyond products or services to encompass the company's core capabilities and value proposition.

Differentiation through identity. A strong identity allows companies to:

• Focus resources on building truly distinctive capabilities
• Make coherent strategic choices
• Attract talent and customers who resonate with the company's purpose
• Maintain consistency while evolving over time

Examples of clear identities:

• Starbucks: Creating a "third place" between home and work
• Haier: Providing customized solutions for home appliances
• Qualcomm: Driving innovation in wireless technology

Committing to an identity requires courage to say "no" to opportunities that don't fit, but enables companies to excel in their chosen domain.

3. Translate strategy into everyday capabilities

"Distinctive capabilities are expensive. They involve significant fixed costs and enormous managerial attention. To unlock the potential value from your investment in them, you must focus on only a few, and instill them throughout your enterprise, everywhere you do business."

Capabilities are the bridge. To close the strategy-execution gap, companies must translate their strategic intent into a system of distinctive capabilities - the things they do exceptionally well that support their value proposition.

Build and scale capabilities:

1. Blueprint: Design the capabilities system in detail
2. Build: Develop capabilities through focused interventions, innovation, and strategic M&A
3. Scale: Bring capabilities to life across the entire organization

Key considerations:

• Focus on 3-6 truly distinctive, mutually reinforcing capabilities
• Invest heavily in these few capabilities while being lean elsewhere
• Codify tacit knowledge to enable scaling
• Break down functional silos to enable cross-functional collaboration
• Continuously improve and innovate capabilities

Examples:

• Frito-Lay's direct store delivery system
• IKEA's design-to-cost approach
• Danaher's acquisition integration and operational excellence

4. Leverage your culture as a strategic asset

"The culture of a company—the way people collectively think and behave—can either reinforce or undermine their strategy."

Culture as capability. A company's culture can be a powerful force for coherence and execution when aligned with strategy. Rather than fighting culture, successful companies harness its energy to drive performance.

Cultural elements that support strategy execution:

• Emotional commitment to the company's mission
• Mutual accountability across functions and levels
• Collective mastery of key capabilities

Shaping culture:

• Identify and leverage informal leaders
• Highlight cultural traits that reinforce strategy
• Foster a few critical behaviors that drive performance

Examples:

• Natura's emphasis on relationships and sustainability
• Danaher's culture of continuous improvement
• Starbucks' focus on employee empowerment and customer experience

5. Cut costs strategically to invest in growth

"Cutting costs to grow stronger will become an essential part of your company's culture."

Strategic cost management. Rather than across-the-board cuts, successful companies take a capabilities-driven approach to costs. They ruthlessly prune non-essential expenses while investing heavily in their distinctive capabilities.

The parking lot exercise:

1. List all expenses and categorize them:
   • Differentiating capabilities
   • Table stakes (industry necessities)
   • Lights-on activities
   • Not required
2. Invest heavily in differentiating capabilities
3. Maintain table stakes at necessary levels
4. Minimize lights-on and eliminate not required

Benefits:

• Frees up resources for strategic investments
• Aligns spending with strategy
• Drives focus and coherence

Examples:

• Frito-Lay's $100 million cost reduction to fund capabilities
• IKEA's frugality in non-customer-facing areas
• Lego's strategic cost-cutting to enable innovation

6. Shape your future through capabilities-driven innovation

"The best way to predict the future is to invent it."

Proactive innovation. Instead of reacting to change, coherent companies shape their future by leveraging and extending their capabilities. This allows them to create new demand and even reshape their industries.

Strategies for shaping the future:

1. Recharge capabilities: Continuously improve and extend existing capabilities
2. Create demand: Use customer insights to develop innovative offerings
3. Realign the industry: Become a "supercompetitor" that defines industry dynamics

Examples:

• Apple's creation of the digital content ecosystem
• CEMEX's development of value-added services for builders
• Amazon's reshaping of retail and cloud computing

By focusing innovation on their core capabilities, companies can drive sustained growth and maintain their competitive edge.

7. Lead boldly to align strategy and execution

"The most critical quality in business leadership today is the ability to consistently close the gap between strategy and execution—or, better yet, to operate as if there is no gap."

Leadership is the catalyst. Closing the strategy-execution gap requires bold, committed leadership. Leaders must:

• Articulate a clear identity and strategy
• Drive the development of distinctive capabilities
• Make tough choices to maintain coherence
• Model the culture and behaviors needed for success

Key leadership behaviors:

• Ask tough questions about value creation and capabilities
• Get involved in capability building and deployment
• Champion emotional commitment and mutual accountability
• Allocate resources strategically
• Shape the future proactively

Develop leadership skills:

• Define required skills for your industry and strategy
• Create opportunities for leaders to learn and practice
• Model the skills yourself and develop others

By embodying these practices, leaders can create organizations where strategy and execution are seamlessly integrated, driving sustained success.

Last updated: August 16, 2024