“We had a great strategy; we just had lousy execution.”
That’s a cop-out. The reality is, in most cases when a company fails to execute its strategy, the strategy itself is a large part of the problem.
Now, for a strategy to influence action, it must be remembered. To be remembered, it must be understood. And to be understood, a strategy must be simple. Any strategy that’s too complicated to execute isn’t a strategy, it’s a book report. How can you distill a thick, complicated strategy document down to its simple essence—that can be understood, remembered, and acted upon? You can do this by answering three simple questions.
Now, strategy is defined as how firms create, capture, and sustain economic value. And economic value, in simple terms, is just the gap between what a customer is willing to pay for your good or service and the cost of producing it. Strategy, then, is about the things that will move these needles—significantly increase willingness to pay and hold it there, or significantly cut costs and hold it there.
Typically, in most organizations, it’s not 100 or 1,000 things that will move the needles, it’s a couple of things. And getting clarity on those key drivers of value creation is the first question that you have to answer to simplify your strategy. The second question you have to answer to simplify your strategy is, “What are the critical few challenges?” Now, this is not a laundry-list exercise to fill up flip chart after flip chart about everything that we have to do—no, no, no. This is about a management team coming together and coming to a shared agreement of, “What are the three, four, five obstacles that, if we could overcome them, would ensure we could create economic value?”
Now, these can be external obstacles: competitive dynamics, regulation. They can be internal: a risk-averse culture, for instance, lacking capabilities. The important thing, though, is managers come to a shared understanding of what those obstacles are.
The third question you have to ask and answer to execute your strategy is, “What are our must-win battles?” It’s one thing to understand how to create value, it’s another to get agreement on the obstacles. But how you translate insight into action is by understanding what are the couple of battles that we have to win companywide, in the mid-term—[the] next couple, two, three, four, five years—that if we could win these battles we’d be assured we could overcome the major obstacles to value creation?
If, as a management team, you can take your complicated strategy and distill it down to its simple essence—value creation, critical challenges, must-win battles—you can bridge the gap from strategic insight to effective execution.
– Donald Sull is a professor of management practice in strategy and entrepreneurship at the London Business School.
