Here is an excerpt from an article written by Freek Vermeulen for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
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Many strategy execution processes fail because the firm does not have something worth executing.
The strategy consultants come in, do their work, and document the new strategy in a PowerPoint presentation and a weighty report. Town hall meetings are organized, employees are told to change their behavior, balanced scorecards are reformulated, and budgets are set aside to support initiatives that fit the new strategy. And then nothing happens.
One major reason for the lack of action is that “new strategies” are often not strategies at all. A real strategy involves a clear set of choices that define what the firm is going to do and what it’s not going to do. Many strategies fail to get implemented, despite the ample efforts of hard-working people, because they do not represent a set of clear choices.
Many so-called strategies are in fact goals. “We want to be the number one or number two in all the markets in which we operate” is one of those. It does not tell you what you are going to do; all it does is tell you what you hope the outcome will be. But you’ll still need a strategy to achieve it.
Others may represent a couple of the firm’s priorities and choices, but they do not form a coherent strategy when considered in conjunction. For example, consider “We want to increase operational efficiency; we will target Europe, the Middle East, and Africa; and we will divest business X.” These may be excellent decisions and priorities, but together they do not form a strategy.
Let me give you a better example. About 15 years ago, the iconic British toy company Hornby Railways — maker of model railways and Scalextric slot car racing tracks — was facing bankruptcy. Under the new CEO, Frank Martin, the company decided to change course and focus on collectors and hobbyists instead. As a new strategy, Martin aimed (1) to make perfect scale models (rather than toys); (2) for adult collectors (rather than for children); (3) that appealed to a sense of nostalgia (because it reminded adults of their childhoods). The switch became a runaway success, increasing Hornby’s share price from £35 to £250 over just five years.
That’s because it represented a clear set of just three choices, which fit together to form a clear strategic direction for the company. (Unfortunately, in recent years Hornby abandoned its set of choices, to quite disastrous consequences, where it was forced to issue a string of profit warnings and Martin was encouraged to take early retirement.) Without a clear strategic direction, any implementation process is doomed to fail.
Communicate your logic. Sly Bailey, at the time the CEO of UK newspaper publisher Trinity Mirror, once told me, “If there is one thing I have learned about communicating choices, it is that we always focus on what the choices are. I now realize you have to spend at least as much time on explaining the logic behind the choices.”
A set of a limited number of choices that fit together — such as Hornby’s “perfect-scale models for adult collectors that appeal to nostalgia” — is easy to communicate, which is one reason you need them. You cannot communicate a list of 20 choices; employees simply will not remember them. And if they don’t remember them, the choices cannot influence their behavior, in which case you do not have a strategy (but merely a PowerPoint deck). However, as Bailey suggested, communicating the choices is not enough.
Consider Hornby again. Its employees — product designers and technical engineers, for example — could all tell me their company’s new choices. But they could also tell me the rudimentary logic behind them: that their iconic brand names appealed more to adults, who remembered them from their childhoods; that the hobby market was less competitive, with more barriers to entry and less switching by consumers. It is because they understood the reasoning behind Frank Martin’s choices that they believed in them and followed up on them in their day-to-day work.
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Here is a direct link to the complete article.
Freek Vermeulen is an associate professor of strategy and entrepreneurship at London Business School and the author of Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business (Harvard Business Review Press, 2017). Twitter.