Closing the Gap Between Strategy and Execution
In fast-paced industries, companies should think of strategy as an iterative loop with four steps: making sense of a situation, making choices, making things happen and making revisions.
In an ideal world, managers could formulate a long-term strategy, methodically implement it and then sustain the resulting competitive advantage. Reality, however, is rarely so neat and tidy. Technologies evolve, regulations shift, customers make surprising choices, macroeconomic variables fluctuate and competitors thwart the best-laid plans. Thus, to execute strategy as circumstances change, managers must capture new information, make midcourse corrections and get the timing right because being too early can often be just as costly as being too late. But how can managers implement a strategy while maintaining the flexibility to roll with the punches?
The first step is to abandon the long-held view of strategy as a linear process, in which managers sequentially draft a detailed road map to a clear destination and thereafter implement the plan. This linear approach suffers from a fatal flaw: It hinders people from incorporating new information into action. How so? First, the linear approach splits the formulation of strategy from its execution. (Indeed, many business schools still teach formulation and implementation as separate courses.) Thus planners craft their strategy at the beginning of the process, precisely when they know the least about how events will unfold. Executing the strategy, moreover, generates new information — including the responses of competitors, regulators and customers — that then becomes difficult to incorporate into the prefabricated plan. Second, a linear view of strategy pushes leaders to escalate commitment to a failing course of action, even as evidence mounts that the original strategy was based on flawed assumptions.1 Leaders commit to a plan, staking their credibility on being right. When things go awry (the U.S. involvement in Vietnam is a classic example), they find it difficult to revise their strategy and instead attribute problems to “unexpected setbacks,” which is just another way of saying new information. Third, a linear approach ignores the importance of timing. When companies view strategy as a linear process, they sprint to beat rivals. But rushing to execute a flawed plan only ensures that a company will get to the wrong place faster than anyone else. Instead, managers need to notice and capture new information that might influence what to do and when to do it, including the possibility of delaying as well as accelerating specific actions.
Many managers, of course, recognize these limitations and attempt to work around them.
References
1. For a review of the escalation of commitment literature, see J. Brockner, “The Escalation of Commitment to a Failing Course of Action: Toward Theoretical Progress,” Academy of Management Review 17, no. 1 (January 1992): 39–61.
2. See P. Ghemawat, “Commitment: The Dynamic of Strategy” (New York: Free Press, 1991). Ghemawat argues that strategy consists of making commitments or infrequent large changes in resources that have large and enduring effects on a company’s future alternatives. The importance of these decisions implies that managers can and should clearly analyze their consequences long into the future. Ghemawat’s argument hinges on the assumption that managers can identify what matters ex ante and can analyze the consequences of their actions, although he, of course, admits the presence of uncertainty.
3. See R. Amit and P.J.H. Schoemaker, “Strategic Assets and Organizational Rent,” Strategic Management Journal 14, no. 1 (January 1993): 33–46. Amit and Schoemaker acknowledge that their view offers little guidance to managers. See also M.E. Raynor, “The Strategy Paradox: Why Committing to Success Leads to Failure (And What to Do About It)” (New York: Currency, 2007).
4. See A. Schlesinger Jr., “A Thousand Days: John F. Kennedy in the White House” (Boston: Houghton Mifflin, 1965); and R. Kennedy, “Thirteen Days: A Memoir of the Cuban Missile Crisis” (New York: W.W. Norton, 1969). For an excellent analysis of decision making by Kennedy’s team, see M.A. Roberto, “Deciding How to Decide,” chap. 2 in “Why Great Leaders Don’t Take Yes For an Answer” (Upper Saddle River, New Jersey: Wharton School Publishing, 2005).
5. See K.M. Eisenhardt, “Making Fast Strategic Decisions in High-Velocity Environments,” Academy of Management Journal 32, no. 3 (September 1989): 543–576; and K.M. Eisenhardt, “Speed and Strategic Choice: How Managers Accelerate Decision Making,” California Management Review 32, no. 3 (spring 1990): 39–54.
6. See A.C. Edmondson, “Psychological Safety and Learning Behavior in Work Teams,” Administrative Science Quarterly 44, no. 2 (June 1999): 350–383; and A.C. Edmondson, “Speaking Up in the Operating Room: How Team Leaders Promote Learning in Interdisciplinary Action Teams,” Journal of Management Studies 40, no. 6 (September 2003): 1419–1452. Edmondson’s construct of psychological safety is critical throughout the strategy cycle, but it takes a slightly different form in each step. In making sense, for example, psychological safety ensures that participants feel safe to broach alternative interpretations of what is going on, while in making things happen providers should feel secure to negotiate what they need before they can make a binding performance promise.
7. This is a slightly modified version of “Alexander’s question” described in R.E. Neustadt and E.R. May, “Thinking in Time: The Uses of History for Decision Makers” (New York: Free Press, 1988): 152–153.
8. See R.E. Rubin and J. Weisberg, “In an Uncertain World: Tough Choices From Wall Street to Washington” (New York: Random House, 2003); and L. Endlich, “Goldman Sachs: The Culture of Success” (New York: Alfred A. Knopf, 1999).
9. K.M. Eisenhardt and D.N. Sull, “Strategy As Simple Rules,” Harvard Business Review 79 (January 2001): 107–116.
10. See Eisenhardt, “Fast Strategic Decisions,” and Eisenhardt, “Strategic Choice.”
11. For an in-depth perspective on the promise-based view of the firm, see D.N. Sull and C. Spinosa, “Promise-Based Management: The Essence of Execution,” Harvard Business Review 85 (April 2007): 78–86; and D.N. Sull and C. Spinosa, “Using Commitments to Manage Across Units,” MIT Sloan Management Review 47, no. 1 (fall 2005): 73–81.
12. For a thoughtful and practical guide to after-action reviews based on practices within the U.S. Army, see D.A. Garvin, “Learning in Action: A Guide to Putting the Learning Organization to Work” (Boston: Harvard Business School Press, 2003): 106–116.
13. See F. Emery and E. Trist, “The Causal Texture of Organizational Environments,” Human Relations 18 (1965): 21–32. In their discussion of uncertain markets, Emery and Trist emphasize complexity (that is, multiple factors that influence performance) and dynamism (that is, the rate of change of those variables) and imply the role of interactions.
i. D.N. Sull and M. Escobari, “Success Against the Odds: What Brazilian Champions Teach Us About Thriving in Unpredictable Markets” (Sao Paulo: Elsevier, 2003); and D.N. Sull with Y. Wang, “Made in China: What Western Managers Can Learn From Trailblazing Chinese Entrepreneurs” (Boston: Harvard Business School Press, 2003).