The Strategic Agility Project
Strategy is not about choice, it’s about choices. Few companies succeed based on a single big bet. They win through a series of trade-offs — about target customers, product, scope, and resources — that reinforce one another to create value. Attempting to describe every important choice in detail, however, leads to information overload. Any strategy that tries to address every decision that matters will be far too complex to communicate, remember, or use as a guide for day-to-day action. In strategy development, complexity is unavoidable. But when it comes to execution, complexity kills.
To implement their strategy, many companies commit to a handful of company-wide objectives that clarify the choices that will matter most over the next few years. These strategic priorities serve as guardrails to keep different parts of the organization moving in the same direction. They are a common tool to execute strategy, particularly among large companies. In our research, we found that 71% of S&P 500 companies reported an explicit set of priorities.1
In many cases, however, strategic priorities fail to align activity throughout the organization. Too often the objectives are rendered toothless by vague or generic terms (such as being “best in the industry”) or they are riddled with buzzwords (such as “cloud-based” or “crowd-sourced”). The most effective strategic priorities share several characteristics (described in our earlier article “Turning Strategy Into Results”). Many companies do well on a few of the dimensions, but few excel on all of them.
Over the past few years, we have worked with dozens of leadership teams to help them set and implement priorities.2 When developing a strategy for execution, managers often want to dive right into setting their strategic priorities. The impulse to cut to the chase is understandable, but it is a mistake. The first step in developing effective priorities is to clarify whether strategy should live on the corporate or business unit level, or both. (In a companion piece, “Four Logics of Corporate Strategy,” we describe a process for clarifying where strategy should live in your company.) Once that is clear, management teams should address three questions: What is our vision? What are our critical vulnerabilities? And what should we prioritize?
1. What is our vision? Hard-nosed managers typically dismiss corporate vision as fluff that’s peripheral to the nuts and bolts of execution. However, we have found that linking strategic priorities to a long-term aspiration — whether it’s framed as a vision of a better future or a corporate mission — can improve the odds that the company will implement its strategy. Too often, leadership teams get trapped in the present when setting strategic objectives. They discuss what is working, assess current challenges, project the legacy business forward a few years, and prioritize activities that will keep the business running pretty much as usual.3
The temptation to anchor strategy in the status quo is understandable. Legacy businesses can be predictable, comfortable, and often profitable. Unfortunately, it encourages executives to prioritize incremental improvements to win the last war as opposed to preparing for the next one.
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In dynamic markets, the objectives that add the most value are often novel or nonroutine: launching disruptive innovations, for example, or embedding digital capabilities throughout the company. Corporate visions can help managers step out of their status quo mindset and force them to think more broadly and creatively about the steps required to achieve their desired future. Elevating novel initiatives to the status of strategic priorities increases the odds they will receive the sustained focus and investment required to succeed.
Corporate visions or missions should describe the future they aspire to in bold and vivid terms. For example, Charles R. Schwab founded his brokerage business “to empower individual investors to take control of their financial lives, free from the high costs and conflicts of traditional brokerage firms.”4 Contrast that vision to TD Ameritrade’s more generic mission “to be the better investment firm for today’s investor.”5 A vivid picture helps leaders visualize the desired future and think about what actions will help them get there.
Linking strategic priorities to the company’s mission also makes it easier to communicate the priorities through the ranks. Employees often experience strategic priorities as yet another disconnected mandate — on top of the steady stream of key performance indicators, success factors, values, and initiatives — handed down from headquarters. By describing the strategic priorities as stepping-stones along the path to a desired future, executives can embed the objectives in a larger, more compelling, and enduring narrative.
Employees who buy into the company’s aspirations are more likely to commit to priorities that support that vision. It is easy for a nonprofit like Habitat for Humanity to inspire employees with its vision of “a world where everyone has a decent place to live.”6 Profit-oriented companies that can articulate how their offerings make life better for their customers or other stakeholders also have opportunities to inspire employees. IKEA’s vision, for example, is “to create a better everyday life for the many people,” which it pursues by offering a wide range of functional and stylish furniture at prices most consumers can afford.7 To resonate with employees, the corporate mission should grow out of the organization’s distinctive history and culture. Google, for example, aspires “to organize the world’s information and make it universally accessible and useful.”8
Before diving into a discussion of priorities, leaders should pause to consider their corporate vision, mission, or purpose. Is it vivid enough to counterbalance the specificity of the here and now? Is it inspirational and distinctive enough to communicate priorities to employees, secure their commitment, and motivate them to push ahead when times get rough? If not, executives should invest the time to articulate a vision that can help to break the shackles of business as usual and infuse their strategic priorities with meaning.
2. What are our critical vulnerabilities? Any strategy that attempts to describe every choice that matters will be too complex to guide action. To propel the company toward the desired future, leaders must navigate the treacherous shoals of strategic complexity. Many teams get so bogged down in the sheer number of strategic choices and interdependencies among them that they end up drowning in detail. Other teams veer to the opposite extreme, ignoring complexity and establishing objectives based on little more than gut feel. Neither is an ideal approach.
Instead, teams should acknowledge strategic complexity but work to achieve simplicity. One practical way to bridge the divide is to create a visual map of the company’s key choices. This highlights the things that matter most. An easy way to do this is to write your organization’s strategic choices on Post-it notes and arrange them on a whiteboard. You will want to capture the key attributes of target customers (one per note), the benefits of your value proposition to target customers, the required capabilities and resources, barriers to entry, and any other choices that are critical to the company’s future success. In our experience, the more the merrier, at least initially. You can circle back later to consolidate and prune items.
The next step is to draw lines to show the interdependencies among the various choices. The goal is to identify critical vulnerabilities — elements of your strategy that are most important for success and also most likely to fail in execution. Identifying critical vulnerabilities requires judgment and intuition — you cannot treat it as a tick-the-box exercise. However, a few broad guidelines can help the team pinpoint the most promising intervention points on the strategy map.
We have found that the most critical elements of a strategy tend to be the ones that are most densely connected to other choices. So, a good place to begin is to identify the spots on your strategy map with the most connections. As the team assesses which elements are most critical to success, question which elements contribute the most to value creation and capture: How does a particular choice increase customers’ willingness to pay? How does it decrease costs? How does it deter new entrants or help the company seize the most promising new opportunities? An order-of-magnitude estimate of financial impact, even if it’s based on incomplete information, will be better than relying on gut feel.
A few simple techniques can help teams assess which elements of their strategy are most vulnerable. One exercise is to put yourself in the shoes of a startup bent on disrupting your business. Looking at your business from its perspective — what is the weakest link? Where would the competitor attack you? Likewise, how would a well-funded competitor attack your business from an adjacent market? A “premortem” exercise can be a quick and effective way to identify weaknesses and obstacles.9 This can be done by dividing a group of managers into small groups and asking them to envision how things will look in five years if the company fails to execute its strategy. Looking “back from the future,” they can pinpoint the factors that could derail the strategy.
In many cases, zeroing in on critical vulnerabilities will be an iterative process that extends over several sessions, which will give team members time to gather and analyze data, test hypotheses, and work through interdependencies among the choices. The process can help teams identify critical vulnerabilities that will inform their choice of strategic priorities.
3. What should we prioritize? Once a team has recognized its most serious vulnerabilities, it needs to figure out how best to address them. For every solution there will always be uncertainty about the time and resources required, the competitive response, the technical feasibility, and the odds of success. Questions about interdependencies will further complicate which approaches to take. Launching a digital business might preempt new entrants, for example, but it may also cannibalize profits in the legacy business. Recall how Netflix’s move into the online streaming business rendered the company’s DVD rental business largely obsolete.
Teams sometimes respond to a wide range of options by throwing a lot of things against the wall in the hope that some of them will stick. Among companies we have studied, this approach is fairly common.10 However, the danger of this approach is that spreading corporate chips over too many objectives can starve the critical initiatives of the resources required for success.11 In a survey of managers in more than 300 organizations, only 10% of respondents believed that all of their organization’s strategic priorities had the funds, people, and management support needed to succeed.12 The rest said that some or most of their company’s strategic priorities would fail — not because of market shifts or competitors — but due to a lack of resources.
To avoid dissipating time, effort, and resources, leaders need to make trade-offs among competing and potentially conflicting objectives. Discussions about how to resolve the trade-offs are always difficult because they produce “winners” (who receive more resources and attention) and “losers” (who may see their pet projects killed and their personal importance to the company diminished). Leadership teams often try to do a number of things to avoid conflict — for example, juggling multiple priorities, agreeing to vague generalities, requesting endless additional analysis, or waiting for complete consensus to emerge. However, when it comes to setting strategic priorities, the absence of conflict is typically an indicator of failure rather than a sign of a healthy discussion.
In working with numerous companies over the years, we have developed a few expedients to help teams make difficult calls when setting strategic priorities:
- Keep the discussion anchored in the critical vulnerabilities to stay focused on the most pressing problems to be solved.
- Before discussing priorities, pull together a data pack on each of the vulnerabilities so that the team members work from the same facts.
- Before debating potential priorities, have the team agree on basic rules for how the discussion will be organized.13 For instance, companies can establish rules about how to discuss alternatives, who gets to speak when (for example, senior leaders weigh in only after everyone else has spoken), or how to select among multiple options. Such rules can serve as guardrails to course-correct when the discussion starts going off track.
Strategic priorities can ensure that employees at every level of the organization work on the most critical activities. The most effective priorities are consistent with the corporate strategy, linked to a broader vision or mission, and targeted at critical vulnerabilities. The questions and tactics in this article can help leaders develop strategic priorities that can maximize the odds that people are working on what matters most.
1. D. Sull, S. Turconi, C. Sull, and J. Yoder, “Turning Strategy Into Results,” Sept. 28, 2017, https://sloanreview.mit.edu.
2. For a description of research, see D. Sull and K.M. Eisenhardt, “Simple Rules: How to Thrive in a Complex World” (New York: Houghton Mifflin Harcourt, 2015), chap. 5.
3. In the strategy field, the tendency to extend the status quo in business is known as “exploiting” current knowledge, capabilities, and resources, and is contrasted with “exploring” more distant and uncertain technologies or processes. See J.G. March, “Exploration and Exploitation in Organizational Learning,” Organization Science, vol. 2, no. 1, February 1991: 71-87. While both are necessary for long-term success, established organizations tend to favor exploitation and incremental extensions to their existing operations. For a review of the empirical evidence, see E.L. Chen and R. Katila, “Rival Interpretations of Balancing Exploration and Exploitation: Simultaneous or Sequential?” in “The Handbook of Technology and Innovation Management,” ed. S. Shane (Chichester, England: John Wiley & Sons, 2008), 192-214.
4. J. Westlake, “Charles Schwab Team Thrives on a Culture of Service to Clients and Community,” June 1, 2017, www.azcentral.com.
5. “Vision & Values,” accessed Oct. 25, 2017, www.amtd.com.
6. “Everyone Deserves a Decent Place to Live,” accessed Nov. 2, 2017, www.habitat.org.
7. “This Is IKEA,” accessed Oct. 25, 2017, www.ikea.com.
8. Google mission statement, accessed Oct. 25, 2017, www.google.com.
9. G. Klein, “Performing a Project Premortem,” Harvard Business Review 85, no. 9 (September 2007).
10. In a survey of 133 organizations, we asked managers whether their company has a clearly stated list of corporate priorities, and if so, how many. Nearly half said their company lacked a handful of objectives, 7% reported the company had 15 or more objectives, 14% said that the company lacked any priorities.
11. A portfolio approach to strategic objectives can work, but only if each initiative requires modest resources to succeed. If a critical vulnerability could be solved with a quick fix, the odds are high it would already have been sorted. Most strategic priorities — like building new capabilities, entering an adjacent market, or commercializing an innovative product — require sustained effort, investment, and attention.
12. Results from an online survey designed to assess an organization’s capacity to execute its strategy administered to 302 organizations between 2012 and 2017.
13. See Sull and Eisenhardt, “Simple Rules,” for discussion of simple rules to produce better decisions.