Strategy That Works is a strategy best-seller, and one of the more readable books on the subject, from PwC’s Paul Leinwand and Cesare Mainardi. As the subtitle suggests, the books is concerned with closing the gap between strategy and execution.
Let's take a look at the key lessons to be learned to help you move from planning to execution.
Most companies have a significant and unnecessary gap between strategy and execution. A number, some of whose lessons are discussed in the book (including IKEA, Natura, Pfizer, Starbucks, Natura, CEMEX, Apple, Haier and Lego), have closed this gap. The authors of Strategy That Works believe that capabilities are the vital link between strategy and execution. The best companies manage themselves through a few differentiating capabilities which rise above functional boundaries and which they integrate around three strategic elements:
- A value proposition that distinguishes their company from other companies
- A system of distinctive capabilities that reinforce each other and enable the company to deliver on its value proposition
- A chosen portfolio of products and services that all make use of these capabilities
According to Leinwand and Mainardi, coherence is the alignment of these capabilities, as a result of which there is no strategy-to-execution gap. Capabilities and coherence are the keys to closing the strategy-to-execution gap. Coherence creates an atmosphere where every employee understands what the company does well. And, by the way, this ability to involve every employee in understanding company strategy is one of the advantages of the Lucidity platform.
The book identifies five conventional narrowly-focused business practices that can lead to a lack of coherence and have the unintended consequence of creating a strategy-to-execution gap:
|Conventional wisdom||Unintended consequences|
|Focus on growth||Getting trapped on a growth treadmill: chasing multiple market opportunities where you have no right to win|
|Pursuing functional excellence||Striving to be world class at everything but not succeeding at anything: treating external benchmarking as the path to success|
|Reorganizing to drive change||Falling into the habit of organizing and reorganizing again and again: trying in vain to change behaviors and create success by restructuring alone|
|Going lean||Cutting costs across the board: starving key capabilities of resources while overinvesting in non-critical areas|
|Becoming agile and resilient||Constantly reacting to market changes: shifting direction in the misguided conviction that if you listen hard and act fast, you will survive|
The authors identify five acts of unconventional leadership, based on the same conventional wisdom headings, to reinforce coherence and close the strategy to execution gap:
|Conventional wisdom||The five acts|
|Focus on growth||Commit to an identity: differentiate and grow by being clear minded about what you can do best|
|Pursuing functional excellence||Translate the Strategic into the everyday: build and connect the cross-functional capabilities that deliver your strategic intent|
|Reorganizing to drive change||Put your culture to work: celebrate and leverage your cultural strengths|
|Going lean||Cut costs to grow stronger: prune what doesn’t matter to invest more in what does matter|
|Becoming agile and resilient||Shape your future: reimagine your capabilities, create demand, and realign your industry on your own terms|
Commit to an Identity
The identity of a company doesn’t reside in mission statements. Instead, it expresses what a company does exceptionally well and why it matters. When a company is coherent, the people who work there can typically talk about its identity with certainty and clarity.
It takes time, dedication and perseverance to create an identity that sets a company apart, grounded in the complex, hard-to-build capabilities that others cannot copy, and that shapes the company’s attitude and collective behavior.
Once you understand your company’s capabilities, you can see where you can expect to win, why you would win there and how you must improve your capabilities to capture a winning position.
To start the process of creating an identity, define and develop a value proposition that distinguishes your company from other companies and identify the few capabilities that will enable you to deliver better than anyone else. You will also need to see how these fit with your portfolio of products and services and how you can create coherence between these three elements.
Your value proposition should be...
- Supported by your strengths so that it can be delivered
- Differentiated from your competitors so that no other company can offer it as well, or as completely, as you can
- Aimed at a market that will appreciate, and respond to, your value proposition
- Profitable for your company
- Enduring – it will last as your industry evolves
You need to identify a small number of capabilities that will enable you to deliver better than anyone else. There will be capabilities that are common to successful companies in your industry. You need distinctive capabilities over and above these common ones.
Your products and services need to be, or to become, coherent with your value proposition and capabilities. You might well find that some of your current products don’t fit with your chosen identity, so it might be time to divest of these and use the funds released to develop products that fit better.
Translate the Strategic into the Everyday
Now that you’ve committed to an identity, you must translate that identity into everyday practice. You need to create your own capabilities that uniquely suit your company and identity. A capability is the combination of people, processes, technology and organization that allows you to deliver your intended outcome.
Firstly, create a blueprint of your capabilities system, describing the type of capabilities you must develop, how they would work together and what would be needed to make them work.
Secondly, build and continuously improve the capabilities you need. Finally, scale up your capabilities. In doing all this, you can turn your distinctive capabilities into your employees’ habitual behavior.
Companies looking to carry out mergers or acquisitions should use the capabilities blueprint as a major factor in choosing the deals they make. M&A deals should either bring in products and services that make use of the acquirer’s existing capabilities system or close gaps that exist in current capabilities.
Scaling up your distinctive capabilities involves taking a cross-functional look at them and setting up cross-functional networks to nurture and enhance these winning capabilities. In order to take advantage of these capabilities at scale, you need to wrap these into processes and technological support that everybody can use to execute well.
Put Your Culture to Work
Culture is your greatest asset – it can reinforce your company’s strength and enthuse your employees.
A company’s culture is a multi-dimensional, complex and influential thing. It may be hard to pin down, but it has a great influence on a company’s success. It often emerges in the stories people tell about their company, the values they feel the company holds, how they feel about it, how they behave on a day-to-day basis and how it inspires them to serve customers. It is very important, in mergers and acquisitions, that companies looking to join together have compatible cultures. Cultural mismatch has been the downfall of many a merger.
Closing the gap between strategy and execution often involves telling new stories that reinforce coherence. These stories need to be woven into the company culture. Then the culture will provide people with the support they need to find their emotional connection with the overall strategy.
To shift the culture, you should enlist a critical few informal leaders; these are the people who colleagues look up to and follow, who are quietly influential, rather than relying on their place in the organizational hierarchy for influence. You should get these people to help spread a critical few behaviors throughout your organization. These behaviors should be related to the company’s strategic capabilities or value proposition.
Cut Costs to Grow Stronger
Reduce less productive spending to focus investment on strategic priorities.
Your spending should be managed in such a way as to drive your strategy into execution. To do this, you need to analyze your expenditure so as to differentiate the costs that matter from those that do not. This will identify where you can free up money for investment in areas critical to building capabilities and coherence. It can also align your company’s major projects with its strategy. As with other processes, this needs to become part of your ongoing budget process.
Shape Your Future
Avoid complacency, which has led to the demise of many great companies. Anticipate how your capabilities will need to evolve and make investments to get ahead of the game. Make things happen for you before they happen to you.
After some years of success, there is a danger that you become complacent and rest on your laurels. This is when competition, especially from disruptive innovators, can sneak up on you. You need to constantly watch out for early warning signs of things that could affect your value proposition and anticipate changes you might need to improve your capabilities.
The insights that you gain from watching for early warnings can help you to create new demand that you can satisfy through the capabilities that you have built and are evolving. The reward for becoming and staying coherent is that you become a market leader in your industry. This can even allow you to shape the evolution of the industry itself.
According to Leinwand and Mainardi, Coherence and Capabilities are the foundation of developing a winning strategy and moving it seamlessly to execution. Key to this is concentrating on, and innovating, your critical capabilities, creating an identity and making this approach central to your company’s culture.
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