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ESSENTIALS FOR LEADERS AND THOSE THEY LEAD
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Edited by Rama Ramaswami Senior Editor, New York
Strategy is a venerable discipline in management, and leaders have access to a wealth of guidance on the topic if they need it. Many classic strategic and organizational frameworks are still relevant. Yet bad strategy continues to plague companies—it may even be a “social contagion,” according to a recent McKinsey Inside the Strategy Room podcast. Theories abound as to why good companies make bad strategic decisions—behavioral economics offers some insights, for example—but ultimately, leaders may need to rely on their own judgment. These signposts may help.
AN IDEA
“In business, as in poker, there is uncertainty, and strategy is about how to deal with it,” says McKinsey senior partner Sven Smit in this article on how to increase the probability of your strategy’s success. “An assessment of your odds—in terms of competitive, market, or regulatory factors—needs to be part of your calculation,” he suggests. Overall, the odds don’t look good: McKinsey research shows that over a ten-year period, only 8 percent of companies move from the middle to the top quintiles of performance. But in the strategy room, the tendency among leaders is to ignore probabilities and try to push toward certainty. “The odds for individual companies vary widely,” says Smit. “The obvious questions for CEOs, managers, and investors, of course, are: What is my strategy’s probability of success, and what actions can we take to improve that probability?”
A BIG NUMBER
4
That’s the number of levels in a classic framework for making sound decisions under uncertainty. Level 4, “true ambiguity,” was rare at the time this McKinsey Quarterly article was written but is probably applicable to most business situations today. The recommendations for this level still apply: for example, even when under intense pressure, “it is critical to avoid the urge to throw up your hands and act purely on instinct,” the authors say. “Instead, managers need to catalog systematically what they know and what it is possible to know.” That includes studying the development of analogous markets, the attributes of winners and losers, and the strategies they employed—all of which may reveal patterns that show how the market may evolve.
A QUOTE
That’s management guru Gary Hamel on the natural death of strategies, often stemming from replication or destruction by competitors. “Like human beings, strategies start to die the moment they’re born,” he writes in this Wall Street Journal article. “With the right metrics, strategy decay is largely predictable, though few companies bother to track it.” By failing to anticipate the eventual decline of strategies that once made them successful, companies hasten their own decline, in Hamel’s view, and “the only way a company can renew its lease on success is by reinventing itself root and branch, before it has to.”
A SPOTLIGHT INTERVIEW
‘To make any story interesting, you need a villain,’ says McKinsey senior partner Chris Bradley in this podcast on moving strategy into high gear. In strategy, the villain is the “social side,” he says. “When you get to the strategy room, you find it crowded with all sorts of stuff. There are negotiations, there are egos, there are last year’s plans. There are other people, and you want to look good to them. There is so much else going on than just strategy.” Bradley suggests eight practical changes to strategic planning that can overcome social games and help organizations advance up the “power curve” of economic profit to the top quintile, where a small percentage of companies capture most of the profit. For example, leaders may want to consider debating alternative strategic plans rather than a single proposal. “Most companies don’t work like this,” says Bradley. “Their strategies are framed more around promises and financial goals than they are around choices.”
‘FLUFF’
Corporate jargon is often the target of mockery, but it does serve a purpose. After all, at some time or other most of us have thought out of the box, gotten our ducks in a row, or taken things offline. But using harmless buzzwords as office shorthand is one thing; it’s quite another to choke your strategy statement with them. A “hallmark of mediocrity and bad strategy is superficial abstraction—a flurry of fluff—designed to mask the absence of thought,” says UCLA management professor Richard Rumelt in this McKinsey article. “Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise.” We’re on the same page.
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