I recently traveled to Turkey and South America, two areas where big family-owned holding companies play a critical economic role. The best and brightest are usually at the helm of these companies, and in my travels, I had the privilege of meeting some of them.
One of the issues I discussed with these leaders is how the role of strategy has changed over the 25 years I’ve been in the business. As I see it, the shift has occurred in three specific ways.
- From “where to play” to “how to win.” Twenty-five years ago, the primary value of strategy was to help sort out where to play. Companies spent a huge amount of time defining the markets in which each business competed, assessing competitive positions and economic returns in each, and then allocated resources toward those businesses with the best chance to gain leadership. Now, this type of strategy is necessary but not sufficient. Most managers find they must focus more time on how to win, regardless of market. How do I translate my strategy into a set of frontline actions? How do I invest in the right capabilities to truly differentiate myself? How do I change the culture of the firm so it is more action-oriented and risk taking? These are the questions leaders have to ask about strategy today.
- From anticipation to fast adaptation. Twenty-five years ago, we invested a huge amount of time building the base case that best predicted the future. The goal was to have proprietary insight into the future shape of the industry, and set the right strategy to get there. Today, we work more closely to build the right capabilities for fast adaptation—creating the right feedback loops in the system to notice changes and to respond to these changes faster than the competition. Understanding how the future might play out is still important, of course, but being able to respond to unforeseen future changes quickly is probably more important.
- From push tools to pull tools. Twenty-five years ago, strategy was a top-down process, and many of the tools senior management developed to roll it out were “push tools.” With a push tool, you take the strategy and its targets and break them down into smaller initiatives. These initiatives are parceled out to the next level of managers, who in turn break them down further and push them to the next level. To determine whether the implementation is on track, management often uses a set of compliance matrixes that include a red-yellow-green scale showing progress. A pull tool, conversely, means that management works directly with frontline employees to agree on a set of initiatives they need to execute. With a pull tool, management encourages the adoption of these new initiatives by changing frontline incentives, and the front line “pulls” the changes through. Increasingly, we see that strategies relying on pull tools get results as often as push tools.
As we talked through these changes, most of the managers of these companies confirmed that they are seeing similar trends. They agreed that strategy is now much more about execution and influencing frontline behaviors, and much more about implementing broad cultural change.
But then I asked a separate question: Given these changes, how much have your strategic planning processes changed? After all, most of these processes were designed when strategy was largely a way to make investment decisions, and by definition had to be controlled tightly and confidentially by a few in the center.
The answer, in most cases, was that the strategy processes hadn’t changed. Even though the nature of strategy had fundamentally shifted, the processes to set it (and budgets) remained the same. In general, companies used a single, top-down process to make decisions and then parcel out targets. The front line was ultimately told about the strategy, but it wasn’t part of the process of creating it.
Even as we acknowledge that strategy is increasingly about implementing broad cultural change, the processes we use actually lock in the old culture. We all agreed that it was time to adapt old processes to the new reality.