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Friday, March 30, 2018

Strategy to Beat the Odds

Back to the need to a reasonable risk analysis of strategic and operational plans.

Strategy to beat the odds
By Chris Bradley, Martin Hirt, and Sven Smit  in McKinsey

If you internalize the real odds of strategy, you can tame its social side and make big moves.

Several times a year, top management teams enter the strategy room with lofty goals and the best of intentions: they hope to assess their situation and prospects honestly, and mount a decisive, coordinated response toward a common ambition.

Then reality intrudes. By the time they get to the strategy room, they find it is already crowded with egos and competing agendas. Jobs—even careers—are on the line, so caution reigns. The budget process intervenes, too. You may be discussing a five-year strategy, but everyone knows that what really matters is the first-year budget. So, many managers try to secure resources for the coming year while deferring other tough choices as far as possible into the future. One outcome of these dynamics is the hockey-stick projection, confidently showing future success after the all-too-familiar dip in next year’s budget. If we had to choose an emblem for strategic planning, this would be it.

The power curve explained

In this blackboard session, McKinsey’s Chris Bradley, coauthor of Strategy Beyond the Hockey Stick, describes the distribution of companies along the power curve of economic profit.
In our book, Strategy Beyond the Hockey Stick (Wiley, February 2018), we set out to help companies unlock the big moves needed to beat the odds. Another strategy framework? No, we already have plenty of those. Rather, we need to address the real problem: the “social side of strategy,” arising from corporate politics, individual incentives, and human biases. How? With evidence. We examined publicly available information on dozens of variables for thousands of companies and found a manageable number of levers that explain more than 80 percent of the up-drift and down-drift in corporate performance. That data can help you assess your strategy’s odds of success before you leave the strategy room, much less start to execute the plan.

Such an assessment stands in stark contrast to the norms prevailing in most strategy rooms, where discussion focuses on comparisons with last year, on immediate competitors, and on expectations for the year ahead. There is also precious little room for uncertainty, for exploration of the world beyond the experience of the people in the room, or for bold strategies embracing big moves that can deliver a strong performance jolt. The result? Incremental improvements that leave companies merely playing along with the rest of their industries.

Common as that outcome is, it isn’t a necessary one. If you understand the social side of strategy, the odds of strategy revealed by our research, and the power of making big moves, you will dramatically increase your chances of success. .... "

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