Strategy Matters More Than Execution. Are You Managing Your Strategy?
Does this scenario sound familiar?
It’s Monday morning, and you are about to go into a meeting to discuss your company’s strategic plan. The presentation starts with a three-year financial projection; all numbers grow progressively except for a few line items which jump unexpectedly. The presenter proudly says “we have identified the following strategic initiatives: we will collect all of our customers’ data and invest in developing our customer data strategy; over the next three years it is a key imperative of our strategy to focus on customer satisfaction, etc., etc.”
I have heard similar things at the largest Fortune 100 companies as well as in mid-size businesses around the world. It drives me insane.
In business, strategy is misunderstood, under-managed, and a grossly overused word.
These days we all have lengthy meetings about strategic vision, alignment, or initiatives. As someone who cares deeply about maximizing business strategies, I should be thrilled. However, nine times out of ten you’ll discover that “strategy” is only skin deep.
I have served on the boards of multiple companies since 2002, managed a multi-billion multinational organization, and invested in and advised startups and midsize companies, working with management teams to transform businesses. During this time, I’ve seen many outstanding leaders misuse the word strategy, labelling everything from budget proposals to business plans as strategic initiatives, when what they actually mean is execution tactics, or to be blunt, “important stuff.”
This has become a pet peeve of mine, as strategy has a very specific meaning and purpose. Words matter and this misunderstanding of what strategy actually means is likely harming your business. Actions speak louder than words, and over the past 20 years I’ve found that no matter what they say, management teams focus 90% of their efforts on execution and only 10% on strategy.
This ratio won’t do you or your business any favors.
The fact is, when it comes to growth, strategy matters more than execution – end of story. Your execution can be flawless, but if you’re not listening to the market, evolving along with your customers, and constantly tweaking and improving your model, your business won’t thrive. An effective strategy enables you to see the bigger picture, and informs all aspects of your execution.
Netflix is a great example of a truly strategic business in the Telecommunications, Media, and Technology (TMT) industry. In 2012, after failing to renew a content distribution agreement with Starz, Netflix decided to transform from being a content distributor to a content producer. They bet the company on that transformation, and backed it with an unheard-of $100MM investment for the first season of House of Cards. The show was a resounding success, and the rest is history. Today Netflix is more valuable than almost any other company in Media.
Of course, execution matters. But strategy matters to your business whether it is doing well or not. If you want to maximize your chances of success, it’s critical to spend time and energy on your strategy; particularly in rapidly-evolving sectors such as TMT.
How? By not shying away from tough questions.
To ensure management teams and portfolio companies are being strategic, I encourage them to regularly ask themselves the following questions.
Is my industry growing faster than the economy?
This is a great place to start as this question conjures the image of the rising tide. Great industries have limited competition, rising demand, recurring client revenues, and typically grow more than the market. So if the latest government statistics or your industry sector-based index fund show that your industry is underperforming the market you have to stop and ask yourself why.
For example, in the TMT sector there have been warning signs for years, primarily due to more competition and increased alternatives for customers. There are winners and losers in any sector—think about Netflix. Identify them and evaluate what is working and where you should steer your organization. Remember that a strategic exit or a pivot, i.e. informed decision-making about how to take the next step—could be your saving grace.
Is my business more valuable than it was last year?
If I sold my business tomorrow, would it sell for what I think it’s worth, or less? Everyone can relate to this one, whether you’re selling your house, car, or your old iPhone. You may have an idea of its value in your head, but it’s only worth the amount it sells for. Capital markets are incredibly adept at evaluating trends and strategies. So, if your view on the value of your business is inflated, then perhaps the market is seeing something you are not. It does not necessarily mean you are wrong. But if you take a contrarian view, you better do it consciously, knowing full well that you must deliver to prove the markets wrong.
Possible? Absolutely, think about Warren Buffett. Even then, I don’t think he bets the whole house against the market. What investors think matters. Even if they’re wrong, make sure you are listening.
Are my customers happier with my business than they were a year ago?
The value of your business depends on the value you’re providing your customers. Market research matters. In the past year, have you kept sight of what makes you different? Are you truly listening to your customers and adjusting your purpose based on their feedback, or is it just business as usual? You already know if you’re not growing, you’re stagnating, but it’s important to know why.
Customers don’t make decisions based on the objective measure of the time spent on the phone waiting for a customer service rep to answer; they make decisions based on their perceived wait time. The distinction between reality and perception is critical to understand if you are fulfilling your aspirations but also to evaluate external factors that are changing customers expectations.
In today’s world of digital transformation, you must continually evolve your business, which means constantly evolving your strategy. Even though it’s something to revisit formally at least once a year, I keep my strategy top of mind every single day. By being brave enough to ask yourself the tough questions – and doing so on a regular basis, you’ll be able to become truly strategic in your business endeavors. From there, your execution will fall into place.
Strategy is like swimming in a river: if you want to get anywhere, you must go with the current, not against it. Remember, your strategy is your business. Keep it at the forefront of your mind and you’ll always be at the forefront for your customers.
- Understand the meaning of the word “strategy” and do not use it unless you really mean it. Even if you know what you mean by strategy, misusing the word may confuse your team.
- Keep your strategy top of mind every day, but formally revisit it on a regular cadence. Every six months, every year, or every quarter: ask yourself the tough questions to determine if you have a strategy problem.
- To continue improving your strategy, look outside. What trends are emerging? What are investors betting on? What changes are affecting your customers? What companies have recently entered your market?