Strategy: how to find your way among doomed business plans

Starting a new year means always being full of new and fresh resolutions in order to be a better self, but transposing this energy in a business environnement is a much trickyer issue to address. At the beginning of the new year, it’s clear that the roadmap and the business plan for the year to come should be already in place for execution but in a Covid 19 situation, plans are to be reviewed every month in order to adapt in case of emergency. On the contrary adapting the plan constantly may mean that the company is lacking of vision or simply does not execute properly finding always conjonctural causes to its inability for execution sometimes by a lack of anticipation or by a lack of buy-in by the internal teams.

Chris Bradley, Martin Hirt and Sven Smit from Mc Kinsey & Company in their book “Beyond the hockey stick” have defined some great analysis framework to “beat the odds” and find the right “hockey stick” business plan among the ones that are doomed from the start. Indeed sorting the grain from the chaff to put it in biblical terms is not easy but they show thanks to their quantified method how they can mitigate the high risks of failing your business strategy execution for the next 10 years.

Strategy rooms and the social side of strategy : biases to be fought by data

The dynamics of the strategy room often lead teams to hockey stick plans that follow such scheme :

• Phase 1: overly conservative the first couple of years during the valley of investment
• Phase 2 then too agressive the following years in terms of turnover projections
• Phase 3 eventually followed by a hairy cut :-) unless the major growth kicks in. Most of the time a succession of unrealized hockey sticks sprouting a hairy back resulting in a flat growth in the best case.

The authors have built up a framework of analysis based on probabilities to assess the situation of any business in order to place them on a curve, what they call the Power Curve. Thus it shows the situation of a company and its odds of moving up, of staying still or moving down. The timeframe stretches over a 10 year period and shows the odds of a move across the quintiles of the Power Curve over the next 10 years. Let’s focus on your chances of being part of the winners.

Dealing with probabilities is a challenge for business leaders, but avoiding tthe related reflexion based on data opens up the social games and the inner vision of the business. But once the probability framework has entered the strategy room, the questions are more on how to improve the probability of success.

The imperial need for big moves : fighting against timid plans

Believing in incremental progress is a fallacy : bigger moves not only increase your odds of success but reduce the risk of sliding down on what the authors call the Power Curve, a matrix that measures the odds of any business to move for instance from a standstill position to a leader market position.

“The executive team gets softer goals that they expect to meet all the times, the company might end up pushing initiatives with the wrong level of ambition.”

What actions can you take to improve your company’s probability of success ? What levers to pull to improve the odds of success ?

• Programmatic M&A : a steady stream of deals meaning at least one deal per year. Mastering this needs time and repetition to become true masters of the art. Practice makes perfect. Acquire too few is a road to failure.
• Reallocate capital expenditures and feed the the units that could beak out. To reallocate, you have to deallocate. The social side of strategy make ressource allocations sticky. But when a company bets on Energy management for instance, other activities have to be reconsidered.
• Strength of productivity program : deliver 25% more productivity improvement than the industry median over a 10 period. Establishing a company-wide culture of continuous productivity improvement is a must to reach this kind of performance.
• Improvement in differentiation : innovation in product, services and event business models. Differentiation contribute to increase the gross margin, and exceeding the average gross margin of your industry by 30% for 10 years increase your chances to move up the Power Curve.

The fear of executives is to stumble over these big initiatives, whereas it reduces the risks of going down. Some may be seduced by “the play it safe” scenario. In fact, not moving is probably the riskiest scenario, but to make them efficient they have to be cumulative and become a day-to-day mantra.

Off course, these big moves are not enough though, as catching megatrends are also may be as impactful, may be more. A company catching an industry megatrend (like #electrification or #energymanagement) has some good chances to move up from the middle to the top quintile companies up to 24%. But only the 20% best positionned companies will benefit from that tailwind according to the authors.

Focusing & forcing the first step

After identifying the big moves, then you must divide them in proximate goals within a short timeframe with doable steps to be reached by the team. The authors point out very practical manners to start the change and enforce the strategy set :

• Put major focus on the first steps with the long-range plan
• Roll-back the future into 6-month increments
• At first, focus more on actions than results
• Match and mobilize the ressources immediatly

Source : Strategy, Beyond the Hockey stick by Chris Bradley, Martin Hirt and Sven Smit