I recently read a good, short article in strategy+business (s&b), the management magazine published by the global consulting firm Booz & Company. Its title asks the question: “Strategy or Execution: Which Is More Important?,” to which it adds the tagline: “Many business leaders think they’d rather have great execution than superior strategies, but you can’t have the first without the second”
According to the article, many business leaders think that “strategy doesn’t matter as long as you are producing results. . . Often, this is because they associate strategy with analysis and execution with getting things done, and they attribute more value to doing than to analyzing.”
But, the article goes on to succinctly defines strategy as “. . . the series of choices you make on where to play and how to win to maximize long-term value. Execution is producing results in the context of those choices. Therefore, you cannot have good execution without having good strategy.”
This interplay between strategy and execution has evolved over time. Twenty-thirty years ago, the business world was arguably less complex, slower moving and more predictable. Strategic planning involved looking out several years into the future, - generally three to five years, longer for technologies and products requiring extensive R&D. The lines of business had the operational responsibility for executing the agreed upon strategy, including the production of goods and services, dealing with customers and business partners, and achieving quarterly and yearly financial targets. Operations and strategy were distinct parts of the business, one focusing on running the business in the present, the other one looking out into the future.
But, in today’s fast changing and unpredictable business environments, these time cycles are increasingly overlapping. It is difficult to do strategic planning beyond a one to three year timeframe. Unpredictable, unanticipated events require strategic corrections in even shorter timeframes. Both strategy and operations need to continuously adjust to fast changing market conditions. Our strategic planning now has to incorporate flexible execution. Successful companies - especially market leaders being chased by small and large competitors - must achieve a delicate balance between carefully managing their existing operations, and formulating the appropriate strategies that will propel them into the future.
More recently, we are seeing companies begin to blur the line between products and services, as they look to both de-commoditize products and standardize services. Firms are exploring the right balance between product and service revenue. They are developing a variety of product-related services to create new sources of revenues and profits, such as an ongoing maintenance, subscription streams, value-added opportunities and pricing models. The design of products needs to now incorporate the ability to deliver such services efficiently and flexibly by leveraging advances in information technology.
A similar confluence has been taking place between strategy and execution driven primarily by the complexity of managing increasingly global and distributed operations and the complexity of strategic planning in a fast changing technology, business and political environments.
Dealing with this growing complexity in all aspects of their business was the primary challenge emerging out of conversations with 1,500 CEOs and senior government officials conducted as part of the IBM 2010 Global CEO Study.
“CEOs told us that the current trend toward globalization would not let up. They anticipate shifting of economic power to rapidly developing markets, and foresee bigger government and heavier regulation ahead. These shifts are unyielding and contribute to the sense of a world growing more uncertain, volatile and complex.”
“Technology is also contributing to growing complexity - creating a world that is massively interconnected, with broad-based convergence of systems of all kinds, both man-made systems like supply chains or cities; and natural systems like weather patterns or natural disasters. Our world is increasingly subject to failures that require systems-level and cross-systems-level thinking and approaches. The consequences of any decision can ripple with unprecedented speed across business ecosystems the way the recent economic crisis has impacted nearly every market.”
In such an environment, you need a few key priorities that apply across the business, including strategy and execution. After an extensive analysis of the interview results, the CEO study concluded that those companies best able to handle the growing complexity are doing so by focusing on three such priorities: reinventing customer relationships, operational dexterity and creative leadership. Let me say a few words about each.
A number of studies have observed that as business competition intensifies, customers have been gaining market power, and they are using that power to find the best positive deals. The balance of power has been shifting from companies to increasingly well-informed consumers and well-educated workers. So, it is not surprising that reinventing customer relationships is the key way for a business to differentiate itself and standout in our increasingly global, commoditized and hypercompetitive world.
Operational dexterity, flexibility and adaptability must be one of the top priorities for any business. In a fast changing world, a company needs to be ready to act when opportunities or challenges arise. It must leverage advances in technology, systems architecture and organizational capabilities to help the business become more flexible and agile so it can quickly adapt to rapidly changing market conditions. It must embrace innovations like cloud computing, flexible cost structures and partnering capabilities to allow them to rapidly scale up or down.
Finally, the CEOs interviewed in the IBM study cited creativity as the most important leadership quality they look for to help them deal with the growing complexity of the business. Creative leaders are comfortable with ambiguity and encourage experimentation and innovation throughout their organizations. They realize that they need to continuously adjust their business models, find new ideas and take more calculated risks. They are constantly innovating in how they lead and communicate.
Successful leaders need to be able to step back and think more holistically about the complex problems they will undoubtedly encounter, both to help them find creative solutions to whatever immediate crisis they are facing, and to formulate the overall strategy of the business. Moreover, some of the most important innovations in the business will now be found at the intersection of previously distinct business areas, such as design and manufacturing, products and services, and strategy and execution.
As the s&b article observes in its conclusion: “You need a good strategy to have good execution. Yes, having a good strategy alone isn’t enough to win, but your ability to execute well depends on how good your strategy is and how well it’s understood by everyone who makes major decisions for your business.”