Executives say that they lose 40% of their strategy’s potential value to breakdowns in execution. In our experience at Bain & Company, however, this strategy-to-performance gap is rarely the result of shortcomings in implementation; it is because the plans are flawed from the start.
Too many companies still follow a “Plan-then-Do” approach to strategy: The organization works tirelessly to create its best forecasts about the future market and competitive landscape. Leadership then specifies a plan that it believes will position the company to win in this predicted future. This approach may have made sense when first popularized by GE and others in the 1970s, but in today’s fast-paced world, the “cone of uncertainty” surrounding future market and competitive conditions is too great for companies to prescribe every element of a multiyear strategy. The Plan-then-Do approach is obsolete – even dangerous.
Today’s successful companies close the strategy-to-performance gap with a new strategy approach best described as “Decide-Do/Refine-Do”. This agile, test-and-learn approach is better suited to today’s tumultuous environment. It also helps bridge the chasms that exists at so many companies between great strategy, great execution, and great performance.
Here are five lessons we’ve gleaned from what we see the best companies doing:
Treat strategy as evergreen. The best companies see strategy less as a plan and more as a direction and agenda of decisions. In effect, a company’s strategy is the sum of decisions it effectively makes and executes over time. This mindset focuses leadership on making near-term decisions with the longer-term destination in mind, but it doesn’t presume that there is only one path from here to there.
Take Dell Technologies, for example. Following the company’s go-private transaction in October 2013, Dell put in place new models for strategy development, resource allocation, and performance management. Instead of formulating detailed, long-term financial plans, executives at Dell now align around a common performance ambition—a cash flow vector consistent with growing the company’s intrinsic value faster than competitors. Executives then delineate a multiyear outlook for each of Dell’s businesses, capturing the current performance trajectory of the business given the decisions management has made to date. Finally, the team defines a strategy agenda comprising the highest value at stake and most urgent issues that leadership must address to close the gap between its ambition and Dell’s current trajectory.
Dell’s executive leadership team focuses on systematically addressing the issues on the company’s strategy agenda. Once they address an issue and make a decision, they allocate the resources needed and turn to the next issue on the agenda. Strategy development at Dell is no longer a batch process tied to some planning calendar; it is a continuous process.
Value flexibility. When the road is obstacle-free, the value of maneuverability is low. Leadership is better off selecting a single path forward, even if it limits the company’s ability to steer around potential roadblocks. In today’s world, however, flexibility matters.