How important is strategy and why?
Believe it or not, 25 years ago no one even asked these questions. The benefits of an effective strategy, what we might call strategy’s value proposition, seemed overwhelming: The right strategy ensured superior profitability that could be sustained indefinitely. Executives were expected to spend considerable time developing and communicating their strategy. Companies maintained large strategic-planning staffs. Skill as a strategist put the upwardly mobile executive on the fast track.
No longer. Today, no self-respecting fast tracker would seek a job as a strategic planner. Few companies even have them anymore. Although strategic planning remains ubiquitous — every organization needs to coordinate its plans for the future — the planning process
no longer commands top management’s attention. Operational excellence — steadily increasing levels of performance that exceed customers’ expectations — appears to be a more powerful driver of profitability than strategy. Today’s senior executives (and rising stars) focus on building organizations that last, continually improving their performance and adapting to changing market requirements. Beset by impatient investors, demanding customers, and ever-improving competitors, businesspeople juggle too many priorities in too little time. Strategy seems a luxury: Today’s best managers deliver profits. Damn the strategy; full speed ahead!
Of course, students of business have long recognized that both strategy and operational excellence are essential, and that, like a pendulum, emphasis tends to swing from one to the other depending on the economic environment. But because the traditional strategy value proposition (sustained profitability) is no longer credible at most companies, our hypothesis is that the pendulum won’t naturally swing back to a better balance of strategy and operational excellence — unless it gets some help.
Strategy’s value proposition has its roots in the 1980s, when Michael E. Porter’s Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press, 1998, originally published in 1980) defined the way we all thought about strategy. Strategy meant taking the long view; strategists focused on selecting attractive industries and on building scale or a strong brand that allowed a company to sustain its profitability despite the demands of customers, competitors, and suppliers. Although the best thinking about the key elements of strategy evolved over time into core competencies, into visions for the future of the industry, or into innovative new business models, the justification for strategy continued to be more profits over a longer time.
Those of us who believe that strategy is important need a new strategy value proposition — not to justify the concept, but to demonstrate to pragmatic businesspeople that more effective strategies are as important as operational excellence. Whatever this new value proposition may be, it will likely require fundamentally new ways to think about strategy.
Three of the best strategy books published this year make growth the new strategy value proposition. Of course, growth in both revenue and profitability has always been important. And although recession and deflation in the world’s major markets may have contributed to the increased focus on growth, we think that something more fundamental has changed. Just as it became clear during the past two decades that operational excellence was a more important driver of profitability than strategy was, managers are now recognizing that operational excellence doesn’t drive growth — not even excellence in product innovation, marketing, or acquisitions. Competition has intensified so much that exceeding customers’ expectations, achieving world-class levels of performance, and continuously improving and adapting to the changing market no longer ensures faster-than-market growth in profits. Instead of accelerated profitable growth, new product development produces shorter product life cycles and fragmented markets; marketing shifts the bargaining power to customers and causes consumers to tune out the bombardment of messages; and acquisitions command ever-higher premiums that benefit acquirees, not acquirers. Great product development, marketing, and acquisition programs are required merely to match competitors. Accelerated profitable growth requires something more: strategy.