HBR's 10 Must Reads on Strategy

- March 12, 2020

Harvard Business Review

IN ESSENCE, THE JOB of the strategist is to understand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among today’s direct competitors. Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.

A substitute performs the same or a similar function as an industry’s product by a different means. Videoconferencing is a substitute for travel. Plastic is a substitute for aluminum. E-mail is a substitute for express mail. Sometimes, the threat of substitution is downstream or indirect, when a substitute replaces a buyer industry’s product. For example, lawn-care products and services are threatened when multifamily homes in urban areas substitute for single-family homes in the suburbs. Software sold to agents is threatened when airline and travel websites substitute for travel agents.

We shall not cease from exploration/And the end of all our exploring/Will be to arrive where we started/And know the place for the first time.

—T.S. Eliot, Four Quartets

Truly great companies understand the difference between what should never change and what should be open for change, between what is genuinely sacred and what is not. This rare ability to manage continuity and change—requiring a consciously practiced discipline—is closely linked to the ability to develop a vision. Vision provides guidance about what core to preserve and what future to stimulate progress toward

A well-conceived vision consists of two major components: core ideology and envisioned future. (See the exhibit “Articulating a vision.”) Core ideology, the yin in our scheme, defines what we stand for and why we exist. Yin is unchanging and complements yang, the envisioned future. The envisioned future is what we aspire to become, to achieve, to create—something that will require significant change and progress to attain.

[About the iPod] Apple did something far smarter than take a good technology and wrap it in a snazzy design. It took a good technology and wrapped it in a great business model. Apple’s true innovation was to make downloading digital music easy and convenient. To do that, the company built a groundbreaking business model that combined hardware, software, and service.

To determine whether your firm should alter its business model, Johnson, Christensen, and Kagermann advise these steps:

Articulate what makes your existing model successful. For example, what customer problem does it solve? How does it make money for your firm?
Watch for signals that your model needs changing, such as tough new competitors on the horizon.
Decide whether reinventing your model is worth the effort. The answer’s yes only if the new model changes the industry or market.

Execution is the result of thousands of decisions made every day by employees acting according to the information they have and their own self-interest. In our work helping more than 250 companies learn to execute more effectively, we’ve identified four fundamental building blocks executives can use to influence those actions—clarifying decision rights, designing information flows, aligning motivators, and making changes to structure. (For simplicity’s sake we refer to them as decision rights, information, motivators, and structure.)

Research by Neilson, Martin, and Powers shows that execution exemplars focus their efforts on two levers far more powerful than structural change:

Clarifying decision rights—for instance, specifying who “owns” each decision and who must provide input
Ensuring information flows where it’s needed—such as promoting managers laterally so they build networks needed for the cross-unit collaboration critical to a new strategy

Tackle decision rights and information flows first, and only then alter organizational structures and realign incentives to support those moves.

"Everyone has a good idea of the decisions and actions for which he or she is responsible"

In companies strong on execution, 71% of individuals agree with this statement; that figure drops to 32% in organizations weak on execution.

Blurring of decision rights tends to occur as a company matures. Young organizations are generally too busy getting things done to define roles and responsibilities clearly at the outset. And why should they? In a small company, it’s not so difficult to know what other people are up to. So for a time, things work out well enough. As the company grows, however, executives come and go, bringing in with them and taking away different expectations, and over time the approval process gets ever more convoluted and murky. It becomes increasingly unclear where one person’s accountability begins and another’s ends.

When a company fails to execute its strategy, the first thing managers often think to do is restructure. But our research shows that the fundamentals of good execution start with clarifying decision rights and making sure information flows where it needs to go. If you get those right, the correct structure and motivators often become obvious. [screenshot]

Ironically, the way to ensure that the right information flowed to headquarters was to make sure the right decisions were made much further down the organization. By delegating operational responsibility to the people closer to the action, top executives were free to focus on more global strategic issues.

From our survey research drawn from more than 26,000 people in 31 companies, we have distilled the traits that make organizations effective at implementing strategy. Here they are, in order of importance.