Effective strategic guidelines get three things right: they link to the corporate vision, identify critical vulnerabilities, and focus on what matters most.
Strategy is not about choice; it is about choices. Few companies succeed based on a single big bet. They win through a series of trade-offs—regarding target customers, products, scopes, and resources—that reinforce one another to create value. However, trying to describe every major choice in detail leads to information overload. Any strategy that attempts to address every single important decision will be too complex to communicate, remember, or use as a guide for daily action. In strategy development, complexity is inevitable. But when it comes to execution, complexity kills.
To implement their strategy, many companies commit to just a handful of company-wide goals that clarify the choices that matter most for the coming years. These strategic priorities serve as guardrails to keep different parts of the organization moving in the same direction. They are a common tool for executing strategy, particularly among large companies. In our research, we found that 71% of companies communicated an explicit set of priorities to their employees.
In many cases, however, strategic priorities fail to align activity across the organization. Too often, goals become dismissed due to vague or generic terms (such as being "best in the industry") or are riddled with buzzwords (like "cloud-based" or "crowdsourced").
The most effective strategic priorities share several characteristics. Many companies do well on some dimensions, but few excel at all of them.
In recent years, we have worked with dozens of leadership teams to help them establish and implement priorities. When developing a strategy for execution, managers often want to jump straight to setting their strategic priorities. The urge to get to the point is understandable, but it is a mistake. The first step in developing effective priorities is clarifying whether the strategy should live at the corporate level, the business unit level, or both. Once that is clear, management teams must address three questions: What is our vision? What are our critical vulnerabilities? And what should we prioritize?
What is our vision? Pragmatic managers often dismiss corporate vision as fluff that is peripheral to the nuts and bolts of execution. However, we have found that linking strategic priorities to a long-term aspiration—whether framed as a vision of a better future or a corporate mission—can improve the odds that the company will execute its strategy. Too often, leadership teams get caught up in the present when setting strategic goals. They debate what is working, evaluate current challenges, project the legacy business a few years forward, and prioritize activities that will keep the business running as usual.
The temptation to anchor strategy in the status quo is understandable. Legacy businesses can be predictable, comfortable, and often profitable. Unfortunately, it encourages executives to prioritize incremental improvements to win the last war rather than preparing for the next one.
In dynamic markets, the goals that add the most value are usually novel or non-routine: launching disruptive innovations, for example, or integrating digital capabilities across the enterprise. Corporate visions can help managers break out of their current mindset and force them to think more broadly and creatively about the steps needed to achieve their desired future. Elevating new initiatives to the status of strategic priorities increases the likelihood that they will receive the sustained focus and investment required to succeed.
Corporate visions or missions should describe the future they aspire to in bold and vivid terms. Compare this vision with TD Ameritrade's more generic mission "to be the best investment firm for today's investor." A vivid picture helps leaders visualize the desired future and determine which actions will help them get there.
Linking strategic priorities to the company's mission also makes it easier to communicate priorities throughout the ranks. Employees often experience strategic priorities as just another disconnected mandate, alongside the steady stream of key performance indicators, success factors, values, and initiatives handed down from headquarters. By describing strategic priorities as stepping stones on the path toward a desired future, executives can integrate goals into a larger, more compelling, and enduring narrative.
Employees who buy into the company's aspirations are more likely to commit to priorities that support that vision. It is easy for a non-profit organization like Habitat for Humanity to inspire employees with its vision of "a world where everyone has a decent place to live." For-profit companies that can articulate how their offerings improve the lives of their customers or other stakeholders also have opportunities to inspire employees. IKEA's vision, for example, is "to create a better everyday life for many people," which it pursues by offering a wide range of functional, stylish furniture at prices most consumers can afford. To resonate with employees, the corporate mission should grow out of the organization's distinctive history and culture. Google, for example, aspires to "organize the world's information and make it universally accessible and useful."
Before diving into a discussion of priorities, leaders should pause to consider their corporate vision, mission, or purpose. Is it vivid enough to counter the specificity of the here and now? Is it inspiring and distinctive enough to communicate priorities to employees, secure their commitment, and motivate them to press forward when times get tough? If not, executives should invest the time to articulate a vision that can help break the chains of business as usual and infuse meaning into their strategic priorities.
What are our critical vulnerabilities? Any strategy that attempts to describe every choice that matters will be too complex to guide action. To propel the company toward its desired future, leaders must navigate the treacherous shoals of strategic complexity. Many teams get so bogged down in the vast array of strategic choices and their interdependencies that they end up drowning in detail. Other teams head to the opposite extreme, ignoring complexity and setting goals based on little more than a gut feeling. Neither is an ideal approach.
Teams must acknowledge strategic complexity while striving for simplicity. A practical way to bridge the gap is to create a visual map of the company's key choices. This highlights the things that matter most. An easy way to do this is to write your organization's strategic choices on Post-it notes and arrange them on a whiteboard. You will need to capture key target customer attributes (one per note), the benefits of your value proposition for target customers, required capabilities and resources, barriers to entry, and any other choices critical to the company's future success. In our experience, the more the better—at least initially. You can always go back later to consolidate and prune items.
The next step is to draw lines showing the interdependencies among the various choices. The goal is to identify critical vulnerabilities: those elements of your strategy that are most vital for success and also most likely to fail in execution. Identifying critical vulnerabilities requires judgment and intuition; it cannot be treated as a check-the-box exercise. However, a few general guidelines can help the team identify the most promising intervention points on the strategy map.
We have found that the most critical elements of a strategy tend to be those most densely connected to other choices. So a good place to start is identifying the points on your strategy map with the highest number of connections. As the team evaluates which elements are most critical for success, ask which elements contribute most to value creation and capture: How does a particular choice increase customers' willingness to pay? How does it decrease costs? How does it deter new entrants or help the company seize the most promising new opportunities? An estimate of financial impact, even if based on incomplete information, will be better than relying on gut feeling.
A few simple techniques can help teams evaluate which elements of their strategy are most vulnerable. One exercise is to put yourself in the shoes of a startup bent on disrupting your business. Looking at your business from their perspective, what is the weakest link? Where would a competitor attack you? Similarly, how might a well-funded competitor attack your business from an adjacent market? A "premortem" exercise can be a quick and effective way to identify weaknesses and obstacles. This can be done by dividing a group of managers into small teams and asking them to imagine what things will look like in five years if the company fails to execute its strategy. By looking "backward from the future," they can identify factors that could derail the strategy.
In many cases, focusing on critical vulnerabilities will be an iterative process spanning several sessions, giving team members time to gather and analyze data, test hypotheses, and work through interdependencies among choices. The process can help teams identify critical vulnerabilities that will inform their choice of strategic priorities.
What should we prioritize? Once a team has recognized its most serious vulnerabilities, it needs to find the best way to address them. For every solution, there will always be uncertainty regarding required time and resources, competitive response, technical feasibility, and odds of success. Questions about interdependencies will further complicate the approach. Launching a digital venture might preempt new entrants, for example, but it could also cannibalize profits in the legacy business. Recall how Netflix's move into online streaming rendered the company's DVD rental business largely obsolete.
Teams sometimes respond to a wide array of options by throwing everything against the wall in hopes that something sticks. Among the companies we have studied, this approach is fairly common. However, the danger of this approach is that spreading corporate chips across too many goals can deprive critical initiatives of the resources needed to succeed. In a survey of managers across more than 300 organizations, only 10% of respondents believed that all of their organization's strategic priorities had the funding, people, and managerial support required to succeed. The rest said that some or most of their company's strategic priorities would fail, not because of market shifts or competitors, but due to a lack of resources.
To avoid dissipating time, effort, and resources, leaders must make trade-offs between competing and potentially conflicting goals. Discussions about resolving trade-offs are always difficult because they create "winners" (who receive more resources and attention) and "losers" (who may watch their pet projects die and their personal standing in the company diminish). Leadership teams often try to do a variety of things to avoid conflict—for instance, juggling multiple priorities, settling for vague generalities, requesting endless additional analysis, or waiting for complete consensus to emerge. However, when it comes to setting strategic priorities, the absence of conflict is usually an indicator of failure rather than a sign of a healthy discussion.
Working with numerous companies over the years, we have developed several practices to help teams make tough calls when setting strategic priorities:
1.- Keep the discussion anchored in critical vulnerabilities to remain focused on the most urgent problems to solve.
2.- Before discussing priorities, gather a data packet on each vulnerability so team members work from the same facts.
3.- Before debating potential priorities, have the team agree on ground rules for how the discussion will be structured. For example, companies can set rules on how to analyze alternatives, who speaks when (for instance, senior leaders weigh in after everyone else has spoken), or how to select among multiple options. Such ground rules can serve as guardrails to correct course when the discussion begins to derail.
Strategic priorities can ensure that employees at all levels of the organization work on the most critical activities. The most effective priorities are consistent with corporate strategy, linked to a broader vision or mission, and targeted at critical vulnerabilities. The questions and tactics in this article can help leaders develop strategic priorities that maximize the likelihood that people are working on what matters most.