10 Tests to Assess Your Strategies

McKinsey & Company has identified ten tests to help executives assess the strength of their strategies. The ten tests fit nicely with the first Item in the Strategic Planning category of the Baldrige Criteria, which addresses the strategy development process.

An article in McKinsey Quarterly emphasizes the importance of a rigorous strategy development process through a quote from Phil Rosenzweig, a professor at IMD in Switzerland who has devoted his career to advancing the art of strategy: “Rather than looking for the next musing, it’s probably better to be thorough about what we know is true and make sure we do that well.” (“Have you tested your strategy lately?” Chris Bradley, Martin Hirt, and Sven Smit, McKinsey Quarterly, January 2011)

According to a McKinsey Quarterly survey of 2,135 executives, few of their strategies pass more than three of these ten tests:

1. Will your strategy beat the market? “Good strategies emphasize difference—versus your direct competitors, versus potential substitutes, and versus potential entrants.”
2. Does your strategy tap a true source of advantage? “Competitive advantage stems from two sources of scarcity: positional advantages and special capabilities.”
3. Is your strategy granular about where to compete? “…80% of the variance in revenue growth is explained by choices about where to compete.”
4. Does your strategy put you ahead of trends? “Always look at the edges. How are early adopters and that small cadre of consumers who seem to be ahead of the curve acting?”
5. Does your strategy rest on privileged insights? “Developing proprietary insights isn’t easy. A search for problems can help get you started. Create a short list of questions…

The Vital Few

What one thing does your organization value above all else? Is that clearly communicated?

In most organizations, making things simple is an almost impossible task. There are too many strategies because all of them are important. Action plans abound because they all must be done. Organizational performance measures proliferate because everything is critical.

Dan and Chip Heath, the authors of Made to Stick, argue for simplicity in “Analysis of Paralysis” (FastCompany, November 1, 2007). They describe a research study in which doctors were told of a man with chronic hip pain who had been given drugs to treat his pain but they had been ineffective. The only remaining option was hip replacement surgery, but then one more medication was found. Would the doctors try it or opt for the surgery? Forty-seven percent chose the medication.

Another group of doctors received the same facts except that two new medication options had been found. More options are better, right? Not for the doctors: Only 28% chose to try either medicine. “More options, even good ones, can freeze us,” write the Heaths, “leading us to stick with the ‘default’ plan, which in this case was slicing open someone’s hip. This is clearly not rational behavior, but it is human behavior.”

Too many organizations overwhelm their people with way too many goals, strategies, initiatives, action plans, measures, policies, and other options for guiding their behaviors and activities. That includes values. The Heaths mention a leading mental health facility that has 11 core values. “Values are supposed to guide behavior,…

Firms of Endearment

That’s the title of a 2007 book by Rajendra Sisodia, David Wolfe, and Jagdish Sheth. By their definition, a firm of endearment (FoE) “is a company that endears itself to stakeholders by bringing the interests of all stakeholder groups into strategic alignment.” The authors identified FoEs and tracked their stock performance over the previous ten years: The publicly-traded FoEs returned 750% over that time while the S&P returned 128%. In the latest five years, the FoEs returned 205% while the S&P lost 13%. As the authors note with the first sentence in the first chapter: “This book is not about corporate social responsibility. It is about sound business management.”

Creating and balancing value for all stakeholders is a Baldrige expectation. It requires identifying your key stakeholder groups, understanding each group’s key requirements, and developing strategies and plans that meet and exceed the requirements of all stakeholder groups.

“Stakeholders are part of a complex network of interests that function in a matrix of interdependencies,” the FoE authors write. “We argue that each stakeholder tends to thrive best when all stakeholders thrive. No stakeholder group is more important than any other. To see matters otherwise is like saying the heart is more important than the lungs. Life depends on both being healthy. It is disciplined dedication to the well-being of all stakeholders that separates firms of endearment from their competition.”

The book is organized around five major stakeholder groups: customers, employees, investors, partners, and society. It uses the stories of 30 carefully-selected FoEs to illustrate…

Free Webinar on How to Achieve Performance Excellence

Last week I participated in an ActiveStrategy webinar on “How to Align Scorecards to New Strategic Plans.” You can attend ActiveStrategy’s next free webinar by clicking on the banner near the top-right of this page.

The scorecard webinar illustrated the link between a strategic plan and a balanced scorecard and the value of cascading key initiatives and measures throughout the organization. One of the key points made during the webinar was the need to identify and focus on three outcome measures that are critical to improve. For most organizations, narrowing their focus to three things seems impossible, but trying to do everything means resources are stretched too thin and progress on what is important is too slow. You need to identify the vital few breakthrough initiatives and measures that will have the greatest impact on your organization and deselect those that don’t. You can then use the balanced scorecard framework to align your organization with your key initiatives.

You can view archived webinars about performance management and balanced scorecards by visiting ActiveStrategy’s Web site (click here).

The next free webinar will feature leaders of Miami-Dade County describing how their organization is achieving performance excellence. Miami-Dade County serves nearly 2.5 million constituents, about half of which are foreign born. It has 60 departments/offices and more than 30,000 employees.

One of the challenges of implementing a scorecard in a large organization such as Miami-Dade County is that every department or office has important initiatives to pursue and when you aggregate those initiatives at the senior leadership…