How can organizations achieve their strategic objectives?
Few questions are more fundamental in business, and yet few resources are available to provide clear, concise answers. To address this gap, Donald Sull, a senior lecturer at MIT Sloan and his co-authors, have partnered with MIT Sloan Management Review on the ongoing Strategic Agility Project.
Highlighted below are several insights from this work. The synopsis is intended, in five steps, to provide a basic outline for companies that want to design a strategy that is simultaneously visionary and executable. This second point, Sull emphasizes in his work, is critical to keep in mind. “To influence day-to-day activities, strategies need to be simple enough for leaders at every level of the organization to understand, communicate, and remember,” he writes. “A strategy that gathers dust on a shelf is nothing more than an expensive bookend.”
1. Clarify your logic of corporate strategy
Before crafting a strategy, companies must first understand where the strategy will live. Is it directed toward, and executed by, corporate? Does it sit within individual business units? Should it work across both levels? How should the business units work with one another to create value?
“In our experience, organizations often struggle with corporate strategy because executives lack clarity on how the parts of the corporation fit together to create and capture economic value,” Sull writes in describing what he calls the four logics of corporate strategy. “Unless executives have a shared understanding of the relationships between corporate headquarters and the business units and among different businesses, they risk talking past one another when discussing strategy.”
Every Trader Joe’s store, for instance, depends on its corporate parent to succeed; without the parent company’s economies of scale and distinctive private-label portfolio, a Trader Joe’s store would be indistinguishable from a local grocer. Berkshire Hathaway, in contrast, comprises many distinct business units that operate independently of not only each other, but also their corporate parent. It’s essential to understand how a company fits together before developing its strategy.
Read the research highlight: “Four Logics of Corporate Strategy.”
2. Design a strategy with execution in mind
To insure strategic guidelines take shape beyond the paper they’re written on, they need to connect with the corporate vision, identify critical vulnerabilities, and focus on what matters most.
It is both tempting and easy to anchor strategy in the status quo. But this, in Sull’s words, encourages incrementalism, in which executives try “to win the last war as opposed to preparing for the next one.” Before crystalizing strategic goals, a company must make sure the vision in which these will be embedded is “inspirational and distinctive enough to communicate priorities to employees, secure their commitment, and motivate them to push ahead when times get rough.”
This done, Sull suggests creating a map of Post-It notes showing the central strategic choices that a company faces. Define key attributes of target customers, the value propositions that are presented to these customers, required capabilities and resources, barriers to entry, and so on. From this map, determine vulnerabilities: where might a startup attack your model? What about a well-funded competitor? “A ‘premortem’ exercise can be a quick and effective way to identify” the most important obstacles to implementing your strategy, Sull writes.
Finally, establish strategic priorities that address these vulnerabilities. Prioritizing, Sull acknowledges, implies winners and losers. There is no easy way around this. “When it comes to setting strategic priorities, the absence of conflict is typically an indicator of failure rather than a sign of a healthy discussion,” he writes.
Read the research highlight: “How to Develop Strategy for Execution.”
3. Distill your strategy into strategic priorities
Making a strategy come to life requires making it digestible and breaking it into explicit goals.
In an analysis of nearly every S&P 500 company, Sull found that well-designed strategies generally contained three to five objectives and extended three to five years. (Shorter is too tactical; longer too visionary.) These strategies also rested on specific actions as opposed to financial targets or corporate values. In total, Sull has identified seven key ingredients that help ensure strategy can be turned into action. In brief:
- Limit objectives to a handful
- Focus on mid-term objectives
- Pull toward the future
- Make the hard calls
- Address critical vulnerabilities
- Provide concrete guidance
- Align top team
For practical tips on how to do this in your own organization, read the research feature: “Turning Strategy Into Results.”
4. Communicate your priorities
Most organizations struggle to achieve strategic alignment. In an analysis of 124 organizations, Sull and his coauthors found that only 28 percent of executives and middle managers responsible for executing strategy could list three of their company’s strategic priorities.
Just 28 percent of executives and middle managers responsible for executing strategy could list three of their company’s strategic priorities.
While solving this means starting at the top — make sure the C-suite is on the same page — the work does not end there. Strategic goals must be diffused throughout the organization. Given this, the first impulse Sull often sees among executives is to call a town hall to reiterate strategic priorities; he discourages this approach. Leaders at every level in the organization should “focus first on their direct reports, making sure they understand the company’s overall strategy and how their function, geography, or business unit fits into the bigger picture,” he writes. “One powerful way to do this: Each leader should consistently explain why his or her unit’s objectives matter for the team and for the company as a whole.”
Though not alone sufficient for success, developing this shared understanding is necessary; its absence can undermine the coordination and prioritization needed across teams.
Read the research highlight: “No One Knows Your Strategy – Not Even Your Top Leaders.”
Companies should also communicate their strategic direction to key stakeholders, including customers, distributors, and technology partners by clearly articulating their priorities. In a study of of companies in the S&P 500, Sull and his co-author Stefano Turconi identified six elements of effective communication: Strategic priorities should be focused, offer an explanation of what the strategic priorities mean in practice, clarify how they plan to achieve these objectives, explain why they matter to the firm, and communicate progress towards achieving strategic priorities.
For more details on the study, read “How to Recognize a Strategic Priority When You See One.”
5. Translate strategy into FAST goals.
Finally, a strategy must be refined into specific goals. This process, Sull notes, has long followed an established set of practices: Managers hold one-on-one meetings with subordinates to set goals and then, one year later, they review progress together. Achievement is often tied to incentives. The goals themselves are generally defined by the acronym SMART: specific, measurable, achievable, realistic, and time-bound.
“The conventional wisdom of goal setting is so deeply ingrained that managers rarely stop to ask a fundamental question — does it work?” Sull writes in “With Goals, FAST Beats SMART.” “The traditional approach to goals — the annual cycle, privately set and reviewed goals, and a strong linkage to incentives — can actually undermine the alignment, coordination, and agility that’s needed for a company to execute its strategy.”
Sull instead advocates for the FAST approach. Goals should be embedded in frequent discussions; ambitious in scope; measured by specific metrics and milestones; and transparent for everyone in the organization to see. If goals aren’t deployed this way to meet specific strategic outcomes, “every employee could achieve their individual goals, but the organization as a whole could still fail to execute its strategy,” he writes.
Read the research feature: “With Goals, FAST beats SMART.”
For a full treatment of each step in this process (and more), visit the ongoing Strategic Agility Project.