Creating more value with corporate strategy: McKinsey Global Survey results Few companies create strategies that

deliver more value than the sum of their business unit parts, but those that do also excel at moving resources and removing barriers. The development of a corporate strategy should amount to more than the aggregation of business unit strategies. The best corporate strategies, in our experience, force a multibusiness company to make clear choices about its portfolio and the allocation of its resources. Yet the results of a recent McKinsey survey show that just one executive out of five says his or her corporation fully addresses strategy in this way. Whats more, more than a quarter of executives at multibusiness companies say their corporations lack a consistent process for developing strategy. In this survey,1 we asked executives at multibusiness companies how they approach the development of corporate strategythe frequency with which they review it and the amount of time they spend on it, the inputs of the process and the resulting activities, the barriers to reallocating resources, and the talent and other management processes they apply to overcome these barriers. A small group of 151 respondents emerged who rate their companies approaches to strategy development as very effective and also say their profit margins are higher than those of competitors. Executives at companies that are effective developers of strategy are twice as likely as their peers to say their companies apply a distinct corporate strategy process (38 percent compared with 18 percent of all other respondents). Furthermore, 97 percent of these respondents view their companies processes for developing corporate strategy as consistent, compared with 59 percent of others. Executives also say these companies spend more time developing strategy, review strategies more frequently, and are much better at eliminating barriers to implementation.

Developing Your Strategy Finding Your Path to Success

How are you going to win in the period ahead? iStockphoto/DamirK "How are you going to win in the period ahead?" That's the key question behind developing strategy. To win at anything worthwhile, you need a game plan. Professional sports teams know this, and this idea applies to your organization, your department, your team and even to yourself as an individual. To be successful means knowing how to use your talent and resources to best advantage, and it's very difficult to "win" if you don't have this game plan in place. This article introduces you to a common-sense, systematic approach to strategy development. Approaches to Strategy In a for-profit company, for which competition and profitability are important, your goals will differ from those of a nonprofit or government department. Likewise, objectives for a department or team will have a different scope from objectives for your organization as a whole. For example, and depending on scope and circumstances, you may want to develop strategies to: Increase profitability. Gain more market share. Increase approval ratings, or boost customer satisfaction.

Complete a project under budget. To determine your strategy, you must understand fully the internal and external environmental factors that affect you. With that understanding, you can identify your clear advantages and use these to be successful. From there, you can make informed choices and implement your strategy effectively. So, strategy creation follows a three-stage process: Analyzing the context in which you're operating. Identifying strategic options. Evaluating and selecting the best options. We'll look at this process, and review some useful tools that can help you develop your strategy. Stage 1: Analyzing Your Context and Environment In this first stage, you ensure that you fully understand yourself and your environment. Do the following: Analyze Your Organization Firstly, examine your resources, liabilities, capabilities, strengths, and weaknesses. A SWOT Analysis is a great tool for uncovering what you do well and where you have weaknesses, providing that you use it rigorously. It's much easier to achieve your objectives when your strategy uses your strengths without exposing your weaknesses. Also, look at your Core Competencies. These highlight your unique strengths, and help you think about how you can set yourself apart from your competitors. Analyze Your Environment Now you need to examine your current operating environment to predict where things are moving. Are there exciting opportunities that you should pursue? What future scenarios are likely in your industry, and how will these impact the work that you do? PEST Analysis, Porter's Diamond, and Porter's Five Forces are great starting points for analyzing your environment. They show where you have a strong position within the larger environment, and where you may have issues. As you prepare to create your strategy, make sure that you're working in a way that's aligned with changes in your operating environment, rather than working against them. These external factors are often beyond your control, so if you pursue a strategy that requires a change in one of these elements, you may have a long, exhausting, unprofitable battle ahead of you.

Tip: A TOWS matrix can help you with your internal and external analysis. This framework combines everything you learned in your SWOT Analysis (TOWS is SWOT in reverse), and then applies it to developing a strategy that either maximizes strengths and opportunities, or minimizes weaknesses and threats.

Analyze Your Customers and Stakeholders Your strategy defines how you'll win, and winning is typically framed by how well you satisfy your customers. For-profit companies must keep their customers and shareholders happy. Governments, nonprofits, and project teams all have other stakeholders to satisfy as well. Strategy creation must consider these needs. Identify your clients and stakeholders. What do your clients want? And who are the key stakeholders in your success? A Stakeholder Analysis will help you uncover these needs and preferences. Also, look at your market in detail. Answer key questions such as "How is ourmarket segmented?", "What subpopulations can we reach cost-effectively?" and "What is our optimal Marketing Mix?" Analyze Your Competitors In a traditional for-profit company, you must understand how your products compare with competitors' products, and what your competitors' competencies are. How easy, or difficult, is it to enter your market? What alternatives do customers have? Our article on USP Analysis helps you identify ways in which you can compete effectively. You'll also find many useful tools that can help you understand competitors in our article on Competitive Intelligence. Non-profits, departmental teams and projects have competitors too. Other projects and teams within the department compete for money and other resources. Therefore, you must prove that you can add value, meet objectives, and contribute to organizational success. Stage 2: Identifying Strategic Options In Stage 1, you developed an understanding of how your organization or team fits within the context of the internal and external environments. Now it's time to think about the different things that you could do to create a clear advantage, and meet your objectives. Here are some fundamental activities that can help you make this decision.

Brainstorm Options Use creativity tools like Brainstorming, Reverse Brainstorming andStarbursting to explore projects that you could run to develop competitive advantage. Guide your brainstorming with reference to the organization's mission statement, but, depending on your role in the organization, consider how far you should be constrained by this. Examine Opportunities and Threats Your SWOT Analysis identified some of the main opportunities and threats you face. Using this as a starting point, brainstorm additional ways to maximize your opportunities, minimize your threats, or perhaps even turn your threats into opportunities. Solve Problems A problem-solving approach can also help at this stage. If your problem is that you're not achieving your goals, ask yourself how you can ensure that you do. (If everyone in your industry finds it hard to deal with a particular problem, then you may gain a competitive edge by dealing with it.) For example, if you want to increase your customer satisfaction ratings in an industry plagued by poor customer relations, your starting position is "low satisfaction." Brainstorm why this is the case, and create strategic options that would increase satisfaction. Tools like Root Cause Analysis, the 5 Whys, andAppreciative Inquiry can give you some interesting new perspectives on these problems. Stage 3: Evaluating and Selecting Strategic Options The final stage is to evaluate strategic options in detail, and select the ones that you want to pursue. Evaluate Options By this stage, you've probably identified a range of good projects that you could run. You must now evaluate these to choose the best strategic options. Consider every option you've identified, but don't make a final judgment until you've completed your assessment. Start by evaluating each option in the light of the contextual factors you identified in Stage 1. What do these tell you about each option? Techniques like Risk Analysis, Failure Modes and Effects Analysis andImpact Analysis can help you spot the possible negative consequences of each option, which can be very easy to miss. Make sure that you explore these thoroughly.

Many options will be analyzed on a financial basis. Here, techniques like Cost-Benefit Analysis, Break-Even Analysis, use of Net Present Values (NPVs) and Internal Rates of Return (IRRs), and Decision Trees are helpful. Grid Analysis is particularly helpful for bringing together financial and non-financial decision criteria. It helps you weight individual decision criteria, and consider subjective features - like team fit and the likelihood of team buy-in - as well as objective, tangible factors like cost and return on investment. Choose the Best Way Forward With your evaluation complete, you now must choose the best strategic option or strategic options, making sure that you don't choose so many options that you spread your resources too thinly. Check your ideas for consistency with your organization's Vision, Mission and Values, and update these if necessary. It's easy to forget about these critical elements during strategic planning, so ensure that what you want to "win" is something that contributes towards the organization's overall purpose. Check your assumptions using the Ladder of Inference. This helps you confirm the soundness of the reasoning process used to develop your strategy.

Tip: There's a lot of debate and disagreement about the best way of developing a strategy. Don't be afraid to adapt this approach to your own, specific circumstances!

Implementing Strategy It's no good developing a strategy if you don't implement it successfully, and this is where many people go astray. See our articles on VMOST Analysis and the Balanced Scorecard for ways of bridging the gap between strategy development and implementation, and ourProject Management section for the techniques you'll need to use to implement strategy successfully.

Key Points

Your strategy tells you how you'll achieve success, no matter how that success is defined. And whether you're developing a strategy at the personal, team or organizational level, the process is as important as the outcome. Identify your unique capabilities, and understand how to use these to your advantage while minimizing threats. The process and tools identified above will help you identify a variety of potential strategies for success, so that you can ultimately choose the one that's right for you.

Apply This to Your Life Practice strategy development by thinking about your own, personal circumstances. Complete the analyses below to think about your personal way forward. Here are some key questions to consider: What are your personal strengths, weaknesses, opportunities or threats, and what are your "core competencies"? What are you capable of achieving if you put your mind to it? What are the "big picture" trends in your environment? How can you monitor or adapt to these external factors? Who are the people who are important to your success (your stakeholders)? What options do you have? Which of these should you consider?

IDEA IN PRACTICE: An in-depth look at how one European industrial-goods company used the ideas in this article to improve execution. INTERACTIVE TOOL: Use this simulator to test the effectiveness of various change initiatives. A brilliant strategy, blockbuster product, or breakthrough technology can put you on the competitive map, but only solid execution can keep you there. You have to be able to deliver on your intent. Unfortunately, the majority of companies arent very good at it, by their own admission. Over the past five years, we have invited many thousands of employees (about 25% of whom came from executive ranks) to complete an online assessment of their organizations capabilities, a process thats generated a database of 125,000 profiles representing more than 1,000 companies, government agencies, and not-for-profits in over 50 countries. Employees at three out of every five companies rated their organization weak at executionthat is, when

asked if they agreed with the statement Important strategic and operational decisions are quickly translated into action, the majority answered no. 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, weve identified four fundamental building blocks executives can use to influence those actionsclarifying decision rights, designing information flows, aligning motivators, and making changes to structure. (For simplicitys sake we refer to them as decision rights, information, motivators, and structure.) In efforts to improve performance, most organizations go right to structural measures because moving lines around the org chart seems the most obvious solution and the changes are visible and concrete. Such steps generally reap some short-term efficiencies quickly, but in so doing address only the symptoms of dysfunction, not its root causes. Several years later, companies usually end up in the same place they started. Structural change can and should be part of the path to improved execution, but its best to think of it as the capstone, not the cornerstone, of any organizational transformation. In fact, our research shows that actions having to do with decision rights and information are far more importantabout twice as effectiveas improvements made to the other two building blocks. (See the exhibit What Matters Most to Strategy Execution.) What Matters Most to Strategy Execution Take, for example, the case of a global consumer packaged-goods company that lurched down the reorganization path in the early 1990s. (We have altered identifying details in this and other cases that follow.) Disappointed with company performance, senior management did what most companies were doing at that time: They restructured. They eliminated some layers of management and broadened spans of control. Management-staffing costs quickly fell by 18%. Eight years later, however, it was dj vu. The layers had crept back in, and spans of control had once again narrowed. In addressing only structure, management had attacked the visible symptoms of poor performance but not the underlying causehow people made decisions and how they were held accountable. This time, management looked beyond lines and boxes to the mechanics of how work got done. Instead of searching for ways to strip out costs, they focused on improving executionand in the process discovered the true reasons for the performance shortfall. Managers didnt have a clear sense of their respective roles and responsibilities. They did not intuitively understand which decisions were theirs to make. Moreover, the link between performance and rewards was weak. This was a company long on micromanaging and second-guessing, and short on accountability. Middle managers spent 40% of their time justifying and reporting upward or questioning the tactical decisions of their direct reports. Armed with this understanding, the company designed a new management model that established who was accountable for what and made the connection between performance and

reward. For instance, the norm at this company, not unusual in the industry, had been to promote people quickly, within 18 months to two years, before they had a chance to see their initiatives through. As a result, managers at every level kept doing their old jobs even after they had been promoted, peering over the shoulders of the direct reports who were now in charge of their projects and, all too frequently, taking over. Today, people stay in their positions longer so they can follow through on their own initiatives, and theyre still around when the fruits of their labors start to kick in. Whats more, results from those initiatives continue to count in their performance reviews for some time after theyve been promoted, forcing managers to live with the expectations theyd set in their previous jobs. As a consequence, forecasting has become more accurate and reliable. These actions did yield a structure with fewer layers and greater spans of control, but that was a side effect, not the primary focus, of the changes. The Elements of Strong Execution Our conclusions arise out of decades of practical application and intensive research. Nearly five years ago, we and our colleagues set out to gather empirical data to identify the actions that were most effective in enabling an organization to implement strategy. What particular ways of restructuring, motivating, improving information flows, and clarifying decision rights mattered the most? We started by drawing up a list of 17 traits, each corresponding to one or more of the four building blocks we knew could enable effective executiontraits like the free flow of information across organizational boundaries or the degree to which senior leaders refrain from getting involved in operating decisions. With these factors in mind, we developed an online profiler that allows individuals to assess the execution capabilities of their organizations. Over the next four years or so, we collected data from many thousands of profiles, which in turn allowed us to more precisely calibrate the impact of each trait on an organizations ability to execute. That allowed us to rank all 17 traits in order of their relative influence. (See the exhibit The 17 Fundamental Traits of Organizational Effectiveness.)