HBR's 10 Must Reads on Strategy

1. Companies typically realize only 63% of their strategies' potential value

Our research suggests that companies on average deliver only 63% of the financial performance their strategies promise.

Strategy-performance gap. Most companies fall short of achieving their strategic goals, leaving significant value on the table. This gap between projected and actual performance is pervasive across industries and geographies. The root causes often lie in disconnects between planning and execution processes, as well as unrealistic assumptions and forecasts.

Unrealized potential. The inability to fully execute strategy represents a massive opportunity cost for organizations. By closing this gap, companies could potentially increase their financial performance by 60% to 100%. This unrealized value highlights the critical importance of improving both strategy formulation and implementation capabilities.

Invisible to leadership. Perhaps most concerning is that the causes of this strategy-to-performance gap are often invisible to top management. This lack of visibility makes it difficult for leaders to diagnose whether shortfalls stem from flawed strategies, poor execution, or both – leading to misguided attempts at improvement that fail to address root causes.

2. The strategy-to-performance gap stems from planning and execution breakdowns

What emerges from our survey results is a sequence of events that goes something like this: Strategies are approved but poorly communicated. This, in turn, makes the translation of strategy into specific actions and resource plans all but impossible.

Communication breakdown. The strategy-to-performance gap often begins with poor communication of strategic objectives throughout the organization. When strategies are not clearly articulated and disseminated, employees lack a shared understanding of priorities and goals.

Implementation challenges. Vague strategic direction makes it difficult to translate high-level objectives into concrete action plans and resource allocations. Without clear guidance, lower-level managers struggle to align their decisions and activities with overarching strategic goals.

Accountability issues. The lack of clarity around strategic objectives also makes it challenging to establish meaningful performance metrics and accountability mechanisms. When expected results fail to materialize, there is often no clear way to trace shortfalls back to specific decisions or actions, perpetuating a cycle of underperformance.

3. High-performing companies link planning and execution processes

As significant as the strategy-to-performance gap is at most companies, management can close it. A number of high-performing companies have found ways to realize more of their strategies' potential.

Integrated approach. Leading companies recognize that planning and execution are inextricably linked. Rather than treating them as separate activities, these organizations create clear connections between strategic objectives, operational plans, and day-to-day execution.

Simultaneous improvement. High performers work to elevate both their planning and execution capabilities simultaneously. This dual focus helps ensure that strategies are grounded in operational realities while execution efforts remain tightly aligned with strategic priorities.

Continuous feedback loop. By establishing robust feedback mechanisms, top companies can quickly identify and address gaps between planned and actual performance. This allows for rapid course corrections and prevents small deviations from snowballing into major strategic failures.

4. Keep strategy simple and concrete to drive consistent action

To start off the planning and execution process on the right track, high-performing companies avoid long, drawn-out descriptions of lofty goals and instead stick to clear language describing their course of action.

Clarity over complexity. Effective strategies are expressed in simple, actionable terms that can be easily understood and internalized throughout the organization. Avoiding abstract concepts and jargon helps ensure that employees at all levels can translate strategic objectives into concrete actions.

Actionable direction. High-performing companies provide clear guidance on what the organization will and will not do to achieve its strategic goals. This level of specificity helps align decision-making and resource allocation across the company.

Consistent communication. Simple, concrete strategic principles can be consistently communicated and reinforced, creating a shared language and framework for decision-making throughout the organization. This alignment is critical for driving coordinated action toward common objectives.

5. Challenge assumptions, not financial forecasts, for realistic planning

Separating the process of building assumptions from that of preparing financial projections helps to ground the business unit–corporate center dialogue in economic reality.

Focus on drivers. High-performing companies shift planning discussions away from negotiating financial targets and toward challenging the fundamental assumptions underlying those projections. This approach helps surface potential flaws in strategic thinking early in the process.

Fact-based dialogue. By grounding conversations in market realities and competitive dynamics, organizations can create more realistic and achievable plans. This fact-based approach builds trust between corporate leadership and business units while removing barriers to effective execution.

Avoiding political negotiations. Separating assumption-building from financial forecasting helps eliminate the tendency for planning to devolve into political negotiations over targets. Instead, the focus remains on developing a shared understanding of market opportunities and challenges.

6. Use a common framework to align business units with corporate strategy

Without a rigorous framework to link a business's performance in the product markets with its financial performance over time, it is very difficult for top management to ascertain whether the financial projections that accompany a business unit's strategic plan are reasonable and realistically achievable.

Shared language. Adopting a common strategic framework, such as the concept of profit pools, creates a shared language for discussing strategy across the organization. This alignment facilitates more productive conversations between corporate leadership and business units.

Linking markets to financials. A robust framework helps connect a business unit's market performance to its long-term financial projections. This linkage makes it easier to assess the reasonableness and achievability of strategic plans.

Consistent evaluation. With a common framework in place, corporate leadership can more effectively evaluate and compare strategic plans across diverse business units. This consistency improves resource allocation decisions and overall portfolio management.

7. Discuss resource deployments early to create feasible plans

Challenging business units about when new resources need to be in place focuses the planning dialogue on what actually needs to happen across the company in order to execute each unit's strategy.

Resource-strategy alignment. Early discussions about resource requirements ensure that strategic plans are grounded in operational realities. This alignment helps prevent the creation of unrealistic or unexecutable strategies.

Cross-functional collaboration. Involving diverse stakeholders in resource planning fosters cross-functional collaboration and surfaces potential implementation challenges early in the process. This approach leads to more robust and feasible strategic plans.

Leading indicators. By closely tracking resource deployments, organizations gain early insight into strategy execution progress. This allows for timely interventions and course corrections when plans begin to deviate from projections.

8. Clearly identify priorities to focus organizational efforts

Leading companies make these priorities explicit so that each executive has a clear sense of where to direct his or her efforts.

Explicit prioritization. High-performing companies clearly articulate a limited set of strategic priorities that will have the greatest impact on performance. This focus helps prevent the dilution of efforts across too many initiatives.

Cascading objectives. Strategic priorities are translated into specific action items and performance indicators at every level of the organization. This cascading approach ensures alignment from the C-suite to frontline employees.

Accountability mechanisms. Clear priorities are coupled with well-defined accountabilities and timelines. This clarity helps drive execution by making it easy for individuals to understand their specific responsibilities in delivering the overall strategy.

9. Continuously monitor performance to enable timely course corrections

High-performing companies use real-time performance tracking to help accelerate this trial-and-error process.

Real-time tracking. Leading organizations implement systems for monitoring key performance indicators in real-time or near-real-time. This enables rapid identification of deviations from plan and allows for quick interventions.

Leading indicators. In addition to tracking lagging financial metrics, high performers monitor leading indicators that provide early signals of strategic success or failure. This forward-looking approach supports proactive management.

Regular review cadence. Establishing a consistent rhythm of performance reviews – often weekly or monthly – creates opportunities for timely course corrections. These frequent check-ins help keep strategy execution on track despite changing market conditions.

10. Develop execution capabilities through talent management

Develop execution ability. No strategy can be better than the people who must implement it. Make selection and development of managers a priority.

Execution focus. High-performing companies recognize that strategy execution is a distinct capability that must be developed and nurtured. They invest in building the skills and processes necessary for effective implementation.

Talent prioritization. Leading organizations make the selection and development of execution-focused managers a top priority. This emphasis on talent ensures that the right people are in place to drive strategy implementation.

Incentive alignment. Performance management and compensation systems are carefully designed to reinforce strategic priorities and reward effective execution. This alignment helps motivate and guide employee behavior toward strategic objectives.

Last updated: August 30, 2024