The problem. According to a recent PriceWaterhouseCoopers report, 80% of lost company value is the result of poor strategy, not operational errors. Other studies indicate that half of all executives believe that they are implementing a poor strategy. These facts beg the question, “Why would we executives allow our company to implement a strategy that we don’t believe will benefit the company?”

The solution. I believe there are three keys to improving on these statistics and developing an effective strategy

  1. Identify a wide range of strategic options to address your strategic issue
  2. Select all the important factors that you need for your decision
  3. Develop a simple rubric that provides an objective rating of your options

Let’s examine each in a little detail.

Identify options. It’s the executive’s nature to cross things off a “to-do” list as quickly as possible; usually that is how we got to the top. However, when confronted with strategic issues, this tendency can prove fatal. Strategic issues are usually complex and addressing them optimally requires a multi-faceted analysis. So, when we try to quickly identify an optimal solution for our business challenge, we usually respond by selecting familiar approaches. “It worked once, so it should work again.” However, research shows that truly innovative solutions take more time to uncover than the “tried and true” options. In today’s fast-changing world, older solutions are unlikely to be the answer.

To avoid this tendency, executives need to focus on identifying new solutions to strategic challenges. This is best accomplished by assembling your senior team. Their varied experience can provide the different perspectives that can generate innovative ideas. As the leader, your role is to encourage them to think creatively. Consider implementing a brain-storming technique to get new ideas out. Your goal is to identify 4 – 5 solutions, not the 1 – 2 that most companies select. Then simultaneously evaluate all the options. This may sound difficult or time-consuming, but it is actually the most efficient approach to discriminate between options identified by the team.

Select important factors. Successful executives know that our decisions should be fact-based. The biggest difficulty is in knowing which facts to incorporate into the analysis. “Shoot from the hip” executives select a limited number of factors based on their past experience. Problems arise if factors are selected without surveying business and market dynamics first, which usually results in important factors being left out. This opens executives to the blind quadrant conundrum (executives don’t know what they don’t know). There are many instances where a company’s blind quadrant dooms their strategy.

Think of it this way. Forming a strategy without evaluating all the important factors is like cooking a dish without the entire recipe. You may be lucky and the meal may taste good, but you never know if it is the best it could be.

The solution is to make sure executives have identified all the important factors for the decision. I have found that using a list of common factors helps considerably in eliminating the blind quadrant conundrum. This sounds simple, but it is amazing to me how many executives do not review a list of potential factors before embarking on their strategic analysis. I have generated my own list of over 100 factors for this purpose.

Establishing a rubric. Frankly, most executives know that step 2, identifying the factors, is important. But the biggest problem they encounter is they tend to arbitrarily decide what is “good” or “bad.” For instance, if one strategic option generates $1M in sales, is that good or bad? Usually executive team members have different opinions, so the analysis can turn into a swap of opinions, until one side prevails.

How does a company avoid this irrational approach? By establishing an evaluation scale or rubric before any analysis is performed. Personally, I prefer a simple 3 or 5 point rubric using intuitively obvious components. When the rubric is created before the executive team starts to collect data, this scale becomes an objective tool for discriminating between the options.

 

Admittedly, these suggestions are not rocket science. But I don’t believe executives need more complexity in their world. They need simple tools that work. What proof is there that even a simple approach like this works? McKinsey’s research segregated companies into two groups: “effective” and “ineffective” strategy companies. 97% of effective strategy companies used a defined approach that incorporated simple steps like the ones mentioned above. Reduce your risk of developing a poor strategy by implementing these simple steps.