The Main Even by Ralph W. Manning

Friday, July 20, 2018

Strategy vs Execution: A 15-Round Split Decision

“It’s easy to see why managers might view business competition in sports terms of wanting to be the best. However, if you think about your company in terms of how to be most unique rather than how to be best, you will have a sustainable strategy.”

~ Michael E. Porter

In April of 1956, World Heavyweight Champion Rocky Marciano retired from boxing at the age of 31. Marciano had answered the bell in 49 professional bouts and had won all 49, 43 of them by knockout. A charismatic and articulate athlete, Marciano was, and still is, the only heavyweight champion ever to achieve a perfect professional record.

Four years later, another charismatic boxer from Louisville, Kentucky named Muhammad Ali would win Olympic gold in Rome and go on to become world heavyweight champion a mere four years after that. Ali’s stunning upset over Sonny Liston in the 1964 title bout would soon have curious sports fans asking the question: Who’s best, Ali or Marciano?*

Curiosity is the foundation of all human achievement and human beings are, by their very nature, curious. This is especially true for entrepreneurs and CEOs who know instinctively that asking questions yields answers and asking great questions yields great answers.

So, it is no surprise that business leaders are to this day asking themselves the great question that has been hotly contested for generations in both industry and academia: What’s more important, strategy or execution?

So, What Is Strategy?

Every business that produces a product or service and is able to do so at a profit has a strategy whether or not it is clearly articulated or even well understood. There is great benefit and clarity that comes from understanding specifically what the business strategy is and being able to articulate it clearly both inside and outside the organization.

In his seminal article on the subject entitled “What is Strategy?”, broadly-recognized business strategy expert at the Harvard Business School Michael Porter** defines strategy as the deliberate “creation of a unique and valuable position, involving a different set of activities.”

Porter’s argument is that, in order to maintain a competitive advantage, the enterprise must engage in a set of activities not easily imitated by its competitors and that competition based merely on operational effectiveness is futile given that most process efficiencies will eventually converge among competitors and thus lead to pressures on profits and eliminate any competitive advantage.

While it is understandable and most natural for managers to compete in a sports paradigm of being the best, Porter suggests that it is more sustainable to compete in a paradigm of being unique. Legendary investor Sir John Templeton would seem to agree having said that, “It is impossible to produce superior performance unless you do something different.”

But, There’s More

Larry Culp, a student of Porter’s and the current Chairman and CEO of the General Electric Company, is widely known for his operational expertise, but also for his emphasis on strategy. Culp defines strategy as being able to answer two key questions: What game are we playing? and How do we win?

“You must understand and communicate what we are and are not going to do,” Culp remarked. “How we win answers the question of what activities we will engage in to win with customers against competitors.”

Harvard Business School Professor Lynda Applegate goes further by making it clear that, “Hope is not a strategy. Strategy is what makes you different from everyone else in ways that add value to all stakeholders.”

Strategy, it seems, is about being unique and different relative to your competition and being very intentional about it, applying these differentiating activities in ways that create incremental value for your customer and doing this in ways that result in winning favor with your customers at your competitors’ expense.

So, What About Execution?

Just as great quarterbacks can be said to be the product of great receivers, such is the relationship of strategy to execution.

far ahead of strategy. “Top leaders can provide the framework and tools for a team, but the game is won on the playing field. When a strategy looks brilliant, it’s because of the quality of execution.”

Recent studies at the Harvard Business School conclude that only 1 in 10 companies that have a strategy are successful in executing it, casting a dark shadow over the effort and expense involved in developing strategy. The evidence further suggests that it is not so much that companies have no strategy (or worse, that they have the wrong strategy), as it is that year-over-year execution is just so hard to achieve.

Porter, Culp, et al. have shown us what strategy is, but wringing results from strategy turns out to be much more difficult than it might seem at first glance. Perhaps this is why famed management consultant and business professor Peter Drucker was known to say, “Culture eats strategy for breakfast.” The right people in the right environment of great business cultures are required before one can expect to achieve consistent execution.

Operational Effectiveness

Operational effectiveness is the ability to execute consistently via the development of superior operational processes that drive efficiency and prediction of results. In the competitive sense, OE is simply the firm’s ability to perform tasks similar to those of rivals, but better than rivals (efficiency being just one factor in the equation).

OE is achieved in the details of advanced process development that takes place in a continuous improvement culture over a period of years. CEO-of-the-Century Jack Welch once said, “There is no end to the continuous improvement and efficiencies that can be achieved. We were growing the top line of the lighting business (light bulbs) 2% year over year but we were gaining in efficiencies 8% year over year.”

Further, the importance of standardization of processes cannot be overstated. John Chambers, former Chairman and CEO of Cisco Systems, attributes the constant improvement of processes, known as Kaizen, within Cisco as being the single biggest factor that led Cisco to market dominance. He explains, “Process is not bureaucracy, process is speed and speed is a huge competitive advantage especially in the tech industry where everything moves fast and the inability to move consistently with tremendous speed means you lose market share.”

So, What Is the Difference Between Strategy, Execution, and OE?

Put simply, strategy is the choice of a set of unique activities which give our business a competitive advantage and execution is the process we apply to perform those activities. Within that construct, operational effectiveness would be how well the firm performs the subset of activities which are similar to those of its rivals with respect to its rivals.

We find a great illustration of the difference between strategy and execution in a railroad analogy. In building a railroad, strategy is the direction in which you decide to lay your tracks and execution is making the trains run on time.

This illustration underscores a very important point. Strategy is critical in the short term (nothing matters if you lay the tracks in the wrong direction) and operational effectiveness is critical in the long term (if the tracks are going the right way but the trains don’t run on time the railroad will never achieve its fullest potential operationally or financially).

A more modern form of the analogy might be: A jet airplane going Mach 1 is efficient, but a jet airplane going Mach 1 in the right direction is effective.

So, Back To Your Question

So, what’s more important, strategy or execution? In the learned opinion of Larry Culp, “Execution is by far more important”. But wait, Culp’s teacher Michael Porter argues that with great execution, or operational effectiveness, what you eventually get is “sameness” and a subsequent loss of competitive advantage, indicating his preference for strategy.

Harvard Business School Professor Raffaella Sadun set out to address this conundrum by collecting a large data set and then letting the data tell the story. In her acclaimed article “Why do we Undervalue Competent Management” (based on surveys and interviews involving several thousand companies in 34 countries conducted over several years) she concluded, “Neither great leadership nor brilliant strategy matters without operational excellence.”

The research indicates that achieving operational excellence is still a massive challenge for most firms. Professor Sadun states, “It’s a truism among strategists that you can’t compete on the basis of better management processes because they’re easily copied.” The data seem to indicate otherwise.

As a supporting case, she points to GM who tried for years to adopt Toyota’s superior production system and failed miserably. At Toyota they claim, You can’t copy our performance unless you copy what is going on in our people’s heads.

Sadun adds, “Achieving operational effectiveness takes effort: sizable investments in people and processes throughout good times and bad. These investments represent a major barrier to imitation.”

Dr. Ananth Raman, UPS Foundation Professor of Business logistics and Chair OPM at HBS, preaches, “Excellent execution and a mediocre strategy will beat mediocre execution and an excellent strategy any day.”

The Decision Is In

Our judges are split in favor of execution (Culp and Sadun scoring for execution, while Porter’s card tallies for strategy). It seems that imitation is not as easy as it seems and that execution, and specifically operational effectiveness, is so difficult to achieve that few firms ever do.

In the end, the highest performing businesses and management teams are committed to doing whatever it takes to achieve operational excellence, but they do so by executing it within the confines of a strategy. In other words, the business strategy informs how to apply operational effectiveness to achieve a sustainable long term strategic competitive advantage. They do whatever it takes to learn how to make the trains run on time while ensuring that the tracks are going in the right direction.

So, Back To Sports

Ben Hogan on the value of execution:
“There are no shortcuts in the quest for perfection.”

The greatest mad scientist ever to stride the links was, in this writer’s estimation, Ben Hogan. Mr. Hogan wrote his series of five Sports Illustrated articles on the fundamentals of the golf swing in 1957, which became the basis for his iconic book, “Ben Hogan’s Five Lessons: The Modern Fundamentals of Golf.”

One can read that book and internalize the golf swing intellectually. The book conveys a deep understanding of the game not possible before its reading. However, even after reading the book carefully and intently, an immediate shot off the practice tee will surely be a disappointment. This is not because the fundamentals are in any way flawed. This does not mean there is a lack of understanding. It simply means that one must practice long and hard on the execution of the fundamentals to achieve mastery.

The reality is, that while many will read and understand the fundamentals (the strategy), few will invest the time and effort to put them into effective practice (the execution).

Mike Tyson on the value of strategy:
From the mad scientist to the sweet science, Iron Mike Tyson’s comment on the value of strategy is both short and sweet:
“Everybody has a plan until they get punched in the mouth.”