So you have ideas on what to do. Great.
But that’s the easy part. What is most challenging is the act of choosing, and saying no to distracting opportunities. A necessary evil to keep your organization focused on key goals.
Why does this matter?
Because companies without a clear strategy fall behind their competitors. Researchers have found evidence that revenue declines when the list of competing priorities grows. So with limited resources, we are most effective when focusing on a few things rather than everything.
And because less is more. During Jack Welch’s reign at GE, he divested 117 business units and re-invested the money in the few businesses where GE could attain the position of No. 1 or No. 2 industry leader. In the process, GE’s market value shot up 4,000%. That’s focus.
Why is it so hard to choose?
Fact is, we do not know if our choice today will actually produce the desired results tomorrow. We also do not know if there will be unintended consequences as result of our decision. Add to the fact our eyes are bigger than our stomach, we tend to try many options and say yes to more opportunities than we can handle.
Forecasts alone don’t help
To compare strategic choices, we often perform forecasts to see how they may impact the future. Yet researchers have found that organizations which rely on forecasting do not operate differently than those that don’t.
In Implanting Strategic Management, Harry Igor Ansoff reviewed how organizations faced the petroleum crisis in the 1970’s and reported that “many firms which do forecasting including scenario building exhibit similar behavior as reactive firms.”
He attributed the problem to forecasting systems and processes (time spent observing, interpreting, collating, communicating information to managers), to verification delay (organizations waiting for trigger events to happen), to politics (some managers may feel threatened), to rejection of unfamiliar (managers refuse to accept seriousness of a vague threat which has no precedent or they are unfamiliar with).
In other words, forecasts are not the end all be all some data scientists like us to believe. Strategic choices are affected by each leader’s personal preference, impact on their department’s future, and what the organization is actually able to achieve. Since all these extra decision factors are much more subjective, a strategic decision on what the company should do for the next 5 years becomes very challenging.
There are too many unknowns
In complex organizations, a decision often has many unintended consequences. They may frustrate people not included in the decision making process, cause chaos in a part of the organization we neglected to review, or even push customers away. In many cases, side effects will not be visible until after the decision.
Take Starbucks in the late 2000’s as example. Chasing growth, it introduced more products and prioritized speed over personal attention. In the process, it alienated some of its fans who enjoyed a cozy coffee shop atmosphere and personal connection with baristas. As result, it had to close 600 stores as customers took their cups to competing shops.
Executives at Starbucks likely failed to foresee how prioritizing speed and efficiency while adding more products alienates customers.
Organizations recognize this challenge. A strategy professor at Harvard Business School shared in an interview that most organizations send their leaders to executive education prioritize the need to learn how to think holistically:
“They need people to be better strategic thinkers. Need them to think in an integrated systemic way. At the end of the day, if we do this, what else does it impact? Is it aligned with where we want to go? To better tackle problems wrestling with systemic implications.”
When we lack a clear understanding of how a decision might affect the organization, we delay it. Hoping that time will shine more light on the situation.
Our eyes are bigger than our stomach
In a survey by Strategy&, it was reported that 64% of executives report having too many conflicting priorities, with 56% finding it challenging to allocate resources in a way that supports their organization’s strategy. It’s clear leaders find it difficult to make trade-offs.
Why? One reason is that many leaders believe their organizations can always take on one more initiative, tackle one more opportunity. We fail to recognize the limits of our abilities.
A former CEO at US Airways always reminded his executives that “Just because the lid came off the cookie jar doesn’t mean we need to get a tummy ache.”
Tackling too many priorities at once has also proven to negatively impact revenue. Paul Leinwand, the strategy consultant who led the survey for Strategy&, reveals that “as an executive team’s priority list grows, the company’s revenue growth in fact declines relative to its peers.”
Top leaders therefore work to keep their teams distraction free.
An executive at Caterpillar shared that “as a leader you constantly have to drive the organization to stay focused on those few things that will make the biggest difference.”
Similarly, a CEO of a Credit Union reported that one of his biggest responsibilities is to “say no to incremental business. To fire customers who don’t help move the company to where it wants to go. To focus energy on the core vision.”
Saying no: A way of life
Speaking with executives and strategy researchers, it became clear some leaders find it easier to choose, make trade-offs, and stay focused on their core objectives than others.
When asked how they achieved such discipline, one described it as his “way of life,” while another mentions it being a “philosophy guiding his everyday.”
Along with discipline, top leaders are also extra clear about what they want. In an interview with a senior consultant at the Boston Consulting Group who worked with Jack Welch at GE, he shared that one of Welch’s strengths as his ability to “keep his organization extremely focused. He said yes or no. Never maybe. Other CEOs said maybe.”
There is no easy solution or an app to help us make strategic choices. An organization’s ability to focus depends on its leaders’ self-discipline and boldness to make trade-offs.
Unfortunately, most leaders fail. Michael Porter, strategy professor at Harvard University, described in an interview how the “worst mistake, most common one, is not having a strategy at all… There are so many barriers that distract, deter, and divert managers from making clear strategic choices.”
This blog post is part of our Challenges series, where we ask top business leaders about the biggest challenges they face in designing and executing strategy. Click the challenges tag to checkout the other posts.
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