Less is More: How to Select Strategic Initiatives that Create Value
Line-of-SightSM led a survey of more than 100 CEOs to measure how they evaluated the execution capabilities of their organization. This survey took place in Q1 2021, when most businesses were transitioning to a post-pandemic world.
Line-of-SightSM helps companies execute better by measuring and managing five critical capabilities necessary for successful execution (or KSEs): strategic understanding, leadership, balanced metrics, activities & structure, and human capital; it also assesses market discipline - the ability to execute in a way that remains true to the strategic intent. These factors are aggregated to form an overall Organizational Health index measured on a scale from 0 to 100.
In the post-pandemic, companies are restarting projects that got paused or side-tracked during the COVID crisis. But as employees are adjusting to being back in the office and consumer demand remains unpredictable, leaders should avoid the trap of doing too much, too soon.
In a recent article titled “Eliminate Strategic Overload”, HBR makes the case that less is more when it comes to strategy and related initiatives: companies that achieve enduring financial success create substantial value for their customers, their employees, and their suppliers. This post summarizes the HBR article.
Therefore, a strategic initiative should be “value-based” - worthwhile only if it does one of the following:
- It creates value for customers by raising their willingness to pay (WTP)
If companies find ways to innovate or to improve existing products, people will be willing to pay more. For example, Gucci increases customers’ WTP by creating products that confer social status. WTP is the most a customer would ever be willing to pay. Think of it as the customer’s walk-away point. Too often, managers focus on top-line growth rather than on increasing willingness to pay. A growth-focused manager asks, “What will help me sell more?” A person concerned with WTP wants to make her customers clap and cheer. A value-focused company convinces its customers in every interaction that it has their best interests at heart.
- It creates value for employees by making work more appealing
Companies can attract talent even if they do not offer industry-leading compensation if the work they offer to employees is attractive. Offering better jobs not only creates value, but it also lowers the minimum compensation that you have to offer to attract talent to your company, or what is commonly known as an employee’s willingness-to-sell (WTS) wage.
Value-focused businesses think about the needs of their employees (or the factors that drive WTS). The article takes the example of the Gap, where one of the retail workers’ biggest problems was the lack of predictable and personalized schedules. It standardized work shifts and used an app that allowed workers to trade shifts freely. During a 10-month test period, labor productivity went up 6.8% and sales rose nearly $3 million in participating stores.
- It creates value for suppliers by reducing their operating costs
Like employees, suppliers expect a minimum level of compensation for their products. A company creates value for its suppliers by helping them raise their productivity. As suppliers’ costs go down, the lowest price they would be willing to accept for their goods—what is called their willingness-to-sell (WTS) price—falls. This is an approach well-known in strategic sourcing, but one that is rarely used to evaluate whether a new strategic initiative is worth pursuing.
“The essence of strategy is choosing what not to do”, as Michael Porter so simply stated. To put it in practice, CEOs can use the Value-Based Strategy model and only move forward only with projects that create value for customers, employees, or suppliers.
Upcoming blogs will mine Line-of-SightSM execution data to provide actionable advice for leaders seeking to maximize their organization’s execution capabilities.