‘Strategy beyond the hockey stick’ by Bradley, Hirt & Smit

What are the key factors that determine exceptional company performance?

Three of McKinsey’s top strategists looked at publicly available information for thousands of companies.

They identified 10 levers across the following three categories and their relative impact on moving firms up or down their ‘power curve’ of economic profit:

• Financial health at outset 30%
• Industry and geographic trends 25%
• The moves you make 45%

Over ten years:

• you have a 8% chance of moving from the middle to the top.
• 75% of firms in the middle stay put.
• so do 43% of those at the bottom.

Their conclusions?

• Most companies aren’t bold enough.
• Even ‘successful’ strategies tend to result in small wins.
• We make bold forecasts but timid plans.
• Bold targets require bold moves and big investment.
• Resources are spread too widely and too thinly.
• Narrow, inside views too often go unchallenged.
• Bigger moves increase your chances of success.
• They also stop you slipping back.

The authors say five moves can combine to produce ‘persistently positive’ outcomes:

1. A programme of mergers, acquisitions and divestments.
2. Resourcing areas with most potential.
3. Capital expenditure of at least 1.7x industry mean.
4. Productivity improvement in top third of sector.
5. Premium prices thanks to product innovation/differentiation.

And they recommend eight shifts to unlock strategy success:

1. From annual planning to dynamic, rolling strategy.
2. Framing strategy as choices, not a fixed plan.
3. Properly investing in your ‘big bets’.
4. Agreeing big moves before allocating budgets.
5. Fixing up to 80% of budget, leaving 20+% free for big moves.
6. Separate conversations about improvement, growth and risk.
7. Encouraging ‘noble failures’ and quality of effort.
8. Focus on first steps and six month blocks.