Review

This book is about company strategy, and its central insight was surprising to me. You have to zoom all the way out to set a company strategy. Look at macro trends in your industry, other companies, and competitors. You need to take the outside view and position yourself to take advantage of opportunities. This is a great book for CEOs and ExCo members - and useful for Product Managers to help calibrate on the difference between product strategy and company strategy.

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Key Takeaways

The 20% that gave me 80% of the value.

• When the CFO starts to translate the vision into a budget - those who stand to lose resources fight. The result is that the new budget looks a lot like last year’s budget - and it’s back to business as usual. The real barrier to good strategy is social.
• Everyone tries to secure more resources while deferring accountability for the returns on the investments until later. That’s when you start to see the hockey stick graphs, showing short-term investments and delayed returns.
• Most companies aren’t bold enough with strategy, causing incremental improvements and no real outperformance of peers.

• Strategy rarely moves the needle very far - as they’re often launched without enough energy
• Executives tend to seek further investment in their area, even when not warranted.
• When you introduce other people - you get agency problems fuelled by incongruences between management and other stakeholders:
• Sandbagging - agreeing only to plans you’re sure you can deliver
• The short game - making short term decisions knowing someone else will inherit the mess later.
• My way or your problem - if I don’t get the resources I ask for - then that’s my excuse
• I am my numbers - I’m going to work hard enough just to hit my numbers
• The social side of strategy results in the peanut butter approach - spreading a thin layer of resources smoothly across the whole enterprise, even though the best opportunities aren’t spread evenly.
• Changing strategy is like trying to move an octopus by the leg whilst the other 7 remain completely committed to staying put.

• The Power Curve of economic profits should be the main reference point. The extremes of the results render an average all but meaningless. For most businesses the practical challenge is how to escape the broad, flat middle of the curve and move up into the region on the right, where most profits accrue. Companies in the top quintile capture nearly 90 percent of profit.
• Companies and entire industries move up and down the curve. It is uneven but also very dynamic: a firm’s place on the curve changes all the time.
• Big success may need drastic measures like moving to more profitable industries or restructuring economics

• Hockey stick plans are common in strategy but often paired with timid actions. Hockey stick plans are usually conservative initially, becoming overly aggressive long-term.
• The social side of strategy involves collective aspirations clashing with individual fears, ambitions, and biases. Overconfidence, blind extrapolation, and resource competition can skew target setting.
• Bold forecasts often come with timid plans, ignoring the need for significant moves.
• Errors in performance attribution and momentum assessment can mislead strategy.
• Uncertainty is inherent in strategy, often ignored or superficially addressed.
• Resource allocation often becomes evenly spread (peanut buttering), preventing significant strategic moves.
• Real hockey stick growth exists but distinguishing genuine opportunities from false projections is crucial.

• You have just an 8% chance of moving from the middle to the top quintile over 10 years. But superior strategies have higher probabilities of success.
• Companies must compare strategies against peers to assess their true potential for success.
• Allowing for "noble failures" encourages innovation and risk-taking without stigma.
• Use stretch targets alongside baseline budgets to balance ambition and realistic expectations.
• CEOs need accurate odds to set appropriate goals and compensation. Understanding whether success is due to good management or favourable conditions is crucial for strategy evaluation.

• We back-tested our data and were able to verify that our model generates accurate predictions.
• We identified the 10 variables that make the difference - the strongest determinants of your odds of success. They fall into 3 categories: endowment, trends and moves:
• Endowment: is what you start with.
• Trends: the winds that you are sailing (which can help or hinder)
• Moves: are what you do.
• The variables are all measured relative to other companies in the sample.
• To get the effect - you have to cross an upper threshold. It’s not enough to make an incremental improvement, you have to put yourself into a different league all together.
• Endowment - The variables related to your starting position that matter the most are:
1. Size of your company - the larger your company, the better your chances of moving up.
2. Debt level - the less debt you have, the better your chances of moving up.
3. Past investment in R&D - being in the top half of your industry in your ratio of R&D to sales increases your chances of moving up
• Trends - the two key trends that affect your trajectory are:
4. Industry trend - the single most important of all 10 attributes. Your industry needs to be moving up the industry Power Curve by at least 1 quintile over a 10-year period
5. Geographic trend - you need to be in markets that are among the top 40% for nominal GDP growth.
• Moves - these are the five moves that matter, they work best in combination:
6. Programmatic M&A - A stream of deals, each no more than 30% of your market cap but adding up over 10 years to at least 30% of your market cap. This surprises people because they’ve heard studies show most M&A deals fail (factually wrong) and rightly resist the idea of a bet-the-company deal.
7. Dynamic allocation of resources - Re-allocating at least 50% of capital expenditure among business units over a decade. You’re more likely to succeed when you re-allocate capital quickly, feeding successful units and starving those without potential.
8. Strong capital expenditure - Your ratio of capital spending to sales should be in the top 20% for your industry. Spend at least 1.7 times the industry median.
9. Strength of productivity program - You need to improve productivity consistently faster than your competitors. You need an improvement rate that’s at least in the top 30% of your industry.
10. Improvements in differentiation - Your gross margin needs to be in the top 30% for your industry - through business model innovation, pricing advantages etc
• It all matters - the more you can be on the right-hand side of the distribution for the 10 variables, the better your odds. Are you above the threshold, boosting your odds, or below the threshold, lowering them?
• Endowment determines about 30%, trends determine about 25%, and your moves determine about 45% of the probability of moving on the curve. The strategic moves in aggregate, explain almost half of the mobility of companies on the Power Curve.

• Companies don’t do enough to build the capabilities or lay out the specific actions to capitalise on the trends. Your strategy should put you ahead of trends (the ground moving beneath your feet).
• Industries are escalators: either heading up and accelerating your progress, stuck on stop-mode so it’s only your effort that counts, or on a downward track, meaning you have to work hard just to stay where you are.
• If you can’t rewrite the rules of your industry, you might have to re-position your portfolio toward new growth businesses. Strong re-allocators move more than 50% of their capital base to new industries over a 10-year period.
• Make sure you have the flexibility to adapt and channel your resources to the best opportunities accordingly, and doing so faster than your competition.
• Pick the right geographies, the right customer segments, the right micro segments—and re-allocating resources within your current business to capitalize on differentiated growth prospects and trends.
• You need privileged insights to differentiate
• The secret to survival is to recognise and overcome the typical lack of response, and act boldly before it’s too late, which usually means acting before it’s obvious you have to do so.
• As an Incumbent, you need to navigate four stages of a disruptive trend
• Young companies start with uncertainty but are agile and focused on learning and future growth. As they mature, they become incumbents, standardising processes and prioritising efficiency. This shift replaces the expectation of future gains with a focus on consistent cash flow and escalating performance demands.
• In a disruption, companies nearing the top of an old S-curve face new business models at the bottom of a new S-curve. Two main challenges arise: recognising the new S-curve, which initially shows minimal impact on profitability, and adapting to different operational modes required at the bottom of the new S-curve. Often, new skill sets are needed, and the value of past experience diminishes.

• The five big moves will shift your odd of success, they sound scary but they’re actually the safest bet.
• What surprises most business leaders we talk to is just how big a big move really needs to be. Incremental doesn’t get companies very far - incremental moves increase the risk of underperformance.
• The moves matter because they’re within your control and collectively they are the strongest determinants of success - that should be empowering.

The Five Moves:

• Programmatic M&A and divestitures. The myth that 75% of mergers fail has been debunked. Success in M&A depends on the type of program. The most effective is programmatic M&A, involving at least one deal per year that cumulatively exceeds 30% of market capitalisation over 10 years, with no single deal more than 30% of market cap. Infrequent, large deals tend to hurt value creation.
• Resource re-allocation. Spreading resources evenly (peanut buttering) doesn't work. Effective re-allocation involves moving resources between industries, geographies, business units, and projects. Companies that shift more than 50% of their capital expenditure across business units over 10 years create 50% more value. Danaher's success is attributed to its focus on resource re-allocation, using processes like the Danaher Business System (DBS).
• Capital expenditure. Expanding faster than the industry is key. Successful capital programs manage a pipeline of investments, including riskier and long-term options. TSMC succeeded by investing anti-cyclically during the Internet bubble burst. Discipline and robust investment processes are crucial, as capex can amplify success or failure.
• Productivity improvement. Productivity programs need to deliver 25% more improvement than the industry median over 10 years to make a significant impact. Extraordinary efforts and new tools, like machine learning and AI, can drive substantial productivity gains.
• Differentiation improvement. Differentiation covers market share gains and pricing. It involves long-term thinking and understanding the source of competitive advantage. Burberry improved differentiation through vertical integration and a focus on digital innovation. Private firms tend to invest more long-term than public firms, avoiding short-termism driven by quarterly earnings.
• They are most effective when combined - and the worse your endowment or trends, the more moves you need to make. Companies that made three or more big moves were six times more likely to jump from the - middle quintile to the top.

• Understanding big moves in strategy involves their interplay and combined impact.
• Big moves are highly valuable.
• Big moves can offset a poor inheritance.
• Big moves are non-linear and must be significant relative to your industry.
• Big moves must be substantial to make a difference. Outperforming competitors is crucial.
• Big moves compound; multiple moves significantly improve odds.
• Big moves are asymmetric; upside potential outweighs downside risk.
• Big moves are cumulative, not instant solutions.
• Successful companies integrate big moves into daily practices.

• Eight shifts that’ll help you effectively address the social barriers of strategy:
1. From Annual Planning to Strategy as a Journey
2. From Getting to "Yes" to Debating Real Alternatives
3. From Peanut Butter to Picking your 1-in-10s
4. From Approving Budgets to Making Big Moves
5. From Budget Inertia to Liquid Resources
6. From Sandbagging to Open Risk Portfolios
7. From You Are Your Numbers to Holistic Perspective on Performance
8. From Long-Range Planning to Forcing the First Step
• The eight shifts are a package deal. You cannot do some of them and not do others

Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

Introduction

• Challenges with setting strategy:
• Even if key executives agree on a fresh strategy → when the CFO starts to translate the vision into a budget - those who stand to lose resources fight. The result is that the new budget looks a lot like last year’s budget - and it’s back to business as usual.
• Subject matter experts within the business not involved in the strategy creation conclude that management is stuck in a bubble, roll their eyes, and just get on with what they were doing. They might use the ‘new strategy’ to justify some uneconomic projects.
• The social side of strategy can overwhelm the intellectual side. The real barrier to good strategy is social.

Culture eats strategy for breakfast. Peter Drucker

• People are aware when they set plans and targets their jobs and status are on the line. Naturally they try to secure more resources while deferring accountability for the returns on the investments until later. That’s when you start to see the hockey stick graphs, showing investments and returns.
• Most strategies are too inward looking - overweighting industry data, company data and and personal experiences. More information of this type can result in overconfidence and arriving at the conclusions.
• Really big shifts in strategy often require an outside view - bring the experiences of other executives and their companies in other strategy rooms into yours to shape the discussion.
• We tend to believe our situation is unique, no other company has our brand, our resources, our set of competitors, our customers, our challenges, our opportunities.
• BUT the authors found 10 levers that explain over 80 percent of corporate performance.
• The strategy of most companies isn’t bold enough to spark big moves in performance. This results in incremental improvements and no real outperformance of peers.
• They are attracted to the safety of having a plan that varies only slightly from last year’s plan.
• Resources are spread too thinly across the whole business, meaning no business unit has enough to achieve a real breakthrough.
• To outperform competing businesses you need to choose the right markets to compete in, and pull hard enough on at least some of the levers we’ve identified (beyond a threshold).
• These big moves do not come at the expense of increased risk - the biggest risks often lie in not moving at all.

Chapter 1 Games in the strategy room—and why people play them

• Strategy rarely moves the needle very far - as they’re often launched without enough energy to shoot for the moon.
• Executives tend to seek further investment in their area, even when not warranted. Everything is presented as a winning idea. Hockey sticks are common, showing revenue and profit skyrocketing after a few years. Just invest a bit in the first couple of years, tolerate some losses, and then expect huge returns. The hockey sticks rarely work out, but they are a great way of bargaining for resources. It’s learnt behaviour. Executives know that failure to have a hockey stick projection will result in less resources - so everyone else does it!
• People’s egos, careers, bonuses, status and the resources they get - all depend on how convincingly they present their strategies.
• Playing the inside game

No matter who you are, most of the smart people work for someone else. Bill Joy

• Competitors will always work diligently to counteract your strategy, or will pursue just about the same opportunities that you see.
• Most companies aren’t focused on what their competitors might do, they focus on an inside view. People to extrapolate from their own experiences and data, even when attempting something they’ve never done before.
• Experts become more confident as they gather more data—even though projections aren’t any more accurate. Overconfidence is self-reinforcing, leading people to ignore contradictory information.
• 70 percent of executives don’t like their strategy process, and 70 percent of board members don’t trust the results.
• Simply knowing the social problems isn’t enough, strategy is done by humans working together. Our brains aren’t well adapted to work on low-frequency, high-uncertainty problems, unintentional mental shortcuts (overconfidence, anchoring, loss aversion, confirmation bias, attribution error, etc) can distort our process.
• Feedback loops can take years and be noisy.
• When you introduce other people - you get agency problems fuelled by incongruences between management and other stakeholders:
• Sandbagging - agreeing only to plans you’re sure you can deliver
• The short game - making short term decisions knowing someone else will inherit the mess later.
• My way or your problem - if I don’t get the resources I ask for - then that’s my excuse
• I am my numbers - I’m going to work hard enough just to hit my numbers
• People have very different motivations and often asymmetric information.
• CEOs try and optimise for the overall success of their companies - while individuals care about their area.
• Everyone isn’t optimising for the same thing.
• The social side of strategy results in the peanut butter approach - spreading a thin layer of resources smoothly across the whole enterprise, even though the best opportunities aren’t spread evenly.
• With everyone competing so hard for resources, making decisions about winners and losers is hard.
• We need to challenge the inside view - you aren’t the horse in the race, your competitors make strategies too.
• Good performance is attributed to superior management - and bad performance is blamed on market conditions.
• Kodak management never seriously debated whether digital might turn out to be a superior technology and replace the traditional film business - until it was too late.
• Even if you bring the outside perspective in - it’s the social game makes it hard to act → the best predictor of next year’s budget is still this year’s budget (plus or minus a few percent).
• Changing strategy is like trying to move an octopus by the leg whilst the other 7 remain completely committed to staying put.

Chapter 2 Opening the windows of your strategy room

• Mapmakers in the 1600s learnt to leave left blank spaces for explorers - leaving blank what they didn’t know ushering an age of exploration.
• There isn’t enough leeway in strategy rooms for curiosity and wonder about what the external view would say. The map for navigating corporate performance is not perfectly understood.
• Economic profit is the right yardstick for business performance. It measures success by showing what's left after competition. It's driven by return on invested capital (ROIC) and growth.
• The world’s largest companies get about 9.9% ROIC.

• The Power Curve is a new reference point - you should be comparing yourself with the full universe of companies competing for capital and profits (not last year or your neighbour).
• The power curve of economic profits follows a power law, with high extremes and a long flat lands in the middle.
• The extremes of the results render an average all but meaningless. For most businesses the practical challenge is how to escape the broad, flat middle of the curve and move up into the region on the right, where most profits accrue.
• The goal should be to move along the curve.
• Market forces are pretty efficient, but they allow for profit 2% above the cost of capital.
• Companies in the top quintile capture nearly 90 percent of profit and average nearly 30x as much economic profit as those in the middle three quintiles.
• Companies and entire industries move up and down the curve. It is uneven but also very dynamic: A firm’s place on the curve changes all the time.
• Industry explains 40-60% of economic profit variance; industry choice is critical.
• Success is defined by movements on the Power Curve, requiring good strategy and sustained execution.
• Big success may need drastic measures like moving to more profitable industries or restructuring economics

Chapter 3 Hockey stick dreams, hairy back realities

• Hockey stick plans are common in strategy but often paired with timid actions.
• Setting the right ambition levels and priorities intersects with biases and agency problems.
• The social side of strategy involves collective aspirations clashing with individual fears, ambitions, and biases.
• Overconfidence, blind extrapolation, and resource competition can skew target setting.
• Hockey stick plans are usually conservative initially, becoming overly aggressive long-term.
• Overconfidence is a human trait, rewarded in business dynamics.
• The real goal of planning is securing resources for the next year's budget, maintaining status and positioning for promotions.
• The CFO often adjusts resources to avoid immediate earnings hits.
• Missed targets are frequently blamed on external factors, leading to renewed but unrealistic goals.
• Bold forecasts often come with timid plans, ignoring the need for significant moves.
• Errors in performance attribution and momentum assessment can mislead strategy.
• Uncertainty is inherent in strategy, often ignored or superficially addressed.
• CEOs can manage uncertainty via a portfolio approach, but business unit leaders face binary outcomes.
• Resource allocation often becomes evenly spread (peanut buttering), preventing significant strategic moves.
• Most prefer safer plans over riskier but potentially more rewarding ones that could impact their career.
• Real hockey stick growth exists but distinguishing genuine opportunities from false projections is crucial.

Chapter 4 What are the odds?

• Strategy involves managing uncertainty and aiming for the best possible odds of success.
• Superior strategies have higher probabilities of success and should be recognised regardless of the outcome.
• Risk is integral to strategy; small bets with high potential returns can be worth pursuing.
• You have an 8% of moving from the middle to the top quintile over 10 years, you need to identify and invest in high-potential opportunities.
• Success requires both growth and ROIC improvements, which increase the chance of upward mobility.
• Genuine "hockey stick" growth involves significant moves and external factors, not just optimistic projections.
• Companies must compare strategies against peers to assess their true potential for success.
• Acknowledging risks can make decision-makers cautious, even when more risk-taking is needed.
• Evaluating performance based on probabilities can be difficult but is necessary for realistic assessments. We need to challenge the desire for certainty.
• Allowing for "noble failures" encourages innovation and risk-taking without stigma.
• Use stretch targets alongside baseline budgets to balance ambition and realistic expectations.
• CEOs need accurate odds to set appropriate goals and compensation. Understanding whether success is due to good management or favourable conditions is crucial for strategy evaluation.

Chapter 5 How to find the real hockey stick

• Strategy books lack testable hypotheses. In Search of Excellence (1982), Built to Last (1994), and Good to Great (2001) collected great companies and attempted to infer the formula behind that greatness. The assumption being that if you mimic their practices, you will be able to mimic their performance. The prescriptions in these books made sense, but they were somewhat vague—or too specific to an individual company
• We back-tested our data and were able to verify that our model generates accurate predictions. We identified what attributes are most important, and can now predict the quality of a company strategy in advance.
• We identified the 10 variables that make the difference - the strongest determinants of your odds of success. They fall into 3 categories: endowment, trends and moves:
• Endowment: is what you start with.
• Trends: the winds that you are sailing (which can help or hinder)
• Moves: are what you do.
• The variables are all measured relative to other companies in the sample.
• To get the effect - you have to cross an upper threshold. It’s not enough to make an incremental improvement, you have to put yourself into a different league all together.
• Endowment - The variables related to your starting position that matter the most are:
1. Size of your company - the larger your company, the better your chances of moving up.
2. Debt level - the less debt you have, the better your chances of moving up.
3. Past investment in R&D - being in the top half of your industry in your ratio of R&D to sales increases your chances of moving up
• Trends - the two key trends that affect your trajectory are:
4. Industry trend - the single most important of all 10 attributes. Your industry needs to be moving up the industry Power Curve by at least 1 quintile over a 10-year period
5. Geographic trend - you need to be in markets that are among the top 40% for nominal GDP growth.
• Moves - these are the five moves that matter, they work best in combination:
6. Programmatic M&A - A stream of deals, each no more than 30% of your market cap but adding up over 10 years to at least 30% of your market cap. This surprises people because they’ve heard studies show most M&A deals fail (factually wrong) and rightly resist the idea of a bet-the-company deal.
7. Dynamic allocation of resources - Re-allocating at least 50% of capital expenditure among business units over a decade. You’re more likely to succeed when you re-allocate capital quickly, feeding successful units and starving those without potential.
8. Strong capital expenditure - Your ratio of capital spending to sales should be in the top 20% for your industry. Spend at least 1.7 times the industry median.
9. Strength of productivity program - You need to improve productivity consistently faster than your competitors. You need an improvement rate that’s at least in the top 30% of your industry.
10. Improvements in differentiation - Your gross margin needs to be in the top 30% for your industry - through business model innovation, pricing advantages etc
• It all matters - the more you can be on the right-hand side of the distribution for the 10 variables, the better your odds. Are you above the threshold, boosting your odds, or below the threshold, lowering them?
• Endowment determines about 30%, trends determine about 25%, and your moves determine about 45% of the probability of moving on the curve. The strategic moves in aggregate, explain almost half of the mobility of companies on the Power Curve.
• You can now know - ahead of time - your chances of succeeding with your strategy.

Chapter 6 The writing is on the wall

• How often do you underestimate the importance of trends, the context in which you operate, because you are accustomed to believing that you are in control? How often do you see trends but do not act fast enough on them?
• Companies don’t do enough to build the capabilities or lay out the specific actions to capitalise on the trends. Your strategy should put you ahead of trends (the ground moving beneath your feet).
• Give yourself the biggest trend advantages that you can - which way your industry and your geographies are moving, account for 25% of your odds of moving up or down on the Power Curve.
• Industries are escalators: either heading up and accelerating your progress, stuck on stop-mode so it’s only your effort that counts, or on a downward track, meaning you have to work hard just to stay where you are.
• Identify the relevant trends and act on them in the right timeframe. Make trend your friend.
• If you find yourself facing a disruption of the scale that Kodak did with digital photography, you have only two options: transform your industry or leave your industry and establish a new foothold in a less threatened space.
• If you can’t rewrite the rules of your industry, you might have to re-position your portfolio toward new growth businesses. Strong re-allocators move more than 50% of their capital base to new industries over a 10-year period.
• Consider changing locations too - assess the geographies where you operate and market your products for their growth potential. Exposure to high-growth geographies is an important factor in generating profitable growth.
• Performance of geographies should be looked at relative to various industries and geographies - assess management with external factors in mind.
• Make sure you have the flexibility to adapt and channel your resources to the best opportunities accordingly, and doing so faster than your competition.
• Pick the right geographies, the right customer segments, the right micro segments—and re-allocating resources within your current business to capitalize on differentiated growth prospects and trends.
• You need privileged insights to differentiate. Find investable pockets —specific and addressable business opportunities. Developing the privileged insights can require investing in proprietary data.

So, while the macro trend might say “retail is shifting toward online,” it’s the granular view of the customer and investable pockets that makes the shift effective.

• Incumbency can make it difficult to deal with disruptions, you can be on the wrong side of a big trend.
• The secret to survival is to recognise and overcome the typical lack of response, and act boldly before it’s too late, which usually means acting before it’s obvious you have to do so.

Companies rarely die from moving too fast, and they frequently die from moving too slowly Reed Hastings

As an Incumbent, you need to navigate four stages of a disruptive trend

Young companies start with uncertainty but are agile and focused on learning and future growth. As they mature, they become incumbents, standardising processes and prioritising efficiency. This shift replaces the expectation of future gains with a focus on consistent cash flow and escalating performance demands.

In a disruption, companies nearing the top of an old S-curve face new business models at the bottom of a new S-curve. Two main challenges arise: recognising the new S-curve, which initially shows minimal impact on profitability, and adapting to different operational modes required at the bottom of the new S-curve. Often, new skill sets are needed, and the value of past experience diminishes.

The 4 Stages of a Disruptive Trend

1. Signals amid the noise - Early impact is minimal, leading to denial. Incumbents must challenge their beliefs and consider new value creation strategies. Changing mindsets is difficult, especially for profitable businesses resistant to shift.
2. Change takes hold - Core technological and economic drivers are validated, requiring new initiatives to establish footholds. Motivation may still be lacking. Companies often dabble instead of committing fully, focusing on synergies rather than radical experimentation. Bold action is needed.
3. The inevitable transformation - The new model proves superior, demanding aggressive resource shifts to new ventures. The social side of strategy makes this difficult. Performance suffers, leading to budget tightening and resistance from top decision makers. Incumbents must reallocate resources and possibly acquire new capabilities.
4. Adapting to the new normal - Industry fundamentally changes, requiring acceptance and adaptation. Incumbents may need multiple restructuring waves and continual self-disruption. Legacy capabilities may hinder adaptation, making an exit the best option in some cases. Companies must benchmark performance and understand their starting endowment and affecting trends.

Chapter 7 Making the right (big) moves

• The five big moves will shift your odd of success, they sound scary but they’re actually the safest bet.
• What surprises most business leaders we talk to is just how big a big move really needs to be. Incremental doesn’t get companies very far - incremental moves increase the risk of underperformance.
• The moves matter because they’re within your control and collectively they are the strongest determinants of success - that should be empowering.
• A reminder of the moves:
• Programmatic M&A and divestitures. The myth that 75% of mergers fail has been debunked. Success in M&A depends on the type of program. The most effective is programmatic M&A, involving at least one deal per year that cumulatively exceeds 30% of market capitalisation over 10 years, with no single deal more than 30% of market cap. Infrequent, large deals tend to hurt value creation.
• Resource re-allocation. Spreading resources evenly (peanut buttering) doesn't work. Effective re-allocation involves moving resources between industries, geographies, business units, and projects. Companies that shift more than 50% of their capital expenditure across business units over 10 years create 50% more value. Danaher's success is attributed to its focus on resource re-allocation, using processes like the Danaher Business System (DBS).
• Capital expenditure. Expanding faster than the industry is key. Successful capital programs manage a pipeline of investments, including riskier and long-term options. TSMC succeeded by investing anti-cyclically during the Internet bubble burst. Discipline and robust investment processes are crucial, as capex can amplify success or failure.
• Productivity improvement. Productivity programs need to deliver 25% more improvement than the industry median over 10 years to make a significant impact. Extraordinary efforts and new tools, like machine learning and AI, can drive substantial productivity gains.
• Differentiation improvement. Differentiation covers market share gains and pricing. It involves long-term thinking and understanding the source of competitive advantage. Burberry improved differentiation through vertical integration and a focus on digital innovation. Private firms tend to invest more long-term than public firms, avoiding short-termism driven by quarterly earnings.
• They are most effective when combined - and the worse your endowment or trends, the more moves you need to make. Companies that made three or more big moves were six times more likely to jump from the - middle quintile to the top.

There were 60 companies in our research that pulled four or five levers in the period 2000–4 to 2010–14. Within this group of 60 strong movers, 40 were upwardly mobile, and there were no downwardly mobile companies.

• Understanding big moves in strategy involves their interplay and combined impact.
• Big moves are highly valuable.
• Big moves can offset a poor inheritance.
• Big moves are non-linear and must be significant relative to your industry.
• Big moves must be substantial to make a difference. Outperforming competitors is crucial.
• Big moves compound; multiple moves significantly improve odds.
• Big moves are asymmetric; upside potential outweighs downside risk.
• Big moves are cumulative, not instant solutions.
• Successful companies integrate big moves into daily practices.

Chapter 8 Eight shifts to unlock strategy

• Eight shifts that’ll help you effectively address the social barriers of strategy:

1. From Annual Planning to Strategy as a Journey
• Regular, standardised planning cycles are not well-suited for today's dynamic business environment.
• Hold regular strategy dialogues instead of just an annual process.
• Track your portfolio of initiatives across multiple horizons and update your strategy based on progress.
• Maintain a 3-years-back/3-years-forward rolling plan to track numbers.
• Replace the annual process with regular, incisive strategy conversations during monthly management meetings.
• Keep a live list of important strategic issues, big moves, and a pipeline of initiatives.
• Update each other on market conditions and business status in every meeting.
• Reflect on issues, big moves, and initiatives to decide if they should be modified or stopped.
• Conduct deep dives into specific topics of concern or opportunity in each meeting.
• Treat your strategy as a pipeline of initiatives moving through different stages.
• Focus on learning and familiarity for long-term ideas and scaling growth for medium-term initiatives.
• Short-term initiatives should emphasize in-year financial delivery.
• Avoid lengthy decks and social gaming; ensure continuous accountability.
• Shift to a rolling, 12-month plan updated as needed, and maintain a 2- to 10-year plan for strategic sessions.
2. From Getting to "Yes" to Debating Real Alternatives
• Frame strategy around "hard to reverse" choices, comparing real alternative plans with different risk and investment profiles.
• Calibrate strategy by including an analysis of endowment, trends, and moves, with an "odds score" describing chances of success.
• Ensure quality decision-making using de-biasing techniques, such as red and blue teams to evaluate strategic options.
• Track assumptions over time alongside budget variances to adapt strategies as new information arises.
• Reframe strategy discussions as choice-making exercises rather than plan-making, focusing on strategic alternatives.
3. From Peanut Butter to Picking your 1-in-10s
• Identify break-out opportunities early and provide ample resources.
• The hard thing isn’t identifying winners but reallocating resources despite social dynamics.
• Some industries understand the need for numerous attempts to find success; most do not.
• Adjust incentives to support resource reallocation.
• Pick where to compete on a granular level; avoid excessive aggregation.
• Allocate resources from a portfolio-level view and focus on key opportunities.
• Ensure people understand the benefits and reasons for resource reallocation.
4. From Approving Budgets to Making Big Moves
• Build a momentum case instead of a business case. Discard presumptions about new market share gains and productivity improvements. Strip down the business plan to its bare minimum to continue the current momentum. Avoid unrealistic projections and understand the real gap to your aspirations.
• Size up big moves to close the gap between the momentum case and aspirations.
• Benchmark moves: Ask managers for big moves calibrated against competition. Ensure plans include big moves to avoid lowering targets and resources.
• Separate discussions on moves from budget discussions: Focus on big moves first, budgets second. Avoid incrementalism by not simply adding on to last year's achievements.
• Ensure everyone knows that without big moves, resources will be reduced.
5. From Budget Inertia to Liquid Resources
1. Start freeing up resources as much as a year before your strategy will need to deploy them
2. Move to “80%–based budgeting” to unlock a kitty of contestable resources
3. Charge managers an opportunity cost for their resources, so they have an incentive to free them up
6. From Sandbagging to Open Risk Portfolios
• Force separate conversations for improvement, growth, and risk
• Make risk versus growth decisions at a portfolio level, not within BUs
• Tailor approaches on “no-regret moves,” “big bets,” and “real options” Adjust incentives and measures to reflect the risk people are taking
• Adjust performance targets and incentive programs to account for risk. Leaders whose initiatives are not approved due to perceived risks should have their targets adjusted. Effective management of incentives facilitates bold strategic moves.
7. From You Are Your Numbers to Holistic Perspective on Performance
• A holistic performance view.
• Encourage noble failures, and focus on quality of effort
• Reflect higher or lower probabilities of success in your incentive structures
• Use team incentives over longer time-horizons in riskier contexts
8. From Long-Range Planning to Forcing the First Step
• Put disproportionate focus on the first step when discussing long-term plans
• Roll back the future into 6-month increments and set proximate goals around clear operational metrics
• At first, focus more on actions than results
• Match and mobilise the required resources immediately

• The eight shifts are a package deal. You cannot do some of them and not do others
• Reserve 10 days a year for the strategy process: Here’s how to spend the 10 days:
• Days 1 and 2: Kickoff meeting to start the journey. Discuss the list of strategic topics you need to address. Discuss the momentum case. Sequence the topics across the other 8 days. Announce the free resources needed for the cycle.
• Day 3: Describe real alternatives for each strategic topic. Start the debate on direction. Identify the major choices to make. Update the list of strategic topics and discussion sequence.
• Day 4: Describe alternatives for big moves in each business, again. Update the list of strategic topics and discussion sequence.
• Day 5: Deepen the discussion on priority topics (follow sequence). Start picking the 1-in-10s. Sort plans into the P50s and the P90s. Take your first votes. Update the list of strategic topics and discussion sequence.
• Day 6: Deepen the discussion on priority topics (follow sequence). Describe the big moves for each business. Make the 1-in-10 picks. Update the list of strategic topics and discussion sequence.
• Day 7: Deepen the discussion on priority topics (follow sequence). Discuss the big moves as a portfolio of growth initiatives, improvement initiatives, and risks involved. Choose the moves to be pursued with a portfolio view. Update the list of strategic topics and discussion sequence.
• Days 8 and 9: Deepen the discussion on priority topics (follow sequence). Translate the plan into unbalanced scorecards. Workshop the key success factors and failure modes and develop mitigation plans. Commit the team. Update the list of strategic topics and discussion sequence.
• Day 10: Finalise the first steps. Zoom in on details for the first 6 months. Take stock and update the ongoing list of strategic topics and discussion sequence. Celebrate!
• Kickoff meeting to start the journey
• Discuss the list of strategic topics you need to address
• Discuss the momentum case
• Sequence the topics across the other 8 days
• Announce the free resources needed for the cycle