Business leaders can't develop and execute effective strategy without first gathering the right information, says Harvard Business School professor Robert Simons. In his new book, Seven Strategy Questions: A Simple Approach for Better Execution, Simons explains how managers can identify holes in their planning processes and make smart choices. Here's an excerpt outlining the seven questions every manager should ask.
1. Who Is Your Primary Customer?
The first imperative—and the heart of every successful strategy implementation—is allocating resources to customers. Continuously competing demands for resources—from business units, support functions and external partners—require a method for judging whether the allocation choices you have made are optimal.
Therefore, the most critical strategic decision for any business is determining who it is you are trying to serve. Clearly identifying your primary customer will allow you to devote all possible resources to meeting their needs and minimize resources devoted to everything else. This is the path to competitive success.
It's easy to try to duck the tough choice implied by the adjective primary by responding that you have more than one type of customer. This answer is a guaranteed recipe for underperformance: the competitor that has clarity about its primary customer and devotes maximum resources to meet their specific needs will beat you every time.
2. How Do Your Core Values Prioritize Shareholders, Employees, and Customers?
Along with identifying a primary customer, you must also define your core values in a way that ranks the priority of shareholders, employees, and customers. Value statements that are lists of aspirational behaviors aren't good enough. Real core values indicate whose interest comes first when faced with difficult trade-offs.
Prioritizing core values should be the second pillar of your business strategy. For some companies, shareholders come first. For others, it may be employees. In other companies, it may be customers. There is no right or wrong, but choosing is necessary. To illustrate this point, I'll contrast Merck's $20 billion decision to pull Vioxx from the market with Pfizer's decision to continue marketing Celebrex.
3. What Critical Performance Variables Are You Tracking?
Once you're confident that the foundation of your implementation is sound—you've allocated resources correctly and provided guidance for tough decisions—it's time to get everyone who works for you focused on the job at hand.
Tracking performance goals—the third implementation imperative—requires you to set the right goals, assign accountability, and monitor performance. It's easy to fail this imperative by focusing on the wrong performance indicators or monitoring scorecards that have an overload of irrelevant measures. Underperformance is the result.
It's your job to ensure that your managers are tracking the right things by singling out those variables that spell the difference between strategic success and failure. Like the preceding two questions, the focus in this question is again on an adjective, this time the word critical. I will show you a simple but counterintuitive technique that you can use to be sure you're tracking the right things, and I will describe how companies such as Nordstrom and Apple illustrate some unorthodox performance measurement choices that provide the pathway to superior results.
4. What Strategic Boundaries Have You Set?
Every strategy brings with it the risk that an individual's actions will pull the business off course. Here again, it's easy to fail to inoculate the business against this risk. As we will see, the trick is in setting clear boundaries.
Controlling strategic risk is the fourth implementation imperative. Strategic boundaries—which are always stated in the negative—ensure that the entrepreneurial initiative of your employees aligns with the desired direction of the business. Strategic boundaries can also protect you from the types of errant actions that destroyed Enron and brought financial service firms such as Fannie Mae and Lehman Brothers to their knees.
5. How Are You Generating Creative Tension?
Once you're satisfied that you are tracking the right performance goals and controlling strategic risk, it's time to turn to the fifth implementation imperative: spurring innovation. This imperative is woven into the fabric of every healthy organization, and we all know that companies that fail to innovate will eventually die. No company is immune.
But sustaining ongoing innovation in organizations is notoriously difficult. People fall into comfortable habits, sticking with what they know and rejecting things that cause them to change their ways.
To overcome such inertia, you must push people out of their comfort zones and spur them to innovate. I will provide a menu of techniques you can use to generate creative tension to ensure that everyone is thinking and acting like a winning competitor.
6. How Committed Are Your Employees To Helping Each Other?
For most companies, it's critically important to build norms so that people will help each other succeed—especially when you're asking people to innovate. But there are exceptions. Some organizations can, and should, be built on self-interest, with every man or woman working for him- or herself.
I suspect that the choice between commitment to help others and self-interest is deeply ingrained in your organization, yet has never been discussed. But if you haven't addressed this choice explicitly—and worked to make it happen—you have increased the potential that your strategy implementation will fail.
Building commitment is the sixth implementation imperative. I will offer a menu of techniques to foster commitment to achieving shared goals. Or, if rewarding self-interest is more appropriate for your business, I will explore alternative approaches you should employ.
7. What Strategic Uncertainties Keep You Awake At Night?
No matter how good your current strategy is, it won't work forever. There will be booms and busts, customer preferences will change, competitors will introduce new products, and disruptive new technologies will emerge in unexpected places.
This brings us to the final implementation imperative: adapting to change. Adapting is critical to survival, but it's extremely difficult to do. With change constantly surrounding us, employees often do not know where to look or how to respond.
I will consider the techniques that companies such as Johnson & Johnson use to search for new information and ideas as markets inevitably change. Your personal attention is the critical catalyst to focus your entire organization on the strategic uncertainties that keep you awake at night. After all, everyone watches what the boss watches. I will discuss how you can use this principle to guide the emergence of new strategies for the future.