Close the Gap: Align Your Leadership with the Company’s Real Strategy

No one knows your strategy

Most CEOs are under the illusion that they are managing their companies.

No, I am not kidding.

This is a repost of the original article from my newsletter. The original was published here.

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Leonardo DiCaprio’s character in the ‘Shutter Island’ film is Edward “Teddy” Daniels. He believes he is a U.S. marshal who came to the Ashecliffe Hospital for the criminally insane on the island to investigate a case.

But then he is shocked to learn that he’s not Teddy Daniels. The story he believed to be his real life was just an illusion.

I believe that the CEOs of 124 organizations that became part of a study conducted by MIT Sloan School of Management and Charles Thames Strategy Partners LLC in 2018 felt the same way.

The study revealed that “only 28% of executives and middle managers responsible for executing strategy could list three of their company’s strategic priorities.”

Simply put, almost no one in the companies knew their strategies. Or they didn’t care.

Or both.

Your job title may be CEO, and you may have a big office and a personal assistant. You think you’re at the helm. You have a strategy.

However, a company has a strategy only when each decision, big and small, is made by some Central Principles. These principles are the strategy.

If you are a CEO, that’s what you get paid for.

Why does no one know your strategy?

If you feel that you have this problem, it could be due to the following reasons:

• You may believe that your executives and middle managers must know the strategy, but this is an illusion. It’s not the employees’ job to do the work. It’s your job to create the conditions for them to get it done.
• Your strategy is a slide deck with 200 slides or a door stopper.
• Your strategy is a set of vaguely formulated initiatives such as ‘providing exceptional customer service’ or ‘making product quality our top priority.’
• Your strategy consists only of lofty goals.
• You rarely remind your team about the Central Principles of your strategy.

If it takes you more than 5 minutes to explain the Central Principles of your strategy to a complete stranger, you should work on it again.

Central Principles

In my book Red and Yellow Strategies: Flip Your Strategic Thinking and Overcome Short-termism I argue that strategy is:

An agreement among all the team members, from the board of directors to the front-line employees. We sit down and agree on what we will and won’t do.

A company’s constitution. It isn’t the only rule in the company, but any decision made in the business must be in accordance with it.

A set of the Central Principles that underpin the company’s constitution.

You can’t make an action plan for your company for three or five years. But you can develop a few principles for your managers to use in everyday decision-making.

For instance:

· If you are a low-cost carrier such as Southwest Airlines or Ryanair, saving money and reducing costs across the board may be one of your Central Principles.

· If you strategically bet on innovation, hiring only self-motivated, creative people may be one of your Central Principles.

· If your strategy entails rapidly scaling up your business model, ‘standardization over individualization’ may be one of your Central Principles.

Whenever a manager in your company makes a decision, they must have a principle to guide them.

You might also be interested in my second newsletter Strategy in Three Minutes.

Try narrowing your strategy down to 8–12 Central Principles. These should be the guidelines your managers follow when making decisions.

For example:

1. What customer needs will we satisfy, and which ones won’t we?
2. What value will we create for customers, and what won’t we?
3. What principles will we follow when hiring?
4. Which processes will we prioritize developing first?
5. Which assets will we focus on developing fir:st?
6. What principles will guide our decisions on costs and investments?

You can read more about Central Principles in Chapter 8 of the book.

You can also download a free file with 25 strategic questions via the link (no registration required). The Central Principles are covered in the answers to questions 7 through 20, Section ‘Business Model and Central Principles.’

Make sure every leader in your company knows the principles that shape their decisions.

Ensure this. Check it regularly.

Remind your team of the Central Principles at every opportunity.

Make them your mantra.

And theirs, too.