Cover 1 Cover 2 Title Page For CEOs HARVARD BUSINESS REVIEW PRESS Boston, Massachusetts 3 Copyright Copyright HBR Press Quantity Sales Discounts Harvard Business Review Press titles are available at significant quantity discounts when purchased in bulk for client gifts, sales promotions, and premiums. Special editions, including books with corporate logos, customized covers, and letters from the company or CEO printed in the front matter, as well as excerpts of existing books, can also be created in large quantities for special needs. For details and discount information for both print and ebook formats, contact [email protected], tel. 800-988-0886, or www.hbr.org/bulksales. Copyright 2019 Harvard Business School Publishing Corporation All rights reserved No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to [email protected], or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163. First eBook Edition: Apr 2019 ISBN: 9781633697157 eISBN: 9781633697164 4 Contents Contents Title Page Copyright BONUS ARTICLE Your Strategy Needs a Strategy by Martin Reeves, Claire Love, and Philipp Tillmanns Managing Your Innovation Portfolio by Bansi Nagji and Geoff Tuff Leading Change: Why Transformation Efforts Fail by John P. Kotter Reinventing Your Business Model by Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann Leadership Is a Conversation by Boris Groysberg and Michael Slind Strategic Intent by Gary Hamel and C.K. Prahalad When Growth Stalls by Matthew S. Olson, Derek van Bever, and Seth Verry The Secrets to Successful Strategy Execution by Gary L. Neilson, Karla L. Martin, and Elizabeth Powers The Focused Leader 5 Contents by Daniel Goleman Managing Risks: A New Framework by Robert S. Kaplan and Anette Mikes 21st-Century Talent Spotting by Claudio Fernández-Aráoz BONUS ARTICLE FROM HBR.ORG How CEOs Can Work with an Active Board by Ken Banta and Stephen D. Garrow About the Contributors Index 6 BONUS ARTICLE: Your Strategy Needs a Strategy Your Strategy Needs a Strategy by Martin Reeves, Claire Love, and Philipp Tillmanns THE OIL INDUSTRY HOLDS RELATIVELY few surprises for strategists. Things change, of course, sometimes dramatically, but in relatively predictable ways. Planners know, for instance, that global supply will rise and fall as geopolitical forces play out and new resources are discovered and exploited. They know that demand will rise and fall with incomes, GDPs, weather conditions, and the like. Because these factors are outside companies’ and their competitors’ control and barriers to entry are so high, no one is really in a position to change the game much. A company carefully marshals its unique capabilities and resources to stake out and defend its competitive position in this fairly stable firmament. The internet software industry would be a nightmare for an oil industry strategist. Innovations and new companies pop up frequently, seemingly out of nowhere, and the pace at which companies can build—or lose—volume and market share is head-spinning. A major player like Microsoft or Google or Facebook can, without much warning, introduce some new platform or standard that fundamentally alters the basis of competition. In this environment, competitive advantage comes from reading and responding to signals faster than your rivals do, adapting quickly to change, or capitalizing on technological leadership to influence how demand and competition evolve. When the Cold Winds Blow THERE ARE CIRCUMSTANCES in which none of our strategic styles will work well: when access to capital or other critical resources is severely restricted, by either a sharp economic downturn or some other cataclysmic event. Such a harsh environment threatens the very viability of a company and demands a fifth strategic style—survival. As its name implies, a survival strategy requires a company to focus defensively— reducing costs, preserving capital, trimming business portfolios. It is a short-term strategy, intended to clear the way for the company to live another day. But it does not lead to any long-term growth strategy. Companies in survival mode should therefore look ahead, readying themselves to assess the conditions of the new environment and to adopt an appropriate growth strategy once the crisis ends. 7 BONUS ARTICLE: Your Strategy Needs a Strategy Clearly, the kinds of strategies that would work in the oil industry have practically no hope of working in the far less predictable and far less settled arena of internet software. And the skill sets that oil and software strategists need are worlds apart as well, because they operate on different time scales, use different tools, and have very different relationships with the people on the front lines who implement their plans. Companies operating in such dissimilar competitive environments should be planning, developing, and deploying their strategies in markedly different ways. But all too often, our research shows, they are not. That is not for want of trying. Responses from a recent BCG survey of 120 companies around the world in 10 major industry sectors show that executives are well aware of the need to match their strategy-making processes to the specific demands of their competitive environments. Still, the survey found, in practice many rely instead on approaches that are better suited to predictable, stable environments, even when their own environments are known to be highly volatile or mutable. What’s stopping these executives from making strategy in a way that fits their situation? We believe they lack a systematic way to go about it—a strategy for making strategy. Here we present a simple framework that divides strategy planning into four styles according to how predictable your environment is and how much power you have to change it. Using this framework, corporate leaders can match their strategic style to the particular conditions of their industry, business function, or geographic market. Idea in Brief Companies that correctly match their strategy-making processes to their competitive circumstances perform better than those that don’t. But too many use approaches appropriate only to predictable environments—even in highly volatile situations. What executives in these cases need is a strategy for setting strategy. The authors present a framework for choosing one, which begins with two questions: How unpredictable is your environment? and How much power do you or others have to change that environment? The answers give rise to four broad strategic styles, each one particularly suited to a distinct environment. A classical strategy (the one everyone learned in business school) works well for companies operating in predictable and immutable environments. 8 BONUS ARTICLE: Your Strategy Needs a Strategy An adaptive strategy is more flexible and experimental and works far better in immutable environments that are unpredictable. A shaping strategy is best in unpredictable environments that you have the power to change. A visionary strategy (the build-it-and-they-will-come approach) is appropriate in predictable environments that you have the power to change. How you set your strategy constrains the kind of strategy you develop. With a clear understanding of the strategic styles available and the conditions under which each is appropriate, more companies can do what we have found that the most successful are already doing—deploying their unique capabilities and resources to better capture the opportunities available to them. Finding the Right Strategic Style Strategy usually begins with an assessment of your industry. Your choice of strategic style should begin there as well. Although many industry factors will play into the strategy you actually formulate, you can narrow down your options by considering just two critical factors: predictability (How far into the future and how accurately can you confidently forecast demand, corporate performance, competitive dynamics, and market expectations?) and malleability (To what extent can you or your competitors influence those factors?). Put these two variables into a matrix, and four broad strategic styles—which we label classical, adaptive, shaping, and visionary—emerge. (See the exhibit “The right strategic style for your environment.”) Each style is associated with distinct planning practices and is best suited to one environment. Too often strategists conflate predictability and malleability—thinking that any environment that can be shaped is unpredictable—and thus divide the world of strategic possibilities into only two parts (predictable and immutable or unpredictable and mutable), whereas they ought to consider all four. So it did not surprise us to find that companies that match their strategic style to their environment perform significantly better than those that don’t. In our analysis, the three- year total shareholder returns of companies in our survey that use the right style were 4% to 8% higher, on average, than the returns of those that do not. Let’s look at each style in turn. 9 BONUS ARTICLE: Your Strategy Needs a Strategy The right strategic style for your environment Our research shows that approaches to strategy formulation fall into four buckets, according to how predictable an industry’s environment is and how easily companies can change that environment. 10