Strategy Beyond the Hockey Stick

People, Probabilities, and Big Moves to Beat the Odds

Chris Bradley, Martin Hirt, Sven Smit

• Publisher: Wiley
• Year: 2018
• Print ISBN:
  9781394378173
  9781119487623
• Edition: 1
• eBook ISBN:
  9781119487609
• Topic: Business
• Subtopic: Business General
• Index: Business

Beat the odds with a bold strategy from McKinsey & Company

"Every once in a while, a genuinely fresh approach to business strategy appears"
—legendary business professor Richard Rumelt, UCLA

McKinsey & Company's newest, most definitive, and most irreverent book on strategy—which thousands of executives are already using—is a must-read for all C-suite executives looking to create winning corporate strategies.

Strategy Beyond the Hockey Stick is spearheading an empirical revolution in the field of strategy. Based on an extensive analysis of the key factors that drove the long-term performance of thousands of global companies, the book offers a ground-breaking formula that enables you to objectively assess your strategy's real odds of future success.

"This book is fundamental. The principles laid out here, with compelling data, are a great way around the social pitfalls in strategy development."
—Frans Van Houten, CEO, Royal Philips N.V.

The authors have discovered that over a 10-year period, just 1 in 12 companies manage to jump from the middle tier of corporate performance—where 60% of companies reside, making very little economic profit—to the top quintile where 90% of global economic profit is made. This movement does not happen by magic—it depends on your company's current position, the trends it faces, and the big moves you make to give it the strongest chance of vaulting over the competition.

This is not another strategy framework. Rather, Strategy Beyond the Hockey Stick shows, through empirical analysis and the experiences of dozens of companies that have successfully made multiple big moves, that to dramatically improve performance, you have to overcome incrementalism and corporate inertia.

"A different kind of book—I couldn't put it down. Inspiring new insights on the facts of what it takes to move a company's performance, combined with practical advice on how to deal with real-life dynamics in management teams."
—Jane Fraser, CEO, Citigroup Latin America

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

Strategy is precisely the wrong problem for human brains and the right problem for playing games, especially when the “inside view” goes unchecked.

Many corporate strategy planning processes begin with a memo like the one on the following page. You’ve probably seen them before—or written some yourself. They typically lead you and your colleagues to spend months doing lots of work employing sophisticated tools, getting lots of inputs, and using lots of data.

The memo itself is pretty straightforward:

After the memo goes out, and after the months of work it kicks off, you generally come up with a solid understanding of what’s happening in the marketplace and of the options you have for responding. The CEO leads a series of discussions and formulates a strategy, which the board approves. Then you do the budget . . .

. . . and nothing much happens.

The results are rarely a serious problem. It’s not often that you end up having existential issues like those at Kodak, Blockbuster, or Nokia—those high-profile cases get so much attention partly because they’re rare. But, even when a strategy “succeeds,” the wins too often remain small.¹ The strategy rarely moves the needle very far in the right direction, at least for any length of time. It’s not so much that the rocket veers off course in midair; it is more often a failure to launch with enough energy to shoot for the moon. You’ve spent all that time and effort and only climbed how far over the last year?

The social side of strategy, in action

The inside view creates a veritable petri dish that can grow all sorts of dysfunctions once that strategy memo goes out, producing the sort of scenario that we’ve all seen:

On the Saturday before the strategy discussion, the CEO receives that 150-page document plus appendices as a pre-read. Sigh. The CEO knows that the discussion that’s about to start is not so much about the substance. Instead, the process is a sort of management ballet that is choreographed to get a “yes” to the proposed strategy and an approval of the resources requested.

On Monday morning, a presenter starts by giving a market outlook and competitive overview. Someone asks a question about page 5 (we reckon that a presenter has a reasonable chance of making it to page 5 before being interrupted, at which point the serious games around the social side of strategy start). The response might be, “We will cover that on page 42”—knowing, of course, that it’s extremely unlikely they’ll ever get to page 42 before the end of the meeting (if page 42 even exists). Perhaps the answer is, “We have considered that, and there is an extensive appendix on exactly that question,” or, “Good question! Let’s take that offline.”

We’ve all seen these little social tricks, right?

Presenters in strategy meetings often seem to not seek a conversation at all. Instead, they appear to deflect as many questions as they can, saying they are “trying to get through the materials.” They want to move to the last page of the presentation as smoothly as possible and then get that all-important “yes” to the plan, that “yes” to the resource request, that “yes” to have a shot at the next promotion. A successful meeting is deemed to be one with little friction and maximum good feelings.

Fast forward a bit in the strategy presentation to the discussion of market share performance, or the analysis of strengths and weaknesses. How likely is it for the plan to show low or declining market share? How often does a SWOT² analysis come out on the weak side? Those analyses look strong even though we all know for a fact that not every company can win. If one company gains share and gathers strength, others must lose. How often does the presenter arrive at the conclusion that further investments in their own business are not warranted, that the company should consider re-allocating resources to other businesses, cutting back, or even exiting? That just never happens—in strategy presentations, it seems that everyone is a winner. All the time.

CEOs are, of course, no dummies. They have seen these games played before, and many would readily admit that they had to play some of these themselves along the way. Even CEOs would acknowledge giving their plans a risk haircut before presenting them to the board.

Even then, the presenter can still manipulate the data by relying on the inside view. For one, somebody presenting about her business unit has a distinct knowledge advantage over everyone else in the room. Looking at past performance, for instance, should be straightforward, based on 20/20 hindsight—but it’s not. So often, there are distortions that are too subtle to catch while conversing in the strategy room. Market share can be defined favorably by excluding geographies or segments where the presenter’s business unit is weak. Poor performance can be attributed to one-off items such as the weather, restructuring efforts, new market entrants, or a regulatory change. Markets may be “summarized” in a way that removes all insight—people end up talking to each other about the average temperature of the patients in a hospital.³

The dreaded hockey stick

The inside games soon get us to the hockey stick, the icon of the social side of strategy shown in Exhibit 1.

Hockey sticks are everywhere. You might even say that “business plan” is the technical term for a hockey stick. We have all seen the graphs that show revenue and profit heading straight for the sky a few years out: “All that’s needed is a bit of an investment for the first year or two, a bit of tolerance for some losses, then you can start booking huge numbers. It’s going to be a great business. If we can just get some additional resources today, and you stick with us through a couple of lean years, we’ll produce a rocket headed toward the stars.”

As many of us have seen from personal experience, these hockey sticks rarely work out, but they are a great way of bargaining for resources for that all-important first-year operating budget. People make ambitious claims, arguing that they need a serious amount of resources—all in the full knowledge that they will get negotiated down to half of that. As one CEO told us, “The strategy process is a ritual dance before you get to what really matters: The annual operating plan.”

Executives know that failure to have a hockey stick projection pan out generally brings fewer repercussions than not presenting it in the first place. The projections delay the day of reckoning. Who knows? Maybe the plan will work perfectly. Maybe the executive will get lucky, and market conditions will fall just right. Maybe the CEO will forget the grand promise—or maybe a new CEO will be in place by then. Maybe the executive presenting the hockey stick will have moved on. In any case, a hockey stick helps win the argument today, and that’s what strategy processes boil down to—the priority is getting to a “yes.”

There is one more reason why you can’t not present a hockey stick as a manager: Everyone else does it! If you did not do it, even though you know the projection is “off reality,” you would send a signal that you lack confidence in your business. Presenting hockey sticks is a ritual, for all to partake in.

So, hockey sticks it is.

Some executives find ways to cut through the gamesmanship. When Jack Welch was CEO of General Electric, for instance, he declared that all his businesses needed to be #1 or #2 in their markets. But, he found over time that business leaders redefined their markets so they could claim to be #1 or #2. He then demanded that everyone come up with a market definition in which they had less than 10 percent market share, thereby creating a breakthrough in the denominator game.⁴

Far more typically, though, the social side of strategy turns the strategy conversation into some form of a beauty contest in which participants want to look good, and the data they present are carefully selected to underscore the right impression. In a speech at the annual global partner meeting of McKinsey, the then-CEO of a major Las Vegas casino operator said: “Whenever I arrive at one of our properties and meet the general manager, he would inevitably tell me that everything is going great—regardless of their actual performance. They would always deliver an impressive speech on why their business was going well or, if it lost money, why it was just about to get better—a whole lot better. [Sighs] I just wish I met once, just once, a guy who would walk up to me and say: ‘Man, things are not well down here, and, to tell you the truth, I can’t tell which way is up. I really have no idea why things are heading south—but we are on it, rolling up our sleeves to turn this sucker around.’ ”

Can we handle the truth?

Why aren’t people as open as we wish they were? Why are they politically correct? Remember the movie Tootsie and a classic interaction between Michael (Dustin Hoffman) and Julie (Jessica Lange)? Michael has fallen for Julie but has no idea how to approach her. Dressed in drag as Tootsie, and now a confidante for Julie, he hears her lament about how men are always hitting on her and saying she’d love a man who could just be honest. Thinking he’s cracked the code, Michael, no longer in drag, says to Julie exactly what she said she hoped to hear from a ...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Contents
• Introduction Welcome to the strategy room
• Chapter 1 Games in the strategy room—and why people play them
• Chapter 2 Opening the windows of your strategy room
• Chapter 3 Hockey stick dreams, hairy back realities
• Chapter 4 What are the odds?
• Chapter 5 How to find the real hockey stick
• Chapter 6 The writing is on the wall
• Chapter 7 Making the right (big) moves
• Chapter 8 Eight shifts to unlock strategy