Strategic Commitment

Sticking with your strategy and fulfilling your desired outcomes requires commitment and fortitude most organizations lack, but those that do, see amazing results when the strategy comes to life.

Every new CEO steps into the role, whether promoted from the inside or hired from the outside, spends the first 90 days learning the lay of the land, another 90 days figuring out the legacy they want to create and releasing their integrated strategy to employees and investors often at the same time.? With the strategy defined, they ask their executive team to break the strategy into key components, take ownership of key components of the strategy, and plot the strategy into an actionable plan that allows CEOs to show progress to investors and enables at least 1:1 accountability between the CEO and his or her direct reports.? In many cases, the strategy is vague and high-level, focusing on general themes like new markets, new customers, and new products, always including a notion of financial scrutiny, and in the past 20 years or so, how technology will exponentially accelerate the attainment of the strategy.? If lucky, the executive team has enough definition to decompose the work, but in many cases, the definitions attached to the key strategic enablers provide so little direction, the executives, their people, and the customers never really see the desired outcomes.

This story is an all-too-common story, with many organizations hiring leaders with successful pasts to repeat history, only to see them provide vague direction that never really provides the results that employees and investors expect to see.? To provide a real example, a large retailer hired a new CEO who had performed exceptionally well at other large retailers several years ago.? Upon his arrival, he took time to understand the current-state and then committed to customers, employees, and investors a new strategic direction focused on new customer segments, transformative product and technology offerings, and a renewed focus on omni-channel integration for all customers.?

As the organization started to digest the strategy and take action to execute on their CEO’s promises, the following issues came to life (not all at once, but over a couple of years)

§? Poor data management practices made integrated omni-channel experiences difficult to execute and disaggregated supply chain systems made transparent inventory information difficult to consistently provide across channels

§? The technology team made a strategic decision to upgrade its infrastructure, only to halt the project midway through wave 2 of the migration work, when they learned that many of the existing application portfolio required refactoring to even operate in a modern infrastructure

§? Competitors possessed a significant competitive advantage for specific customer segments, so continued investment in usurping those competitors proved much more difficult than expected and long-term embedded branding proved more fruitful financially than focusing on multiple segments simultaneously

§? A major world event occurred that shifted focus (and investment) away from the growth side of the business and forced the organization (and many others) to focus on the core, even though the segments generating renewed focus grew exponentially during the same period for other retailers

§? Price hikes during the same world event provided exponential margin on lagging inventory purchased at a much lower price point and when they inventory dissipated, they had to buy inventory a much higher cost than previously purchased

So why do I share this story?? The story perfectly summarizes this blog series on strategy and transformation: strategic commitment increases the likelihood of outcome attainment.? When things got hard for this organization, they decided to retrench, collect artificial price hikes, capture quick earnings, reward shareholders, all while simultaneously punishing customers and employees long – term.? The lack of strategic commitment resulted in diminishing consumer confidence in the brand, negative earnings on the back side of the artificial performance gains (while near competitors stayed flat or marginally grew), several reductions in force, and ultimately a period of diminishing returns over a sustained period of time.? And you might ask what they have to show for the transfer of investments from growth areas to core business operations…well not much.? They implemented some table stakes like self-checkout, a mobile app, and local delivery in the name of transformation, all while other retailers doubled down on growth tactics that led to better results across the same period of time.

I will not pretend that strategic commitment comes easy.? Boards lack of patience puts immense pressure on CEOs and their leadership teams to deliver fast results.? Shareholders in this day and age expect fast returns, love dividends they can reinvest, and prefer investing in companies that at least deliver stock growth comparable to the exchange on which the stock trades.? Customers demand immediate access to products, seamless transition between channels, and competitive prices. Employees demand salary increases, better benefits, and an amazing workplace, all while maintaining a healthy work – life balance.? And these four elements all compete with each other, because half of the key organizational leaders have to please want a return on their investments and the other half wants the company to spend to make their lives better.?

So, what can organizations do to maintain strategic commitment in an era of variable expectations?? Here are six key elements that I see organizations that sustain success implement to ensure that they maintain their strategic commitment:

1.?????? Define the strategy, ask for stakeholder feedback, and co-create the final version with key stakeholder groups to establish broad buy-in.? Let’s look at Apple as a great example of strategic commitment, when Steve Jobs and his leadership team decided to invent the handheld computer, also known as the iPod and iPhone.? They conducted a ton of customer research, developed a viable mobile product, and stayed true to their commitment to roll it out.? Even when initial reviews pointed to network limitations and size of the device, they stayed true to the vision, continued to evolve the product, and ultimately became the first company with a $1T market cap.

2.?????? Continuously communicate to all stakeholder groups the organization’s progress, failures, remediation efforts, and evolutions that take place as conditions change.? For communication, let’s take a look at the rebranding efforts that Walmart has gone through under the current leadership team.? Doug McMillon, a former merchant, took over the company from an operational expert, and quickly learned about on-shelf availability and logistics issues that had never plagued the company previously.? After a tremendous amount of customer and employee research, he recentered the company on the founder’s customer and employee – first approach and within a year, resolved the OSA and in-store service issues that degraded financial performance.? Since the leadership team enacted the strategic changes, the company has continued to grow and maintained its position as the largest company in the world, all while facing increasing threats from digital-first retailers.? His decision to go to the source and involved broad stakeholder groups in his strategy development led to increased buy-in and the patience to spend capital to ultimately deliver on his intended outcomes.

3.?????? Develop a sound investment strategy that enables the organization to weather market and economic headwinds and earmark funds for transformational changes during times of high performance.? Amazon provides an amazing case study for sound investment strategy, even in the face of pressures to deliver fast results.? For many years, the organization delivered negative returns and depressed stock value, but what on the surface appeared to be a book delivery company, quickly became the most integrated data company in the world, enabling some of the most targeted merchandising and marketing approaches to manifest across digital channels.? And the strategic commitment that the Bezos and the leadership team showed to ultimately deliver on what they do today resulted in tremendous results for the shareholders that held on to their stock.

4.?????? Establish firm strategic governance at multiple levels of the organization to ensure sustained alignment to the strategy.? Delta provides a great example of a company that installed multi-layered governance across the organization, coming out of bankruptcy, all while maintaining the company’s ability to adjust to meet evolving customer needs.? Coming out of bankruptcy, they knew they needed to monitor decisions at all levels and the company proudly installed corporate governance to ensure continuous alignment to cost containment measures the organization put in place.? As the committees started operating, they quickly realized that they could use those same committees to make key decisions about investments they wanted to make in growth opportunities and maintained those committees in perpetuity.? The people on the committees changed as people moved around or retired, but the decision frameworks remained and if you want to point to the ultimate reward, after years of commitment to governance and customer-first mindsets, they finally achieved a long-standing target to win the airline segment of JD Power’s customer index in 2021, remaining there to this day.? While most people equate governance to bureaucracy, Delta turned it into a cultural win that drives alignment across all segments of the organization.

5.?????? Empower people closest to your customers to execute the strategy, without being penalized for adapting around the edges to meet evolving customer needs.? We have to look no further than companies like digital first companies LinkedIn who empowered their people closest to the customers to make product decisions.? Digital natives liked LinkedIn can certainly operate more nimbly without an aging engine that drives their product releases, but they also trusted their product and technology teams to partner together, hold each other accountable for outcomes, and deliver products that customers value.? Even inside Microsoft today, they still have tremendous flexibility to operate in the best interest of the customers and that has delivered amazing results as the #1 work related social platform, with many additive products that drive employee development, recruiting, and other key products that enable organizations to grow their own organizational capabilities.

6.?????? Invest in your people, support them through the change, and reward them for their loyalty when they stay through the ups and downs that often follow changes in strategic focus.? A majority of employees fail to trust their employers today, but fortunately great companies who invest in people and help them succeed in their current jobs and future leadership roles.? Under the prior regime, Lowe’s invested significantly in their people when they attempted to transform the stores.? The CEO realized that if he wanted to fundamentally shift how they served customers, he needed everyone aligned to the vision, and he knew that required intentionality to succeed.? He invested heavily in organizational change management, hiring a world-renowned expert to help drive the people change efforts and, in the end, his approach worked, convincing employees from the customer support center to the stores to the distribution centers about why they decided to change the company. ?While the results in the stores never materialized, the sentiment across the company proved tremendous alignment.

As I mentioned earlier, the effort, fortitude, and alignment required to maintain strategic commitment is significant.? Competing priorities and short – executive lifecycles require fast results or key executives quickly find themselves on the sideline.? With that said, the rewards of strategic commitment usually mirror that of early growth phases, while short-term decision making often leads to short-term results and decline on the back side of those decisions.? If you compare the story at the center of the blog with the stories shared in the key elements that help organizations sustain strategic commitment, you’ll notice some notable companies that weathered performance issues to deliver exponential returns that satisfied board members, shareholders, employees, and customers alike.

Thanks for reading.? I look forward to the discussion.? I’ll be sending a consolidated recap next week of all of the blogs in this series for easy access and combined consumption.