Playing To Win
Who Should Do Strategy?
I get asked lots of questions about who should do strategy. What should be the team composition? What should be the role of the strategy function? How should outside consultants be involved? And more… So, my 44th Year III Playing to Win/Practitioner Insights piece is on: Who Should do Strategy: It’s Your Team, Stupid! (with credit to James Carville, 1992 presidential campaign strategist) You can find the previous 154 PTW/PI here.
Strategy is a Line Responsibility
Let me start with the question of who shouldn’t do strategy. I have touched on one aspect of this already in this series in a piece on the proper role of the chief strategy officer but I have come to believe that a more thorough discussion is in order.
The issue is confusing because over the past 50 years, strategy gone from obscurity to a full-fledged function found in most sizable companies. The way functions work in most companies, most of the time is that the function performs the activity specified in its name. Finance does the finance of the company. Sales does sales. HR does HR. Manufacturing does manufacturing. Legal does legal.
So, shouldn’t the strategy function do strategy? It largely started that way. General Electric was a corporate pioneer in strategy and in the 1960s and 1970s it built a huge strategy function that did all the strategy for the corporation and its business units. But Jack Welch saw it as an overreach and dramatically reduced its size and scope. I don’t agree with everything Welch did, but on that front, I agree with his instinct.
The tricky thing is that strategy is an integrative discipline. It is inherently horizontal not vertical. It is just like general management in this respect. The core task of general management is to integrate across the functions to make sound decisions. And so is the core task of strategy. To be fair, it is not as though the rest of the functions aren’t integrative at all. For example, finance needs to take an integrative view across the company. But it doesn’t have the responsibility for figuring out what all the other functions should do.
Interestingly, general management isn’t taught in business schools. They say they do but they just plain don’t. They teach students a variety of functional disciplines and inform students that they have integrate across the disciplines— and wish them good luck! In parallel, strategy as an integrative discipline isn’t taught in business schools either. Instead, students are taught an array of strategy analytical tools — which is one major reason why strategy is becoming a lost art.
Strategy is about making the most integrative choices for the enterprise — whether the company, a business unit thereof, or a product/service line thereof — across the functions. Thus, the leader of a given business — whether company, business unit, or product/service line — is responsible for leading strategy and making the key strategic choice. For this reason, I believe that if general managers outsource strategy to the strategy function, they don’t deserve to be in their job. They aren’t acquitting their general management responsibilities.
This by no means implies that the strategy function isn’t important. Its critical job is to help line executives create strategy. The function can and should play a very important role in being expert on how to do strategy. The function should be expert on how to facilitate strategy, which includes setting and enforcing a high standard on the output of strategy. Much strategy is not valuable because it doesn’t aim for a sufficiently meaningful advantage. But if the strategy function does strategy, it is encroaching unhelpfully on the responsibilities of the leader of the business. The leader should not allow the function encroach. But the function shouldn’t try either.
For a company, the team should be the entire executive leadership team — which goes by many names including ELT (I’ll use that term), EC, GMT, GLT, SMT, etc. That is, the team should be whoever is on the CEOs leadership team. If the CEO thinks a team member isn’t necessary for strategy, that is a signal that the executive shouldn’t be on the leadership team — that is because the CEO sees that executive’s view as unnecessary in the effort to make a great set of companywide integrative strategy choices. The same logic holds for a business unit president or a product/service line head with respect to their leadership teams.
That core team can and should have helpers for whom strategy is their core knowledge domain. The CSO (or the CxO to which the head of strategy reports if not a member of the executive leadership team) can provide important skill and expertise to the effort. Other experts from the strategy function can and should play valuable, if not essential, roles in facilitating the process by which the ELT creates strategy and supporting the analytical work. Part of that role is to help the ELT set high standards for its strategy choices. It has to be about playing to win, not playing to play.
Again, it is a different situation than for the other functions. The CFO doesn’t facilitate the ELT coming up with the financial statements. The CLO doesn’t facilitate the ELT coming up with legal approaches to cases. They may come to the ELT for approval and consent, but they do what is in the name of their functions.
How about Strategy Consultants?
Any line executive who abdicates responsibility for creating strategy to an external strategy consultant deserves to be removed. That person isn’t really an executive officer.
On this front, a little history is in order. In 1963, when Boston Consulting Group (BCG) opened its doors and launched the industry, it did strategy outsourcing for companies. That was the way the industry mainly worked in the 1960s, 1970s, and through the early 1980s. Bain, a BCG spin off followed suit and McKinsey, which build a strategy practice to compete with BCG, also followed the then-established model. In this era, line executives abdicated responsibility to strategy consultants much of the time. The view in that earlier era was that strategy consultants were smarter and knew better. Their job was to give strategy to executive leadership to execute.
When my old firm, Monitor Company, entered in the early 1980s, our view — and advocacy to client — was that great strategy must come from within. We sought to help them do strategy in a way that made them better at doing it for themselves. And we changed the industry — for the better in my view. Thankfully, line executives abdicate strategy to outside consultants much less now.
But we were US-centric, just like the entire industry in which the biggest players (McKinsey, BCG and Bain) are all US-based. In strategy consulting, as with most industries, the home market creates the industry, and it evolves their first and fastest. The industry then typically internationalizes, but often by exporting its older form. Metaphorically, the industry in question is on version 3.0 in its home market and on 2.0 in its export markets (if not 1.0).
I believe it is now the norm in the US for ELTs to take responsibility for the creation of strategy, often with the assistance of outside strategy consultants. However, I find it is more mixed overseas. And I fear that in the least sophisticated markets, clients (and in these countries, the client is often a government entity) are being done a disservice (e.g. Saudi Arabia, South Africa) by strategy consultants who do strategy for them. These clients get charged a lot, don’t learn how to do strategy themselves, and have to attempt to put in action strategies that they would have never created themselves. Is that always the case? Of course, it isn’t. But I fear that it is the case in more instances than it should be.
Strategy consultants can help executive teams make great strategy choices. But it is a mistake every single time to have consultants make strategy choices for executive teams. It is important for executive teams to avoid skating anywhere close to that line — strategy is your job!
If you are in charge of a company, business unit, or product/service line, you are in charge of strategy. Never abdicate your strategy responsibility to anyone. You are the final decisionmaker on strategy.
Your team for creating your strategy should be your direct reports. If you don’t think a voice is needed for creating strategy, it shouldn’t be on your team, strategy or otherwise. The person should report in through a voice that is needed.
Use strategy experts very judiciously. That applies to both internal strategy function personnel and outside strategy consultants. Make no mistake about it. They can be very valuable. In fact, they can sometimes be absolutely critical to success. However, as a general manager, your job — and the job of your leadership team — is to use them to help you create strategy. It is not for either the strategy function or outside strategy consultants to create your strategy for you.
And judge them partially on whether while helping you create your strategy; they helped you get better at creating strategy going forward. If they do both, they are being as valuable as they can be — and that is very valuable!
If you are a strategy provider, either from an internal strategy function or an outside consulting firm, don’t collude with general managers to abdicate their responsibility. It is seductive to be given that power. But it is bad for your (internal or external) client and, in the end, will be bad for you because you won’t develop your most valuable skill: helping general managers do strategy.