Too many companies equate strategy with hitting financial goals. They underestimate the difficulty—and the value—of the real thing.
The word “strategy” means an approach to dealing with a difficult challenge, especially that of competing with a clever opponent. To have a strategy is to have an approach to overcoming critical obstacles and difficulties. However, through many years of working with companies, government agencies, and the military, I have too often seen strategies that are actually a toxic mix of wishful thinking combined with a jumble of incoherent policies.
In 2016, an S&P 500 company I’ll call Royalfield gathered 25 of its senior executives in a hotel ballroom for what was billed as a strategy discussion. I was there to give a prelunch talk on strategy and had been invited to spend the day with the group and join them for dinner.
The chief financial officer spoke first and showed clips from Marvel’s Thor movie to dramatize the financial report. A key point was that the company’s debt burden was becoming a constraint, so investments had to be carefully controlled if return on equity was to be preserved.
The chief executive officer spoke next, armed with PowerPoint slides presenting what he called the Strategic Commitment and the Success Score Card (SSC). He reminded the group that the strategic commitment grew out of a key acquisition made three years earlier and defined the newly expanded scope of the business. It comprised a description of the market being served and the admonition that the company’s products would “provide its customers with the most effective solutions to their needs.” It would also aim to “provide a high level of service” for its products.
The SSC for the whole of Royalfield was specified as a 15 percent annual growth in earnings and a 15 percent return on equity. These targets were somewhat higher than the company’s recent financial record. The CEO ended with a quote from 19-year-old Katie Ledecky, who had won five Olympic gold medals in swimming: “Set goals that, when you set them, you think they’re impossible. But then every day, you can work toward them, and anything is possible.”
