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The best strategy for any company is a strategy it can implement
Before you choose one, think about what your company already does well
The experience of two industries - energy and pharmaceuticals - illustrates a new way to assess the fit between corporate strategy and corporate strengths
TO FIND THE RIGHT STRATEGY for a business, its managers must understand such general considerations as its competitive situation, the latent needs of customers, capital markets, the regulatory environment, new technology, the structure of its industry, and the strengths and weaknesses of its rivals. Yet the formulation of a truly successful strategy requires managers to ponder not only these primary determinants but also the company's ability to execute whatever strategy it chooses. Often, however, discussions on strategy ignore the execution factor because managers fail to see it as part of the big picture. Such companies miss the opportunity to make an informed choice between a "second-best" strategy that they can execute well and an ideal strategy that may demand capabilities they simply do not have.
We studied companies in a wide range of industries to learn if success is systematically associated with a strong alignment between the innate abilities of a company and the execution requirements of its strategy, and if failure is systematically associated with the absence of such an alignment. Our research identified industries facing major strategic decisions about such issues as computers, telecommunications, electronics, and transportation. Within these industries, we examined the approaches to execution of 40 companies that pursued fundamentally sound strategies; in other words, they did not rest on flawed assumptions about market realities (such as consumer demand) or the basis of competition (such as the importance of cost positions).
There were two basic kinds of strategies: transformational and operational. A strategy is transformational when the company using it faces significant uncertainty, aims to change the game in the industry, and must address substantial customer, channel, or competitive challenges. Strategies are operational if companies face relatively low uncertainty and are mostly attempting to play the same old game better than the competition does.
It takes vastly different skills to execute these two kinds of strategies. For the operational approach, a company must focus doggedly on conventional measures like capacity utilization or throughput...