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2013 The art of strategy| McKinsey& Company

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Interview | McKinsey Quarterly
The art of strategy
Examining how strategies are created, implemented, and executed is a relatively recent practice. In
this video interview, McKinseys Chris Bradley and Angus Dawson explain how strategic thought has
evolved and where it is headed.
October 2013
Strategy today Our strategy
method
Making change
happen
The future
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Good strategy isnt easy. Yet we know vastly more today than we did even a year ago about how corporate
strategies should be crafted and implemented. In this video, McKinsey principal Chris Bradley and director Angus
Dawson trace the evolution of strategic thinking in recent years; outline a thorough, action-oriented approach
executives can adopt; and discuss strategys next frontiers. What follows is an edited transcript of their remarks.
Interview transcript
Strategy today
Angus Dawson: Strategy is still a relatively young discipline. It emerged in academia in the 60s and went into
corporations in a mainstream way in the 70s. And so if you look back 10 or 15 years, weve probably doubled the
sheer stock of experience in doing strategy work in corporations over that time period. And in doing that, I think
weve got an incredibly rich source of insights into what it actually takes to do great strategy.
If I look back 10 or 15 years, when I was a younger consultant doing strategy work, what you did when you started
a piece of strategy work was youd look for a framework. And someone like McKinsey had a whole library of
wonderful, powerful frameworks. But youd hope that you would kind of pick the right things off the menu and
apply them in the right way and keep your fingers crossed that youd therefore get to a great answer. I think its
changed now.
Chris Bradley: I think whats happened is weve layered on top of that in a few ways. The first one is empirics
common math applied to common data with common wisdom. And I think weve got ways now of understanding
the laws of physics, so to speak, for strategy, but also bringing a lot more analytical rigor into strategy in very, very
important ways.
Another layer is bringing psychology and adult learning into strategy and realizing that strategys not just about
whats written on the paper but about the thinking and feeling processes of the leaders of the company. Another
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layer, which were adding now, is to bring a cohesive method on top of the frameworks and the latest theory and
actually get down to the realization that, just like operating a plant takes a lot of experience, a lot of diligence, and a
lot of hard work, the same goes for strategy.
Our strategy method
Angus Dawson: It starts with a belief that you need to diagnose. You need to form a point of view on why you
make money. Then you need to form a point of view on the future, what we call forecast. You then need to come
up with some genuine options as to what you might do to create value. We call that search.
Youve got to then choose a strategy, and often a real choice requires you to have a choice between alternatives.
And then finally you have to commit. And this last piece of committing to strategy is what we call finishing the
strategy. We find that, with a lot of our clients, one of the sins is leaving the strategy unfinished.
A strategys unfinished until youve been able to roll back the future into tangible, proximate goals, until you can
communicate it very clearly to convey the real magic of what has to change for people, and until resources have
been shifted. One of my colleagues often says, I dont want to read your strategy plan. I want to see whats shifted
in your budget. Then Ill tell you what your strategy is.
Making change happen
Angus Dawson: Often with our clients, a good meeting is defined as a tidy meeting when people said what they
were meant to say, it all went to plan, we stuck to the agenda, and everyone signed off. Big strategic calls dont
happen like that. We have to actually think of designing a social process such that people can really grapple with the
big ideas and come to grips with changing deeply held biases about what the company should do in the future.
Because in the end, its a year or two away when the big calls will happen, and in their gut, if they havent actually
grappled, if they havent actually changed their beliefs, if they dont have conviction, then the strategy wont
actually get implemented.
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The future
Chris Bradley: One of the trends in the way were looking at strategy is to be very analytical about it. And what
were finding is a whole series of empirical norms that are actually challenging many of the ways companies actually
do strategy. For example, weve just done a study of economic profit and have found that 60 percent of companies
are really in a very flat zone.
Most of the action happens up in the top quintile. But the trick is its actually very rare to escape that middle class.
Over 80 percent of companies who start there are still there ten years later. The companies that do escape the
middle class have to do something very, very special. And they ordinarily are riding a huge industry trend to get
into the top quintile.
Resource allocation is another topic where weve brought empirics into the picture. Resource allocation is
fundamentally important in differentiating high performance from low performance, particularly on stock-market
returns. But this jars against the fact that most companies actually are very sticky in the way they allocate
resources.
Granularity of growth is another example. If you look at what drives the growth of companies, it turns out that
selection at a micromarket level is much more important than trying to gain market share. In fact, 80 percent of
growth is explained by decisions about where to compete or by market selection.
If I weave these threads together, what it says to me is that companies should be just as focused about positional
improvement as they are on performance improvement. It reveals the importance of strategy in that light, not as a
method of how we gain market share or decide what our edge is going be in the next quarter, but as a way to
fundamentally position the company against the right trends, catch the right waves, and put our bets on the right
markets.
About the authors
Chris Bradley is a principal in McKinseys Sydney office, where Angus Dawson is a director.
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