Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds

Synopsis

Have you experienced strategy meetings that promise a breakout growth that rarely materializes? Do you feel that the social dynamics in the strategy room might have reduced breakthrough ideas to safe bets? And even when strategies succeed, the results are often just modest. What happened?

Based on in-depth empirical research on thousands of companies, McKinsey Partners Chris Bradley, Martin Hirt, and Sven Smit provide a data-driven "outside view" to overcome social dynamics and create effective strategies. Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds offers ten performance levers that dramatically increase your chances to outperform competitors and create breakout growth.

Questions and answers

Please explain the big moves for commercial bank treasury department, especially on funding strategies

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Commercial bank treasury departments are responsible for managing the bank's finances, including its funding strategies. Big moves in this context could involve several strategies:

1. Diversification of Funding Sources: This involves not relying on a single source of funding but exploring various options such as deposits, interbank loans, equity, and debt securities. This reduces the risk of liquidity crunch.

2. Asset-Liability Management: This is a critical strategy where the treasury department ensures that the maturities of assets and liabilities are well matched to avoid liquidity risk.

3. Cost of Funds Reduction: This could involve negotiating better terms with lenders or shifting to cheaper sources of funds.

4. Capital Adequacy: Ensuring the bank maintains adequate capital as per regulatory requirements is another key strategy.

5. Use of Technology: Implementing advanced technology for better forecasting, risk management, and decision-making can also be a significant move.

Remember, these strategies should align with the overall business strategy of the bank and regulatory guidelines.

What are 10 examples of big moves that can be applied by a commercial bank Treasury department to be able to move away from poor performance

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1. Implementing a robust risk management system: This can help identify, assess, and mitigate risks that could lead to poor performance.

2. Diversifying the portfolio: By investing in a variety of financial instruments, the bank can spread its risk and potentially increase returns.

3. Enhancing customer service: By improving the customer experience, the bank can increase customer loyalty and attract new customers.

4. Investing in technology: This can improve efficiency and accuracy in operations, leading to better performance.

5. Training and development: Investing in the skills and knowledge of the treasury department can lead to better decision-making.

6. Implementing effective cash management strategies: This can ensure the bank has sufficient liquidity to meet its obligations.

7. Strengthening compliance: By ensuring the bank adheres to all relevant regulations, it can avoid costly fines and reputational damage.

8. Improving financial reporting: Accurate and timely reporting can help the bank make informed decisions.

9. Enhancing the bank's credit rating: This can lower borrowing costs and increase the bank's attractiveness to investors.

10. Implementing a strategic planning process: This can help the bank set and achieve its long-term goals.

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Top 20 insights

1. Survey shows that 70% of executives say they don't like the strategy process, and 70% of board members don't trust the results.
2. Strategy is challenging because it deals with low-frequency, high-uncertainty problems that are prone to cognitive biases. These biases typically reinforce favorable narratives. A study found that 80% of executives believe that their product stands out against the competition, while only 8% of the customers agreed.
3. The economic profit graph of companies follows a power law with a long flat middle and tails that rise and fall at exponential rates. Companies in the top quintile capture nearly 90% of all economic profits. Their average economic profit is $1.4 billion a year as compared to a mere $47 million for companies in the middle.
4. This Power Curve is growing steeper with time. The companies in the top quintile collectively made $684 billion in economic profit from 2010 to 2014, while the bottom quintile made a collective loss of $321 billion. From 2000 to 2004, the corresponding figures were much lower at $186 billion and $61 billion respectively.
5. Companies compete not only in their industries and their market segments. As far as capital is concerned, they also compete against every other player in the world. Companies that started in the top quintile in 2004 garnered nearly 50 cents of every new dollar invested. Moving up the Power Curve is therefore imperative.
6. Nearly 50% of a company's position in the Power Curve is determined by its industry. It's much better to be an average company in a great industry than to be a great company in an average industry. For example, the median pharmaceutical or technology company would be in the top 10% of food product companies.
7. Success is defined as moving up the Power Curve. Companies that jump from the middle to the top quintile gain an average increase of $640 million in annual economic profit. This requires big moves that outperform competitors.
8. A recent survey found that CEO's attribute only 50% of target-setting decisions to facts and analytics. The remaining 50% is due to the dynamics in the strategy-making process.
9. The Power Curve is sticky. The general odds of a company moving from the middle to the top quintile over ten years is just 8%. 78% of firms in the middle quintiles, 59% of those in the top quintile, and 43% of firms in the bottom quintile remained at the same position ten years later.
10. Among 101 companies that moved up a quintile, two-thirds of the time it was due to just one business unit creating the breakout. Correctly identifying that business unit and feeding it the resources it needs for breakout growth can determine your organization's progress on the Power Curve.
11. The probabilities for individual companies moving up the power curve can vary from 0 to 80%. Ten performance levers grouped into endowments, trends, and moves can predict the probability of success. Roughly, endowments determine 30%, trends 25%, and moves 45% of the probability of moving up the curve. This provides an outside view to analyze the quality of strategy.
12. Of the 117 organizations that moved up a quintile, 85 moved with their industry. If an organization faces an unfavorable trend, then there are two difficult options ahead: transform the industry to change its growth prospects and gain competitive advantage or shift industries. Neither option is easy, and the social dimensions make it much harder.
13. Big moves can help an organization get ahead of trends and shift odds in its favor. However, these need to be big enough in comparison to the rest of the industry to move up the Power Curve. The impact of big moves compounds. Each additional move nearly doubles the odds of moving up the Power Curve.
14. Four of the five big moves are asymmetrical one-sided bets. They increase the odds of going up the Power Curve and decrease the odds of sliding down.
15. M&A's improve chances of moving up the Power Curve. This means executing at least one M&A per year that amounts to 30% of market cap in ten years with no deal being more than 30% of market cap. M&A requires skills that are built over time and practice. Infrequent and large moves affect value creation.
16. Reallocating at least 50% of capital expenditure across industries, operating segments, business units, customer groups, and geographies over ten years can create breakout growth. This necessarily means deallocating resources from other segments.
17. When an organization's capital expenditure to sales ratio crosses 1.7 times the industry median for ten years, it creates breakout growth. Successful capital expenditure requires managing a pipeline of low-risk near-term options, medium-risk medium-term options, and some high-risk long-term options. This is the only big move that can increase the odds going down the curve as well.
18. Strategic issues do not lend themselves to instant decision-making. It's best to trim the annual strategy process and have regular monthly strategy conversations around an active list of issues.
19. Use the analysis of endowments, trends, and moves to calibrate strategic decisions against the Power Curve. This will bring the focus to moves that can realistically get the company ahead of the competition.
20. Have conversations on growth and improvement plans to get bold ideas before discussing risks. Knowing the growth prospects, improvement, and risks for each initiative allows decision makers to prioritize strategic incentives based on a risk-return assessment. Incentives and performance targets must be adjusted to reflect risk.

Summary

Strategies tend to focus on incremental improvements and not on big moves. Breakthrough ideas are reduced into safe bets, and resources are spread thin across all verticals irrespective of growth potential. Why does this happen?

The social side of strategy

Social dimensions — including individual bias and group dynamics — can overpower the best of strategic intent. A key reason for this is the fact that strategy rooms are excessively focused on the "insider view" - data about your organization, key competitors, and your own industry. The "insider view" creates distortions in strategic planning. The picture presented is mostly overly optimistic. Ultimately, the presentation shows a Hockey Stick Curve with an initial dip and a subsequent exponential breakout. This is used to bargain for resources or create sandbags to make sure targets are achieved. Either way, the predicted growth rarely materializes.

Questions and answers

What are the key takeaways from "Strategy Beyond the Hockey Stick" that can help in turning strategy meeting promises into reality?

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The key takeaways from "Strategy Beyond the Hockey Stick" that can help in turning strategy meeting promises into reality include understanding the social dynamics and individual biases that can affect strategic planning. The book emphasizes the need to move beyond the "insider view" which often presents an overly optimistic picture, leading to unrealistic growth predictions. Instead, it suggests adopting a more balanced and realistic approach to strategic planning, taking into account external factors and probabilities. This can help in making more informed decisions and setting achievable targets, thereby turning the promises of strategy meetings into reality.

How can the insights from "Strategy Beyond the Hockey Stick" be applied to manage group dynamics in a startup?

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The insights from "Strategy Beyond the Hockey Stick" can be applied to manage group dynamics in a startup in several ways. Firstly, it's important to be aware of the "insider view" bias and ensure that strategic planning is not overly optimistic or distorted. This can be achieved by incorporating an "outsider view" that includes data from outside your organization and industry. Secondly, it's crucial to manage the social dynamics in the strategy room to ensure that breakthrough ideas are not reduced to safe, predictable plans. This can involve fostering an environment that encourages risk-taking and innovation, and ensuring that all voices are heard. Lastly, the book's insights can be used to avoid the "hockey stick" phenomenon, where predicted growth rarely materializes. This involves setting realistic targets and avoiding the temptation to "sandbag" or overpromise.

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Social games are played because of people's egos, status, and the resources they get; and careers depend on how they present their growth strategy. Strategy is challenging because it deals with low-frequency, high-uncertainty problems that are prone to cognitive biases. Further, there are agency problems that arise due to misalignment between management and other stakeholders. Some of them are:

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How can the principle of big moves be applied in a commercial bank setting especially for the treasury department

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The principle of big moves can be applied in a commercial bank's treasury department in several ways.

Firstly, the department can make a big move by significantly increasing risk-taking in certain high-yield investments. This could mean investing more in foreign currencies or government securities.

Secondly, a big move could involve a major shift in the bank's funding strategy. For example, the bank could decide to rely more on long-term funding sources to reduce liquidity risk.

Thirdly, the treasury department could make a big move by implementing advanced technology for risk management and forecasting. This could significantly improve the department's ability to manage risks and make profitable investment decisions.

Remember, these big moves should be carefully considered and thoroughly analyzed to ensure they align with the bank's overall strategic objectives and risk tolerance.

How can the principles discussed in Strategy Beyond the Hockey Stick be applied in traditional sectors like manufacturing or retail?

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The principles discussed in the book "Strategy Beyond the Hockey Stick" can be applied in traditional sectors like manufacturing or retail by focusing on people, probabilities, and big moves. Firstly, it's important to manage social dynamics in the strategy room to ensure that breakthrough ideas are not reduced to safe, non-risky options. Secondly, understanding and managing cognitive biases that can affect strategic decisions is crucial. Lastly, making 'big moves' that can significantly shift the company's performance trajectory is essential. These could include resource reallocation, productivity improvements, or market expansion strategies.

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• Sandbagging: Individual managers create excessively safe plans that they are sure to achieve.
• Short-Termism: The tendency to milk gains in the short run which may have long term consequences.
• My Way or Your Problem: Managers may use not getting the resources they demanded as an excuse not to deliver.
• The Numbers Game: Managers may spend their time optimizing for the metrics by which they are evaluated, ignoring other equally important factors.
• Incentive mismatch: While CEO's optimize for the overall success of the organization, managers tend to look out for their business units and their employees. Managers also know that they have to over-project to get the resources they actually need.

The social side of strategy ultimately leads to the "Peanut Butter Approach", where resources are evenly spread across all units, even though some have far greater growth opportunities. What is needed is an "outside view" - data from thousands of organizations to objectively benchmark strategy.

The power curve

Economic Profit — the total profit after subtracting the cost of capital — is a good indicator to measure by how much a company has beaten the market. When the authors graphed the economic profit of 2,393 of the largest non-financial companies between 2010 to 2014 from highest to lowest, they found that these companies follow a power law with a long flat line in the middle and tails that rise and fall at exponential rates.

Questions and answers

How does the book 'Strategy Beyond the Hockey Stick' suggest managing social dynamics in the strategy room to ensure breakthrough ideas are implemented?

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The book 'Strategy Beyond the Hockey Stick' suggests managing social dynamics in the strategy room by creating an environment that encourages open and honest dialogue. It emphasizes the importance of challenging the status quo and not allowing social dynamics to stifle innovative ideas. The book also recommends using data and analytics to drive decision-making, reducing the influence of personal biases and politics. It's crucial to have a clear process for evaluating and implementing ideas, and to ensure that everyone in the room understands and is committed to this process.

How can the findings of the Economic Profit research in "Strategy Beyond the Hockey Stick" be applied in today's business environment?

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The findings of the Economic Profit research in "Strategy Beyond the Hockey Stick" can be applied in today's business environment by using Economic Profit as a measure to gauge a company's performance against the market. This can help businesses identify where they stand in the market and make strategic decisions accordingly. For instance, if a company's Economic Profit is low, it might need to reassess its strategies and make big moves to improve its position. On the other hand, if a company's Economic Profit is high, it indicates that the company's strategies are working well and it is beating the market.

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This is divided into three regions: the bottom of the curve is represented by the first quintile of companies, the middle of the curve covers the second, third, and fourth quintiles, while the top of the curve covers the top quintile in economic profit. The average profit in the top of the curve is 30 times more than the middle of the curve. As the vast majority of the profits are in the top quintile, the goal of strategy must be to escape the broad middle and move into the top.

Questions and answers

How can the lessons from "Strategy Beyond the Hockey Stick" be applied in today's business environment to achieve higher economic profit?

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The lessons from "Strategy Beyond the Hockey Stick" can be applied in today's business environment to achieve higher economic profit by focusing on making big, bold moves to escape the middle of the curve and move into the top quintile where the vast majority of the profits are. This involves managing social dynamics in the strategy room to ensure breakthrough ideas are not reduced to safe, mediocre strategies. It also requires turning the promises of strategy meetings into reality through effective execution.

How relevant are the themes of "Strategy Beyond the Hockey Stick" to contemporary issues and debates in business strategy?

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The themes of "Strategy Beyond the Hockey Stick" are highly relevant to contemporary issues and debates in business strategy. The book emphasizes the importance of making big, bold moves to shift a company's performance and beat the odds, which is a common challenge in today's rapidly changing business environment. It also highlights the role of people and social dynamics in strategy execution, which is a critical aspect of modern business strategy debates. Furthermore, the book's focus on escaping the broad middle and moving into the top quintile in economic profit aligns with the current emphasis on disruptive innovation and high-growth strategies.

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Shift to the outside view

The Power Curve brings a fundamental shift in strategic thinking. The comparison is with companies across the world for capital and economic profit. Success is now defined as moving up the Power Curve. Companies that jump from the middle to the top quintile gain an average increase of $640 million in annual economic profit.

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Are there any examples of companies that have successfully moved up the Power Curve and seen significant increases in their annual economic profit?

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While the content does not provide specific examples, it is common for companies that successfully move up the Power Curve to see significant increases in their annual economic profit. This is because the Power Curve represents a shift in strategic thinking, where success is defined by this upward movement. On average, companies that jump from the middle to the top quintile gain an increase of $640 million in annual economic profit. However, the specific companies and details of their strategies would vary and are not provided in the content.

How relevant is the Power Curve strategy in today's economic climate?

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The Power Curve strategy remains highly relevant in today's economic climate. It provides a fundamental shift in strategic thinking, comparing companies across the world for capital and economic profit. In an increasingly competitive and globalized economy, success is often defined as moving up the Power Curve. Companies that manage to jump from the middle to the top quintile can gain a significant increase in annual economic profit. Therefore, the Power Curve strategy can be a powerful tool for companies seeking to improve their economic performance.

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Know your odds

The Power Curve is sticky. The odds of a company moving from the middle to the top quintile over ten years is just 8% percent. 78% of firms in the middle quintiles, 59% of those in the top quintile, and 43% of firms in the bottom quintile remained at the same position ten years later. Among 101 companies that moved up a quintile, two-thirds of the time it was due to just one business unit creating the breakout. Correctly identifying that business unit and feeding it the resources it needs for breakout growth can determine your organization's progress on the Power Curve. Bringing probabilities to the table can lead to a more realistic evaluation of risks and better decision-making.

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How can the concept of the Power Curve be applied to identify and nurture high-potential business units?

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The concept of the Power Curve can be applied to identify and nurture high-potential business units by understanding the performance dynamics of different business units within a company. The Power Curve shows that a small number of business units often drive a company's overall performance. By identifying these high-potential units, resources can be strategically allocated to them to foster growth and improve the company's position on the Power Curve. This involves a realistic evaluation of risks and better decision-making, which can be achieved by bringing probabilities into the strategic planning process.

What are the key takeaways from "Strategy Beyond the Hockey Stick" for managers aiming for breakout growth?

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The key takeaways from "Strategy Beyond the Hockey Stick" for managers aiming for breakout growth are:

1. The Power Curve is sticky, meaning that companies often remain in the same position over time. The odds of a company moving from the middle to the top quintile over ten years is just 8%.

2. Breakout growth often comes from a single business unit within a company. Among 101 companies that moved up a quintile, two-thirds of the time it was due to just one business unit creating the breakout.

3. Identifying and investing resources in the business unit that has the potential for breakout growth is crucial for a company's progress on the Power Curve.

4. Bringing probabilities into strategic decision-making can lead to a more realistic evaluation of risks and better decision-making.

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Ten levers that matter

While the general odds of moving up the Power Curve is 8%, the probabilities for individual companies can vary between 0% and 80%. Using data from 2,393 companies from 127 industry sectors over 15 years, the authors have identified ten performance levers that can predict the quality of a company's strategy. These variables have been grouped into endowments, trends, and moves.

Questions and answers

How can a struggling commercial Bank apply the strategic concepts of endowment, trends and moves to grow in a highly competitive banking environment?

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A struggling commercial bank can apply the strategic concepts of endowments, trends, and moves in the following ways:

Endowments: This refers to the resources the bank already possesses. It could be a strong brand, a loyal customer base, or a robust IT infrastructure. The bank should leverage these assets to improve its competitive position. For example, a strong brand can be used to attract new customers or enter new markets.

Trends: This involves understanding the direction the banking industry is heading. For instance, digital banking and mobile payments are current trends. The bank should align its strategy with these trends to stay relevant and competitive. It could invest in technology to improve its digital banking services or partner with fintech companies.

Moves: These are strategic actions the bank takes to improve its performance. It could be launching new products, entering new markets, or improving customer service. The bank should make bold moves that can significantly impact its position on the power curve. For example, it could launch a new digital banking platform to attract tech-savvy customers.

Remember, the key is to make big, bold moves that can significantly shift the bank's position on the power curve. Incremental changes often lead to mediocre results.

How might a company in a traditional sector like manufacturing apply the performance levers discussed in the book to improve their strategy?

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A manufacturing company can apply the performance levers discussed in the book by first identifying their current position on the Power Curve. They can then use the ten performance levers to improve their strategy. These levers include endowments, trends, and moves. Endowments refer to the resources and capabilities the company already has. Trends refer to the market and industry trends that the company can leverage. Moves refer to strategic actions the company can take to improve its position. By understanding and applying these levers, a manufacturing company can increase its odds of moving up the Power Curve and improving its strategy.

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Endowments are where the organization is today; trends are current environmental factors that might assist or hinder growth; moves are actions by the organization. Roughly, endowments determine 30%, trends 25%, and moves 45% of the probability of moving up the curve. Endowments, trends, and moves provide a true outside view by giving an objective benchmark to analyze the quality of strategy beyond subjective opinions.

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What will be examples of strategic moves for a struggling commercial bank in a highly competitive industry?

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Here are a few strategic moves a struggling commercial bank could consider in a highly competitive industry:

1. Diversification: The bank could diversify its product and service offerings to attract a broader customer base. This could include introducing new financial products, expanding into wealth management services, or offering specialized business banking services.

2. Digital Transformation: Embracing digital technology can help the bank improve its operational efficiency and customer service. This could involve implementing online and mobile banking services, using data analytics to understand customer behavior, or leveraging AI and machine learning for risk management.

3. Partnerships and Alliances: Forming strategic partnerships or alliances with fintech companies or other businesses can help the bank access new markets, technologies, and customers.

4. Cost Reduction: The bank could focus on reducing operational costs to improve its financial health. This could involve streamlining processes, outsourcing non-core activities, or implementing cost-effective technologies.

5. Customer-Centric Approach: By focusing on customer needs and improving customer experience, the bank can increase customer loyalty and attract new customers.

Remember, the success of these strategic moves will depend on the bank's current endowments, market trends, and the effectiveness of its implementation.

How would you calculate economic profit for commercial banks?

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Economic profit for commercial banks can be calculated by subtracting both explicit and implicit costs from the total revenue. Explicit costs are the direct costs such as salaries, rent, and utilities. Implicit costs include the opportunity costs, such as the return that could have been earned from an alternative use of the bank's resources. The formula is: Economic Profit = Total Revenue - Explicit Costs - Implicit Costs. It's important to note that if the economic profit is positive, the bank is generating a return above its opportunity cost. If it's negative, the bank is not covering its opportunity costs and may need to reconsider its business strategy.

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Endowments

Endowments are based on history and determine the starting point for an organization. Below are aspects to consider:

• Starting Revenue: The larger the organization, the better the chances to move up the Power Curve. To become a significant advantage, the organization must be in the top quintile in total revenue.
• Debt Level: The lesser the debt, the greater the chances of moving up the Power Curve. To have an advantage, the debt-to-equity ratio must be in the top 40% of that industry.
• Past Investment in R&D: To gain a significant improvement in the Power Curve, the ratio of R&D to Sales must be in the top 50% of that industry.

Trends

Success in riding trends means accurately understanding shifts in the industry, channeling resources towards opportunities, and doing it faster than competitors. This requires analytics ranging from broad industry macro-trends to granular data about growth prospects. Two major trends are:

1. Industry Trends: Of the 117 organizations that moved up a quintile, 85 moved with their industry. If an organization faces an unfavorable trend, then there are two difficult options ahead: 1) transform the industry to change its growth prospects and gain competitive advantage, or 2) shift industries. Neither option is easy and the social dimensions make it much harder.
2. Geographic Trends: Exposure to high-growth geographies can propel organizational growth. Organizations headquartered in developing countries not only benefited from stronger growth in these markets but also performed better in developed markets.

Four stages of disruption

Identifying new trends may be difficult as they begin in a slow, quiet, and unimpressive manner that does not catch the attention of industry leaders. Avoiding being disrupted requires foresight and a willingness to navigate the four stages of a disruptive trend:

Stage 1: Detectable

There are only faint signals and barely any impact on the core business. Further, it is difficult to figure which trends to ignore and which to respond to. Diagnosing shifts accurately requires challenging governing beliefs about value creation in the industry. Changing mindsets is difficult, and status quo arguments will appear more sensible.

Questions and answers

How can a startup use the key topics covered in "Strategy Beyond the Hockey Stick" to grow and beat the odds?

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A startup can use the key topics covered in "Strategy Beyond the Hockey Stick" to grow and beat the odds by first understanding the core principles of the book. These include recognizing the importance of making big, bold moves to shift the odds in their favor, understanding the role of people and leadership in driving change, and using data to inform decision-making. The startup should then apply these principles to their own context. For example, they could identify potential 'big moves' they could make in their market, invest in leadership development, and use data to guide their strategy.

How do the theories in 'Strategy Beyond the Hockey Stick' challenge existing paradigms in business strategy?

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The theories in 'Strategy Beyond the Hockey Stick' challenge existing paradigms in business strategy by emphasizing the importance of people, probabilities, and big moves. It suggests that traditional strategy meetings often fail to deliver results due to social dynamics and the tendency to settle for safe, status quo decisions. The book encourages challenging governing beliefs about value creation in the industry and argues that diagnosing shifts accurately is crucial for effective strategy. It also highlights the difficulty of changing mindsets and the need to discern which trends to respond to and which to ignore.

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Stage 2: change takes hold

The technological and economic dimensions of the trend are clear but there is still no impact on earnings. Companies must nurture initiatives to gain a foothold in the new space. These ventures must have autonomy from core business even if there is a conflict of interest. However, this is difficult because there are existing revenue channels to protect and boards and investors to answer to. The long term threat doesn't seem as painful as the immediate difficulty.

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How relevant are the themes of "Strategy Beyond the Hockey Stick" to contemporary issues and debates?

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The themes of "Strategy Beyond the Hockey Stick" are highly relevant to contemporary issues and debates. The book discusses the challenges of implementing strategic initiatives in a business environment, which is a common issue in today's rapidly changing economic landscape. It emphasizes the importance of autonomy in new ventures, even when there is a conflict of interest with the core business. This is particularly relevant in the current business climate, where innovation and adaptability are key to survival and success. The book also addresses the difficulties of balancing short-term challenges with long-term strategic goals, a dilemma that many modern businesses face.

What are some of the most innovative or surprising ideas presented in Strategy Beyond the Hockey Stick?

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The book "Strategy Beyond the Hockey Stick" presents several innovative ideas. One of them is the concept of managing social dynamics in the strategy room to ensure breakthrough ideas don't get reduced to safe, non-risky options. Another surprising idea is the need for companies to nurture initiatives that may conflict with their core business. These ventures should have autonomy, even if it means protecting existing revenue channels and answering to boards and investors. The book emphasizes the importance of long-term strategic planning over immediate difficulties.

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Stage 3: Inevitable transformation

The new model is proven to be superior and has gained acceptance among early adopters. To gain acceleration at this stage, companies must single-mindedly shift resources from the old to the new model. This is the hardest stage to navigate. As revenues suffer, the tendency to become conservative and focus on the core legacy business increases. Boards may be unwilling to accept reduced performance to achieve long-term goals. Where there is a lack of in-house capabilities, acquisitions must be explored.

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What is the potential for the ideas in "Strategy Beyond the Hockey Stick" to be implemented in real-world business scenarios?

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The ideas in "Strategy Beyond the Hockey Stick" have significant potential to be implemented in real-world business scenarios. The book presents a new model for strategic planning and resource allocation, which has already gained acceptance among early adopters. The model encourages companies to shift resources from old to new strategies, even if it means accepting reduced performance in the short term to achieve long-term goals. This approach can be challenging to implement, especially when revenues are suffering and there is a tendency to focus on the core legacy business. However, the book suggests that where there is a lack of in-house capabilities, acquisitions should be explored. Therefore, while the implementation of these ideas may be challenging, they offer a promising approach to strategic planning and resource allocation.

How does the new model presented in Strategy Beyond the Hockey Stick challenge existing business practices?

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The new model presented in the book 'Strategy Beyond the Hockey Stick' challenges existing business practices by advocating for a shift of resources from old models to the new model. This can be a difficult transition as it may initially lead to reduced performance and revenues. The model also suggests exploring acquisitions if there is a lack of in-house capabilities, which can be a significant departure from existing practices.

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Step 4: the new normal

The industry has fundamentally changed. Incumbents will find their earnings dwindle. Some might adapt and survive, but many will go through waves of restructuring and consolidation. Sometimes an exit may be the best way to preserve value.

Five big moves

Big moves can help an organization get ahead of trends and shift odds in its favor. However, these need to be big enough in comparison to the rest of the industry to move up the Power Curve. Three big moves boost the odds of moving up the Power Curve from 8% to 47%.

1. Programmatic M&A:

The most effective style is executing at least one M&A per year that amounts to 30% of market cap in ten years with no deal being more than 30% of market cap. M&A requires skills that are built over time and practice. Infrequent, large moves affect value creation.

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2. Active Resource Reallocation:

This move requires reallocating capital across industries, operating segments, business units, customer groups, and geographies. Plan ahead by handing out cuts to create space in the budget for reallocation. Dynamic reallocation of shifting over 50% capital expenditure across business units over ten years can create 50% more value.

3. Strong Capital Programs:

Capital investment becomes a lever when an organization's capital expenditure to sales ratio crosses 1.7 times the industry median for ten years. Successful capital expenditure requires managing a pipeline of near term low-risk options, medium-risk medium term options and some high-risk long term options. This requires discipline and a tested investment process. Of the five big moves, this is the only one that can increase the odds of going down the power curve as well.

4. Productivity Improvement:

This is favored by managements as it is under their control. To be effective, however, they have to deliver a 25% productivity improvement over the industry median over a ten-year period. This requires extraordinary effort to build an organizational culture that focuses on driving productivity. Sometimes gains in productivity are lost in sales or absorbed by units.

5. Improving Differentiation:

This includes innovations in products, services, and business models. A good metric to measure differentiation is to compare the gross margin of the company with the rest of the industry. Exceeding the industry by 30% over a decade increases the chances of moving up the curve.

Overall, big moves can cancel a poor inheritance and increase the odds of moving up the Power Curve. The move has to be big enough to cross the thresholds mentioned to make an impact on the Power Curve. The impact of big moves compounds - each additional move nearly doubles the odds of moving up the Power Curve. All moves except Capital Expenditure are one-sided bets. They increase the odds of going up the Power Curve and decrease the odds of sliding down.

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How can a small business utilize the concept of the Power Curve and big moves from Strategy Beyond the Hockey Stick to grow?

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A small business can utilize the concept of the Power Curve and big moves by making strategic decisions that significantly impact their position on the Power Curve. These decisions, or "big moves", should be substantial enough to cross certain thresholds and make a noticeable impact on the Power Curve. The impact of these big moves compounds, meaning each additional move nearly doubles the odds of moving up the Power Curve. It's important to note that all moves, except for Capital Expenditure, are one-sided bets - they increase the odds of moving up the Power Curve and decrease the odds of sliding down. Therefore, small businesses should carefully consider their strategic decisions and aim for those that will most likely improve their position on the Power Curve.

In what ways has 'Strategy Beyond the Hockey Stick' influenced corporate strategies or business models?

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'Strategy Beyond the Hockey Stick' has influenced corporate strategies and business models by emphasizing the importance of making big, bold moves to increase the odds of moving up the Power Curve. It suggests that incremental changes often get diluted in the strategy room, and thus, encourages companies to take calculated risks and make substantial changes to their strategies or business models. The book also highlights the role of social dynamics in strategy meetings and the need to manage them effectively to ensure breakthrough ideas are implemented, not just discussed.

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Eight shifts in the strategy room

What do these insights mean for you in the strategy room? There are eight key shifts to leverage these insights and address the social side of strategy.

1. From annual planning to strategy as a journey:

A regular annual strategy cycle is ill-suited to today's dynamic business environment. Therefore it's best to trim the annual process and have regular monthly strategy conversations around a live list of issues. Dynamically track the portfolio of initiatives and suitably update strategy.

2. From getting consensus to debating alternatives:

Strategic discussions must focus on discussing options instead of getting consensus on a plan. It's important to use the analysis of endowments, trends, and moves to calibrate strategic decisions against the Power Curve. Techniques like pre-mortem where the team assumes that strategy has failed and analyses the possible causes can de-bias decision-making.

3. From "peanut butter" to picking breakouts:

Identify winning business units and feed them the resources they need. Incentives have to be structured to encourage resource reallocation. Picking breakouts must be applied granularly at every level of the company. Measure reallocation relative to competitors to get an outside view.

4. From budget approval to big moves:

Building a momentum case that forecasts the future trajectory at current performance levels can give a better baseline to evaluating strategic choices. Perform a "tear-down" of past results to identify what came from moves and what can be put down to trends. Shift the conversations from budget allocations to big moves that each business unit can pull off to move ahead of the competition. Budgets should be tied to these big moves.

5. From budget inertia to liquid resources:

Resources must be freed months before to invest in new opportunities during budget allocation time. 10-20% of the budget must be freed every year for reallocation. Create a suitable opportunity cost for resources so that managers have the incentive to free them.

6. From sandbagging to open risk portfolios:

A good way to avoid sandbagging is to hold conversations on growth and improvement plans to get bold ideas before beginning the conversation on risk. A picture of the growth, improvement, and risks for each initiative allows decision makers to prioritize strategic incentives based on a risk-return assessment. Incentives and performance targets must be adjusted to reflect risk.

7. From a number focus to holistic performance reviews:

Probabilities of success must be a prominent part of strategic discussions and use them in incentives and performance review. This creates a sense of shared ownership. To encourage long term-tasks with uncertain outcomes, incentives can be based on team performance.

8. From long-range planning to forcing the first step:

Big moves must be broken down into realistic, achievable time-bound goals. To do this, it's best to create six-month targets with clear operational metrics. It's important to allocate resources and people to back strategic goals.

These eight shifts work together to transform your strategy. Strategy is still part science and part art, but this approach of understanding the odds and focusing on the outside view can help you better overcome the social side of strategy and create breakout growth.