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1. Recognize cognitive biases: The book emphasizes the importance of recognizing cognitive biases that can distort strategic planning. Entrepreneurs and managers should be aware of these biases and strive to mitigate their impact.
2. Understand the power curve: The power curve of economic profit, which shows that a small number of companies capture the majority of economic profits, is a key concept in the book. Entrepreneurs and managers should aim to move their companies into the top quintile of the power curve where the majority of economic profits are captured.
3. Make big moves: The book suggests that making 'big moves' can help companies shift their position on the power curve. These could include resource reallocation, productivity improvements, or market share gains in important markets.
4. Manage social dynamics: The book also highlights the importance of managing social dynamics in the strategy room to ensure that breakthrough ideas are not watered down.
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Survey shows that 70% of executives say they don't like the strategy process, and 70% of board members don't trust the results. 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. 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. 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 200...
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McKinsey & Co. partners wrote this book. How do you effectively turn the promises of strategy meetings into reality? How can you manage social dynamic...
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