“Vision without action is merely a dream.” -Japanese proverb
1: “To win the battle that is now going on around the world between freedom and tyranny,” President John F. Kennedy said to a joint session of Congress in 1961.
Now that’s a bold vision.
But vision by itself isn’t enough. A powerful strategy is required to bring a bold vision to life.
“During his speech that day he not only asked for funding to put a man on the moon,” Carolyn Dewar, Scott Keller, and Vikram Malhotra write in CEO Excellence, “but also for three related big moves: increasing unmanned space exploration, developing a nuclear rocket, and advancing satellite technology.”
His administration was also setting up the Peace Corps, creating new civil rights legislation, and reinventing economic cooperation with Latin America.
“A leader who sought to minimize uncertainty and guard against making mistakes would never have chosen as audacious a strategic move as a lunar landing,” Carolyn, Scott, and Vik write. “Instead they would have simply increased funding for science and technology.”
The lesson?
The “Be bold” mindset applies not only to vision but also to the strategies to achieve that vision.
The world’s best CEOs also understand the importance of high-octane moves early and often during their tenure.
Exhibit #1: Microsoft’s Satya Nadella. When Satya was named CEO in 2014, “the technology company looked like it was on a fast track to irrelevance,” the authors write.
Microsoft’s vision of “putting a computer on every desk” was antiquated.
So, Satya put forward a new vision: “Empowering every person and every organization on the planet to achieve more.”
Then, he and his team went to work pursuing “a number of big, moonshot-style strategic initiatives to propel the company toward its vision,” they write.
Upon taking the reigns, Satya was told by his predecessor, Steve Ballmer, “Be bold and be right. If you’re not bold, you’re not going to do much of anything. If you’re not right, you’re not going to be here.”
That’s what Satya did. He invested over $50 billion in acquisitions, including purchasing platforms such as LinkedIn for business networking and GitHub for software developers.
“He doubled investments in the company’s cloud services and artificial intelligence businesses,” Carolyn, Scott, and Vik state. “He also moved Microsoft away from a ‘software in a shrink-wrapped box’ model to online subscription services.
“At the same time, he made the tough decision to sell Microsoft’s mobile phone business, despite having spent billions trying to catch up with Apple and Google.”
All the while, Satya was transforming Microsoft’s workplace culture.
The result of all these high-powered moves?
“From the day [Satya] took the CEO job through 2020,” the authors note, “Microsoft’s revenues have increased more than 60 percent. The stock price has grown almost sixfold during a period the S&P 500 has grown only twofold.
“As we write, Microsoft is the second most valuable public company on the planet.”
2: Carolyn, Scott, and Vik write: “We could fill pages with similar rundowns of the big strategic moves the best CEOs have made. More instructive are the results of an analysis of 3,925 of the largest global companies over a fifteen-year span. McKinsey ran the numbers to determine which big strategic moves yield the highest probability of a company’s jumping from an average to a top profit generator.”
Here are the five types of strategic moves that matter most
A: Buy and Sell. “The best CEOs execute at least one deal per year on average, and over a ten-year period these deals cumulatively amount to more than 30 percent of a company’s market cap,” they write. “This puts a premium on having a deep capability to identify, negotiate, and integrate acquisitions.”
The best CEOs also put an emphasis on selling or spinning off businesses.
“Aon is a poster child for making deals,” they write. “In CEO Greg Case’s words, ‘We’re always shaping and improving our portfolio. Over the last fifteen years, we’ve done over 220 acquisitions and more than 150 divestitures, some big and others small.'”
B: Invest. To make an impact, the best CEOs invest in capital expenditures to sales ratio that exceeds 1.7X the industry median for ten years.
“That’s a big number,” they write, “but when capital is spent wisely, it can enable a company to expand faster than its industry.”
C: Improve Productivity. The most successful companies reduce administrative, sales, and labor costs more deeply than others and, in so doing, achieve 25 percent more productivity improvement than their industry’s median over a ten-year period.
D: Differentiate. “The best CEOs improve their business models and create pricing advantages in ways that are big enough to change a company’s trajectory,” Carolyn, Scott, and Vik write.
The result? “Their companies achieve an average gross margin that exceeds the industry’s by 30 percent or more over a decade.”
Former LEGO CEO Jorgen Vig Knudstrop put forward a goal to introduce at least half of the company’s core products every year, which included “digital platforms that strengthened communication among LEGO fans, developed products for girls, licensed collections (e.g., Star Wars), and launched the successful LEGO movie franchise,” the authors note.
E: Allocate. “This move is deemed big when a company shifts more than 60 percent of its capital expenditures among business units over ten years,” Carolyn, Scott, and Vik observe.
“Doing so creates 50 percent more value than companies that reallocate more slowly. Resource reallocation involves more than just capital, however; it also means shifting operating expenditure, talent, and management attention to where it does the most good. As such, it’s a vital enabler of the other four big moves.”
3: The world’s best CEOs understand that urgency is critical. “CEOs who make too few moonshot-size moves—or make them too late in their tenure—fall behind the pack,” the authors write.
Which is highlighted in an analysis of the McKinsey data above: “Companies in the middle quintiles of economic profit creation, roughly 40 percent didn’t make any big moves at all over a ten-year period. Another 40 percent only made one,” Carolyn, Scott, and Vik note.
“Meanwhile,” they write, “the research also shows that making two of these big moves more than doubles the likelihood of rising from the middle of the pack to the top and executing three or more makes such a rise six times more likely.
“Furthermore, CEOs who make these moves earlier in their in their tenure outperform those who move later, and those who do so multiple times in their tenure avoid an otherwise common decline in performance over time.”
More tomorrow.
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Reflection: Which of the five strategic moves is most relevant right now to my organization?
Action: Share this information with my team. Lead a discussion. Take action.
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