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

by Chris Bradley, Martin Hirt, Sven Smit

In McKinsey on Strategy to Beat the Odds, partners from McKinsey channel the latest insights in behavioral economics to demystify the social side of strategy. A strategy can be sound on paper, having the right models and theories supporting it, but if there is a disconnect between leadership and employees, then the strategy is destined to fail. This book teaches leaders how to have more fruitful conversations with their teams, bridging the gap between theory and application. Ultimately even the wisest of strategies is challenged by individual behaviors and social dynamics. The team must be fully on-board with, and passionate about, the strategy to make it happen. Leaders will learn how to create and sell strategies so that they have their team's full support and their ideas are honored and implemented throughout their organization.

Genres: Business, Nonfiction, Management, Leadership, Economics, Business Strategy, Finance

256 pages, Hardcover

Published February 6, 2018

Reviews

[☘Misericordia☘ ⚡ϟ⚡⛈⚡☁ ❇️❤❣ · Rating 5 out of 5]

Q:
The villain is the social side of strategy. (c)
A funny take on the fallacies of modern 'strategy' considerations. Very light.
The 'you are your numbers' is repeated throughout like a mantra. Thank God, they managed to do without MECE and 'not boiling the ocean', this time around.
Q:
As the strategy process starts, the team agrees that this year you will avoid huge documents with 150 slides and endless appendices. You commit to having real conversations about the future of the business and the tough choices you’ll have to make. Then, two days before the first meeting, three of those 150-page documents land in the CEO’s in-box with a thud. So much for real conversations. (c)
Q:
How likely is it for the plan to show low or declining market share? How often does a SWOT analysis come out on the weak side? Those analyses look strong even though we all know for a fact that not every company can win. If one company gains share and gathers strength, others must lose. How often does the presenter arrive at the conclusion that further investments in their own business are not warranted, that the company should consider re-allocating resources to other businesses, cutting back, or even exiting? That just never happens—in strategy presentations, it seems that everyone is a winner. All the time. (c)
Q:
Think about one of our ancestors wandering across the plains of Africa. On the occasion of that chap coming across a lion, the chances of him being part of our gene pool today are relatively low if he started to think about the clouds, the beauty of the landscape, or the prospects of finding a meal for the day. They all are possibly interesting or even important topics, but not species-extending in the face of a lion. With fear-induced myopia, our ancestor focused on one thing, and one thing only, and that was getting away when seeing a lion.So, our brain came with a lot of shortcuts (heuristics, in technical terms) that lurk in the deeper parts of the subconscious mind. (c)

[Anton · Rating 3 out of 5]

I have slightly mixed feelings about this book. My main criticisms can be summed up as:

1. This could have easily been a McK Quarterly / HBR article. The book format feels like an overkill for the underlying idea. As the result, there is an abundance of somewhat repetitive examples that perform a filler role.

2. The book has a relatively niche target audience: folks that work in corporate strategy, corporate C-suite and strategy consultants. If you are not working for or consulting a large business - this book will not have a practical application in your life. It is not a 'general consumption' stuff.

This aside (and if you happen to work in corporate strategy on the business or consultancy end of the table) - it is quite fascinating. Lots of food for thought and perceptive critique on why usual strategy planning cycles are 'broken'. So, if you are the 'target audience' - grab yourself a copy. If not - there are more things to life than this...

[Scott Wozniak · Rating 4 out of 5]

This is an excellent book on strategy--if you're a multi-billion dollar corporation, that is. McKinsey consultants ran a study on what strategic moves actually made a difference for large companies. They flat out said that you need to be $7.5 billion in revenue before the study actually makes sense for you. (The giant consulting firms like McKinsey are so expensive they only work with the largest firms, so that's their data set.)

But there are some good insights under all the MBA/Fortune 500 jargon:
-The biggest factor is your industry, not your strategy. If it's growing, lean into that growth and push hard. If it's flat/declining, don't try to make crazy growth happen. You'll get poor returns on your growth investment.
-The key to winning your competitive market is to make bigger moves than your competitors in key areas. That means you can't take small steps in multiple areas. You need to over-invest in a smaller number of improvement projects. Ideally, they said to invest 50% more than your competitors in at least one area.
-The key to making strategic choices is having liquidity. You have to free up money for special projects, so you can't have it all locked down on standard budget increases. You also have to free up staff time to work on the strategic projects.

Again, I enjoyed it a lot. I do strategy work for all sizes of companies. But it's not written for non-Fortune 500 companies, so you have to translate a lot if you don't work with them.

[Brat · Rating 3 out of 5]

I had stumbled upon this book at an airport store, and then again stumbled upon it on a McKinsey article with an excerpt. The anecdote that the book begins with seemed like such a reflection of what happens on a daily level in a corporate. Chris Bradley, the author, has a fresh take on how strategy should be formed and conducted in a corporate.
The book talks about the social side of strategy where managers are compelled to play games to ensure their agendas are met, and thus it is the job of the CEO/ board to be see through the social side and accordingly form the strategy. Strategy is formed during “an exhausting marathon of strategy sessions that are supposed to be discussions but really are just presentations”
While the book starts off well, with clear hypothesis and happenings in the board room when the strategy formulation is in place, it falls awfully short in the latter half, and repetitive to the point of irritation.
One good learning from the book was the hockey stick itself, and the hair that forms on the hockey stick year after year. A reality explained in such a simple manner.
Most managers, for instance, will try to secure resources for the coming year while deferring accountability for the returns on these investments as far as possible into the future—maybe even long enough that people will have forgotten about the original commitments, or that they themselves will have moved on to the next position.

Data can be managed to further one’s own interest. Like he mentions an incident when all BU leaders showed themselves as number 1 or number 2, by redefining the segment/market they are operating in.
Market share can be defined favorably by excluding geographies or segments where the presenter’s business unit is weak
The importance of allocating resources in the most important projects rather than having a peanut butter approach. He talks about classic examples of Kodak which faced extinction as it did not move when there was disruption.
“..traditional film business had been generating gross margins of more than 60 percent for a long time. It was hard to cannibalize a business that had sustained those performance levels for decades—especially because the margins in any consumer electronics business were expected to be much lower”
most successful organizations fail to look for new things their customers want because they’re afraid to hurt their core businesses. “Companies rarely die from moving too fast, and they frequently die from moving too slowly
The top decision makers, who usually come from the biggest business centers, resist having their still-profitable (though more sluggishly growing) domains starved of resources in favor of unproven upstarts.
The book talks about eight shifts that a company needs to do, to ensure they have a sound strategy process and remain at the peak of their game. In a nutshell,
1. Annual Planning to Strategy as a journey
2. Getting to “yes” to debating real alternatives
3. Peanut butter to picking your 1-in-10s
4. Approving budgets to making big moves
5. Budget inertia to liquid resources
6. Sandbagging to open risk portfolios
7. You are your numbers to holistic perspective on performance
8. Long-range planning to forcing the first step
There are some impressible quotes in the book, that I have highlighted below -
• The goal of strategy needs to be to move to the right on the Power Curve.
• there is uncertainty, and strategy is about how to deal with it.
• Trying to improve your strategic decision making is like trying to improve your golf game by practicing blindfolded, and not finding out if your ball went into the hole for 3 years.
• you’d rather be an average company in a great industry than a great company in an average industry
• most of us are much more willing to forgo a large upside to avoid a small downside
• Power Curve is highly relevant even for personal career choices, requiring people to be conscious about the position of an industry on the Power
• German sausage effect”: You squeeze on one end, and the fat sloshes to the other end.
• De-bias decision making. Warren Buffett is said to operate with red and blue teams, even at times hiring two investment banking teams to evaluate a possible acquisition. One argues in favor, the other against
Coming from a consultant, the book also refers to some good interesting reads. Listing down the ones that I had highlighted –
1. Strategy: A history, Freedman Lawrence
2. The innovator’s dilemma
3. Good Strategy/Bad Strategy, Richard Rumelt
4. Co-opetition, Adam M Brandenburger
5. The lords of strategy
6. Antifragile
7. The signal and the noise
8. Decline and fall of the roman empire
9. On war, carl von Clausewitz
10. The strategy of conflict, Thomas Shilling
11. Jack: Straight from the gut
12. Superforecasting
13. The halo effect and the eight other business delusions that deceive managers
14. The modern firm, John Roberts
15. Big Blues: the unmaking of IBM
16. Understanding Media : the extension of man

[Deepak · Rating 4 out of 5]

The book presents a data-backed deconstruction of what drives breakthrough company performance. While some of the data points are very specific (e.g. what share of market cap to spend on MnA), the broad principles are directionally helpful for any company building its strategic roadmap.

Key points -

Strategy discussions fall apart because - a) of the social side of strategy - a beauty contest, b) focus only on the inside view

Economic profit is a good measure of the performance of a company. It is the net profit less the opportunity cost of capital.

Industry accounts for 50 percent of a company’s performance... better to be an average player in a good industry.

Corporate peanut butter - need to make a few bold bets than spread yourself out thin.
Like Satya Nadella’s move on cloud business within Microsoft.

Endowment (current size, debt position) accounts for 30%, trends (industry growth, geography growth) account for 25% and big moves account for 45% of a company ‘s move up the power curve.

Industry trends is one of the most important factors - need to get ahead of them!

5 Big moves :

MnA - 1 deal per year at least, which cumulatively accounts for less than 30 percent of market cap over 10 years, with no individual deal being higher than 30 percent of market cap
Programmatic MnA - where there is a structured approach to evaluating, negotiating, closing. Cannot be one off.
WPP made 271 acquistions over the sample period of 10 years!

Resource re allocation- more than 50 percent over a decade is the minimum threshold, Danaher top management spends 50 percent of its time on resource allocation decisions

Capex - your capex to sales ratio should be 1.7x or higher than indistry average for a decade

Productivity improvement : 25% above industry median needed

Differentiation - gross margin 30% higher than the industry average over a decade

Breaking the social side of strategy:
⁃ Make strategy an ongoing thing
⁃ Present a bunch of scenarios than just one option
⁃ Build out opportunity map at a granular level - should have 30-100 cells
⁃ Build a momentum case that extrapolates the current baseline without any big moves
⁃ Conversations in the strategy room as well as resource allocation should be centred around big moves
⁃ Make an 80 percent budget ... 20 percent sliver of the budget should be contestable (an alternative to zero based budgeting)
⁃ Make the performance management more holistic / not just “you are your numbers”; Reflect in incentives also

[Rafael Ramirez · Rating 5 out of 5]

Uno de los mejores libros que hay sobre estrategia empresarial.

A diferencia de la mayoría de los textos sobre este tema, sus autores, consultores de McKinsey & Co, no se limitan a describir una serie de anécdotas o viñetas de empresas exitosas sino que fundamentan sus recomendaciones en un análisis estadístico a conciencia de los factores que explican en gran medida la capacidad de producir resultados excepcionales, basados en datos del performance de empresas públicas en las últimas décadas.

Uno de los aprendizajes del libro es ver (como era de esperarse en base a la teoría económica) cómo la competencia hace que la mayoría de las empresas no logren obtener ganancias económicas sino que a duras penas obtengan utilidades para cubrir su costo de capital, mientras que son pocas las que logran una utilidad económica considerable, lo cual es una muestra que son pocas las empresas que logran una verdadera ventaja competitiva. Los autores explican cuáles son las principales palancas que tienen los directores para convertir a la suya en una de esas pocas empresas excepcionales.

Es interesante ver cómo esta misma distribución se da a nivel industria, lo cual nos hace ver la importancia de que los directores de empresa sepan por un lado, escoger los sectores más propicios donde participar, lleven a cabo esfuerzos disciplinados y consistentes de re-asignación de capital y un programa de adquisiciones y des-incorporaciones, y por otro, la relevancia de desarrollar la capacidad de detectar las tendencias (positivas o negativas) que afectan a una industria antes que los demás y, sobre todo, tener la capacidad de actuar en consecuencia de una manera ágil y efectiva.

Un libro que no debe faltar en la biblioteca de cualquier director de empresa que aspire a una gestión exitosa de su negocio.

[Sean Ruff · Rating 3 out of 5]

Timely read navigating through a capital planning cycle. Good principles, but would be better suited as a HBR article.

[Patrik Kolligs · Rating 4 out of 5]

The book is especially aimed at people who work in consulting for large companies. However, there are also some exciting insights for people who are generally interested in strategy:

1. Most firms still fail at articulating strategy beyond what they've done in the past. In many businesses, the best predictor of next year’s budget is still this year’s budget, plus or minus a few percent. The resources are peanut buttered across all businesses and operations.

2. Economic profit – what you have left after subtracting the total cost of capital – offers a good measure of success that forces you to look outward. In plotting the economic profit of the world’s largest firms, you can discern a “Power Curve” – which has a short, steep, negative tail at the left (bottom quartile), a long, flat line in the middle (two average quartiles), and a short, steep, positive line at the right (top quartile). The majority of firms produce little economic profit. What’s left over after all expenses – normally known as “profit” – represents investors’ minimum expectations in return for letting the firm use their money. These companies, despite their efforts, just “pay the rent.”At the far right of the Power Curve, some firms produce markedly better-than-average economic profit.

3. Getting to the upper quartile in economic profits requires bold action not just optimistic forecasts.

4. Increase your odds of making the right decisions by thinking in terms of probabilities. There are 10 key variables you should track, to assess your odds of success. These fall into three categories:

Endowment: (30%) 1. Get big: The bigger the better. Aim for revenues in excess of $7.5 billion if you expect to gain an advantage from your size. 2. Eliminate debt. 3. Increase R&D spending.

Trends: (25%) 4. When your industry moves up the Power Curve, your company benefits. 5. Choose your markets. Operate in fast-growth countries, regions and cities.

Moves: (45%) 6. Make small but steady acquisitions. 7. Put resources into business lines strategically, not evenly. 8. Spend almost twice as much as your industry medium. 9. Maintain productivity. 10. Maintain gross margins in the top third of your industry.

5. Develope a culture that embraces big moves by using "eight shifts":

5.1 “From annual planning to strategy as a journey” – Don’t think or plan strategically in three-to-five year cycles once per year. Discuss strategy regularly while tracking and tweaking ongoing initiatives and projects.

5.2 “From getting to yes to debating real alternatives” – Start by examining alternatives (strategic choices about what you’ll do to succeed that you can’t easily reverse). Assess these options against the 10 dimensions to estimate the probability of success in each avenue. Explore the pros and cons and the risks and rewards.

5.3 “From peanut butter to picking your one-in-10s” – Stop spreading resources evenly across business lines or divisions. Pick winners and double down. Most firms and executives know their top businesses. Involve your executives in determining which businesses should get the most investment.

5.4 “From approving budgets to making big moves” – Start by determining what it would take to maintain each business line on its current trajectory. Examine results by trends and moves. Talk about where the business wants to go beyond its current trajectory. Debate big moves you need to fill the gaps. Fund the big moves you most believe in.

5.5“From budget inertia to liquid resources” – Plan ahead. Build liquid resources ahead of identifying your big moves so you have the resources to apply to them. Do this through divestitures or by grabbing back 10% to 20% of each business’s budget annually. Make it costly for leaders to hold on to resources that don’t perform well.

5.6 “From sandbagging to open risk portfolios” – Don’t ask individual business unit leaders to argue for their goals and budgets. They have too much incentive to aim low. Have leaders share their best ideas for growth and improvement outside the context of resources. Get leaders together to assess ideas and evaluate the upside versus the risk. Prioritize the best ideas and fund them.

5.7 “From ‘you are your numbers’ to a holistic performance view” – Don’t allocate incentives, rewards or positive evaluations according to whether people hit their numbers. Calculate the probability that they will achieve their goals. Afterward, analyze their results to determine why they succeeded or failed. Recognize and reward accordingly. Align incentives with risk, and balance individual and team-based rewards.

5.8 “From long-range planning to forcing the first step” – Emphasize action when planning. Zero in on the initial concrete steps. Create measurable next steps focused on outcomes that should materialize within six months. Assign adequate people to your projects.

[Muralidhar · Rating 5 out of 5]

New take on Startegy. Relatable and what we see in day to day Startegy meetings.

[Dave’s Reads · Rating 4 out of 5]

I had read this one for a work book club. In a nutshell, my takeaway is that in MedTech (& other industries), strategies that play it safe and are incremental are not enough to stand out. To break away from the pack, companies need to be bold and differentiate their moves (“where to play strategy”) that go beyond simply following industry trends. Instead of spreading resources thin across a long list of initiatives, it’s smarter to double down on a few high-impact bets that can truly shift the trajectory of the business. In addition, it’s critical to use data to challenge leadership assumptions and cut through internal bias. It’s also worth remembering that strategy isn’t just about logic, excel, and PowerPoint—it’s also shaped by politics, power dynamics, and personalities. Ultimately, an awareness of all this can lead to more effective conversations and better decisions.

[Kevin · Rating 2 out of 5]

I found this book to be particularly bad. The authors had some good insights like “don’t allocate resources across many opportunities; rather, pick your best ones and allocate them there”. But most of the book focused on completely non-actionable information. For example, if you have the best endowment (i.e., you are much bigger than the competition, have low debt levels, and have historically spend a lot on R&D relative to your competitors) you are more likely to earn outsized returns for your shareholders (which is how they measure good strategy). Of course as of right now, there is nothing you can do about that.

They do acknowledge that some of their advice is non-actionable, but seem to miss the boat that almost none of their advice is actionable. For example, outside of your endowment your “trends” also significantly impact your ability. Trends reflect how strongly your industry is growing and how strong your geography is growing (e.g., China vs the UK). Of course you could completely change industries or move to an area like China to benefit from better geographical trends, but it seems far fetched that anyone could do either of these things without significant capital and knowledge.

The last area they discuss, “moves”, are what they believe are the items truly under your control. But the items they discuss in this section are almost as intractable as the others. Specifically, moves are programmatic M&A, dynamic allocation of resources, strong capex, strong productivity gains (i.e., overall margins and labor productivity), and improvements in differentiation (i.e., great gross margins deriving from being able to charge high prices because of a great product or generate outsized returns because you are operationally better than the competition). So basically 1) make good acquisitions regularly, 2) allocate resources regularly and to the best opportunities, 3) spend money on capex wisely, 4) make sure you continue to manage your overhead better than your competitors, and 5) build products that your customers like better than the competition even though you charge more than they do.

If this all seems like “well of course that’s what I should do, but how do I do that” that’s what I thought by the end. Basically a lot of “run your business better than the competition and you will end up earning more money than they do!” I would not recommend this book if you are looking for practical ways to improve your strategy. Instead, check out “Good Strategy, Bad Strategy” which is significantly more useful and entertaining to read to boot.

[Maciek Wilczyński · Rating 4 out of 5]

If Mckinsey & Company (or any other top-tier consulting) was a science institute, it would be nail all Impact Factor and The Philadelphia List of Journals type of scientific rankings. Only Firm like that has a scale to conduct such research. Contrary to "Good to Great" (which is mentioned in the book), they have analyzed: 3,925 largest revenue non-financial companies from 59 industries and 73 countries in a time frame of 15 years (sic!). They have performed statistical probability analyses, found 10 factors and the odds of moving up the "Power Curve" to beat the market. In fact, they fully decomposed the business principles and strategy. We don't only understand what is important, but also what is the chance of doing that move. We can use it to calculate how likely our strategy is going to win. It's really great.

However, it's not that applicable for SMB, so that's why I need to deduct one star. It's mostly written for CxO-level (which is a focus of McK), so no surprise here.

I was reading this book in par with "Good to Great" and I see a huge contrast between the case study and quantitative methods.

Much recommended. That's how business research should look like.

[Steve Percoco · Rating 4 out of 5]

This book, written by three leaders in McKinsey’s Strategy Practice, seeks to address the problems of poor strategy execution that McKinsey has seen in many large companies. Based upon decades of experience working with senior executives around the world, it describes a common dysfunctional sequence of events in annual strategy meetings that often lead to mediocre performance.

Participants at these strategy meetings sit through a typical detailed slide presentation in which only one course of action is offered – the one that is ultimately approved. While the presentation may include several new initiatives, there is typically a resistance to making big moves that would require some business units (BUs) to accept smaller operating and capital budgets. BU managers typically aim for incremental improvement, which results in available resources being spread across the organization in a thin layer like peanut butter on bread. Thus, the annual strategy review is really just a budgeting exercise that seldom leads to superior performance. BU managers may give presentations that show “hockey stick” growth trajectories several years out, but those projections are rarely achieved. Plotting planned vs. actual results over many years results in the dreaded “hairy back,” with each year’s plan showing hockey stick projections that are never realized.

Through its own empirical research, McKinsey has developed the Power Curve, which plots the economic (profit) performance of 2,393 companies in 59 industries and 62 countries from 2010-2014. The Power Curve is divided into quintiles and has an S-shape with a very long middle. The curve rises sharply in the top quintile because companies included in it are spectacularly profitable, while it falls sharply the bottom quintile because those companies are spectacularly unprofitable. Every company’s goal, according to McKinsey, should be to move into (or remain in) the top quartile. By determining the factors which led to superior profitability at each of these companies, McKinsey has been able to calculate the various probabilities associated with moving up or down the Power Curve.

The shape of the Power Curve from the middle to the top quintiles is essentially a hockey stick. McKinsey acknowledges this, but says that it has a strategy and implementation framework that helps make the hockey stick achievable. That framework consists of ten variables or performance levers in three categories: endowment, trends and moves.

Endowment includes factors that are indicators of competitive advantage, including size, debt level and past investment in R&D. Companies that are large, with relatively low debt and significant past investment in R&D have better odds of being in the top quintile or moving up the Power Curve.

Trends consist of industry and geographic trends. Industry trend is the most important of the ten variables. Companies operating in industries with strong average profit growth have a better chance at winning. Similarly, those in faster-growing geographies stand a better chance of moving up the Power Curve.

While endowment and trends are mostly well established (and often beyond the control of management in the short-term), moves are the levers that management can pull to grow revenues and profits. Of the five moves identified by the McKinsey team, the one that received the most emphasis in the book is the dynamic allocation of resources (i.e. the ability of a company to shift funding, people, technology and other resources quickly to capitalize on emerging opportunities).

This three category, ten variable framework is fairly simple, but quite powerful. By assessing the performance of the 2,393 companies in its database, McKinsey has calculated the relative importance of each category and variable and their contribution to the probability of moving up the Power Curve. While the framework applies to all companies, it is the specific application of each variable to a company’s individual circumstances that is the ultimate determinant of success.

McKinsey emphasizes “opening the windows” in the analysis of endowment and trends to get an outside (i.e. objective and complete) view. Companies that are stuck in the middle quintiles or those that slip to lower quintiles are likely to have an internal dynamic that fails to assess these variables accurately.

McKinsey has calculated the probabilities of moving up the Power Curve that are attributable to each variable and determined that companies have only an 8% chance of moving to the top quintile. This raises the question of whether the pursuit of the hockey stick is appropriate. Yet, the authors assert that by pulling hard on two or more of the levers, the odds of success can be greatly improved (but still do not exceed 50%). Furthermore, they argue that few companies that make bold moves are likely to slip down the Power Curve.

Even so, it seems critical for a company considering climbing the Power Curve to make as accurate an assessment of their current circumstances and opportunities as possible to improve its chance of success. Formulating a plan for implementing the strategy and measuring progress along the way is also key. (Presumably, many companies will be well served by embarking on this journey with a knowledgeable and experienced consulting firm like McKinsey.)

It also strikes me that while the book’s prescriptions may not be suitable across the entire corporation, there may be pockets within it (i.e. within the individual business units) that will benefit from adopting this approach. Indeed, some companies may find that a small-scale application of the Power Curve may be a useful way to begin building a culture that is flexible and achievement-oriented. Once mastered, the process can then be rolled out to other business units, if appropriate.

The book also provides valuable insights into the causes of the dysfunction that corrupts the strategic review process and techniques for changing the culture to improve both process and outcomes. It provides many specific examples of top quintile companies that have taken bold steps to obtain superior performance. The Power Curve concept may not be suitable for all companies, but the book should be useful to many companies that are looking for ways to improve the strategic planning process to raise their chances of achieving their objectives.

[Max Lapin · Rating 3 out of 5]

The Really Sad about this book is that the gems are mostly in the last 1/4. It takes time to struggle through the repetitive watery and consulting lingo heavy first half and then another quarter.
I did it out of respect for the Firm and may well claim that the authors mostly expanded a great material for McKinsey Quarterly article into a book. There may be many reasons for that, but it feels like they wanted the world to know about a handful of amazing instruments in strategy. Especially after a profound legacy of Mike Porter.
They did. O, man, they did. Think of this book as a 6/5 quality for the last 50 pages and 2/5 for the first 150. Brings exactly to 3/5 on average.

[Marta · Rating 4 out of 5]

If you are a consultant and/or focusing on business strategy - it's definitely worth a read. Interesting results of a study conducted by McKinsey. Nice perspective on the social side of strategy and recommendations on how to change your strategy planning process. Authors highlight 10 factors that could make you win or lose with your strategy. Enjoyed the book a lot - it made me reflect on how I work for a while.

[Lee · Rating 4 out of 5]

I've been chipping away at this book for some time (4 months!). It's a refreshing strategy book which I really enjoyed. I spent a lot of time reflecting on each chapter.

Definitely worth a read.

[Jean · Rating 4 out of 5]

This book aims to investigate what often stands in the way of executing a good strategy to deal with uncertainty. The book cites empirical evidence from their research on thousands of companies to identify ways to help tackle the “social side of strategy”. The hockey stick often entails conservatism for the first few years, followed by an aggressive spike in the longer term. While old habits and norms in the strategy room might be hard to change, the book provides certain useful tips and reminders on improving dynamics for better strategy formulation.

Recognizing the inherent flaws of strategy processes
Most inefficiencies of strategy arise as they involve conditions that we are not well placed to deal with. Behavioral economics suggests that this is mostly due to our irrational tendencies. Our reliance on unconscious biases and heuristics do not play in our favor when dealing with high uncertainty, with our limited experiences crippling us, or external factors distorting our predictions. These problems are amplified by social dynamics, which sees different variations of the agency problem.

Having an outside view in order beat the market
This involves finding a useful yardstick (such as revisiting the importance of economic profit as a metric) to measure returns and growth. To stay relevant, we would also need to compare ourselves on a competitive scale that recognizes the indifference of capital.

Picking the right industry
Industry plays a critical role; it is better to be an average company in a great industry than a great company in an average industry.

Anchoring in the realities of the business and the evolving context
Overconfidence, blind extrapolation, competition for resources, the treadmill of rising expectations, and the desire for “stretch” goals are some of the reasons cited for bold forecasts (hockey stick dreams). Specifically, they tend to revolve around not having a proper baseline, errors in attributing performance due to noise, and how we tend to deal with uncertainty.

The later parts of the book are focused on figuring and increasing the odds of a good strategy, which are mainly classified into three things: resource endowment, industry trends and the moves we make.

As a takeaway, the authors suggest eight shifts to address the social side of strategy:
1. Have regular strategy dialogues instead of an annual planning meeting, and have a rolling plan to update as you move
2. Debate real alternatives instead of just getting to yes, so that as we track assumptions over time, we can build contingencies into our plans and evolve our choices appropriately
3. Focus on your break-out opportunities instead of spreading resources too thin
4. Make big moves that are calibrated against the competition instead of just approving budgets
5. Free up resources ahead of time to avoid budget inertia
6. Be open about your portfolio risks instead of sandbagging
7. Take a holistic performance view instead of focusing on just the numbers; this involves encouraging noble failures and reflecting probabilities in incentives. as risk goes up, we may want to reward individuals based on team performance to minimise individual risk aversion
8. Force the first step by breaking down big moves into shorter-term objectives and making sure that resources needed are in place

Overall, I found the book to be quite insightful into what happens at board rooms and the problems that strategists typically encounter. I would say this book is worth a read if you are looking for ways to dissect and improve your strategy planning process. A bonus: To lighten what would be a sombre topic, there were cartoons peppered throughout the book for some tongue in cheek humor.

[Pedro Pinto · Rating 5 out of 5]

Strategy beyond the Hockey Stick was a really pleasant surprise. Was expecting a book with some level of quality about strategy, coming from Mckinsey and Company, but got much, much more in this relative concise book (235 pages) that provides a clear framework on the key pillars that make a difference on your company performance and how a sound strategy process should be deployed.

It also presents the 10 key levers. divided in 3 broad categories, that one should be aware if he wants to make his company progress on the power curve distribution of value generation.

Consequently, this is a must-read book for every manager, whatever the ranking you currently have!

Unbundling the aforementioned, below you can find my insights divided in 2 key topics:

a) Assessment of your current strategic process, that leads into the following conclusions (any similarity with your reality is not a coincidence):
1- A cumbersome process that ends in a minimum 150 pages power point presentation that does not add much to the organization and business discussion.

2- A document / process that is not used to openly discuss the current business environment and to make key decisions, but to support and defend the current "status-quo" or the special project of a business unit, where every manager tries to maximize their own utility, and not a process to optimize the utility of the overall company. Each department makes a 20/30-minute presentation where there is no open discussion, but an exposure of what a division/area leader wants to share with the others (hockey sticks are the norm).

3- A 150 page is produced that does not take into consideration the outside view, i.e. what are the macro-trends, what competition is doing (game theory), a strong PESTEL analysis is not done, and different scenarios are presented and is completely skewed to an "Inside View" with lot of details, but low value-added to the discussion.

4- Opaque document with no clear definition of the 3/5 big moves a company should pursue to achieve outstanding results, but just a maintenance of the status-quo and hoping that the macro environment tails the organization to a better performance vs. last year.

5- Non-value-added process to the organization, a missed opportunity with huge opportunity costs associated, with several Hockey Sticks where after an initial investment period the results will increase almost exponentially (unfortunately when you do a follow up of such plans, we usually see a graveyard of hairy-back outcomes),

6- Strongly biased process where you can usually find: (i) Halo Effect, (ii) Anchoring, (iii) Confirmation Bias, (iv) Champion Bias, and (v) Loss Aversion.

7- A document that proposes that the company will do a lot better next year, continuing to the same of this year.

8- A document that does not recognizes uncertainty in the market (ranges of predictive values vs. 1 number forecast), lacks a proper baseline to start the assessment, there are errors in performance attribution (good performance is always attributed to good management and bad performances to market conditions), amongst others.


b) How can you change that reality?
1- Define the correct yardstick to manage your company performance. Choose the Economic Profit indicator while assessing your business. With that you ensure that you are properly measuring all the costs in your company, including the Cost of Capital, and with that you are generating value to your shareholders and the overall company. How many companies just measure their performance vs. EBIT or other financial performance indicator that just has an internal perspective into consideration.

2- Using this metric, we can clearly see that value creation distribution across industries is a power curve, that follows power laws principles, i.e. the tails of the value distribution curve raise or fall exponentially. You can see that behavior in several other data sets, like in economics, demographic, and nature. The companies on the top-quintile of the distribution capture >90% of the value created, thus you should strive to be there.

3- You should be cognizant that 50% of your company positioning on the power curve comes from your industry, thus it would be easier to be an average company in a great industry that an exceptional company in an average industry. However, you can find companies from several industry in the top 10% of the distribution.

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4- In order to move on the Value Power curve, you need to: (i) grow your business top-line and (ii) improve the ROIC. Only by playing with these 2 factors you will be able to improve your Economic Profit significantly.

5- You should be able to provide and determine probabilities to each strategic initiatives recognizing that some have a success probability of 90% but with limited and reasonable improvements on your ROIC and Top Line and others that have a lower probability of success (lets say 50%) but with huge payoffs. You should then measure and pay your managers accordingly with this probability framework and not treat all challenges the same way.

6- There are 3 key categories that make the difference in the Value Power curve distribution and should be addressed in your strategic process that are: Endowment (what you start with), Trends (what are the winds in your industry) and Moves (what will you do).

7- There are 10 key levers you can use to move along the value power curve distribution, that can be allocated as follows within the 3 categories:

Endowment: (i) Size of your company in terms of Total Revenue- the larger the better; (ii) Debt Level - the less debt you have the better you are prepared to seize the opportunities, (iii) Past Investment on R&D - you need to be on the top half of your industry in the ration R&D investment to Sales.

Trends: (i) Industry Trend - what is your industry average economic profit; (ii) Geographical Trend - to be present in key to growth geographical markets in terms of nominal GDP growth.

Moves: (i) Programmatic M&A - steady stream of deals to add value (investments and divestures); (ii) Dynamic Allocation of resources - ability to re-allocate resources within Business Units, (iii)Strong Capital Expenditures - to be above significantly above the industry average; (iv)Productivity Programs - reduce overheads and or improve labor productivity; (v)Improvements on differentiation - Business model innovation and pricing power.

8- Promote 8 key shifts in your strategic process: (i) from Annual Planning to Strategy as journey, (ii) from getting to a Yes to debating real alternatives, (iii) from peanut butter resource allocation to resource allocation to your 3/5 priorities, (iv) from approving budgets to making big moves; (v) from budget inertia to liquid resources; (vi) from sandbagging to open risk portfolios; (vii) from you are your numbers to holistic perspective on performance, (viii) from long-range planning to forcing the first step.

Hopefully, you can now understand my strong recommendation and rating of this insightful book.

[Thanh Nhàn · Rating 5 out of 5]

Cuốn sách đã trình bày một cách có dữ liệu về việc giải thích yếu tố nào thúc đẩy sự đột phá trong hoạt động của công ty.

Thay vì chỉ dựa vào những con số, dự báo tài chính thông thường thể hiện qua đường cong chữ V (hockey stick), các tác giả khuyến khích các nhà quản lý và lãnh đạo cần có cái nhìn sâu sắc hơn về con người, xác suất và sự bất định để từ đó đưa ra những động thái mang tính bứt phá.

Cụ thể, sách đề xuất một khuôn khổ gồm 3 trụ cột:

- Hiểu rõ động lực con người đằng sau mọi quyết định
- Đánh giá các kịch bản có thể xảy ra dựa trên tính toán xác suất
- Dám thực hiện những động thái táo bạo để tạo ra giá trị lâu dài

Bên cạnh đó, sách cũng chỉ ra 5 nguyên tắc then chốt để xây dựng chiến lược hiệu quả cũng như các bước cụ thể để áp dụng chúng trong thực tiễn. Với những ví dụ minh họa sinh động, cuốn sách thực sự là cẩm nang quý giá cho các nhà quản lý muốn vượt qua thách thức, đưa doanh nghiệp tới thành công bền vững.

🔹 Key points

- Strategy discussions fall apart because - a) of the social side of strategy - a beauty contest, b) focus only on the inside view
- Economic profit is a good measure of the performance of a company. It is the net profit less the opportunity cost of capital.
- Industry accounts for 50 percent of a company’s performance... better to be an average player in a good industry.
- Corporate peanut butter - need to make a few bold bets than spread yourself out thin.
- Like Satya Nadella’s move on cloud business within Microsoft.
- Endowment (current size, debt position) accounts for 30%, trends (industry growth, geography growth) account for 25% and big moves account for 45% of a company ‘s move up the power curve.
- Industry trends is one of the most important factors - need to get ahead of them!

🔹 5 Big moves :

- MnA - 1 deal per year at least, which cumulatively accounts for less than 30 percent of market cap over 10 years, with no individual deal being higher than 30 percent of market cap
- Programmatic MnA - where there is a structured approach to evaluating, negotiating, closing. Cannot be one off.
- WPP made 271 acquistions over the sample period of 10 years!
- Resource re allocation- more than 50 percent over a decade is the minimum threshold, Danaher top management spends 50 percent of its time on resource allocation decisions
- Capex - your capex to sales ratio should be 1.7x or higher than indistry average for a decade
- Productivity improvement : 25% above industry median needed
- Differentiation - gross margin 30% higher than the industry average over a decade

🔹 Breaking the social side of strategy:

⁃ Make strategy an ongoing thing
⁃ Present a bunch of scenarios than just one option
⁃ Build out opportunity map at a granular level - should have 30-100 cells
⁃ Build a momentum case that extrapolates the current baseline without any big moves
⁃ Conversations in the strategy room as well as resource allocation should be centred around big moves
⁃ Make an 80 percent budget ... 20 percent sliver

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[Mike Sheketa · Rating 5 out of 5]

For the last few years I was looking for something to help me to understand why companies win or fail. I've started with From Good to Gread (of course;), then In Search of Excellence, then Strategy& book Strategy That Works, How Companies win, etc. Those are great books written with excellent style. But at the end of the day, I was looking for a fact-based system I can start working with immeadiately. And so far Strategy Beyong the HS is my favorite one (together with strategy map systen and balanced scorecard from The Strategy Focused Organizations by Norton and Kaplan). I'm not saying that this book provides all the answers, but it provides structure how to find the answers. I would add that this book is not about strategy (in sense, how to get from point A to point B), but it's rather about strategic thinking (what pieces of information you shoud have in mind to craft great strategy). This book is not for genereal audience, it's very practicable stuff. I would very reccomend it for CEOs, strategy officers and consultants.

[Tobias Weghorn · Rating 4 out of 5]

An interesting read for people thinking about corporate strategy, or even stock investing.

Some of my takeaways:

Where to play is the most important influence on moving up the power curve of profit distribution. Mediocre companies riding the right waves will outperform great companies in a non-growing industry.

Focus strategy conversation on big moves, for example screwed resource reallocation on 1/10 initiatives - instead of budgets. This avoids "we did X last year, so this year we'll do X plus a little". Big moves are less risky than not moving at all (according to data).

​Budgeting usually kills bold strategies and leads to insufficient resource allocation to many instead of sufficient resources for one big opportunity.

Make sure to have resources for big moves by freeing up budget through productivity gains every year.

[Đào Trung Thành]

It is a must read for a strategist or a management consultant.

The authors examined publicly available information on dozens of variables for the world’s 2,393 largest corporations between 2010 and 2014, and found the levers that explain more than 80 percent of the up-drift and down-drift in corporate performance.

They propose "eight shifts to unlock strategy.":

From annual planning to strategy as a journey.
From getting to "yes" to debating real alternatives.
From peasant butter to picking your 1-in-10s.
From approving budgets to making big moves.
From budget inertia to liquid resources.
From sandbagging to open risk portfolios.
From "you are your numbers" to a holistic performance view.
From long-range planning to forcing the first step.

[Jason Carter · Rating 3 out of 5]

The boys at McKinsey are no slouches; this is book is for someone. It just wasn't the greatest book for me--a small business owner.

It was clearly aimed at CEOs, board rooms, and strategists at the world's largest companies ($7B in annual revenue was a lower threshold for some of their recommendations).

The book covered the problems with most strategic planning processes, outlined 10 levers in three categories (endowments, trends, and moves) to affect real change, and gave practical advice on how to update your strategic planning process to implement their recommendations.

There were a few takeaways for the small business owner, but all in all there are probably better books to read if you, like me, are in that group.

[Carl Sandberg · Rating 3 out of 5]

Excellent analysis on why corporate strategy fails—mainly because of unaligned incentives between individual BU leaders and the corporation as a whole. A substantial part of the book, however, discusses what levers a corporation should use to beat the competition and increase its economic profit (operating profits less taxes less cost of capital). Some of these levers, like improving gross margins or decreasing SG&A, obviously help increase economic profit, but I am not sure how insightful those linear relationships are. Still, the book’s insights about why corporate strategy tend to break down alone makes it a worthwhile read.

[Mark · Rating 2 out of 5]

If you're a C-level exec or one of the few advisors your C-level actually listens to for strategy advice, this book may be worth your time. For the rest of us, there's very little actionable advice in here. YOU can't pull any of the 10 business performance levers, nor can YOU initiate any of the 8 social strategy shifts.

To be clear, I don't question any of the advice in the book. Hard to argue with "Start off with a large endowment" and "Be in the right industry, at the right time, in the right geographies, with the right differentiated offer".

Did I learn something from this book? Yes. Could this book have been a 3-page article? Also yes.

[Ton Nguyen · Rating 3 out of 5]

Strategy Beyond the Hockey Stick is definitely not a popular business book intended for a general audience, but for strategy consultants or executives working in corporate strategy (at Fortune 500 fims).

McKinsey has collected a lot of data on corporate performance over the years. I liked that the authors gave examples of firms other than your standard Kodak, Apple, etc. Unfortunately I also felt a lot of it was used as filler for the book. That being said, there are some useful insights on why strategies often fail which makes it worth reading.

[Andrey Klochkov · Rating 5 out of 5]

This 9s one of the most exciting strategy book I've ever read.

I absolutely enjoyed the pace and story of the book.
The structure is quite logical, that had all answers just on the next page for the questions that were popping out in my head while reading.
Overall quality of the material is solid and I at last we can see more examples and cases than Apple, Airbnb, Nokia, Kodak.
I definitely recommend this book for everyone related to the strategy.

[SOUMYAJIT MISRA · Rating 5 out of 5]

A must read for business leaders

This is a very well structured book. It is full of practical and actionable insights to bring life into strategy rooms. The suggestions are clear and to the point and are backed with lots of data and metrics. I could easily relate with problems mentioned in this book and could get a clear picture of what changes I can bring in my workplace in the coming days.

[Ivan · Rating 4 out of 5]

In this book, McKinsey Partners build a case for what it takes to achieve the "hockey stick" in big business. I have seen many of the ideas listed in this book elsewhere, but the big NEW ideas for me were (1) the constant focus on freeing up and re-allocating resources (easier said than done) and (2) the willingness to make big bets with the corporate treasury (again, easier said than done). The book could have been an article, but the ideas in it are powerful.

[Alessandro Ronchi · Rating 3 out of 5]

This is one of those books that promises to give us something and it eventually maintains its promise... but just after you've read the first half.

That can be frustrating and chances are that we give up reading before reaching it's half.

I didn't give up because the book was recommended to me by a person I trust, so I had enough motivation to reach the end.

I recommend it too if you're a decision maker, have the power to steer a business or are an entrepreneur.