Strategy Beyond the Hockey Stick | Chris Bradley

Summary of: Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds
By: Chris Bradley

Introduction

Dive into the world of business strategy and discover the keys to truly beating the odds in ‘Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds’ by Chris Bradley. This insightful book digs deep into the common pitfalls of strategy creation and execution, such as egos, groupthink, confirmation bias, and risk avoidance. It also highlights the importance of looking past the ‘hockey stick’ projection, which promises short-term losses in exchange for rapid future gains. Learn how to identify and overcome biases to make the big, bold moves necessary for long-term success and explore the 10 variables to consider for increased odds of moving up the Power Curve.

The Pitfalls of Groupthink in Business Planning

Business leaders often fall into the trap of groupthink, confirmation bias, and risk aversion, leading to budget predictability and a lack of innovation. In an attempt to gain approval for their plans, business unit leaders rely on projections that promise rocketing success in the future. However, this approach fails to deliver truly bold visions and groundbreaking ideas. Most CEOs distribute resources uniformly across divisions, leading to little change in strategy from year to year. To truly innovate, businesses must break free from these patterns and embrace a willingness to take risks and pursue new ideas.

Overcoming Biases in Business Leadership

Leaders in business lines tend to set low goals and focus on maximizing their gains instead of the organization. This causes firms to evaluate performance without considering the initial difficulty of goals and offer managers no incentive for taking big bets. To overcome biases, leaders should listen to outside ideas and relentlessly pursue them, instead of protecting their business lines. The Kodak case illustrates how clinging to a business that generates large profits can delude even the savviest leaders.

The Power Curve of Economic Profit

The economic profit of the biggest firms in the world can be represented by the Power Curve, which shows a short, negative tail at the bottom, a long, flat line in the middle, and a short, positive line at the top. Most companies produce little economic profit and simply “pay the rent.” However, the top 25% of firms generate an average of $1.4 billion annually, regardless of their industry or location. This puts every firm in the world in potential competition with each other. Investors highly value these top-performing companies.

The Pitfalls of Hockey-Stick Shaped Plans

Many firms make the mistake of investing in sure things rather than looking outward to identify untapped opportunities that can lead to growth. According to a survey, more than 70% of executives don’t like their strategy process, and 70% of board members don’t trust the results. Most firms settle on one idea quickly, usually an optimistic idea that has not been rigorously assessed, and push it through. Instead, successful firms invest in the key components of the enterprise and focus on those areas that can lead to growth. For example, aircraft parts manufacturer PCC took a calculated gamble by investing in its aerospace and defense divisions, which resulted in better results compared to other mid-range firms on the Power Curve. The key is to avoid relying on superficial strategies, business-book formulas, and overrating oneself against competitors. By looking outward with a longer view and carefully assessing the market conditions, firms can achieve long-term growth and success.

Boosting the Odds of Business Success

Most leaders lean on bestsellers like In Search of Excellence and Good to Great for business strategy, but these books rarely offer testable hypotheses. However, you can develop strategies that fall into three categories based on your business attributes to maximize your chances of success: “Endowment,” “Trends,” and “Moves.” Endowment involves getting bigger, eliminating debt, and increasing R&D spending, while Trends suggest choosing fast-growth regions and industries. Moves entail making targeted business line investments, steady acquisitions, and spending more on strategic areas. By maximizing results across each dimension, companies can increase their odds of entering the top quartile. To make big moves, resources shouldn’t be spread thinly across all businesses and operations, but invested smartly into strategic acquisitions, as demonstrated by PCC’s success story. By following these strategies, businesses can increase their chances of success and outperform industry averages.

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