Lean Strategy Making

In lean manufacturing, the goal is to establish precise procedures for making products in the safest, easiest, and most efficient manner possible. When critical processes become standard work, variation decreases, throughput increases, costs fall, and quality rises. Companies as diverse as Toyota, Amazon, Intel, and Nike leverage this approach in their operations to great effect.

In contrast, strategic decision-making is the epitome of nonstandard work at most companies. Strategic decisions are often thought to be unique—like snowflakes—with each one requiring a bespoke process. Consequently, similar decisions—for instance, about whether to enter new markets—are frequently handled in vastly different ways within the same company. That inconsistency leads to slower, lower-quality decisions—a problem that’s starkly clear in the feedback Bain & Company received from the executives at 350 large companies the company surveyed about their strategy processes.

If a manufacturing process had a 25% defect rate, exceeded targeted cycle times more than 45% of the time, and experienced a yield loss of more than 30%, it would be deemed unacceptable. Yet many companies tolerate those levels of inefficiency and ineffectiveness in their strategy making.

It’s time to redesign the strategy process to achieve better results. There’s no reason that strategic decision-making can’t become standard work, just as critical manufacturing processes are. By adopting a rigorous approach to it, companies can reduce waste, move faster, make smarter choices, and gain a competitive edge.

Several leading companies that the author have worked with and studied offer a blueprint for standardization that others can follow. Their lean approach to strategy typically has three components:

Setting strategic priorities.  Lean strategy begins with articulating (or revising) a company’s multiyear performance ambition, which typically includes both financial objectives, such as revenue and operating profit goals, and strategic goals, such as relative market-share growth and improvements in customer satisfaction.  A performance ambition is not a typical target—meaning one that senior leadership believes it can meet or exceed.  In contrast, a performance ambition is aspirational. It’s designed to motivate business and functional leaders to surface breakthrough ideas that can significantly enhance a company’s performance. The ambition should be realistic yet beyond the reach of the current strategy.  The next step is to compare the performance ambition against a multiyear outlook (MYO), which projects what a company’s future performance will be, given the decisions and resource commitments its leadership has already made.  The final step is to create (or update) a decision calendar, which outlines when each item on the strategic backlog will be addressed and notes the leadership team member accountable for recommending the best course of action (after getting the input of experts and others).

Ongoing Strategic Management.  With every issue on the backlog, leadership follows a standard decision-making process that guides resource allocation. It entails two distinct strategy sessions:  Facts and alternatives. During this session, leadership works to fully understand the issue, identify its causes, and come up with a range of ways to address them. The goal of this meeting is not to select the best alternative but to engage in an expansive dialogue that will help the team develop a comprehensive set of viable options.  The next session is choices and commitments. In this session leadership reviews evaluations of the alternatives, uses agreed-upon criteria to select the best one, defines performance milestones for it, and identifies the resources it will require. The outcome of this meeting is a final decision, which includes committing resources in exchange for expected performance improvements.

Monitoring Business Performance.  The true purpose of these reviews should be to determine whether the company needs to alter its strategic direction.  It’s not enough to merely note that sales fell short of the plan. Leaders must probe deeper into the reasons behind such misses and determine whether corrective measures are needed.

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