You Should Be Able to Boil Your Strategy Down to a Single Clear Visualization

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With any given acquisition or merger, the markets might or might not immediately factor in the value that the company predicted it would add.  What determines whether investors believe in CEOs’ presentations? To find out the authors conducted a statistical analysis using event study methodology, in which researchers determine what characteristics of an acquisition (“the event”) explain how the stock market responds to it. And among the acquisitions in our sample one seemingly simple but significant factor emerged: When presentations were accompanied by a slide illustrating the strategic rationale for a deal, investors were more than twice as likely to give it an immediate thumbs-up. The positive impact of strategy visualizations, as the authors call them, on postannouncement valuations was four times larger than the impact of other visual tools such as photographs, maps, logos, and even bar charts and line graphs.

Most executives agree that business strategy is a set of choices regarding how and where a firm wants to create value and compete. But what many forget is that strategy also requires an interpretation of what the choices imply, which needs to be explained simply and clearly.

Through a process that the University of Michigan organizational psychologist Karl Weick calls “sensemaking,” executives develop an understanding of their business context and how their firm will operate in it. This generally involves categorizing types of competitors and potential customers and identifying the firm’s key resources and capabilities and the main cause-and-effect relationships among them. This understanding is organized into what we call “a cognitive map.”

A good strategy reflects such a map. In fact, executives usually create a draft of one as they develop their strategy. While discussing and debating what direction the company should go in with colleagues, consultants, board members, and others, they often draw circles, boxes, and arrows that represent important elements of the proposed strategy and the relationships among them on flip charts and slides.

Once executives reach agreement on a strategy, they need to communicate it to other stakeholders, who must understand it and act on it. The daily decisions of employees, for example, need to be guided by the same understanding of the firm’s strategy. If they don’t make different choices as a result of a new strategy, then you don’t have a new strategy.

This is when executives must switch from sensemaking to sense giving: They need to transfer their cognitive map of the firm’s strategy to the minds of employees and investors. The authors’ research suggests that reinforcing a verbal presentation with a visualization of the strategy and how it works is the most effective way to do that.

What Makes a Great Strategy Slide.  Humans are visual creatures. More than 50% of our brain is involved in processing what we see, which may explain why research shows that we absorb visual information more quickly and accurately than other types of information—provided that it’s organized properly.  The authors study results pointed to five concrete design rules: Group your ideas into three or four main concepts that can serve as a base of the strategic model.  Create layers with increasing detail.  Use color and shading only to distinguish the layers.  Indicate a clear sequence of relationships among the elements of the framework.  And organize your framework horizontally.

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