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Stress-Test Your
Strategy: The 7
Questions to Ask

by

Robert Simons

Included with this full-text

Harvard Business Review

article:

Idea in Brief—the core idea

1

Article Summary

2

Stress-Test Your Strategy:

The 7 Questions to Ask

Reprint R1011G

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Stress-Test Your Strategy:

The 7 Questions to Ask

page 1

Idea in Brief

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How do you identify the weakest parts of
your strategy? Asking tough questions
about your business—seven key questions
in particular—will help you understand
where confusion and inefficiency lie.

Have you identified a primary customer?
Who is first among your stakeholders—
shareholders, employees, or customers?
Have you narrowed down which perfor-
mance variables you track? Set critical
boundaries? Do you generate creative ten-
sion? Promote coordination among your
employees? And finally, what questions
keep you up at night, thinking about how
the future will change your business?

This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.

Stress-Test Your
Strategy: The 7
Questions to Ask

by Robert Simons

harvard business review • november 2010 page 2

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An economic downturn can quickly expose
the shortcomings of your business strategy.
But can you identify its weak points in good
times as well? And can you focus on those
weak points that really matter?

A stress test—an assessment of how a system
functions under severe or unexpected pres-
sure—can help you home in on the most im-
portant issues to address, whatever the eco-
nomic climate. By asking tough questions
about your business, you can identify confu-
sion, inefficiency, and weaknesses in your strat-
egy and its implementation.

As Peter Drucker once warned, “The most
serious mistakes are not being made as a result
of wrong answers. The truly dangerous thing is
asking the wrong questions.” For the past 25
years I have researched the drivers of success-
ful strategy execution in a variety of companies
and industries. Through this work I have iden-
tified seven questions that all executives
should ask—and be able to answer. Master this
list, and you will keep the fundamentals of
your strategy execution on track.

The questions may seem obvious, but the
choices they represent can be tough, and their
full implications are not always immediately
clear. The first two questions compel you to set
strict priorities. The next two assess your abil-
ity to focus on those priorities by designating
critical performance variables and constraints.
Questions five and six investigate whether you
are using techniques that will enhance creative
tension and commitment. The final question
deals with your ability to adapt your strategy
over time.

Let’s take a look at each question, so that
you can see how you—and your strategy—
measure up.

1: Who Is Your Primary Customer?

Choosing a primary customer is a make-or-
break decision. Why? Because it should deter-
mine how you allocate resources. The idea is
simple: Allocate all possible resources to meet
and exceed your primary customer’s needs.

Consider McDonald’s, whose 32,000 restau-
rants feed more than 58 million customers

This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.

Stress-Test Your Strategy: The 7 Questions to Ask

harvard business review • november 2010 page 3

each day. The company’s growth over its 50-
year history has been described as the greatest
retail expansion in the history of the world.

What was the fast-food chain’s key to suc-
cess? A clear choice of a primary customer and
an understanding of when that choice needed
to change. In the 1980s and 1990s, McDonald’s
considered its primary customers to be not the
people who ate in its restaurants but multisite
real estate developers and franchise owners. By
focusing most of its resources on those custom-
ers through centralized real estate develop-
ment, franchising, and procurement functions,
it opened as many as 1,700 new stores a year.

But by 2003 same-store sales were declining.
Worldwide markets were saturated, and peo-
ple were tiring of the chain’s standardized fare.
This crisis prompted the new CEO at the time,
Jim Cantalupo, to make a tough decision: “The
new boss at McDonald’s is the consumer,” he
announced.

The company’s subsequent changes in re-
source allocation reveal the profound implica-
tions of this decision. Consumers’ tastes differ
widely by region and throughout the many
countries in which McDonald’s operates. To
satisfy these varying tastes, McDonald’s reallo-
cated resources from centralized corporate
functions to regional managers, who were en-
couraged to customize local menus and store
amenities. In the United Kingdom, Mc-
Donald’s now serves porridge for breakfast; in
Portugal, it offers soup; in France, it sells burg-
ers topped with French cheese. The Paris de-
sign center provides franchisees with nine dif-
ferent design options, allowing them to
customize the decor for their clientele.

As of last January, McDonald’s had delivered
81 consecutive months of increasing same-
store sales around the world. Its customer satis-
faction scores rose each year from 2005 to
2009 (they faltered slightly in early 2010, as
more upscale customers began to choose Mc-
Donald’s over pricier alternatives). It’s no acci-
dent that McDonald’s was one of only two
companies in the Dow Jones Industrial Aver-
age to end 2008 with a gain in stock price.

Unlike McDonald’s, many companies resist
choosing just one customer. Executives often
attempt to avoid the adjective “primary” by an-
nouncing, “We have multiple customers.” This
is a sure recipe for underperformance. Allocat-
ing resources to more than one customer re-
sults in confusion and less-than-optimal service.

Trying to accommodate multiple kinds of
customers led to trouble at Home Depot. After
taking over as CEO in 2000, Bob Nardelli con-
cluded that the consumer home improvement
business was saturated, and shifted significant
resources away from consumers in order to
cater to professional contractors. Consumers
would no longer be the primary customers—
but it wasn’t clear that professional contractors
were filling that role, either. Home Depot laid
off customer service employees—the ones
walking the aisles in orange aprons at its 1,900
stores—and spent the savings on an $8 billion
acquisition spree, snapping up 30 wholesale
housing-supply companies.

The acquisitions nearly doubled company
revenue, but even so there weren’t enough re-
sources to meet the needs of two such different
types of customers (there never are), and nei-
ther group was well served. During Nardelli’s
tenure Home Depot’s consumer satisfaction
scores suffered the biggest drop of any U.S. re-
tailer ever. At the same time, the wholesale
supply operation was not getting the support
required to obtain the efficiencies needed for a
low-margin business.

It took a new CEO, Frank Blake, to refocus
the business. In 2007 he announced that home
owners would again be the primary customers.
Home Depot sold its wholesale businesses, in-
creased the number of orange aprons on the
floor, and rehired master trade specialists to
offer consumers how-to advice. Consumer sat-
isfaction scores and same-store sales and prof-
its have begun to rebound.

Of course, your choice of primary customer
may change over time—recall what happened
at McDonald’s. But you need to recognize that
such a change will probably require restructur-
ing your business.

The flip side of maximizing resources for
your primary customer is that you should min-
imize the resources devoted to everything
else—including all external stakeholders and
all internal units that do not create value for
your primary customer. They should receive
enough to meet the needs of their constitu-
ents, but no more.

2: How Do Your Core Values
Prioritize Shareholders, Employees,
and Customers?

Companies that execute strategy well define
their core values to reflect the relative impor-

Robert Simons

is the Charles M. Will-
iams Professor of Business Administra-
tion at Harvard Business School. This
article is adapted from his book

Seven
Strategy Questions: A Simple Approach
for Better Execution

(Harvard Business
Review Press, 2010).

This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.

Stress-Test Your Strategy: The 7 Questions to Ask

harvard business review • november 2010 page 4

tance of shareholders, employees, and custom-
ers. Value statements that list aspirational be-
haviors aren’t enough.

Core

values must
indicate whose interests come first when diffi-
cult trade-offs must be made.

At some companies, customers come first. At
others, it may be shareholders. At yet others, it
may be employees. There is no right or wrong
choice. Each choice is based on a different the-
ory of value creation. But making one and
communicating it effectively are essential.

A case in point is Merck’s costly decision to
withdraw Vioxx, its blockbuster Cox-2 pain sup-
pressant, from the market. On September 24,
2004, then-CEO Ray Gilmartin got a call from
the head of Merck’s research labs, informing
him that the preliminary results of an ongoing
clinical study indicated that Vioxx caused unex-
pectedly high numbers of heart attacks and
strokes after 18 months of continuous use. Gil-
martin had three options: Merck could carry
the study through to its planned conclusion to
gather more data. It could ask the FDA to ap-
prove a “black box” label warning doctors and
patients about the newly discovered risks. Or it
could take the drug off the market, forgoing
$2.5 billion in annual revenue.

On September 30—six days after the phone
call—Gilmartin convened a press conference
to announce the worldwide withdrawal of
Vioxx. He explained his decision by citing the
company’s core value: “Merck puts patients
first.”

In contrast, Pfizer executives put sharehold-
ers first when faced with a similar situation.
After discovering that Celebrex—the Cox-2 in-
hibitor Pfizer acquired when it bought Phar-
macia—sometimes caused cardiovascular
problems, they decided to keep manufacturing
the drug. But they did so responsibly, adding a
black box warning that allowed patients and
doctors to make fully informed decisions.
Shareholders thus avoided losing billions of
dollars in profits.

A third option is to put employees first—a
choice that can actually keep customers and
shareholders content as well. As the former
Southwest CEO Herb Kelleher has argued, “If
employees are treated well, they’ll treat the
customers well. If the customers are treated
well, they’ll come back, and the shareholders
will be happy.” To drive this point home, Kelle-
her regularly appeared in national newspaper
ads under the caption “Employees first. Cus-

tomers second. Shareholders third.” Other
companies have made and communicated a
similar choice.

Each of these rankings worked because the
company made a clear decision and imple-
mented it consistently. This is not always the
case. Confusion about core values was at the
root of the recent Fannie Mae debacle. Com-
pany executives, acting at politicians’ behest,
dedicated $1 trillion to democratizing home
ownership by offering mortgages to disadvan-
taged customers. However, they were also try-
ing to maximize shareholder value. To boost
short-term profits, they built up and sold in-
creasingly risky loan portfolios—until the
housing market collapsed, leaving taxpayers
with a $100 billion bailout bill.

3: What Critical Performance
Variables Are You Tracking?

Many managers complain that they’re over-
whelmed by how many things they’re asked to
keep track of in all-inclusive lists of perfor-
mance measures. It’s not uncommon for com-
panies to create scorecards with 30, 40, or
more variables, in the mistaken belief that
adding measures results in a more complete—
and therefore better—scorecard. Information
technology enables us to gather more and
more data at lower and lower cost. But we can-
not keep tracking so many variables. Effective
managers monitor only a small number—
those that could cause their strategy to fail.

The problems generated by trying to track
too much data became evident at Citibank in
the late 1990s, after executives introduced a
new scorecard in their consumer bank. In addi-
tion to traditional financial measures, the card
included new metrics for such things as strat-
egy implementation and customer satisfaction.

As one district manager was pondering the
award level for her top branch manager, con-
flicting signals from the new scorecard stopped
her short. Although the branch manager had
delivered outstanding financials, his customer
satisfaction scores were subpar. The system
would not permit a full bonus unless every
measure was rated at par or above. Making an
exception for one person could destroy the in-
tegrity of the system. But the branch manager
might leave for a competitor if the scorecard
undervalued his contribution. In the end his
manager fudged the scorecard to ensure that
he received an acceptable bonus. Because of

The Seven
Questions

1: Who is your primary customer?

2: How do your core values
prioritize shareholders,
employees, and customers?

3: What critical performance
variables are you tracking?

4: What strategic boundaries have
you set?

5: How are you generating creative
tension?

6: How committed are your
employees to helping each other?

7: What strategic uncertainties keep
you awake at night?

This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.

Stress-Test Your Strategy: The 7 Questions to Ask

harvard business review • november 2010 page 5

similar problems involving other employees,
the bank soon dropped the new scorecard.

Apart from avoiding this sort of dilemma,
there is a simple but often overlooked reason
to measure just a few variables: Management
attention is your scarcest resource. As you add
metrics to your scorecards, you incur an oppor-
tunity cost, in that people have less time to
focus on what really matters. Think of Ama-
zon, where inconvenience for buyers tops the
list of factors that could cause strategy to fail.
Executives there focus relentlessly on making
purchasing as easy as possible: They concen-
trate on revenue per click and revenue per
page turn, not on long lists of measures that
have little to do with the customer’s purchas-
ing experience. At Nordstrom customer loyalty
is key, so executives keep their attention on
sales per hour and revenue per square foot. At
Marriott the crucial metrics are associate satis-
faction, guest satisfaction, revenue, and Rev-
PAR (revenue per available room).

There’s another reason to limit your focus: If
you add too many measures to your score-
cards, you will drive out innovation. In the old
McDonald’s—the one that prioritized fran-
chise growth and standardized food—field con-
sultants visited each store to measure its com-
pliance with prescribed operating standards.
They analyzed 500 metrics, producing a 25-
page report on each store. With all the con-
straints imposed by these measures, store man-
agers had no opportunity to innovate or re-
spond to consumer preferences. Standardized
mediocrity was the result.

4: What Strategic Boundaries Have
You Set?

Every strategy carries the risk that an individ-
ual’s actions will push the business off course.
The risk intensifies when managers feel pres-
sure to hit growth and profit targets.

There are two ways to control such risk: You
can tell people what to do, or you can tell them
what

not

to do. Telling people what to do helps
assure that they won’t make mistakes by engag-
ing in unauthorized activities. This is the pru-
dent approach if safety and quality are para-
mount concerns—if, say, you’re running a
nuclear power plant or overseeing a space
launch. In such cases you want employees to fol-
low standard operating procedures to the letter.

However, if innovation and entrepreneurial
thinking are important, you should follow a

different course: You should hire creative peo-
ple and tell them what not to do. In other
words, you should give them freedom to exer-
cise their creativity—within defined limits.

Steve Jobs followed this principle when he
declared that Apple would not develop a PDA.
He later argued that without such discipline,
the company wouldn’t have had the resources
to develop the iPod. “People think focus means
saying yes to the thing you’ve got to focus on,”
he later said. “But that’s not what it means at
all. It means saying no to the hundred other
good ideas.”

Setting clear boundaries also lets organiza-
tions avoid the waste and risk that inevitably
accompany undisciplined growth. To take one
dramatic example, Wells Fargo weathered the
2008–2009 financial crisis because it strictly
forbade its employees to venture into struc-
tured investment products and low-documen-
tation mortgage loans. Unlike most of its com-
petitors, Wells Fargo also refused to court
future business from Warren Buffett by lend-
ing money to Berkshire Hathaway at below-
market rates. This decision actually won Buf-
fett’s respect. “I got a big kick out of that, be-
cause that was exactly how they should think,”
he told

Fortune.

“The real insight you get about
a banker is…what they don’t do. And what
Wells didn’t do is what defines their greatness.”

But remember: Boundaries are powered by
punishment, not rewards. You must be willing
to discipline—and fire, if necessary—anyone
caught stepping over the line. If you follow up
forcefully and consistently, word will travel
throughout your organization, reinforcing the
importance of your prohibitions.

5: How Are You Generating Creative
Tension?

As a business leader, one of your primary jobs
is to make outside market pressures felt inside
your business. This can motivate employees to
think and act like winning competitors, rous-
ing them from comfortable ruts. The bigger
your business, the more insulated people are
from market pressures, and the more impera-
tive this becomes.

Here is a menu of techniques that can gener-
ate creative tension and spur innovation. In
this instance, unlike when defining a primary
customer or ranking your responsibilities, you
needn’t choose just one; choose whichever and
however many are right for your company. In

Who Is a “Customer”?

Don’t use the word “customer” to
refer to anyone inside the organiza-
tion. Internal people are never a
company’s primary customers, and
treating them as such may cause you
to lose sight of your true focus.

This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.

Stress-Test Your Strategy: The 7 Questions to Ask

harvard business review • november 2010 page 6

fact, the more innovation you desire, the more
techniques you should consider.

Assigning stretch goals.

The most common
way of motivating people to innovate is to set
stretch goals—sometimes called challenge
goals or big, hairy, audacious goals. Conduct-
ing business as usual or making incremental
improvements is not enough. The only way to
meet aggressive targets is to do something
completely different.

Ranking according to performance.

Many
high-innovation organizations rank employ-
ees on the basis of demonstrated performance.
The rankings affect who is promoted, who is
placed on probation, and who is asked to
leave. The challenge, of course, is to prevent
the competition from becoming negative and
destructive.

GE’s Jack Welch is unapologetic when he ar-
gues the merits of this approach. The ranking
system at GE was “very controversial,” he has
said. “Weed out the weakest….It’s been por-
trayed as a cruel system. It isn’t. The cruel sys-
tem is the one that doesn’t tell anybody where
they stand.”

You can take this approach a step further by
ranking the performance of teams and busi-
ness units. This will unquestionably produce
adrenaline to compete—and to innovate.
Nike’s CEO, Mark Parker, likes to fire up
friendly rivalries by posting each footwear divi-
sion’s performance scores after every season.
“People see each other’s scores, and they hud-
dle and really look at how they can make it
better next season,” he has explained.

Setting spans of accountability that are
greater than spans of control.

If you want
people to innovate, try holding them account-
able for measures that are broader than the re-
sources they control. This is the well-worn
path followed by every successful entrepre-
neur, and you can use it to foster entrepre-
neurial behavior within your business.

Tom Siebel, of Siebel Systems, understood
this principle well when he based his manag-
ers’ bonuses on customer satisfaction mea-
sures, even though no one manager controlled
all the resources needed to make a customer
happy. His action forced the managers to inno-
vate their way to success. As one business unit
head put it, “To do my day-to-day job, I depend
on sales, sales consulting, competency groups,
alliances, technical support, corporate market-
ing, field marketing, and integrated marketing

communications. None of these functions re-
port to me….Coordination happens because
we all have customer satisfaction as our first
priority.”

Allocating costs.

The way in which you
charge corporate overhead costs can also stim-
ulate creative tension. Jamie Dimon, the CEO
of JPMorgan Chase, insists on full allocation of
overhead—everything from legal to market-
ing expenses—to the parts of the business that
use them.

The purpose here is twofold. The most obvi-
ous goal is to generate accurate cost data. But
often the more important one is to motivate
managers to become actively involved in dis-
cussions about the value of corporate services
provided. When operating managers have skin
in the game, they will generate ideas about
how units can work together to do things bet-
ter, faster, or cheaper.

Creating cross-unit teams and matrix ac-
countability.

Another way of forcing employ-
ees to think outside the box is to assign them
to a second box. New perspectives emerge
when people are forced out of their routines.
When they attend cross-unit team meetings,
employees not only serve as emissaries for
their home units but also return with ideas
and innovations from their new colleagues.

You can push this approach to an extreme by
adopting a matrix design, in which every man-
ager has two bosses. One may be a regional
head, the other a product market head. Every-
one in the matrix is then accountable for con-
flicting priorities. Many global companies, in-
cluding ABB, Novartis, and P&G, have at one
time or another used this approach.

As with each of these techniques, you must be
careful to balance the benefits and costs. On one
hand, you will generate creative tension as peo-
ple present and negotiate multiple points of
view. On the other hand, you risk having the
added bureaucracy slow down decision making.
When P&G adopted a matrix structure, global
product leaders had to get approval from the rel-
evant regional head whenever they wanted to
introduce a new product. Too many people had
veto power. So in 2005 P&G abandoned the ma-
trix in favor of global business units.

6: How Committed Are Your
Employees to Helping Each Other?

Although you want your employees to achieve
their personal best, they must also work to-

One way to force

employees to think

outside the box is to

assign them to a second

box.

This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.

Stress-Test Your Strategy: The 7 Questions to Ask

harvard business review • november 2010 page 7

gether toward shared goals. To create the high
levels of commitment that requires, leaders
must build an organization that has the fol-
lowing four attributes:

Pride in purpose.

If people are proud of
their organization’s mission, they will assume
shared responsibility for its success. The sort of
pride embodied in the Marine Corps slogan
“Semper fidelis” (“Always faithful”) is echoed
in Merck’s “Putting patients first” and Ama-
zon’s “Earth’s most customer-centric com-
pany.” In each case the tagline inspires and
motivates members of the organization.

Group identification.

Belonging to an elite
organization is itself a source of pride, one that
carries with it a sense of responsibility toward
others in the group. In the Marines (“The few.
The proud”), the first loyalty of every member
is to the unit—to helping those in it no matter
what.

The same principle can apply to businesses.
Employees of Southwest Airlines, for example,
take pride in a rigorous selection process that
admits fewer than 2% of the 100,000 annual
applicants. To reinforce their identification
with the company, employees from different
departments are encouraged to interview job
candidates and veto those they feel would not
be a good fit. Applicants who are hired know
they are part of an elite team whose members

go above and beyond to help one another.

Trust.

When you trust your colleagues,
you’re willing to make yourself vulnerable—
to put your reputation on the line to support
them. Trust is vital if you want people to work
collaboratively. At Nucor, the industry-leading
steel company, employees are encouraged to
propose innovations to improve efficiency.
Nucor shares the resulting savings with its em-
ployees, rather than increasing production tar-
gets. This policy has built trust among the
workers, who are confident that they and the
executives are working together toward the
same goals.

Fairness.

The final requirement for collabo-
ration is fairness. Disparities in compensation
among peers pose the most obvious challenge:
Nothing is more certain to kill the desire to
help a colleague. In themselves, inequities in
pay are easy to fix; far more insidious are perks
signaling that those at the top are more de-
serving than everyone else. To guard against
this danger, Southwest’s highest executives
work out of small interior offices that have
been described as only slightly nicer than jani-
tors’ closets.

Vertical pay inequity is also an issue; if you
want people to commit to helping one an-
other, you must share rewards fairly up and
down the organization. Southwest has oper-
ated with a rule that executive pay increases
cannot be larger, proportionately, than other
employees’ raises. And in bad times executives
take pay reductions along with everyone else.
An industry analyst once calculated that as a
result of these practices, Southwest generated
10 times more revenue for every dollar of exec-
utive compensation than some of its big U.S.
competitors.

If you want your employees to embrace your
vision of shared success, you must be perceived
as putting fairness and equity above self-inter-
est. When Sam Palmisano took over as IBM’s
CEO, he asked the board to reallocate half of
his bonus to the executives who would be lead-
ing his new, team-based strategy. And early last
year, when he announced that 250,000 IBM
employees would be getting raises, he added,
“The executives won’t—but that’s fine. We
make enough money!”

7: What Strategic Uncertainties
Keep You Awake at Night?

At the root of every failed strategy is a set of

Ask the Whole Team

The seven questions are intended to be tools for stimulating engagement. Everyone
in your business, from the CEO to the front line, must be actively involved in discus-
sions about the key factors that will enable the successful execution of your strategy.
Therefore,

how

you ask the questions is crucial. These commonsense principles will
help you involve your whole team.

You must pose the questions face-to-

face.

“Look me in the eye” interaction is
essential. You cannot get real engage-
ment remotely or by e-mail. You must be
able to see the subtle body language that
can tell you when to challenge, probe,
and push and when to offer encourage-
ment and support.

Discussions must cascade down the

organization, not stay stuck at the top.

The tone you set will echo throughout
the business.

Your operating managers are key to

the process.

Staff groups can play a useful
role in data input, facilitation, and follow-

up, but operating managers are the ones
who can commit to action and who are re-
sponsible for results.

The debate must be about what is

right, not who is right.

People should
check titles and office politics at the door.
You should encourage everyone to take
risks, state unpopular opinions, and chal-
lenge the status quo.

You must root every discussion in

the challenge “What are you going to

do about it?”

Think of the seven ques-
tions as a means to an end. Their pur-
pose is to inspire decisions and, ulti-
mately, action.

This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.

Stress-Test Your Strategy: The 7 Questions to Ask

harvard business review • november 2010 page 8

assumptions about the future that eventually
proved false. We assumed housing prices
would never fall simultaneously across the
country. We assumed asset diversification
would eliminate risk. We assumed the migra-
tion to digital media would be slow and or-
derly. We assumed customers wouldn’t accept
fewer features in exchange for a lower price.

Only three things in life are certain: death,
taxes, and the fact that today’s strategy won’t
work tomorrow. At some point your products
will become obsolete, your customers’ tastes
will change, or technology will render your
business model uncompetitive. Today’s suc-
cesses will be tomorrow’s old news. The ques-
tion is not if, but when.

To adapt successfully, you must constantly
monitor the uncertainties that could invalidate
the assumptions underpinning your current
strategy. Your entire organization must contin-
ually scan the competitive environment for
changes and send intelligence up the line. And
because everyone watches what the boss
watches, if you want your employees to focus
on specific issues, focus on those issues yourself.

The most powerful way to signal what’s im-
portant to you is to use your business control
systems as interactive tools. Pay close—and vis-
ible—attention to the data they produce, and
use them to generate questions that will acti-
vate the search for information throughout
your business.

By using its P&L system interactively, Gold-
man Sachs avoided the mortgage-backed secu-
rities debacle that brought most of its competi-
tors to their knees. A Goldman executive has
described the process this way: “We look at the
P&L of our businesses every day. We have lots
of models that are important, but none are
more important than the P&L, and we check
every day to make sure our P&L is consistent
with where our risk models say it should be. In
December [of 2006] our mortgage business
lost money for 10 days in a row. It wasn’t a lot
of money, but by the 10th day we thought that
we should sit down and talk about it.” The talk
quickly turned into action: Goldman issued an
order to reduce exposure to mortgage-backed
securities and hedge remaining positions
against future losses. This early move allowed
the firm to prosper as competitors were forced
to liquidate.

Depending on your business, the system you
choose to use interactively could be a profit

plan, a new-business booking system, or a
project management system. Any performance
measurement system will do as long as it con-
tains easy-to-understand information, requires
face-to-face interaction among operating man-
agers, focuses dialogues on strategic uncertain-
ties, and generates new action plans.

Once you’ve chosen a system, you must not
only ask your employees to challenge deeply
held assumptions, including your own, but also
reward those who have the courage to tell you
bad news. When Alan Mulally arrived at Ford
as the CEO, he discovered that executives were
afraid of admitting failure. Their presentations
at Thursday morning meetings highlighted
only successes (color-coded green), never prob-
lems (color-coded yellow and red). Mulally
asked how everything could be so rosy when
the company was losing billions. Mark Fields,
the head of the Americas division, finally gave
a presentation noting technical problems with
the new Ford Edge. Everyone waited to see
how the new boss would react. “The whole
place was deathly silent,” Mulally recalled in an
interview with

Fortune.

“Then I clapped, and I
said, ‘Mark, I really appreciate that clear visi-
bility.’ And the next week the entire set of
charts were all rainbows.”

A Checklist for Executing Strategy

Executing strategy successfully requires mak-
ing tough, often uncomfortable choices based
on simple logic and clear principles. But we
frequently avoid making choices, in the mis-
taken belief that we can have it all. Instead of
focusing on one primary customer, we have
many kinds of customers. Instead of instilling
core values, we develop lists of desired behav-
iors. Instead of focusing on a few critical mea-
sures, we build overloaded scorecards.

There is no magic bullet that can zero in on
the pitfalls of your business strategy. There is
only one route to success: You must engage in
ongoing, face-to-face debate with the people
around you about emerging data, unspoken as-
sumptions, difficult choices, and, ultimately,
action plans. You and they should be able to
give clear, consistent answers to the seven
questions posed above. Only then can you be
confident that your strategy is on track.

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