Strategy and execution–substitutes or complements?Posted: October 18, 2011
The management field has long been obsessed with the oddly loose idea of fit, whether it be between strategy and the environment, strategy and structure, or the functional-area components of an overall strategy. Pieces have to fit together into some sort of design in order for the whole thing to work; firms that get all the pieces to fit better (whether by skill or luck) win the competitive struggle. This orientation generates a kind of rhetorical, emotional glow around the idea of complementarity–who wouldn’t want to be coherent and consistent and have all everything work together?
My concern with this attitude is that it overlooks the importance of substitution. Opportunities to outcompete rivals often involve being the first or the only player to recognize that one action, factor, resource, or level of coordination can profitably replace another. I’ll probably return to this theme in future posts; here I want to discuss one particular area of substitution–between strategic acumen and skill at execution.
Distinguishing strategy and execution is not trivial, but if we think of a means-ends hierarchy, with overall objectives at the top and minute specific actions at the bottom, then a level of that hierarchy is strategic with respect to another if it lies above it. A given level of the hierarchy executes higher levels. Obviously, the same situation could be described by different means-end hierarchies with different levels of granularity, etc., but if we hold fixed any specific one the strategy-execution distinction should be pretty clear.
How could strategic acumen and execution skill possibly be substitutes, if the one is needed to implement the other? Let’s start with a couple of examples:
1. At the outset of the Korean War, the North Korean People’s Army, organized in modern Soviet-style armored units, demonstrated qualitative superiority over both the Republic of Korea army and the U.S. Army. The latter, officered by older and relatively undistinguished men, filled with poorly disciplined troops lugging old WWII-surplus equipment, got routed at initial contact with the NKPA. Allied forces fell back to the Pusan perimeter, a small territorial toehold on the southern part of the peninsula, where their relatively compact lines of defense (and the NKPA’s logistical distance from its supply bases) gave them some respite. At that point, the U.S. and ROK forces were clearly inferior to their enemy at the execution level. Head to head in the open, they had been bested repeatedly.
The ace in the hole for the allies, however, was their supreme commander Douglas MacArthur’s strategic insight and boldness. He saw that a risky and difficult amphibious landing at Inchon, far behind the enemy front, would place his forces across the enemy’s lines of communication and supply, threatening to bag their whole army. This would force the NKPA either to fight on two fronts and risk total encirclement or to beat a hasty retreat. They chose the latter, and within a very short time the still-inferior U.S. forces had cleared the NKPA from South Korea and begun an initially successful (though eventually ill-starred) advance into North Korea that captured Pyongyang, North Korea’s capital.
2. In the 1970s and 1980s many Japanese firms gained huge market share against foreign competitors by producing much more reliable products, incorporating more up-to-date technology, at much lower cost. They accomplished these feats with superior process execution skills, including meticulous product development and what was initially called “Japanese manufacturing,” then “world-class manufacturing, and now “lean manufacturing.” This new way of turning inputs into outputs represented a mini-industrial revolution; the changing nomenclature documents its diffusion out of Japan and across the world.
It turned out, however, that many (by no means all) of these Japanese companies, contrary to the alarmist stereotypes exemplified by the movie Rising Sun, had only the most rudimentary ideas of competitive strategy. In head-to-head competition with one another, they tended to slavishly match each others’ moves and try to overpower rivals with product variety, reliability, and volume, leading to poor profitability. Kenichi Ohmae called this tendency “companyism” and “do more better” in his scathing Harvard Business Review article from the period. One U.S. manager of my acquaintance in the chemical industry, who was involved in an international joint venture with a Japanese competitor, noted that their new partner had no product-planning system linked to profitability–they simply made anything any customer asked for, leading to lots of unprofitable projects and a poor overall rate of return on capital. The U.S. firm in the JV, whose manufacturing processes were not as well-managed as those in Japan, earned more profit by being more thoughtful about which products would enable them to achieve long production runs with less competition.
These examples capture the potential substitutability of strategy and execution. The intellectual stumbling block is that some execution skills may be highly specialized to a certain sort of strategic choice (e.g. amphibious capability to the Inchon landing). But I am not claiming that the particular strategy chosen need not fit one’s execution skills. I am claiming that the ability to find a good deployment of one’s skills can make up for execution deficiencies, regardless of how specialized those skills are. Contrariwise, superiority in execution skills can make up for deficiencies in strategic acumen under the right competitive circumstances.
Obviously, this discussion falls far short of a formal account that clearly states under what circumstances these claims hold, given precise definitions of all the key concepts. But the potential for telling managers when they should spend time on higher-level vs. lower-level issues in the means-end hierarchy seems like a prize that would be worth winning.