ceos and investors: strategy/execution distinction separates good from bad

Poll the more competent employees in Operations and any company is likely to find 20 good ideas for improving efficiency.  Do the same thing with senior management and you’ll be lucky to get one. The reason is not that Operations employees are brighter and more innovative, although this is infinitely possible, but that senior managers are much more cognizant of what can be accomplished. They may very well, for instance, have a great idea for tracking revenue but also know that the IT department is either too busy or too incompetent to ever implement it.  The CEO responds “Wow, you got 12 months to get that done” and you’re fucked.

The confusion between the brilliance of a strategy and the ability to execute on it is at the heart of every poorly managed company. Far too often, a lack of corporate performance is blamed on a bad strategy when the strategy was perfectly fine. In other words, the architect is always blamed when the house falls collapses but the fault is more likely to lie with the builders. Politically-minded executives (ie all of them) in underperforming companies will furthermore willfully blur the line between strategic design and execution to suit their own agenda.

There is a pervasive myth, propagated rabidly by biz schools and business consultants,  that a new “great management paradigm” has just arisen (coughsixsigmacough) that will transform your company into a global behemoth. The truth is that there is no premium on corporate strategy ideas – they are everywhere. The talent that is almost nonexistent is execution.

Jack Welch’s tenure is instructive in this regard. I worked for a manager who hand wrote his Christmas cards because he read that Welch did the same, as if copying Welch’s affectations had anything to do with his management skill. In truth Welch succeeded because he was an absolute ruthless bastard. The strategies he implemented were familiar to any four year old playing with their toys – break the three boring ones and beg for new ones. What Welch actually did in practice was fire entire buildings full of people in underperforming businesses, to the point where he was given the nickname Neutron Jack.  Anyone could have come up with the idea of getting rid of poor businesses and focus on their successful counterparts, but it took a singular talent like Welch to execute.

The same phenomenon is eminently present for investment strategy.  There are any number of historically profitable stock selection methods across the risk scale, which the majority of individual investors just do not execute well. What Buffett does, for instance, is about as complicated as Welch’s strategy – buy companies with consistent long term ROE assisted by competitive advantage when they are trading, ignored, at lower than historical valuation levels. His execution of the strategy, the unparalleled discipline, is what sets him apart.

All of this is not to say that managing money or global industrial companies is easy. The point is that, while there are multi-bazillion dollar industries trying to convince you otherwise, “The Plan” doesn’t really matter, it’s the person implementing the plan that does.

14 thoughts on “ceos and investors: strategy/execution distinction separates good from bad

  1. Jack Welch was aggressive, but it didn’t end with firing and focus. Not that he did anything illegal, but with GAAP accounting you can find ways to set the accrual items conservatively or aggressively, and by the time he was done the accruals were very aggressive, helping to set up his successor for failure.

    Oh, and financialization of GE — he definitely levered the place up, and for relatively small rewards… I’m not a fan of Mr. Welch.

    • Interloper says:

      Gerstner was my other option, but it didnt make my point as well. Welch does get a free ride on a lot, along with Greenberg, but his early achievements were exemplary as far as I know. I grant that a lot of the success was the result of cheap money, however.

  2. […] Story: CEOs and Investors: Strategy/Execution Distinction Separates Good from Bad (Interloper) […]

  3. William Thompson says:

    All one has to do is look at the NFL. Each team has pretty much the same revenue, same salary cap, but some teams consistently out perform the others i.e. New England vs. Cincinnati or Arizona. Sure a team can get lucky once in a while (the blind squirrel finding an acorn), but the well managed teams are mostly in the playoffs year after year.
    Management Matters (M squared)
    Just like some bloggers deliver…great post!

    • Interloper says:

      Thank you! Although I wished you hadn’t mentioned football. Worried my slumping Lions are going to get Tebowed Sunday.

      • William Thompson says:

        That certainly would be a blind squirrel! Your guys are the goods this year..I should know the way they punked my Bears

      • Jake says:

        I’m going to go out on a limb (not really) and tell you that you can relax this weekend. As long as Stafford plays (he’s taking snaps so looks that way), you won’t have a problem. If anything, I think “Tebowed” is a huge net positive for the Lions.

  4. Mario says:

    totally agree. In fact I just read a little article the other day called, “Everything works and nothing works.” Basically the point was the exact same thing you’re saying here, namely every management strategy works when you work it…and even to crazy extreme ideas too. They all work. What matters is that most people aren’t disciplined with it and don’t stick to it and work to create positive feedback mechanisms in their “production lines” to continue re-instilling those strategies. Awareness, discipline, maintenance, and course-correction are really the REAL keys. Get those and you can do anything with just about any “method.”


    • Interloper says:

      Agree totally. Charisma or the ability to get people to think like you, not just follow orders, is the underrated skill, I think. Thanks for the comment.

      • Interloper says:

        Thinking more about this, the ability to instill genuine fear would work as well as charisma. The two combined, which I haven’t seen since an old baseball coach, would be devastating.

      • Mario says:

        yeah you gotta have some fear with that fun for sure. Being a cool boss isn’t good enough. You have to show them you mean business and will hold somebody up (accountability) if/when necessary and appropriate. I like to give people the guidelines I work in up front so they know my “blow-off” points. I’ll even tell them generally what happens when they step out of those guidelines. Doing that alone, and being totally real about it, usually handles at least 75% of the disciplinary and protocol issues. The key I think is to be able to set up your boundaries and repercussions but then to just as quickly get back to having fun and making your team and project really hum. People don’t know how to handle a genuinely good guy that is real about the rules. To be able to do be both a strict disciplinarian, a transparent and clear administrator, and an active and fun participator is just a wicked cool combo imho. That’s how I managed a company of 100-150 employees across CA and in Chicago all from my house and an LA office. It was cool, and I see things I could improve upon, but generally that combo works with most people I’ve found.

  5. […] Strategy vs. implementation: what matters more?  (Interloper) […]

  6. […] Strategy vs. implementation: what matters more?  (Interloper) […]

  7. Bill BIll says:

    Your review of BUFFETT’s strategy is incomplete, as is most media individuals analysis.
    His strength is the stock picking, but the main point is cash flow.. The combined excess cash flow from businesses allows him to buy more ‘cash flow’ rich businesses..

    Especially in ‘moat proof’ businesses..

    do this reasonably well for 50 years and you will be rich..

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