Strategic Principle

Crowdsourced Business
Presentation Design Service

Strategic Principle
Transforming Corner-Office Strategy
into Frontline Action

Strategic principles allow organizations to make decentralized decisions while
maintaining cohesive strategic action. This document explains the strategic principle
framework, including examples, defining attributes, relevant crucial situations, and
an approach to strategic principle development.

February 25, 2013
ORIGINAL PROJECT DETAILS
http://pptlab.com/ppt/HBR-Transforming-Corner-Office-Strategy-into-Frontline-Action-21

PPT Lab (www.pptlab.com) is the only crowdsourced
presentation design service. Get consulting-quality
presentations at a fraction of the cost!
www.PPTLab.com
support@pptlab.com Each month, we will create well over 50 slides of for our members.
As a member, you will drive what business slides we create by
submitting your own presentation projects to our team. All
presentations will be created by a team of management
consultants and follow the Consulting Presentation Framework.

PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 2

Contents

 Overview 4

 Crucial Situations for Strategic Principle 9

 Constructing a Strategic Principle 15

 Closing Thoughts 19


Contents

 Overview

 Crucial Situations for Strategic Principle

 Constructing a Strategic Principle

 Closing Thoughts


Strategic principle is a powerful tool companies use to maintain cohesive
strategic action, while making decentralized decisions
Executive Summary

THE PROBLEM THE SOLUTION

 A challenge that confronts every company—small  Companies that have successfully balanced
or large—is how to give employees clear strategic decentralized decision making and strategic action
direction, but also inspire flexibility and risk taking have each employed a strategic principle
 Within an organization, it is difficult to achieve both  A strategic principle is a memorable and
decentralized decision making and cohesive actionable phrase that distills a company’s
strategic action THIS IS A PARTIAL PREVIEW
corporate strategy into its unique essence and
communicates it throughout the organization
You can download the full document strategic principle is analogous to the rules of
 A at http://PPTLab.com.
PPT Lab is a crowdsourced presentation design service.
engagement used in military battle
– E.g., Admiral Lord Nelson’s crews in Britain’s
18th-century wars against the French were
guided by the principle: whatever you do, get
alongside an enemy ship
– This was due to the fleet’s advantage in one-
on-one battle and the impracticality of
controlling the full fleet through flag signals

Source: HBR: Transforming Corner-Office Strategy into Frontline Action, Gadiesh, Gilbert (2001)


Here are some examples of companies that have distilled their corporate
strategies into strategic principles
Strategic Principle Examples

COMPANY STRATEGIC PRINCIPLE

Dell • “Be direct.”

eBay • “Focus on trading communities.”

THIS IS •A PARTIAL or number two in every industry in which we
“Be number one PREVIEW
General Electric compete, or get out.”
You can download the full document at http://PPTLab.com.
PPT Lab is a crowdsourced presentation design at fares competitive
• “Meet customers’ short-haul travel needs service.
Southwest Airlines with the cost of automobile travel.”

Vanguard • “Unmatchable value for the investor-owner.”

Wal-Mart • “Low prices, every day.”



The strategic principle abides by the 80-100 rule of business
80-100 Rule

The distillation of an organization’s strategy into a pithy and prescriptive phrase is important because a
great business strategy is of little use unless people understand it well enough to apply it—both to
anticipated decisions and unforeseen opportunities.
The essence of why a strategic principle is useful can be explained by the 80-100 rule of business,
which states: THIS IS A PARTIAL PREVIEW
You are better with a strategy that is 80% right and 100% implemented than one that
is 100% right, but doesn’t drive consistent action throughout the company.

A strategic principle helps an organization balance the ratio between correct strategic
decision and strategy implementation.



An effective strategic principle has 3 defining attributes
Defining Attributes

A strategic principle should guide a company’s allocation of resources (e.g. capital, time,
management’s attention, labor, brand)—but more specifically, an effective strategic principle
achieves the following:

1
THIS IS A PARTIAL PREVIEW
It forces trade-offs between competing resource demands.

2 PPT Lab is a crowdsourced presentation design service.
It tests the strategic soundness of a particular action.

3
It sets clear boundaries within which employees must operate while
granting them freedom to experiment within those constraints.



Contents

 Overview





There are 4 primary situations where having a strategic principle is crucial
to success
Crucial Situations for Strategic Principle

Today, companies face 4 situations—oftentimes simultaneously—that make a strategic
principle crucial to success:

Decentralization Rapid Growth
Strategic
Principle

Technological Change Institutional Turmoil



Decentralization is a common situation for Decentralization Rapid Growth

companies across all industries Strategic
Principle

Technological Institutional
Crucial Situation: Decentralization Change Turmoil

EXAMPLE(S)
OVERVIEW
• For General Electric, its long-standing strategic
 Decentralization is becoming more common at companies across principle of always being number one or
all industries
number two in any industry offers a cohesive
 Thus, there is a corresponding rising need for a mechanism to rationale for how a conglomerate can create
ensure coherent strategic action value but still give individual business units
– This is especially true in the case of diversified conglomerates, considerable strategic freedom
where strategy is formed in each of the business units, a
strategic principle can help executives maintain consistency
while giving business unit managers the freedom to tailor their
strategies to meet their download the full document at http://PPTLab.com.
You can own needs

As industries mature, it is natural for all successful companies operating within to
become decentralized as they enter acquisition mode.



Rapid growth is another situation where a Decentralization Rapid Growth

strategic principle becomes instrumental Strategic
Principle

Crucial Situation: Rapid Growth Change Turmoil

EXAMPLE(S)
OVERVIEW
• Southwest Airlines began to grow quickly and it
 A strategic principle is crucial when an organization is experiencing may have been tempted to mimic its rivals’
rapid growth
ultimately unsuccessful strategies if it had not
 During these times, it becomes increasingly the case that less followed its own strategic principle: “Meet
experienced managers are forced to make important decisions customers’ short-haul travel needs at fares
about issues for which there may be no precedent—this is competitive with the cost of automobile travel.”
particularly true for a startup company that is growing rapidly in an
established industry THIS IS A PARTIAL PREVIEW have been to tempted, like many
• Ebay might
 A clear and precise strategic principle can help counteract this other online marketplaces, to diversify into all
You can download the full document
shortage of experience at sorts of services if it had not followed its
http://PPTLab.com.
strategic principle: “Focus on trading
communities”

The strategic principle counteracts the shortage of experience facing many young
managers that exist in a high growth company.



Technological change is becoming more and Decentralization Rapid Growth

more pervasive in modern industries Strategic
Principle

Crucial Situation: Technological Change Change Turmoil

EXAMPLE(S)
OVERVIEW
• For the case of Dell in the late 90s, its mandate
 The staggering pace of technological change over the past couple to sell direct to end users helped ensure that
decades has been costly for companies that have not employed a
the decisions made by frontline managers in
strategic principle
such circumstances add up to a consistent
 Never before in business has there been more uncertainty coupled corporate strategy
with so great an emphasis on speed
 Oftentimes, the sum of the reactions across the organization ends
up defining the company’s strategic course—whetherPARTIAL
THIS IS A or not its PREVIEW
aligned with the company’s strategic plan
 In particular, You can download the full document at http://PPTLab.com.
in high-tech industries, managers must react
immediately to sudden Lab is a crowdsourced presentation design service.
PPT and unexpected developments

Technological change is an impact that not only affects the company’s strategic
direction, but can significantly impact its operations.



Institutional turmoil includes leadership changes Decentralization Rapid Growth

and other highly political situations Strategic
Principle

Crucial Situation: Institutional Turmoil Change Turmoil

EXAMPLE(S)
OVERVIEW
• For Vanguard in 1996, when Jack Brennan
 A strategic principle can provide continuity during periods of took over as chairman and CEO, the strategic
organizational turmoil
transition was seamless, despite some tension
 An increasingly common example of institutional turmoil is this era around the leadership transition
of short-term CEOs is leadership succession
• He maintained the mutual fund’s strategic
– A new CEO can bring a new strategy, but not necessarily a new principle, thereby allowing managers to
strategic principle
THIS IS A PARTIAL PREVIEW their strategic objectives without
pursue
many of the distractions often associated
with leadership changes


It is important to understand that a change to corporate strategy does not mean
necessitate a change to strategic principle.



Contents

 Overview





Many successive companies were originally founded upon strategic
principles
Constructing a Strategic Principle (1 of 3)

Many of the best and most conspicuous examples of strategic principles come from companies that
found on them, such as:
• eBay
• Dell
• Vanguard
• Southwest Airlines
• Wal-Mart
The founders of these companies adopted a clear guiding principle that summarized the essence of
what would later grow to a full-blown business strategy.
However, in the case of established multinationals, these organizations often need to craft their
strategic principles at a critical juncture.
The question that arises is, how do you construct a strategic principle when one doesn’t exist?



Capturing a strategic principle is analogous to capturing the differentiating
components of an entity’s genetic code

The strategic principle must isolate and capture the corporate equivalent of the
genetic code that differentiates your company from its competitors.

THIS IS A PARTIAL PREVIEWstrategic principle is much like
Identifying a
identifying the 2% of DNA that separates
You can download the full document atfrom monkey—or perhaps even more
man http://PPTLab.com.
PPT Lab is a crowdsourced presentation design service.of DNA
difficult and comparable, the 0.1%
that differentiates each human being



The process of constructing a strategic principle follows a 4 step
process

Test for
Summarize Test for Test for
Enduring
Differentiation Communicative Power Actionability
Nature

• Management first needs to • Once the idea has been • Next, test the strategic • Finally, test the strategic
ask: how does our expressed in a phrase, test principle for its principle for its ability to
company allocate
resources to create value in
the strategic principle for its
enduring nature
communicative power promote and guide action
• Is it clear, concise, and • Assess whether it exhibits
a unique way—one that
differentiates us from
• Does it capture what we
intend to do for only the
memorable? the 3 attributes of an
effective strategic principle:
competitors?
PPT Lab is a crowdsourced •presentationtodesign service.
A sanity check question is:
next 3 to 5 years or does it
would we feel proud • Forces trade-offs
• The first step is to capture a more timeless
paint it on the side of a between competing
summarize the answer in a essence—the genetic code
truck, as Wal-Mart does? resource demands
brief phrase that captures of our company’s
the essence of the competitive differentiation? • Tests the strategic
company’s point of soundness of a
differentiation particular action
• Sets clear boundaries
within which employees
must operate while
granting freedom to
experiment within those
constraints



Contents

 Overview





Though they may seem similar at first, a strategic principle is different from
a mission statement
Strategic Principle vs. Mission Statement

It is important to note that a Strategic Principle is not a Mission Statement—in fact,
there are many differences between the two communication tools

MISSION STATEMENT STRATEGIC PRINCIPLE

A mission statement informs a company’s A strategic principle drives a company’s
vs
culture. You can download the full document at http://PPTLab.com.
strategy.
A mission statement is aspirational—it A strategic principle is action-oriented—it
vs
gives people something to strive for. enables people to do something now.

A mission statement is meant to inspire A strategic principle enables frontline
frontline workers. vs workers to act quickly by given them
explicit guidance to make strategically
consistent decisions.



A strategic principle should be revisited regularly and updated as needed
Closing Thoughts

• Just like a company’s corporate strategy, its strategic principle is not eternal
• However, even though the corporate strategy may change, its essence is likely to remain the same
• Strategic half-lives are shortening and in general, strategy should be reviewed every quarter and
updated every year
• While it is recommended to revisit our strategic principle every time we re-examine the corporate
strategy, it is likely to change only when there is a significant shift in the basic economics and
opportunities of our market THIS IS A by legislation/policy changes, disruptive technology, new
(e.g. caused PARTIAL PREVIEW
business model)
• Vanguard takes explicit steps to ensure that the direction provided by its strategic principle remains
current by employing an internal “devil’s advocacy” process
• In this process, managers are divided into groups to critique and defend past decisions and current
policies



PPT Lab (www.pptlab.com) is the only crowdsourced
presentation design service. Get consulting-quality
presentations at a fraction of the cost!
www.PPTLab.com
support@pptlab.com Each month, we will create well over 50 slides of for our members.
As a member, you will drive what business slides we create by
submitting your own presentation projects to our team. All
presentations will be created by a team of management
consultants and follow the Consulting Presentation Framework.


Strategic Principle

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