Strategy Execution: The 10 Strategy Tests

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Framework Primer
Strategy Execution:
The 10 Strategy Tests
Presentation created by
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Contents
Templates
Overview
Strategy Survey Results
What Organizations Do Well
Impact on Financial Performance
Strategy Development Process
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This deck highlights 10 strategy tests that organizations can incorporate
in their strategy development process to outpace rivals
Presentation Overview
An in-depth review of the strengths and weaknesses of a company’s past strategies through
these 10 tests may help leaders uncover the ones relevant to their situations.
The mainstay of a successful strategy is creation of Competitive Advantage. However, for most
organizations Competitive Advantage is a moving target, which is hard to pin down. A global
executive study pinpoints a possible cause: just 53% of executives characterized their
companies’ strategies as underscoring the development of differential advantage over rivals.
The rest declared their strategies as merely matching industry best practices and delivering
operational imperatives.
This presentation provides a detailed account of 10 strategy tests that were validated in the
global study. The research encompassed online survey of executives from across the world, to
test whether their companies’ business unit strategies pass 10 tests that constitute a good
strategy.
The main test questioned the potential of a company strategy to overcome rivals by creating
Competitive Advantage, while the rest of the 9 tests investigated the efficacy of the strategy and
how it positions the company in the market.
The slide deck also includes some slide templates for you to use in your own business
presentations.

A McKinsey survey of global executives reveal that most organizations are
not developing strategies that focus on building a Competitive Advantage
The companies that focus on these tests are in a better position to develop market-
beating strategies.
Strategy Survey – Overview
Source: Putting Strategies to the Test, McKinsey, 2011
The mainstay of a successful strategy is creation of Competitive Advantage.
However, for most organizations, Competitive Advantage is an objective that is hard to
pin down. A global study by McKinsey pinpoints a possible cause: just 53% of
executives characterized their companies’ strategies as underscoring the development
of differential advantage over rivals. The rest declared their strategies as merely
matching industry best practices and delivering operational imperatives.
The research encompassed online survey of executives from across the world who
went through a series of questions to test if their companies’ business unit strategies
pass 10 tests that constitute a good strategy. The overall sample size was 2,135
executives from various parts of the world, representing a range of industries, regions,
tenures, functions, and company sizes.
The main test questioned their strategy’s potential to overcome the rivals by creating
Competitive Advantage. The rest of the 9 tests validated the efficacy of their strategy,
assessing how the strategy positions the company in the market, the insights and data
incorporated to develop the strategy, and the robustness of their implementation plans.

The 10 strategy tests tested the companies on the basis of their strategies’
potential to create competitive edge
The 10 strategy tests can serve as a litmus test to verify the effectiveness of a business
strategy taking into account the market, competitors, future trends, and decision making.
Strategy Survey – 10 Strategy Tests
The 10 strategy tests in the strategy survey inquired the executives to rank their companies’ strategies in creating a
wining market position, the basis of their companies’ strategy formulation, and their implementation planning.
Our strategy consists of decisions based on
vigorous debate about alternatives.
Our strategy balances some major commitments
with flexibility to make future choices. 1
Our strategy highlights creating relative
advantage over competitors.
Our strategy incorporates a detailed
understanding of our Competitive Advantages.
Our strategy defines opportunities based on
detailed market segments.
Our strategy results in a concrete set of actions
to reallocate resources.
The 10 tests included:
Our strategy arises from management’s strong
belief in basic assumptions that underpin it.
Our strategy is mainly built to win in future
market conditions based on major trends.
Our strategy takes into account unavoidable
uncertainties about the future.
Our strategy relies on novel data and insights
not available to competitors.
2
3
4
5
6
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9
10

Contents
Templates
Overview

Although a company’s strategy can succeed even though it fails most of
these tests, but they can stress-test their strategies through these tests
Passing a test meant executives selected a given test statement as the one that most
closely described their companies’ strategies.
Results – Overview
The results from the respondents’ assessment of whether their company’s typical business unit
strategies can pass these 10 tests revealed that:
About 50% of respondents were of the view
that their companies pass only 1 to 3 of the
10 tests.
Fifteen percent executives believed that
their company strategies cannot pass a
single test.
Only 2% of respondents stated that their
companies pass 9 or all 10 tests.
Around 25% participants believed that their
companies were able to clear 4-6 tests.
Executives in India indicated that their
companies pass more tests more frequently
than do executives in China, Europe, or
North America.
Companies’ typical business unit strategies…
Pass no tests
Pass 1-3 tests
Pass 4-6 tests
Pass 7-10 tests

A total of 45% executives believed that their strategy balanced major
commitments with flexibility
Indian and Chinese executives ranked their companies’ strategies higher (43% and 40%
respectively) on “following future market conditions and major trends”.
Results – Regional Breakdown
The results based on regions revealed the following:
Emphasizes creating relative advantage
over competitors.
Incorporates a detailed understanding
of our competitive advantages.
Defines opportunities based on detailed
market segments.
Results in a concrete set of actions
to reallocate resources.
Consists of decisions based on vigorous
debate about alternatives.
Arises from management’s strong belief
in the basic assumptions that underpin it.
Is mainly built to win in future market
conditions based on major trends.
Takes into account unavoidable
N. America
n = 623
Europe
n = 701
China
n = 65
India
n = 206
51% Indian, 37% Chinese, 49% North
American, and 44% Europeans believed
that their strategy balanced major
commitments with flexibility.
Overall just about 14% of the executives
told that their companies’ strategies were
based on novel data and insights not
available to their competitors.
̶ Region-wise, this was stated by 20%
of Indian executives, 18% of Chinese,
14% North American, and 13%
European executives.
Chinese executives graded their
companies’ strategies higher (43%) than
those in the other regions (34% globally)
on the basic test of pinpointing relative
advantage.
̶ The Chinese, however, ranked
themselves lower (37%) in balancing
commitments and flexibility to make
choices in the future.
Relies on novel data and insights not
available to competitors.
Total
n = 2,135
By region
Balances some major commitments with
flexibility to make future choices.
Our strategy …

Contents
Templates
Overview

Most executives considered that their strategy balances some major
commitments with flexibility to make future choices
About 59% of the executives believed their strategy to incorporate a detailed
understanding of their Competitive Advantages.
What Organizations Do Well – Overview
The respondents’ answers in response to the question of “my company’s strategy is consistent
more with which test” were:
Is based on concrete plans that lock in key
choices now.
Is based on a broad, untested understanding of
our competition.
Is loosely linked to our resource reallocation
processes.
Defines markets broadly, based primarily on our
organizational structure.
Consists of decisions based on justifying one
preferred solution.
Reflects management’s focus on analysis and
documents based on understanding its rationale.
Emphasizes matching industry best practices
and delivering operational imperatives.
Is mainly built to win in current market
conditions.
Is based on one most likely future.
Relies more on widely available data and
insights.
Our strategy …
Incorporates a detailed understanding of our
competitive advantages.
Results in a concrete set of actions to reallocate
resources.
Defines opportunities based on detailed market
segments.
Consists of decisions based on vigorous debate
about alternatives.
Arises from management’s strong belief in the
basic assumptions that underpin it.
Emphasizes creating relative advantage over
competitors.
Is mainly built to win in future market conditions
based on major trends.
Takes into account unavoidable uncertainties
about the future.
Relies on novel data and insights not available
to competitors.
Strategy’s consistency with 10 tests
Less More
Test describes my company’s strategy …
Least closely Somewhat closely
Closely Most closely

Another 59% of executives from the study considered that their strategy
results in a concrete set of actions to reallocate resources
Overall, very few executives believed that their strategy relies on novel data and insights
not available to competitors.
What Organizations Do Well – Key Insights
Key insights from the test “what our organization does well” revealed:
70% of executives reported that their strategies provide a mix
of commitments and flexibility.
Just about 29% respondents thought their strategy to be based
on concrete plans that lock in key choices immediately.
Companies developed strategies as a portfolio of different
strategic actions:
Big bets to gain Competitive Advantage.
No regret moves that will pay off whatever happens.
Real options that involve relatively low costs now but can be
elevated to a higher level of commitment as conditions change.
1
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3

Contents
Templates
Overview

There was slight correlation between passing a test and executives
declaring a test to be instrumental to their financial performance
There was stark variation found among executives from different industries in their rating
the top 3 drivers of financial performance.
Impact on Financial Performance – Overview
When bifurcated based on industry, the survey participants’ response on the question: “which aspects of strategy have had the greatest positive
effect on your company’s financial performance” was:
Most frequently
ranked
Second most
frequently ranked
Third most
frequently ranked
Business, legal,
or professional
services
n = 396
Energy
n = 84
High tech,
telecomm
n = 274
Health care,
social services
n = 81
Total
n = 2,135
Manufacturing
n = 276
By industry
Flexibility
41%
Relative
advantage
40%
Reallocation
of resources
36%
Flexibility
54%
Relative
advantage
42%
Understanding our
advantage
34%
Future market
conditions
46%
Relative
advantage
38%
Understanding our
advantage
38%
Flexibility
49%
Belief in basic
assumptions
48%
Relative
advantage
34%
Relative
advantage
48%
Future market
conditions
42%
Belief in basic
assumptions
39%
Relative
advantage
43%
Market
segmentation
40%
Belief in basic
assumptions
40%
Balances major commitments
with flexibility
Our strategy …
Defines opportunities based
on detailed market segments
Results in concrete actions to
reallocate resources
Is built to win in future market
conditions
Emphasizes the creation of
relative advantage
Incorporates a detailed
understanding of our advantage
Arises from management’s
belief in its basic assumptions

Healthcare and social services executives rated “flexibility” and “belief in
their basic assumptions” to have the highest impact on performance
Executives from the manufacturing industry ranked “relative advantage” (43%) and
“market segmentation” (40%) as the top contributors to bottom line.
Impact on Financial Performance – Key Insights
Key insights from the test pertaining to the aspects of the strategy that had the most effect on the
bottom line revealed:
Overall, a majority of the executives selected “flexibility to make
choices in future” at the top and most companies passed this test.
“Novel insights and data as the basis of strategy” test was rated
least critical to financial performance and passed least frequently.
There were differences evident among executives of various
industries regarding evaluating the tests’ impact on financial
performance:
More executives (46%) in the energy sector—than any other
industry—mentioned a focus on trends has a positive effect on their
financial performance.
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2
3
About 50% executives in the health care and social sectors stressed
the importance of management having a strong belief in the strategy’s
underlying assumptions.

Contents
Templates
Overview

The strategy survey also asked what causes organizations to make
decisions about strategy
Some 38% of the executives thought that during the regular planning cycle their strategy
results in a concrete set of actions to reassign resources.
Strategy Development Process – Overview
Here is the breakdown of respondents’ responses to the test of using planning practices for decision making:
% of respondents
During the regular
planning cycle, n = 943
As issues arise, n = 699Use of planning practices consistent with passing tests,
by trigger for decision making
Our strategy …
Arises from management’s strong belief
in the basic assumptions that underpin it.
Incorporates a detailed understanding of
our competitive advantages.
Emphasizes creating relative advantage
over competitors.
Results in a concrete set of actions to
reallocate resources.
Is mainly built to win in future market
conditions based on major trends.
Defines opportunities based on detailed
market segments.
Takes into account unavoidable
Consists of decisions based on vigorous
debate about alternatives.
Relies on novel data and insights not
available to competitors.

The study revealed that not too many companies develop their strategies
based on a concrete process
The shorter planning cycle trend intensifies the need to focus on the attributes of strategy
that drive Competitive Advantage, and prompt pre-testing of the strategies.
Strategy Development Process – Key Insights
Financial crises and recession expose weaknesses in strategies and force many companies to consider
alternatives which they often shelve in growth periods.
These executives were more likely to say their companies
understand Competitive Advantage, incorporate trends, and
allocate resources effectively.
44% of respondents declared that their companies hold a
regular planning cycle.
1
35% of respondents, on the contrary, mentioned that their
companies make decisions as the need arise.
These executives were more likely to say their companies
manage uncertainty well, include flexibility to make choices in
future, and create relative advantage over competitors.
2
A majority of the study respondents—56%—reported that their companies
now make strategic decisions more frequently than before. This trend of
speedy decision making can cause some companies to fail in conducting a
thorough evaluation of each decision. The results further uncovered:

Contents
Templates
Overview

Insert headline
Insert bumper.
10 Strategy Tests – TEMPLATE
Our strategy consists of decisions
based on vigorous debate about
alternatives.
Our strategy balances some major
commitments with flexibility to make
future choices.
1
Our strategy highlights creating
relative advantage over competitors.
understanding of our Competitive
Advantages.
Our strategy defines opportunities
based on detailed market segments.
Our strategy results in a concrete set
of actions to reallocate resources.
Our strategy arises from
management’s strong belief in basic
assumptions that underpin it.
Our strategy is mainly built to win in
future market conditions based on
major trends.
Our strategy takes into account
unavoidable uncertainties about the
future.
Our strategy relies on novel data and
insights not available to competitors.
2
3
4
5
6
7
8
9
10

Insert headline
Insert bumper.
10 Strategy Tests – TEMPLATE ALTERNATE
Our strategy consists of decisions
based on vigorous debate about
alternatives.
Our strategy balances some major
commitments with flexibility to make
future choices.
1 6
Our strategy highlights creating
relative advantage over competitors.
2
understanding of our Competitive
Advantages.
3
Our strategy defines opportunities
based on detailed market segments.
4
Our strategy results in a concrete set
of actions to reallocate resources.
5
Our strategy arises from
management’s strong belief in basic
assumptions that underpin it.
7
Our strategy is mainly built to win in
future market conditions based on
major trends.
8
Our strategy takes into account
unavoidable uncertainties about the
future.
9
Our strategy relies on novel data and
insights not available to competitors.
10

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for premium documents. These
documents can range from Business
Frameworks to Financial Models to
PowerPoint Templates.
Flevy was founded under the principle that
companies waste a lot of time and money
recreating the same foundational business
documents. Our vision is for Flevy to
become a comprehensive knowledge base
of business documents. All organizations,
from startups to large enterprises, can use
Flevy— whether it's to jumpstart projects, to
find reference or comparison materials, or
just to learn.
Contact Us
Please contact us with any questions you may have
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Strategy Execution: The 10 Strategy Tests