Transforming Corner-Office Strategy into Frontline Action

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Transforming Corner- Office Strategy into Frontline Action

by Orit Gadiesh and James L. Gilbert

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The Idea in Brief—the core idea

The Idea in Practice—putting the idea to work

Article Summary

Transforming Corner-Office Strategy into Frontline Action

A list of related materials, with annotations to guide further

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Further Reading

It’s a challenge that confronts

every company, large and

small: how do you give

employees clear strategic

direction but also inspire

flexibility and risk taking?

One answer is to create and

broadcast a “strategic

principle”—a pithy,

memorable distillation of

strategy that guides employees

as it empowers them.

Reprint R0105D This document is authorized for use only by Miguel Alfonzo Gervis in MAN 510: Leadership and Organizational Behavior (Fall "C" 2025) at Atlantis University, 2025.

http://www.hbr.org

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Transforming Corner-Office Strategy into

Frontline Action

page 1

The Idea in Brief The Idea in Practice

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Southwest Airlines keeps soaring. Its stock price rose a compounded 21,000% between 1972 and 1992 and leapt 300% between 1995 and 2000.

Why does Southwest succeed while so many other airlines fail? Because it sticks to its powerful strategic principle: “Meet customers’ short-haul travel needs at fares competitive with the cost of automobile travel.” This pithy, memorable, action- oriented phrase distills Southwest’s unique strategy and communicates it throughout the company.

An effective strategic principle lets a com- pany simultaneously:

• maintain strategic focus,

• empower workers to innovate and take risks,

• seize fleeting opportunities,

• create products and services that meet subtle shifts in customers’ needs.

In today’s rapidly changing world, compa- nies must integrate decentralized decision making with coherent, strategic action. A well-crafted, skillfully implemented strate- gic principle lets them strike that delicate balance.

HALLMARKS OF POWERFUL STRATEGIC PRINCIPLES

A successful strategic principle:

• Forces trade-offs between competing resources.

Example:

Southwest Airlines’ 1983 expansion to the high-traffic Denver area seemed sensible. But unusually long delays there due to bad weather and taxi time would have forced Southwest to increase ticket prices— preventing it from adhering to its strategic principle of offering air fares competitive with the cost of auto travel. The company pulled out of Denver.

• Tests the strategic soundness of particular decisions by linking leaders’ strategic in- sights with line operators’ pragmatic sense.

Example:

AOL’s strategic principle,“Consumer con- nectivity first—anytime, anywhere,” tested the wisdom of a powerful business deci- sion: expanding AOL’s global network through alliances with local partners, rather than using its own technology everywhere. Partners’ understanding of local culture greatly increased customers’ connectivity.

• Sets clear boundaries within which employ- ees operate and experiment.

Example:

At mutual-fund giant The Vanguard Group, frontline employees conceived a potent idea: Let customers access their accounts on-line, but limit on-line trading. This move kept Vanguard’s costs low, enabling the company to stick to its strategic principle: creating “unmatchable value for investors/ owners.”

CREATING AND COMMUNICATING YOUR STRATEGIC PRINCIPLE

Capturing and communicating the essence of your company’s strategy in a simple, mem- orable, actionable phrase isn’t easy. These steps can help:

1. Draft a working strategic principle. Sum- marize your corporate strategy—your plan to allocate scarce resources in order to create value that distinguishes you from competi- tors—in a brief phrase. That phrase becomes your working strategic principle.

2. Test its endurance. A good strategic princi- ple endures. Ask: Does our working strategic principle capture the timeless essence of our company’s unique competitive value?

3. Test its communicative power. Ask: Is the phrase clear, concise, memorable? Would you feel proud to paint it on the side of your firm’s trucks, as Wal-Mart does?

4. Test its ability to promote and guide ac- tion. Ask: Does the principle exhibit the three essential attributes: forcing trade-offs, testing the wisdom of business moves, setting boundaries for employees’ experimentation?

5. Communicate it. Communicate your strategic principle consistently, simply, and repeatedly. You’ll know you’ve succeeded when employees—as well as business writers, MBA students, and competitors—all “chant the rant.”

This document is authorized for use only by Miguel Alfonzo Gervis in MAN 510: Leadership and Organizational Behavior (Fall "C" 2025) at Atlantis University, 2025.

Transforming Corner- Office Strategy into Frontline Action

by Orit Gadiesh and James L. Gilbert

harvard business review • may 2001 page 2

C O

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N . A

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V E

D .

It’s a challenge that confronts every company, large and small: how do

you give employees clear strategic direction but also inspire flexibility

and risk taking? One answer is to create and broadcast a “strategic

principle”—a pithy, memorable distillation of strategy that guides

employees as it empowers them.

We all know the benefits of pushing decision making from the CEO’s office out to the far reaches of an organization. Fleeting business opportunities can be seized quickly. Products and services better reflect subtle shifts in cus- tomers’ preferences. Empowered workers are motivated to innovate and take risks.

But while the value of such an approach is clear, particularly in a volatile business environ- ment, there is also a built-in risk: an organiza- tion in which everyone is a decision maker has the potential to spin out of control. Within a single company, it’s tricky to achieve both de- centralized decision making and coherent stra- tegic action. Still, some companies—think Gen- eral Electric, America Online, Vanguard, Dell, Wal-Mart, Southwest Airlines, and eBay—have done just that.

These companies employ what we call a stra- tegic principle, a memorable and actionable phrase that distills a company’s corporate strat- egy into its unique essence and communicates it throughout the organization. (For a list of companies’ strategic principles, see the exhibit

“It’s All in a Phrase.”) This tool—which we have observed in use at

about a dozen companies, even though they don’t label it as such—would always serve a company well. But it has become particularly useful in today’s rapidly and constantly chang- ing business environment. Indeed, in our con- versations and work with more than 50 CEOs over the past two years, we have come to ap- preciate the strategic principle’s power—its ability to help companies maintain strategic focus while fostering the flexibility among em- ployees that permits innovation and a rapid re- sponse to opportunities. Strategic principles are likely to become even more crucial to cor- porate success in the years ahead.

Distillation and Communication

To better understand what a strategic princi- ple is and how it can be used, it may be helpful to look at a military analogy: the rules of en- gagement for battle. For example, Admiral Lord Nelson’s crews in Britain’s eighteenth- century wars against the French were guided

This document is authorized for use only by Miguel Alfonzo Gervis in MAN 510: Leadership and Organizational Behavior (Fall "C" 2025) at Atlantis University, 2025.

Transforming Corner-Office Strategy into Frontline Action

harvard business review • may 2001 page 3

by a simple strategic principle: whatever you do, get alongside an enemy ship.

The Royal Navy’s seamanship, training, and experience gave it the advantage every time it engaged one-on-one against any of Europe’s lesser fleets. So Nelson rejected as impractical the common practice of an admiral attempting to control a fleet through the use of flag sig- nals. Instead, he gave his captains strategic pa- rameters—they knew they had to battle rival ships one-on-one—leaving them to determine exactly how to engage in such combat. By using a strategic principle instead of explicit signals to direct his forces, Nelson consistently defeated the French, including a great victory in the dark of night, when signals would have been useless. Nelson’s rule of engagement was simple enough for every one of his officers and sailors to know by heart. And it was enduring, a valid directive that was good until the rela- tive naval capabilities of Britain and its rivals changed.

The distillation of a company’s strategy into a pithy, memorable, and prescriptive phrase is important because a brilliant business strat- egy, like an insightful approach to warfare, is of little use unless people understand it well enough to apply it—both to anticipated deci- sions and unforeseen opportunities. In our work, we often see evidence of what we call the 80-100 rule: you’re better off with a strat- egy 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 can help a company bal- ance that ratio.

The beauty of having a corporate strategic principle—a company should have only one— is that everyone in an organization, the execu- tives in the front office as well as people in the operating units, can knowingly work toward the same strategic objective without being rigid about how they do so. Decisions don’t al- ways have to make the slow trip to and from the executive suite. When a strategic principle is well crafted and effectively communicated, managers at all levels can be trusted to make decisions that advance rather than undermine company strategy.

Given what we’ve said so far, a strategic prin- ciple might seem to be a mission statement by another name. But while both help employees understand a company’s direction, the two are different tools that communicate different

things. A mission statement informs a com- pany’s culture. A strategic principle drives a company’s strategy. A mission statement is as- pirational: it gives people something to strive for. A strategic principle is action oriented: it enables people to do something now. A mis- sion statement is meant to inspire frontline workers. A strategic principle enables them to act quickly by giving them explicit guidance to make strategically consistent choices.

Consider the difference between GE’s mis- sion statement and its strategic principle. The company’s mission statement exhorts GE’s leaders—“always with unyielding integrity”— to be “passionately focused on driving cus- tomer success” and to “create an environment of ‘stretch,’ excitement, informality, and trust,” among other things. The language is aspira- tional and emotional. By contrast, GE’s well- known strategic principle—“Be number one or number two in every industry in which we compete, or get out”—is action oriented. The first part of the phrase is an explicit strategic challenge, and the second part leaves no ques- tion in line managers’ minds about what they should do.

Three Defining Attributes

A strategic principle, as the distillation of a company’s strategy, should guide a company’s allocation of scarce resources—capital, time, management’s attention, labor, and brand—in order to build a sustainable competitive ad- vantage. It should tell a company what to do and, just as important, what not to do. More specifically, an effective strategic principle does the following:

• It forces trade-offs between competing re- source demands;

• It tests the strategic soundness of a particu- lar action;

• It sets clear boundaries within which em- ployees must operate while granting them free- dom to experiment within those constraints.

These three qualities can be seen in America Online’s strategic principle. CEO Steve Case says personal interaction on-line is the soul of the Internet, and he has positioned AOL to cre- ate that interaction. Thus, AOL’s strategic prin- ciple in the years leading up to its recent merger with Time Warner has been “Con- sumer connectivity first—anytime, anywhere.”

This strategic principle has helped AOL make tough choices when allocating its re-

Orit Gadiesh

is chairman of the board and

James L. Gilbert

is a director of Bain & Company, a consulting firm based in Boston.

This document is authorized for use only by Miguel Alfonzo Gervis in MAN 510: Leadership and Organizational Behavior (Fall "C" 2025) at Atlantis University, 2025.

Transforming Corner-Office Strategy into Frontline Action

harvard business review • may 2001 page 4

sources. For example, in 1997, the company needed cash to grow, so it sold off its network infrastructure and outsourced that capability— a risky move at a time when it appeared that network ownership might be the key to success on the Internet. In keeping with its strategic principle, AOL instead spent its time and cash on improving connectivity at its Web site, fo- cusing particularly on access, navigation, and interaction. As a result, it avoided investing capital in what turned out to be a relatively low-return business.

Its strategic principle has also helped AOL test whether a given business move makes stra- tegic sense. For instance, the Internet company has chosen to expand its global network through alliances with local partners, even though that approach can take longer than simply transplanting AOL’s own technology and know-how. AOL acknowledges that a local partner better understands the native culture and community, which is essential for connect- ing with customers.

Finally, AOL’s strategic principle has spurred focused experimentation in the field by clearly defining employees’ latitude for making moves. For example, AOL’s former vice president of marketing, Jan Brandt, mailed more than 250 million AOL diskettes to consumers nation- wide. The innovative campaign turned the company into one of the best-known names in

cyberspace—all because Brandt, now AOL’s vice chair and chief marketing officer, guided by the principle of connecting consumers, put her resources into empowering AOL’s target community rather than sinking time and money into slick advertising.

As AOL’s experience illustrates, a strong stra- tegic principle can inform high-level corporate decisions—those involving divestitures, for ex- ample—as well as decisions made by depart- ment heads or others further down in an orga- nization. It also frees up CEOs from constant involvement in the implementation of their strategic mandates. “The genius of a great leader is to leave behind him a situation that common sense, without the grace of genius, can deal with successfully,” said journalist and political thinker Walter Lippman. Scratch the surface of a number of high-performing com- panies, and you’ll find that strategic principles are connecting the strategic insights—if not al- ways the genius—of leaders with the prag- matic sense of line operators.

Now More Than Ever

In the past, a strategic principle was nice to have but was hardly required, unless a com- pany found itself in a trying business situation. Today, many companies simultaneously face four situations that make a strategic principle crucial for success: decentralization, rapid growth, technological change, and institu- tional turmoil.

For the reasons mentioned above, decentrali- zation is becoming common at companies of all stripes; thus, there is a corresponding need for a mechanism to ensure coherent strategic action. Especially in the case of diversified conglomer- ates, where strategy is formed in each of the business units, a strategic principle can help ex- ecutives maintain consistency while giving unit managers the freedom to tailor their strategies to meet their own needs. It can also clarify the value of the center at such far-flung companies. For example, GE’s long-standing strategic prin- ciple of always being number one or number two in an industry offers a powerful rationale for how a conglomerate can create value but still give individual units considerable strategic freedom.

A strategic principle is also crucial when a company is experiencing rapid growth. During such times, it’s increasingly the case that less- experienced managers are forced to make deci-

It’s All in a Phrase A handful of companies have distilled their strategy into a phrase and have used it to drive consistent strategic action throughout their organizations.

Company Strategic Principle

America Online Consumer connectivity first— anytime, anywhere

Dell Be direct

eBay Focus on trading communities

General Electric Be number one or number two in every industry in which we compete, or get out

Southwest Airlines Meet customers’ short-haul travel needs at fares competitive with the cost of automobile travel

Vanguard Unmatchable value for the investor-owner

Wal-Mart Low prices, every day

This document is authorized for use only by Miguel Alfonzo Gervis in MAN 510: Leadership and Organizational Behavior (Fall "C" 2025) at Atlantis University, 2025.

Transforming Corner-Office Strategy into Frontline Action

harvard business review • may 2001 page 5

sions about nettlesome issues for which there may be no precedent. A clear and precise stra- tegic principle can help counteract this short- age of experience. This is particularly true when a start-up company is growing rapidly in an established industry. For instance, as South- west Airlines began to grow quickly, it might have been tempted to mimic its rivals’ ulti- mately unsuccessful strategies if it hadn’t had its own strategic principle to follow: “Meet cus- tomers’ short-haul travel needs at fares compet- itive with the cost of automobile travel.” Like- wise, eBay, whose principle is “Focus on trading communities,” might have been tempted, like many Internet marketplaces, to diversify into all sorts of services. But eBay has chosen to out- source certain services—for instance, manage- ment of the photos that sellers post on the site to illustrate the items they put up for bid— while it continues to invest in services like Bill- point, which lets sellers accept credit-card pay- ments from bidders. EBay’s strategic principle has ensured that the entire company stays fo-

cused on the core trading business. The staggering pace of technological change

over the past decade has been costly for com- panies that don’t have a strategic principle. Never before in business has there been more uncertainty combined with so great an empha- sis on speed. Managers in high-tech industries in particular must react immediately to sud- den and unexpected developments. Often, the sum of the reactions across the organization ends up defining the company’s strategic course. A strategic principle—for example, Dell’s mandate to sell direct to end users— helps ensure that the decisions made by front- line managers in such circumstances add up to a consistent, coherent strategy.

Finally, a strategic principle can help provide continuity during periods of organizational tur- moil. An increasingly common example of tur- moil in this era of short-term CEOs is leader- ship succession. A new CEO can bring with him or her a new strategy—but not necessarily a new strategic principle. For instance, when

Bain & Company: Case Study of a Strategic Principle

I learned the most about strategic principles in the trenches at Bain & Company when, a decade ago, we almost went bankrupt.

Bill Bain founded Bain & Company nearly 30 years ago on the basis of a simple but pow- erful notion: “The product of a consultant should be results for clients—not reports.” Over time, this mandate to deliver results through strategy became Bain’s strate- gic principle. It remains so today.

This directive fosters specific action, as an effective strategic principle should. It means that, from the very beginning of an assign- ment, you are constantly thinking about how a recommendation will get implemented. It also requires you to tell clients the truth, even if it’s difficult, because you can’t achieve re- sults by whitewashing problems. And this stra- tegic principle has teeth: Bain has always mea- sured partners’ performance according to the results they achieve for their clients, not just on billings to the firm.

That was the company I joined. And for many years it grew rapidly, all the time guided by its strategic principle. Then, just over a de- cade ago, the founding partners decided to get

their money out and sold 30% of the firm to an employee stock-option plan. This saddled us with hundreds of millions of dollars of debt and tens of millions of dollars of interest pay- ments. The move, whose details initially were not disclosed to the rest of us, was based on the assumption that the company would con- tinue its historic growth rate of 50% a year, which couldn’t be sustained at the size we had become. When growth slowed, the details came to light.

The nonfounding partners faced a critical choice. Everybody had attractive offers. Com- petitors and the press predicted we wouldn’t survive. Recruits and clients were watchful. To make a long story short, we sat down around a conference table and resolved to turn the com- pany around. The key to doing that, we de- cided, was to stick with our strategic principle.

What followed was a couple of years during which adhering to that goal was achingly diffi- cult. But doing so forced important trade-offs. In one case, right in the middle of the crisis, we pulled out of a major assignment that was inconsistent with our principle. We believed the projects that the client was determined to

undertake could not produce significant re- sults for the company. Today, we all believe that had we veered from our principle in that instance, we would not be around.

More recently, our strategic principle has freed us to explore other ventures. Seven years ago, for instance, we became interested in pri- vate equity consulting, quite a different busi- ness from serving corporate clients. We ini- tially struggled with the notion but quickly realized that it fit our strategic principle of de- livering results through strategy, only to a new client segment. We knew that we could trust our colleagues forming the practice area to act consistently with the company’s broader goals because the strategic principle was fundamen- tal to their perspective. The strength of our shared principle permitted us to experiment and ultimately develop a successful new prac- tice area.

Our principle continues to let partners de- velop new practices, markets, and interests quickly and without splintering the firm. It has given us the capacity to evolve and endure.

—

Orit Gadiesh

This document is authorized for use only by Miguel Alfonzo Gervis in MAN 510: Leadership and Organizational Behavior (Fall "C" 2025) at Atlantis University, 2025.

Transforming Corner-Office Strategy into Frontline Action

harvard business review • may 2001 page 6

Jack Brennan took over as chairman and CEO at Vanguard five years ago, the strategic transi- tion was seamless, despite some tension around the leadership transition. He main- tained the mutual fund company’s strategic principle—“Unmatchable value for the inves- tor-owner”—thereby allowing managers to pursue their strategic objectives without many of the distractions so often associated with leadership changes. (For our own experience with organizational turmoil and strategic prin- ciples, see the sidebar “Bain & Company: Case Study of a Strategic Principle.”)

Strategic Principles in Action

Strategic principles and their benefits can best be understood by seeing the results they create.

Forcing Trade-Offs at Southwest Airlines. Southwest Airlines is one of the air-travel in- dustry’s great success stories. It is the only air- line that hasn’t lost money in the past 25 years. Its stock price rose a compounded 21,000% be- tween 1972 and 1992, and it is up 300% over the past five years, which have been difficult ones in the airline industry. For most compa- nies, such rapid growth would cause problems: legions of frontline employees taking up the mantle of decision making from core execu- tives and, inevitably, stumbling. But in South- west’s case, employees have consistently made trade-offs in keeping with the company’s stra- tegic principle.

The process for making important and com- plicated decisions about things like network design, service offerings, route selection and pricing, cabin design, and ticketing procedures is straightforward. That’s because the trade- offs required by the strategic principle are clear. For instance, in 1983, Southwest initiated service to Denver, a potentially high-traffic des- tination and a seemingly sensible expansion of the company’s presence in the Southwestern United States. However, the airline experi- enced longer and more consistent delays at Denver’s Stapleton airport than it did any- where else. These delays were caused not by slow turnaround at the gate but by increased taxi time on the runway and planes circling in the air because of bad weather. Southwest had to decide whether the potential growth from serving the Denver market was worth the higher costs associated with the delays, which would ultimately be reflected in higher ticket prices. The company turned to its strategic

principle: would the airline be able to main- tain fares competitive with the cost of automo- bile travel? Clearly, in Denver at least, it couldn’t. Southwest pulled out of Stapleton three years after inaugurating the service there and has not returned.

Testing Action at AOL. A large part of AOL’s ability to move so far and so fast across untrod ground lies in its practice of testing po- tential moves against its strategic principle. Employees who see attractive opportunities can ask themselves whether seizing one or sev- eral will lead to deeper consumer connectivity or broader distribution. Take, for example, line manager Katherine Borescnik, now presi- dent of programming at AOL. Several years ago she noticed increased activity—call it con- sumer connectivity—around the bulletin- board folders created on the site by two irrev- erent stock analysts and AOL subscribers. She offered the analysts the chance to create their own financial site, which became Motley Fool, a point of connection and information for do- it-yourself investors.

And AOL’s strategic principle reaches even deeper into the organization. The hundreds of acquisitions and deals that AOL has made in the past few years have involved numerous employees. While top officers make final deci- sions, employees on the ground first screen op- portunities against the company’s strategic principle. Furthermore, the integration efforts following acquisitions, while choreographed at the top, are executed by a coterie of managers who ensure that the plans comply with the company’s strategic principle. “We have suc- ceeded, both in our deal making and in our in- tegration, because our acquisitions have all been driven by our focus on how our custom- ers communicate and connect,” says Ken No- vack, AOL Time Warner’s vice chairman.

AOL’s massive merger with Time Warner clearly furthers AOL’s strategic principle of en- abling consumer connections “anytime, any- where” by adding TV and cable access to the Internet company’s current dial-up access on the personal computer. But integrating this merger, which will involve hundreds of em- ployees making and executing thousands of de- cisions, may be the ultimate test of AOL’s stra- tegic principle.

Experimenting Within Boundaries at Van- guard. The Vanguard Group, with $565 billion in assets under management, has quietly be-

This document is authorized for use only by Miguel Alfonzo Gervis in MAN 510: Leadership and Organizational Behavior (Fall "C" 2025) at Atlantis University, 2025.

Transforming Corner-Office Strategy into Frontline Action

harvard business review • may 2001 page 7

come a giant in the mutual fund industry. The company’s strategy is a response to the inabil- ity of most mutual funds to beat the market, often because of the cost of their marketing activities, overhead, and frequent transac- tions. To counter this, Vanguard discourages investors from making frequent trades and keeps its own overhead and advertising costs far below the industry average. It passes the savings directly to investors, who, because Vanguard is a mutual rather than a public company, are the fund’s owners.

While this was Vanguard’s founding strategy, for years the company didn’t communicate it widely to employees. As a result, they often suggested initiatives that were out of sync with the company’s core strategy. “Midlevel manag- ers would walk in holding the newspaper say- ing, ‘Look at what Fidelity just did. How about if we do that?’” Jack Brennan says. It wasn’t ap- parent to them that Vanguard’s strategy was very different from that of its rival, which has higher costs and isn’t mutually owned. Over the years, Vanguard has invested considerable energy in crafting a strategic principle and using it to disseminate the company’s strategy. Now, because employees understand the strat- egy, top management trusts them to initiate moves on their own.

Consider Vanguard’s response to a major trend in retail fund distribution: the emer- gence of the on-line channel. Industry surveys indicated that most investors wanted Internet access to their accounts and that on-line trad- ers were more active than off-line traders. So Vanguard chose to integrate the Internet into its service in a way that furthered its strategy of keeping costs low: basically, it lets custom- ers access their accounts on-line, but it limits Web-based trading. It should be noted that the original ideas for Vanguard’s on-line initi- atives, including early ventures with AOL, were conceived by frontline employees, not senior executives.

Brennan says the company’s strategic princi- ple affects the entire management process, in- cluding hiring, training, performance measure- ment, and incentives. He points to a hidden benefit of having a strong strategic principle: “You’re more efficient and can run with a leaner management team because everyone is on the same page.”

Creating a Strategic Principle

Many of the best and most conspicuous exam- ples of strategic principles come from compa- nies that were founded on them, companies such as eBay, Dell, Vanguard, Southwest Air- lines, and Wal-Mart (“Low prices, every day”). The founders of those companies espoused a clear guiding principle that summarized the essence of what would become a full-blown business strategy. They attracted investors who believed it, hired employees who bought into it, and targeted customers who wanted it.

Leaders of long-standing multinationals, like GE, crafted their strategic principles at a criti- cal juncture: when increasing corporate com- plexity threatened to confuse priorities on the front line and obscure the essence that truly differentiated their strategy from that of their rivals.

Companies in this second category, which represents most of the companies that are likely to contemplate creating a strategic prin- ciple, face a demanding exercise. It probably comes as no surprise that identifying the es- sence of your strategy so it can be translated into a simple, memorable phrase is no easy task. It’s a bit like corporate genomics: the prin- ciple must isolate and capture the corporate equivalent of the genetic code that differenti- ates your company from its competitors. This is somewhat like identifying the 2% of DNA that separates man from monkey—or, even more difficult and more apt, the .1% of DNA that differentiates each human being.

There are different ways to identify the ele- ments that must be captured in a strategic principle, but keep in mind that a corporate strategy represents a plan to effectively allo- cate scarce resources to achieve sustainable competitive advantage. Managers need to ask themselves: how does my company allocate those resources to create value in a unique way, one that differentiates my company from competitors? Try to summarize the answer in a brief phrase that captures the essence of your company’s point of differentiation.

Once that idea has been expressed in a phrase, test the strategic principle for its endur- ing nature. Does it capture what you intend to do for only the next three to five years, or does it capture a more timeless essence: the genetic code of your company’s competitive differenti- ation? Then test the strategic principle for its communicative power. Is it clear, concise, and

This document is authorized for use only by Miguel Alfonzo Gervis in MAN 510: Leadership and Organizational Behavior (Fall "C" 2025) at Atlantis University, 2025.

Transforming Corner-Office Strategy into Frontline Action

harvard business review • may 2001 page 8

memorable? Would you feel proud to paint it on the side of a truck, as Wal-Mart does?

Finally, test the principle for its ability to promote and guide action. In particular, assess whether it exhibits the three attributes of an effective strategic principle. Will it force trade- offs? Will it serve as a test for the wisdom of a particular business move, especially one that might promote short-term profits at the ex- pense of long-term strategy? Does it set bound- aries within which people will nonetheless be free to experiment?

Given the importance of getting your strate- gic principle right, it is wise to gather feedback on these questions from executives and other employees during an incubation period. Once you are satisfied that the statement is accurate and compelling, disseminate it throughout the organization.

Of course, just as a brilliant strategy is worthless unless it is implemented, a powerful strategic principle is of no use unless it is com- municated effectively. When CEO Jack Welch talks about aligning employees around GE’s strategy and values, he emphasizes the need for consistency, simplicity, and repetition. The approach is neither flashy nor complicated, but it takes enormous discipline and could scarcely be more important. Welch has so broadly evan- gelized GE’s “Be number one or number two” strategic principle that employees are not the only ones to chant the rant. So can most busi- ness writers, MBA students, and managers at other companies.

When Rethinking Is Required

No strategy is eternal, nor is any strategic prin- ciple. But even if the elements of your strategy change, the very essence of it is likely to re- main the same. Thus, your strategy may shift substantially as your customers’ demograph- ics and needs change. It may have to be modi- fied in light of your company’s changing costs and assets compared with those of competi- tors. Strategic half-lives are shortening, and, in general, strategy should be reviewed every quarter and updated every year. But while it’s worth revisiting your strategic principle every time you reexamine your strategy, it is likely to change only when there is a significant shift in the basic economics and opportunities of your market caused by, say, legislation or a com- pletely new technology or business model.

Even then, your strategic principle may need

only refining or expanding. GE’s strategic prin- ciple has been enhanced, but not replaced, since Welch articulated it in 1981. Similarly, AOL’s strategic principle will need to be broad- ened, but not necessarily jettisoned, following its merger with Time Warner. Ultimately, the merged company’s strategic principle will also need to embody the importance of high-quality and relevant content, Time Warner’s hallmark.

Vanguard takes explicit steps to ensure that the direction provided by its strategic principle remains current. For example, as part of an in- ternal “devil’s advocacy” process, managers are divided into groups to critique and defend past decisions and current policies. Recently, the group reconsidered two major strategic poli- cies: the prohibitions against opening branch offices and against acquiring money manage- ment firms. After considerable discussion, the policies remained in place. According to CEO Brennan, “Sometimes the greatest value [of re- visiting our strategic principle] is reconfirming what we’re already doing.” At the same time, Vanguard has the process to identify when change is needed.

Fundamental Principles

Respondents to Bain’s annual survey of execu- tives on the usefulness of management tools repeatedly cite the key role a mission state- ment can play in a company’s success. We agree that a mission statement is crucial for promulgating a company’s values and build- ing a robust corporate culture. But it still leaves a large gap in a company’s management communications portfolio. At least as impor- tant as a mission statement is something that promulgates a company’s strategy—that is, a strategic principle.

The ability of frontline employees to execute a company’s strategy without close central oversight is vital as the pace of technological change accelerates and as companies grow rap- idly and become increasingly decentralized. To drive such behavior, a company needs to give employees a mandate broad enough to encour- age enterprising behavior but specific enough to align employees’ initiatives with company strategy.

While not a perfect analogy, the U.S. Consti- tution is in some ways like a strategic principle. It articulates and embodies the essence of the country’s “strategy”—to guarantee liberty and justice for all of its citizens—while providing

This document is authorized for use only by Miguel Alfonzo Gervis in MAN 510: Leadership and Organizational Behavior (Fall "C" 2025) at Atlantis University, 2025.

Transforming Corner-Office Strategy into Frontline Action

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direction to those drafting the laws and regula- tions that implement the strategy. While no corporate strategy has liberty and justice at its heart, the elements of an effective strategy are just as central to the success of a company as those concepts are to the prosperity of the United States. And in neither case will success be realized unless the core strategy is commu- nicated broadly and effectively.

Bain consultant Coleman Mark assisted with this article.

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