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The six numbers that should guide your strategy

By Martin Hirt

Most books about strategy tend to be thin on one thing: numbers. Instead, you get frameworks, which are useful for organizing ideas, backed by the stories of companies whose successful journeys support the key theories in the book.

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In Strategy Beyond the Hockey Stick, my colleagues and I tried to address this empirical gap. By examining dozens of variables for thousands of companies over more than a decade, we sought to reset the strategy process by basing it in hard data. Our aim: to enable CEOs and boards to dispassionately assess a strategy’s odds of success before leaving the strategy room, much less starting to execute the plan.

Over the past few months, my co-authors and I have been blogging about the key insights from our research. We laid out how the dynamics in the strategy room often skew decisions, and the tendency of timid plans to undermine bold aspirations. We also explained how companies can benchmark their performance against the broader corporate universe, and the importance of looking at strategy in terms of probabilities. Then we explained the 10 levers—including the vital importance of trends and big moves—that largely determine the success of strategies, and how hard you need to pull them to see real impact.

Since our book is deeply founded in empirics, I thought it’d be useful to recap a few key numbers that all strategists should keep in mind.

90%

Plotting the economic profit of the world’s biggest companies on a graph results in a Power Curve that shows those in the top quintile capture nearly nine of every 10 dollars of the economic profit created. That’s roughly 30 times as much as those in the middle three quintiles earn.

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$47 million

Fierce market competition takes a heavy toll on the companies in the middle three quintiles of the Power Curve. They deliver economic profit averaging just $47 million a year.

8%

Mobility on the Power Curve is possible, but rare. Only 1 in 12 companies, or 8%, manages to move from the middle quintiles to the top over a 10-year period. Those are pretty daunting odds.

50%

Your industry matters a lot in your ability to outperform. About half of your company’s position on the Power Curve is driven by your industry. Your industry’s impact is so substantial that you would be better off as an average company in a great industry than a great company in an average industry.

10

Our research found that 10 variables explain nearly 90% of a company’s position and mobility on the Power Curve. They fall into three categories: endowment, trends, and moves. Endowment is what you start with; trends are the winds that are pushing you along or hitting you in the face; and moves are the strategic actions you take.

45%

While endowment determines about 30% of a company’s odds of moving up the Power Curve, and trends another 25%, it is the strategic moves—and how boldly you execute them—that represent the biggest opportunity for improving your odds. Those moves include: programmatic M&A, dynamic reallocation of resources, strong capital expenditures, an effective productivity program, and improvements in differentiation.

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what actions will have the biggest impact on your particular situation, you can shape strategies that will boost your odds.

How do you go about doing that? In the coming months, my colleagues and I will explain eight practical shifts that can dramatically improve the quality of your strategic dialogue, the choices you make, and the business outcomes you experience.

Martin Hirt is a senior partner in our Greater China office, co-leader of our Strategy and Corporate Finance Practice, and co-author of Strategy Beyond the Hockey Stick with Sven Smit and Chris Bradley.

This article originally appeared on LinkedIn.