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Overcoming the Strategy-to-Execution Gap

Almost every business today faces major strategic challenges. The path to creating value is not clear.

In one ongoing global survey of senior executives conducted by PwC’s Strategy& in recent years, more than half of the forty-four hundred respondents said they didn’t think they had a winning strategy.¹ About two-thirds said that their company’s capabilities didn’t support the way they create value in the market.² In another survey of more than five hundred senior executives around the world, nine out of ten conceded that they were missing major opportunities in the market.³ In that same survey, about 80 percent of those senior executives said that their overall strategy was not well understood—even within their own company.⁴

These problems are not caused simply by external forces. They are the outcome of the way most companies are managed. There is a significant and unnecessary gap between strategy and execution: a lack of connection between where the enterprise aims to go and what it can accomplish. We have met many leaders who understand this problem, but very few who know how to overcome it. In another global study, this time of more than 700 senior executives, only 8 percent said the top leaders of their enterprises excelled at both strategy and execution.⁵ Some business leaders try to close the gap on the strategy side, looking for a better market position. Others double down on execution, improving their methods and practices. Despite their efforts, both groups struggle to achieve consistent success.

Yet a few companies seem to have this problem solved. They naturally combine strategy and execution in everything they do. Their products and services have an enviable position in the markets they care about, and they reliably deliver on their promises. At every level of the hierarchy, from the top to the front lines, they seem to have an uncanny ability to make the right choices—even when those choices run contrary to the conventional wisdom of their industry. Each of these firms has its own unique way of competing, but they all have one thing in common. Their success is clearly related to the distinctive way they do things: their capabilities.

Consider these three examples:

In the early 1950s, a young European entrepreneur decides to sell elegant, functional, inexpensive furniture so that people without much money can have better lives. To draw customers to his relatively remote retail store, he designs it so shoppers can comfortably spend all day, eating in the store’s restaurant and leaving their children in its play area. His business rapidly grows, opening new stores and attracting employees who share a blunt, frugal, and empathetic perspective. Together, they build a remarkable group of capabilities, including an innovative manufacturing and supply chain; a proficiency in designing elegant furniture that folds flat in a shipping box; and a keen ability to understand the way customers live at home and translate that insight into new products. Gradually this business expands to many other countries, becoming the world’s largest home furnishing enterprise. Its name, of course, is IKEA. In its fiscal year 2014, there were 361 IKEA retail stores in forty-six countries, with total annual revenues of €30.1 billion (about US$40 billion).⁶

A small cosmetics company opens in Brazil in 1969 to sell high-quality, natural personal care products—the kind of products generally unavailable then because of import restrictions. The founders soon expand their ambition, adopting the slogan bem estar bem (“well-being, being well”) to celebrate women’s health and quality of life at every age, rather than the forever-young ideal of beauty many competitors promote. They foster a network of direct sales consultants, who eventually number 1.5 million and who have close relationships with seemingly every woman in Brazil. To give the consultants a reason to visit their customers every few weeks, the company becomes proficient in rapid-fire innovation, releasing more than a hundred new products every year. It builds on its heritage of respect for nature and local communities by sourcing many raw materials from remote villages in the Amazon rain forest. You may not have heard of Natura Cosméticos S.A., unless you live in Latin America, but its distinctive capabilities have made it the largest beauty products company in that region. It had revenues of 7.4 billion reals (about US$2.6 billion) in 2014.⁷

Two brothers with a commercial real estate business based in the United States acquire an ailing motor vehicle components supplier in the early 1980s. When they discover that its leaders are successfully reviving it using lean production methods adapted from Japanese automakers, the brothers encourage other businesses in their portfolio to do the same. They soon realize they have a knack for buying underperforming companies, improving the way they operate, and bringing them back to profitability. They assemble a distinctive portfolio of enterprises, first in tools and industrial components, and then in the more specialized and profitable arenas of medical, life sciences, and diagnostic devices. These businesses respond well to operational improvements, and most of them have science-oriented professional customers who comprise a welcoming market for innovative new products—so the company raises its game in innovation. The Danaher Corporation, named after the brothers’ favorite fishing creek, gradually becomes recognized among management experts for its remarkable performance across multiple businesses and its phenomenal M&A success rate. It had revenues of about US$19.9 billion in 2014, and its proposed split into two companies, planned for 2016—a focused science and technology company and a diversified industrial growth company—is generally seen as one more step in its profitable evolution.⁸

Several other well-known enterprises, including Apple, Frito-Lay, Haier, Industria de Diseño Textil (Inditex), Lego, Qualcomm, and Starbucks, have also transcended the strategy-to-execution gap. These companies are all idiosyncratic; at first glance, they seem to have little in common, and they are rarely thought of together. And yet, they have all built the kind of differentiating capabilities that give them a major strategic advantage.

Capabilities are the link between strategy and execution. They are the place where a company truly differentiates itself, and where the work takes place. But it’s not enough to simply have good capabilities; all companies have them, or they couldn’t compete. A truly winning company is one that manages itself around a few differentiating capabilities—and deliberately integrates them. When companies accomplish this, we say they are coherent.

The word coherence means something specific to us. It refers to the alignment among three strategic elements:

As we’ll see later in this book, these elements shape your company’s identity, its practices, its culture, its approach to managing resources, its role in the world at large—and its ability to close the gap between strategy and execution. Coherence among these elements is a big deal; in our view, it’s the most important factor in building sustained success.

When your company is coherent, you don’t have to struggle to overcome the strategy-to-execution gap. There is no gap. All your products and services are supported by the same group of distinctive capabilities, serving the same value proposition. Your strategy is thus inherently executable. Your growth is supported by the capabilities you already have, augmented by those you know you can build. The close fit between strategy (which is typically seen as “what business to pursue”) and execution (“how to pursue and sustain it”) is ingrained in every decision that people in your company make. Your strategy is no longer just about where to go or where to grow. Now, it’s primarily about who you are and what you’re great at. This defines how you win.

Incoherence, by contrast, dissipates a company’s vitality. Incoherence is the state of following many roads to value creation. The products and services in an incoherent company require different capabilities to succeed; they don’t take advantage of the same common strengths. Incoherent companies tend to operate without a distinctive identity, and it is hard for them to differentiate themselves. When you perceive that there’s a gap between strategy and execution in your company, that’s usually a signal that your company is incoherent. (Appendix A describes how the natural state of management is incoherence and how, historically, business theory has failed to address the issue of the strategy-to-execution gap.)

Many leaders of incoherent companies try to solve the problem by putting their attention on what they perceive as an execution issue. “Why can’t my functional leaders get things done? If only we could hold people more accountable!” But no individual function has caused this gap, and no narrow solution can solve it. The solution is to dynamically connect strategy and execution together, through the distinctive capabilities you build. By focusing your attention there, you bring these two seemingly disparate activities into one.

The Unanswered Question

In our previous book, The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Review Press, 2011), we described the differentiation that coherent companies enjoy—how they stand apart from other companies—and the competitive advantage they consistently maintain. And we articulated some of the tangible reasons why coherence yields these benefits: it leads to greater effectiveness, greater efficiency, more focused investment, and an atmosphere where every employee understands what the company does well, how their own efforts fit in, and how all of this creates value.

As part of our research for The Essential Advantage and in our subsequent studies, we tracked the coherence premium: the financial benefit that companies gain from focusing their activity through a small group of distinctive capabilities. This premium is prevalent in every industry we’ve looked at, including aerospace and defense, automobiles, chemicals, consumer packaged goods, health care, and financial services. Repeated studies have found that coherent companies were twice as likely as other companies to report greater-than-average profitability levels compared to competitors.⁹ Analysis of our survey of more than 700 senior executives reinforced this conclusion. We asked about the sources of success for companies they know. Companies perceived to compete on distinctive capabilities—instead of assets, scale, or diversification—consistently scored higher in terms of average annual total shareholder return (TSR) between 2010 and 2013.¹⁰

The coherence premium reflects the reality that distinctive capabilities are not easy to build; they are complex and expensive, with high fixed costs in human capital, tools, and systems. But they are critical for sustained success; even a company with genius ideas needs powerful, distinctive capabilities to bring them to life time and time again. No matter how large and well-managed a company may be, it can only compete at a world-class level with a few distinctive capabilities—say, three to six. Therefore, enterprises that organize those capabilities in a mutually reinforcing system and apply that system to everything they do have an economic advantage: a new kind of economy of scale. That is why companies have felt tremendous pressure in recent years to realign themselves around the things they do exceptionally well.

We have also found evidence of the coherence premium in studies of mergers and acquisitions (M&A). One study looked at 540 major global deals in nine industries announced between 2001 and 2012. Deals with a coherence rationale—those that brought in new businesses that fit the acquirer’s capabilities system or brought in strengths that improved it—led to compound annual shareholder returns on average 14 percentage points higher than other M&A transactions.¹¹ Another study of deals done between 2001 and 2009 found that capabilities-oriented deals led to a 12 percentage point premium in TSR.¹² All our work and research, in short, has reinforced the idea that coherence is a sustainable, accessible, and reliable path to success for major businesses.

There was still, however, a major unanswered question: How do businesses like IKEA, Natura, and Danaher build the distinctive capabilities that give them their edge? How do they stay true to their value proposition over time—especially amid the melee of pressure and potential disruption in today’s business environment—and translate it into results? How do they consistently close the gap between strategy and execution?

To answer these questions, we conducted a study between 2012 and 2014 of a carefully selected group of enterprises that were known for using their distinctive capabilities for competitive advantage. We sought businesses that had reputations for being extraordinarily proficient—the kinds of companies that could do things, regularly and seemingly easily, that other companies found difficult, with success attributed to their capabilities systems. From the dozens of companies suggested to us by industry experts, we used several criteria to select a few companies to study. We looked at their coherence, of course, and also their representative diversity. We ensured that they came from a range of industries and regions. Relative performance was another consideration; there had to be a correlation between the company’s management approach and consistent business success. Finally, we chose companies that we could learn about in depth—either from published materials or interviews with current and former executives. We set out to study how these firms had evolved, the decisions they had made, and how they had shifted course when things went awry. (Appendix B summarizes our research methodology and company selection process.)

We looked at fourteen enterprises closely. These were Amazon, Apple, CEMEX, Danaher, Frito-Lay (the snacks enterprise within PepsiCo), Haier, IKEA, Inditex, the JCI Automotive Systems Group (the seat-making division of Johnson Controls Inc.), Lego, Natura, Pfizer (specifically its consumer health care business, sold to Johnson & Johnson in 2006), Qualcomm, and Starbucks. For each of them, we developed a profile of the company’s identity. This profile combines the value proposition that carries the company forward, the capabilities system that supports that value proposition, and the products and services that it offers. We have placed these profiles throughout the book, each next to a story about that company.

We also looked more generally at a few other companies—Adidas, Campbell’s Soup, McDonald’s, Tesla Motors, and Under Armour among them—that seem to have deliberately sought to build capabilities for success. Using these examples and other examples from our experience and that of our colleagues, this book describes the path of differentiation through capabilities. It explains how to build and maintain a coherent enterprise, no matter what kind of company you are in today, and how to avoid the painful strategy-to-execution gap.

This book might seem similar to the genre of management books that seek to learn from the example of high-powered, successful companies—works such as Tom Peters’s In Search of Excellence and Jim Collins’s Good to Great. The authors of those books, many of whom we know and respect, have researched successful companies and discerned a set of factors that successful companies have in common. They have articulated some very insightful principles and practices, from “management by walking around” to “level-five leadership.”¹³ But when companies try to replicate these practices in their own businesses, they don’t always get the results they want.

We have taken a different approach. This book does not attempt to represent every winning formula for success; it focuses on the only approach that we’ve found that generates consistent results. We started with a working hypothesis, supported by our research and our experience: There is a path to value creation that comparatively few companies have followed in the past, but that would lead many companies to success if they followed it. It is consistent, practical, and sustainable—albeit counterintuitive to many business people. We identified companies that had demonstrated success through that approach. We set out to learn how they made decisions and how they operated on a day-to-day basis, to see what they had in common. (Of course, these are not the only companies following this path that are worthy of study. You might have assembled a different list, and we would probably agree with many of your choices. But these companies represent a broad enough cross-section that it is reasonable to draw conclusions from them.)

The five acts of unconventional leadership at the core of this book are the practices that enable all of these companies to win, time and again. These five acts should not be seen as a list of management elements from which to pick and choose, but rather as five facets of a single approach. If they lead you to business success, that’s because they all help you do the same thing: close the gap between strategy and execution through the everyday work your company does and the capabilities that distinguish you.

Five Acts of Unconventional Leadership

As we got to know companies through our research, we discovered that coherence had not always come naturally to them. The companies had all moved deliberately to develop capabilities that were special for their business. To accomplish this, they had to run their companies in ways that differed, sometimes dramatically, from the conventional wisdom of mainstream business practice.

Conventional wisdom, for example, might lead you to focus on growth, looking for revenue wherever it seems most available. But these companies focus their growth efforts on arenas where they are well-equipped to win, taking advantage of the things they already do exceptionally well. You might assume that the best way to build capabilities is to adopt the best practices of your industry or develop functional excellence, but these companies design and build their own bespoke capabilities that set them apart from other companies. You might seek to solve performance problems by rethinking incentives and restructuring the org chart, but these companies do it differently. They recognize the power of their culture and foster performance by tapping their cultural strengths. Nor do they try to reduce costs across the board by going lean everywhere, spreading their investments across a wide range of promising opportunities, as many companies do. Instead, they marshal their resources carefully, doubling down on the few capabilities that matter most for long-term value. Finally, instead of trying to become agile, to respond to external change as rapidly as possible, they focus on creating the change they want to see. They use their distinctive edge to reshape their business environment on their own terms.

The problem with conventional management practices is that they have mostly developed through trial and error, without a fundamental theory for value creation. Since they developed independently, often without any direct link to a company’s strategy, following them can often lead to incoherence. Table 1-1 provides an overview of conventional management practices and their unintended consequences. They foster incoherence by focusing attention on narrow, fragmented, expedient measures, aimed at getting things done rapidly and in line with the rest of the industry. This naturally divides global decision from local action, and strategy from execution.

The five acts of unconventional leadership are shown in table 1-2. They take different forms in different companies, but there is a family resemblance across all of them. They are all critical to engendering management habits that keep strategy and execution closely integrated, so that there is no gap between them. Together, they comprise a playbook for creating sustainable value.

Here is a description of each act in more detail, and a bit about how coherent companies put them into practice:

1. Commit to an Identity

Companies become coherent by making choices about who they are. They define and develop a value proposition that distinguishes them from other companies, and identify the few capabilities that will enable them to deliver on this way to play more effectively than anyone else. They build and expand their portfolio of products and services, always in line with their distinctive capabilities. In short, these companies deliberately commit themselves to an identity based not on what they sell, but on what they do. Having made this commitment, they only enter competitive markets where they believe they have a “right to win”: where their identity and their capabilities give them an edge.

Thus Apple has applied the same design, consumer insight, and technological integration capabilities to its computers, mobile devices, retail stores, online services, and wearables (the Apple Watch). Its identity is clearly evident in everything it offers. Haier has expanded from appliances to air conditioners to water and air quality monitoring services, always customizing products to consumers’ needs in the same distinctive way. Qualcomm has moved into new telecommunications domains, continually relying on its ability to develop breakthrough technology and to enable other companies to license it. IKEA, Starbucks, Lego, and Zara (an Inditex brand) are all recognizable brands not because of any particular product, but because they have built a strong identity for the enterprise as a whole and for the unique way they do business.

Staying true to your identity doesn’t mean becoming complacent or losing your ability to change. It means using your strengths as a guide as you move through a rapidly changing world. With the entire company aligned around your specific way of creating value, you are not easily distracted. You can concentrate on differentiating your enterprise in ways that naturally outpace your competitors. If a business segment slows down, you don’t chase every opportunity that appears; instead, you look for areas of growth where you will have the right to win, based on the capabilities you have now or those you can develop. As you grow more coherent, you shed the products, services, or entire businesses that don’t fit and expand only to markets and businesses where your most distinctive capabilities apply.

2. Translate the Strategic into the Everyday

With this act, you create a blueprint that defines your most distinctive capabilities. You build and refine them, and then bring them to scale across your enterprise. These capabilities are complex and highly cross-functional combinations of processes, tools, knowledge, skills, and organization—all put in place to reliably and consistently deliver a particular outcome. You will need a great deal of focus and expertise to blueprint, build, and scale these capabilities. The effort will involve the commitment of leaders and employees throughout your company. Though these capabilities tend to pay off their investment even in their early stages of development, it can take some time to bring them to full fruition. If they could be created overnight, they wouldn’t be worth very much, because anyone could copy them.

Highly coherent companies are particular about their capabilities. They don’t aim for functional excellence or external benchmarks. They make their processes and practices their own. They know that if every company is capable in the same way, they’ll all end up in the same place—fighting for an ever-smaller share of the same market. This awareness typically extends throughout the company. Employees are keenly aware of why the capability matters and how their contribution adds value.

If you ask people at Starbucks what they know about the customer experience, people at Danaher how they manage postmerger integration with consistent success, or people at Natura how they organize their supply chain throughout Brazil, they respond with both precision and artistry about what they do and why it matters. They are like virtuoso chefs, operating with a high level of mastery at a large scale. It’s not just their skills and talents that matter; it’s the way they weave those individual skills and talents together with larger-scale infrastructure, operations, and technology, to produce something that no other enterprise can match.

To translate strategic priorities into everyday execution across a large and incoherent enterprise might seem daunting, but it doesn’t have to be. You can draw on multiple practices, some of which are familiar and some of which involve thinking and talking in new ways. As you turn distinctive cross-functional capabilities into habitual behavior across a global enterprise, you develop the kind of culture that fosters coherence and collective mastery. This leads you naturally to the next unconventional act.

3. Put Your Culture to Work

Business leaders know that the culture of a company—the way people collectively think and behave—can either reinforce or undermine their strategy. Since culture is difficult to manipulate or control, many executives tend to regard it as an enemy of change. Indeed, at companies stuck in the strategy-to-execution gap, executives tend to complain about cultural resistance and disharmony. This complaint is itself a symptom of incoherence.

But highly coherent companies view their culture as their greatest asset. The details of their culture may vary dramatically from one company to the next, but they all have cultures that reinforce their distinctive strengths. In all of these companies, people bring emotional commitment to work; they feel mutually accountable for results and develop a kind of collective mastery that is hard to duplicate. To boost performance, these companies don’t have to change their culture; they have to recognize its value and use it to reinforce the way they coalesce across their strategy and execution. These cultures make it easier, not harder, for people to work together across internal boundaries (like those of functions and business units). They have a climate of grand aspiration, drawing people to contribute and excel, and to bring more of themselves to work. The interplay between capabilities and culture becomes a defining feature of the enterprise.

The relatively high level of trust and enthusiasm you feel when you enter the building of a company like Starbucks, Danaher, IKEA, or Natura is testament to the power of this type of energetic, strategically-oriented culture. You can also detect it in the way people talk about their companies. Natura’s people refer continually to the importance of relationships to everything they do, and Starbucks employees speak to their genuine love for coffee and the ambiance of a barista-style establishment. At Qualcomm, you hear about their persistence in solving complex technological problems and fostering them throughout the industry, “even when others doubt us.” At Danaher, people refer to their willingness to learn from each other at a moment’s notice, taking every opportunity to raise their management game. When truly taken to heart, these attributes reinforce their capabilities and coherence.¹⁴

How do you develop a culture that helps you close the strategy-to-execution gap? In part, it’s a natural outcome of the first two acts: committing to an identity and translating the strategic into everyday behavior in your company. Making a commitment to a collective identity and devoting everyone’s efforts to building distinctive capabilities help create conditions for a healthy, thriving culture.

If you don’t have this kind of culture to start with, you may be tempted to try to change your existing culture wholesale, with a massive change initiative that legislates new behavior from the top. (“From now on, everyone must act decisively,” or, “We will all be customer-focused.”) That approach inevitably backfires. Instead of fighting your culture, pursue a form of cultural intervention called the “critical few.” Find a critical few cultural behaviors that relate to the value proposition you support. Empower a critical few managers and employees who understand them and can help you bring them to the forefront. Articulate a critical few attributes of your enterprise that people genuinely care about and that can help you move your strategy forward.¹⁵ This relatively subtle approach has far more power, in the end, because it lets people bring their own emotional energy to an enterprise where they feel they have a stake.

4. Cut Costs to Grow Stronger

Companies that bridge the strategy-to-execution gap spend more than their competitors do on what matters most to them and as little as possible on everything else. Rather than managing to a preconceived bottom line, they treat every cost as an investment. They know that the same sum of cash could either be used to fund either amazingly powerful distinctive capabilities or incoherent activities that hold a company back. They base their decisions about where to cut and where to invest on the need to support their value proposition and differentiate themselves through their capabilities.

These companies don’t treat costs as something separate from strategy. Cost management itself is a way to make critical choices about identity and direction.

Managing costs in this way moves you to a new level of financial discipline, redirecting your resources from the projects that distract you to the core capabilities that drive your profits. It brings new life to financial practices (for example, to your annual budgets). When times are good, you don’t dilute your investment dollars by making bets on dozens of new projects. Instead, you figure out the areas where you are most likely to succeed, and focus your investments there. When times are tough, you don’t completely stop spending money or cut costs across the board. Instead, you find ways to double down on your strategic priorities and cut everything else.

CEMEX, a global building materials company, cut most expenses to the bone when it, like its entire industry, suffered during the 2008 housing crisis and the recession that followed. But even in the midst of a company-threatening debt crisis, CEMEX continued to develop its internal knowledge-sharing platform, an investment in technology and training that other companies might have considered superfluous. But the leaders of the company knew that its return to growth depended on maintaining a distinctive edge as a solutions provider, which required knowledge management.

When you’re first on your way to closing the gap between strategy and execution, you may be in dire financial straits. You will probably need to eviscerate anything that isn’t a strategic priority and pare back most expenses to bare necessities. Then, rather than banking the money you save, reinvest it to further your capabilities system. (At PwC and Strategy& we sometimes call this the Fit for Growth approach.)¹⁶ As you continue to grow, don’t lose that willingness to reinvest. Develop the kinds of financial practices and rewards that make it easy to say no to projects that don’t fit and yes to projects that do. This financial rigor allows you to cut costs and grow stronger at the same time, throughout the long life of your enterprise.

5. Shape Your Future

Over time, focusing on what they do best allows highly coherent companies to develop capabilities that go beyond their original goals. They stop talking about the constraints in their environment and dare to take control of their fate. They seek out higher aspirations—applying their capabilities toward a broader range of challenges and loftier goals, serving the most fundamental needs and wants of their customers, and ultimately leading their own industries. In other words, they build on their early success to enhance and extend what they do best.

Some successful companies fall into the trap of coasting on their past success. But the companies we’ve studied generally work hard to avoid complacency. They explicitly try to anticipate how their capabilities will need to evolve. They make the necessary investments early enough that they will be out in front of changes in the world around them. They build privileged relationships with their key customers, creating demand instead of just following it, launching products and services that define and fill unarticulated customer needs. Finally, in the same way that species like beavers and earthworms (known as ecosystem engineers) transform their environment to better meet their needs, these companies stake out a dominant role in the markets where they are clear leaders—adding superior value in a way that attracts suppliers, distributors, complementary producers and other companies to join or emulate them.¹⁷

Frito-Lay, facing the threat of disruptive competition, equipped its sales force with the first handheld computer, took charge of the snack food retail shelf, and changed the way the industry thought about the distribution of fast-turning impulse purchases. Inditex, with its direct links between the shopping floor and the factory, created a form of fashion-forward retail that made the conventional discounting practices of the apparel industry seem archaic. Apple became the leader of the digital technology industry in the late 1990s and early 2000s by foreseeing that consumers would want to connect devices for computing, writing, music storage, video streaming, downloading documents, taking photographs, telephoning, texting, and every other type of media activity. Its success is sometimes attributed to the genius of Steve Jobs and a few other individuals, but it was not just a matter of genius; it took decades of capability development and deployment to shape the relevant industries and bring that concept to reality. Moves like these are pragmatic and achievable, but only when your leadership is intensively aligned, with the same people working on both strategy and execution.

Our name for the companies that operate at this level is supercompetitor. These companies are so capable and influential that they realign the relationships among other companies in their industry. Coherence is a necessary prerequisite for achieving the status of a supercompetitor, but it is not sufficient in itself. You need to be able not just to play the game of your business well, but also to change the rules. All the companies we have studied have, to some significant extent, become supercompetitors as they practiced these five acts of unconventional leadership. You can do the same.

How the Five Acts Fit Together

We have been presenting these findings in business and academic settings for the past few years. At one business school, an MBA student raised his hand. “I get that the conventional wisdom is problematic,” he said. “But most of our professors are telling us to do those things.”

Executives tell us something similar. The five acts of unconventional leadership contradict what many believe is the right way to run a business. Companies that focus on growth are universally applauded, even if the new offerings don’t fit well together. Functional excellence, organizing for success, going lean across the board, and agility are all regarded favorably in business circles. But those are precisely the approaches that often lead to a gap between strategy and execution. The companies we studied manage to stay resilient and adaptive, often beating their competitors to the punch, while also maintaining a solid, coherent, cohesive identity.

Another telling comment came from a high-ranking official of a branch of the US military. The conventional wisdom on table 1-1, he said, accurately captured the management style of his overall organization. “But there are small groups that do [the unconventional acts shown in table 1-2] very, very well.” These groups he said, were typically special forces: Green Berets, Navy Seals, and other elite groups that are used for highly sensitive jobs. Most companies also have similar elite groups, which are insulated from the rest of the enterprise. They assume that the larger enterprise can handle run-of-the-mill operations, and they delegate the elite activities to their special forces. But if you truly want to have strategy linked seamlessly with execution, throughout your company, then you can’t rely on elite groups. You have to give up the idea of special forces, and instead create distinctive capabilities that will scale across your enterprise, involving everyone in applying them to all of the company’s products and services. That takes a level of attention, and a way of thinking and acting, that may seem difficult to achieve at scale. But these five acts embody practices that help companies reach that state.

The five acts themselves are so interconnected that it would be very difficult to pick just two or three to focus on. Consider what happens if you overlook any one of them.

The IKEA Story

For a good example of how the five acts of coherent leadership can lead to success, consider the story of IKEA, the world’s largest furniture manufacturer and retailer. The identity of this company is embodied in two simple statements. The first lays out its value proposition, which founder Ingvar Kamprad articulated this way in the mid-1950s: “to create a better everyday life for the many people.” The second is a succinct reference to the way IKEA involves customers in its operating model: “You do your part. We do our part. Together we save money.” Each store thus invites people to pick up their furniture from the warehouse and assemble it on their own.¹⁸

From its earliest years, IKEA has devoted itself to building and managing a capabilities system that enables this value proposition and applies it to everything the enterprise sells.

Ingvar Kamprad started the company as a college-age entrepreneur in 1943, selling seeds, postcards, and stationery. It was always a personal business for him; the word IKEA includes his initials and the first letters of the farm (Elmtaryd) and village (Agunnaryd) where he grew up. But it wasn’t until the 1950s that the IKEA we know today got started. Kamprad realized that furniture in Sweden was so expensive that many people, especially those moving into their first homes, could not afford it. Part of the expense came from an elaborate system of middle merchants who bought and distributed furniture. IKEA would be the enterprise that figured out how to give people low-cost elegance at home.