CHAPTER 1

Defining Strategy, Implementation, and Execution

by Ken Favaro

It is striking how much confusion there is between strategy, implementation, and execution. Is “strategy” a matter of making choices about where we want to go, where we play and how we win, of setting goals and actions, about how we create and capture economic value over time? Does it include creating solutions to unforeseen problems and running with unexpected opportunities? Is “getting things done” what we mean by implementation or execution? Do you “execute” or “implement” a strategy? And can you separate these from strategy formation?

For strategy wonks like me, thinking about the definitions of these ideas provides endless fascination. For many business leaders, however, I find that the semantics matter a lot less. And that’s too bad because the semantics should matter. There are meaningful distinctions between strategy, implementation, and execution that are helpful to running a company or business in the real world. Ignoring, blurring, or getting them wrong creates sloppy thinking, deciding, and doing at all levels of an organization.

Let’s start with strategy. As I understand the term, strategy consists of two categories: corporate strategy and business unit strategy. Corporate strategy consists of CEOs and top executives making just three basic choices:

• What should be the capabilities that distinguish the company?
• What should be the company’s comparative advantage in adding value to its individual businesses?
• What businesses should the company be in?

These are the fundamental choices that constitute a corporate strategy, and they should frame and guide all the decisions that a company’s corporate executives, functions, and staff make every day, including how they run the place, what they buy, what markets they enter, how they measure success, and so on.

For a business unit, there are also three key decisions that cannot be delegated by its leader. They are different but no less fundamental:

• Who should be the customers who define our target market?
• What should be the value proposition that differentiates our products and services with those customers?
• What should be the capabilities that make our business better than any other in delivering that value proposition?

These are the choices that a business strategy comprises, and they should drive the decisions a business unit’s management team, functions, and staff make every day, including pricing, R&D, where to manufacture, and many more.

This brings me to implementation. Implementing a strategy consists of all the decisions and activities required to put the two sets of strategic choices I’ve just described into effect. If the corporation has the capabilities, enterprise advantage, and business portfolio it wants, its strategy is implemented. If the unit has the customers, value proposition, and skills it has chosen to have, its strategy is also fully implemented.

Of course, almost by definition, a strategy can never actually be fully implemented because everything that you necessarily assumed when formulating it—about customers, technology, regulation, competitors, and so on—is in a constant state of flux. CEOs and their business unit leaders must continuously evolve their strategies (i.e., those fundamental choices listed above) if they are to remain relevant and competitive. And if that’s the case, there will always be a gap between where their companies are and what their strategies call for. Closing that gap is “implementation.” Thus, developing and implementing strategy are running almost continuously in parallel rather than in sequence.

What, then, is execution? I define the term as the decisions and activities you undertake in order to turn your implemented strategy into commercial success. To achieve “execution excellence” is to realize the best possible results a strategy and its implementation will allow.

To understand what this means, let’s say that Netflix has made a corporate strategy choice to enter the content business and to exit the mail order business. Once Netflix is in the content business and out of the mail order business, that “strategy” (or that part of its strategy) is implemented. Now, Netflix leaders must set goals and plans for the content business, establish the right incentives, create a motivational, purpose-driven mission statement, and more. All leaders need such activities to realize great results from their companies within the context of an implemented strategy. This is execution.

Strategy, implementation, and execution are three coincident determinants of a company or business unit’s ultimate output—its results—that are very difficult to parse into their individual effects. When we see a company or business unit producing poor results over multiple years, no one can say for sure whether that’s due to poor strategy, implementation, or execution. But in my experience, it’s very difficult to implement a poor strategy well and doubly difficult to produce excellent results with a poor strategy that’s being poorly implemented. (Having a great corporate or business strategy is no guarantee of great results either; you still have to implement and execute well.)

The distinctions I make above are not between thinking and doing, deciding and acting, or planning and producing. All of these kinds of activities are involved in strategy, implementation, and execution. Does that make them the same thing? Absolutely not. They each involve very different specific activities, tools, and people. And when business leaders conflate strategy, implementation, and execution, they usually end up with a lot of the trappings of running a modern-day company or business unit—such as goals and targets; plans and initiatives; and mission, vision, and purpose statements—but very little actual strategy, implementation, or execution.

Lim Chow Kiat, CEO of Singapore’s GIC, says that for his organization “nomenclature is destiny . . . We are meticulous about word choice . . . The wrong words can corrode, if not corrupt, our [business].” I agree. Leaders do themselves a great disservice by not being more thoughtful about what they mean when they say strategy, implementation, and execution.

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Ken Favaro is lead principal of act2, an independent adviser to CEOs and their teams and boards based in Bronxville, New York. He is the author of the forthcoming book Strategy 101.

Adapted from content posted on hbr.org, March 31, 2015 (product #H01YRY).