Strategy

Full Potential Plan


At Bain, we think about strategy as "where to play and how to win." This forces leadership teams to ask two vital questions. First, where will we compete—which market segments, product categories or customers should we target? This involves the difficult art of allocating scarce resources to out-invest and out-execute rivals where the company chooses to play. Second, what's our differentiation against the competition—what keeps target customers coming back and recommending us to their friends? The best CEOs recognize that achieving game-changing results demands pulling the levers of change at all levels of the company (strategy, organization, operations, IT, M&A, etc.). Every plan is different but the best incorporate the following:

1. Putting the customer first: The best CEOs put the customer first, strategically, organizationally, operationally. Every successful company has a set of core customers that it can serve better than anyone else. They are loyal, committed and profitable. Winning companies develop a deep understanding of who is in this core group, and who isn't. Putting customers first means making the right investments to nurture them and turn more and more of them into passionate advocates for the company and its products. For CEOs, it means starting most meetings with a customer story and ensuring that the "heroes" of the company are those who do what it takes to serve customers. An approach like Bain's Net Promoter System® builds this customer focus into everyday operations, channeling customer ratings and comments directly to frontline employees through closed-loop feedback.

2. The choreography: CEOs need to be very thoughtful about how to sequence change as they reach toward full potential. Most often, the blueprint will start with strategy—understanding where to play and locking in on the "core of the core." But sometimes CEOs need to sort out organizational issues first or immediately address value-destroying noncore business. The choreography of change—doing the right things in the right order—keeps the organization motivated and inspired to meet both today's—and tomorrow's—challenges

3. The mindset of the talent that matters: The best CEOs recognize they cannot mobilize their organization to achieve full potential unless the talent that really matters is aligned on the full-potential ambition and plan. They don't achieve this through "compliance matrices." They lead deep behavioral change by defining a winning culture and focusing on it ruthlessly.

4. Managing and thriving in uncertainty: Great CEOs recognize that a full-potential roadmap is just that—an initial hypothesis of the journey ahead. But we live in an uncertain world and CEOs must prepare their organization to be agile in responding to the broken bridges and flooded roads that can hamper the best-planned journeys. Strategies that are robust in uncertainty are no less devoted to a bold, long-term ambition. But they do strive to balance commitment to this vision with an explicit set of investments that prepare the company to seize the future as it unfolds, rather than scramble reactively. The best strategies blend three critical elements:

  • No-regret moves—actions like cost management or boosting operational effectiveness that benefit the company under any scenario.
  • Options and hedges—strategic tactics aimed at specific scenarios, such as smaller-scale pilots that can be ramped up or scaled down quickly, joint ventures that provide lower-cost market entry, changes to projects that might add cost but provide additional flexibility.
  • Big bets—large-scale commitments that are valuable in the prevailing scenario, but may have different payoffs depending on how uncertainties resolve. Companies might not pull the trigger until there's more clarity. But advance planning gives them the critical flexibility to move quickly.

5. Addressing risk: Parallel to the development of a full-potential roadmap, the CEO must prepare the organization for the risks ahead and be clear on risk-mitigation strategies. Many of these risks are industry or project specific—M&A moves that fail, IT programs that fly off-track, regulatory changes, macroeconomic changes that radically devalue the balance sheet, etc. But many are internal and involve the highs and lows of change. These are more predictable and can be addressed systematically. CEOs can establish mechanisms to acknowledge the natural biases of their people to reject change so those risks can be mitigated. That often spells the difference between success and failure.


6. Costs as fuel for growth: All CEOs recognize that certain steps on the road to full potential will be extremely painful—but the best don't let the pain erode support for the ambition. While almost every full-potential program involves a radical assault on costs and complexity, effective leaders keep the organization focused by being clear that cost reduction is providing the fuel for future growth. They also balance these cost-reduction phases with key wins in the marketplace.

7. Balance sheet/capital structure: Tight management of the balance sheet often liberates cash, preserves options and drives value for shareholders. Companies tend to hold far more working capital than they need to. They make ill-timed or ill-advised capital investments. They own unnecessary or unproductive fixed assets. Management teams that focus disproportionately on the P&L often miss these issues. Some measures designed to manage costs can actually inflate the balance sheet, consuming cash and destroying value. CEOs of high-performing companies are more evenhanded. Borrowing a page from the private equity playbook, they reap outsized rewards by managing the balance sheet as tightly and as assiduously as they manage the profit and loss statement (P&L).

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