SARAH GREEN CARMICHAEL: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green Carmichael. Today I’m talking with Paul Leinwand, co-author of the new book, “Strategy that Works.” Paul, thank you so much for talking with us today.

PAUL LEINWAND: Thank you.

SARAH GREEN CARMICHAEL: So the strategy execution gap is a classic problem. It’s one that we’ve published a lot about, but somehow never seems to be regularly able to be solved by people. And I know you and your co-author, Cesare Mainardi, you’ve examined companies that have managed to overcome it– those few, those mighty few. And the first thing that you have called out is that these companies actually commit to what they do best instead of chasing multiple opportunities and multiple priorities. That is really admirable discipline. I’m wondering if you could tell a little bit more about how they managed to do that while still managing to adapt and be innovative.

PAUL LEINWAND: It’s a great question. And I should start by saying that in many of our surveys, more than half of senior executives report not having a winning strategy. So we’re starting in an environment where people don’t feel confident about their ability to win in the market.

And when you ask about this gap between strategy and execution, I think there’s really two big things that are happening. One is companies sometimes have great aspirations, and they get excited about a particular market they want to go after. They have a big dream that they want to chase. And they don’t spend enough time to think about, what are the capabilities that are going to be required for them to execute?

And the second problem is that often, strategy and execution are managed in very different areas of the company. So we might have the chief strategy officer, a president of a business unit, the CEO, the management team thinking about the strategic direction. And we have functional leaders, and then lots of individuals worried about execution. And if you separate those activities, then you really risk not executing the very important things that are going to drive your strategy.

SARAH GREEN CARMICHAEL: Well, that raises a really interesting question. I know some of our other authors, like Roger Martin comes to mind, who’s a big heavyweight in this area as well, he has said that strategy and execution really are the same thing. He’s sort of very strong in his opinion on this. And he says that separating the two really does lead to problems, and sort of lets strategists off the hook a little bit and overlook that executing strategy involves making choices as well. Is that something that you would agree with? I mean, do you think that they’re the same thing? Do you think they’re closely related things? How close do you see them to each other?

PAUL LEINWAND: Well, there’s no question that people see them as different topics. And the opportunity is to really bring the topics together. And it’s actually really interesting– another study that we did about leadership asked questions around how effective are leaders at thinking about the important topics of strategy, and how effective are they at executing the strategy. And only 8% of leaders were seen as being able to be great at doing both.

And that’s in some ways a very historic view of these are different skill sets. But in reality, what we’ve learned in the research from this book, and in all of our experience, is that in fact, strategy, when it works well, is executable. You’re thinking about the capabilities. You’re being very clear about where you’re going to spend the money. You’re actually thinking about the culture to support it. You’re driving change in the right way. And you’re bringing these topics together every single day.

So it’s not a once-every-five-year exercise, big picture strategy, and then it’s all the tactical execution. While you’re doing strategy, you’re thinking about execution, and when you’re executing, you’re constantly going back to that, committing to the identity you brought up earlier– who is it that I am, what’s most important, where do we have a right to win in the market, and what are the things that we have to do to succeed every single day?

SARAH GREEN CARMICHAEL: That’s a great point. You couldn’t really come up with a brilliant strategy that was unexecutable, because then it wouldn’t actually have been a brilliant strategy, would it?

PAUL LEINWAND: Well, there’s lots of great ideas in the world. Take an example like Ikea. I mean, this is a company that was founded on the belief that we should be providing, essentially, furniture and things for people’s homes at an affordable price, because they really weren’t. And that was certainly a big aspiration.

But of course the founder and the company had to think about how they were going to deliver that. So having aspirations is wonderful, and there’s great market opportunities, but you’ve got to think about those very specific capabilities. For instance, how am I going to design furniture so that I have the cost and the price in mind when I’m doing it, empowering designers with all that information so they can make the right choices? How am I going to set up my supply chain to really take out a huge amount of cost and think about flat packs? How am I going to design the actual merchandising of the store environment so that the customers are partaking in the process to lower my labor costs?

And so having a promise is one thing, but being able to deliver it is all about those capabilities. And we see that management teams and leaders that really get it right, they’re spending the time on what they do, not just what they sell. And they define the company in those terms.

SARAH GREEN CARMICHAEL: And this is helpful, because I think it’s bringing us towards another big point that you make in the book, that the companies that you studied who close the strategy-execution gap really do build their own capabilities and leverage those instead of trying to copy other companies’ capabilities. What is interesting to me about this particularly is that there is a whole cottage industry out there about identifying what separates great companies and then trying to copy them. And we’ve published a few articles that could be maybe interpreted that way. I know a lot of consulting firms sort of work that way. So explain why sometimes these best practices don’t always translate, and how maybe companies can improve but without falling into the trap here.

PAUL LEINWAND: Well, this is a really important topic, because I think as human beings we are always looking somewhere else for ideas. And we’re wondering, are we doing good enough? Are there ideas out there that we should be following?

And really this whole idea of benchmarks and best-in-class processes is in many ways a really nice concept to figure out what is working well in other companies. The challenge is that if we all followed benchmarks, we would all be the same. No one would be differentiated.

And it’s impossible from a capability perspective– think about the average company and the number of capabilities they have to manage. Maybe it’s 30, 40, 50. We can’t possibly be great at everything. We have to be choiceful. And we have to make the decisions about what’s going to matter for my strategy given my portfolio, given my promise to customers in terms of the value I’m going to create.

So the land of benchmarking and benchmarks have their place, if you understand your strategy. What we often find and what we hear from executives is that sometimes the lack of strategy opens up the door more to looking at what my competitors are doing. But if I have a clear path and I’m convinced it’s the right path and I’ve got the capabilities required, I’m focused in the areas that matter. I’m less interested in necessarily copying everyone. Of course, I want to be looking at what’s going in the market. I want to be seeing great innovation. But I have my own path.

SARAH GREEN CARMICHAEL: I don’t want to pick on a particular company here, but at the same time, things come to mind like Six Sigma or Kaizen or some of these sort of management trends that we’ve heard over the years that have become enormously popular, and then later on, critics sort of come and say, well, that really only worked at the company that developed them. They didn’t really translate. Is that the kind of thing that you’re talking about, or are you sort of talking about a different kind of capability not being entirely transportable?

PAUL LEINWAND: Well, the capabilities that really help set companies apart are connected to their mission. We often think of Apple and we see these amazingly well-designed products, and we think, this is just an amazing amount of genius that went into this. And there certainly was quite a bit of genius. But there were meaningful differentiated capabilities.

I mean, the design itself comes back the idea that this company was hiring fashion designers. Not every high-tech company was doing that. That’s a differentiated capability. Ikea, in terms of its supply chain– very, very different than how other retailers think about moving merchandise, and designing merchandise with cost in mind.

Think about a company out of China, Haier, and the fact that they customize all of their products for particular uses. And they’ve now got the number one market share in white goods. And so these differentiated capabilities are very specific.

I think a lot of the classic processes, those are now table stakes. You’ve got to get good at costs. You’ve got to have Six Sigma. But the differentiated capabilities are usually things that are very specific to you, specific to your strategy.

SARAH GREEN CARMICHAEL: I see what you’re saying, yeah. So how do you know, I guess in that case– maybe just to keep going with the Apple one and design, how do you know if you are either being sort of smart and mindful and saying, that’s not who we are, that’s not a core capability, we’re not going to chase it, versus using it as a crutch? If you’re also making laptops or phones, it might be sort of a crutch to say, well, our phones are just ugly and that’s who we are, we’re not going to compete with Apple, versus trying to actually learn from a competitor what the market wants, and then retool a little bit so you’re not wasting resources, but so that you’re not sort of lagging behind in a way that’s ultimately harmful.

PAUL LEINWAND: Well, what’s really important in the discussion about capabilities– and capabilities are the glue between strategy and execution, right? They help you differentiate in the market, but they’re also what you do every day to win. And the discussion about capabilities gets very complex in companies. And the reason why often people struggle to close this gap is they aren’t investing in the 30, 40, 50. And it’s often driven from functional leaders that, with great intentions, are trying to create great things in their function.

But the company itself doesn’t always have the vision of the three, four, five, six things that is has to do better than anyone else. And we separate capabilities into different groups. We think of differentiated capabilities as those few things that enable your promise to the market. They help realize that aspiration.

There’s a lot of table-stakes capabilities. Companies have got to likely have some sort of selling force and they’ve got to do some marketing, but these things don’t necessarily have to be better than where the market is. And you want to think about your spending. This is why cost is so important. Just because strategy and execution are thought of different topics, strategy and cost are often way too separated in most organizations. And cost is actually where you have your precious investments to invest in these few differentiated capabilities. And often, again, companies are spreading their limited cash across way too many priorities.

SARAH GREEN CARMICHAEL: So pivoting now slightly, I wanted to ask you, one of the other sort of tent-pole ideas of the book is around culture. And I have seen a lot of articles and pitches cross my desk recently about changing corporate cultures. But you argue that actually the companies you studied that get this right, they actually put their culture to work. They don’t spend a lot of time struggling to change it. Tell me a little bit about how these companies do that.

PAUL LEINWAND: I think in the research, Cesare and I were always amazed at how important culture was to the 14 companies in this book. They really describe culture as a huge advantage. And in many ways it’s what enables those capabilities to work cross-functionally.

Building some of these amazing capabilities, they don’t fit typically in just the marketing function or the sales function. Think about that design capability of Apple. I mean, that is a very complex capability, and it’s got to impact every single product that goes to market. It’s culture that often allows this stuff to happen.

And what companies talked about in this book is not fighting the culture. There’s always behaviors you may not like. There’s always attributes you might say, well, wouldn’t we be better off without them? But instead of fighting those, what these companies say is, we focus on the ones that help our strategy. We make them bigger. We spread them across the company. We make sure everyone understands the value of those cultural attributes. And so that’s a very different way than, as you describe, most companies trying to sort of fight or change the things they don’t like.

SARAH GREEN CARMICHAEL: And it’s interesting, too, because obviously there can be negative aspects to a company culture, but it seems like in some ways, what I hear you sort of saying is you kind of go with what you got. And you can redirect a little, but you can’t suddenly take a culture that’s very risk averse and turn it around and make it into a bunch of risk takers.

PAUL LEINWAND: One of the individuals that worked with us for a long time, John Katzenbach, and continues to do so, really introduced this concept of the critical few in culture. And all of his research pointed to the fact that you could find these critical few behaviors that really matter to the company’s strategy. You could find a critical few individuals that could begin to actually articulate and express how those behaviors and attributes mattered, and really begin to spread the things that are positive, and really focusing on these attributes.

And many cultural behaviors actually have two sides to them. Think about what we often hear in companies as, well, we make slow decisions. We really want to get everyone together. We want to have everyone aligned. That can be a bad thing in terms of speed, but it can be a wonderful thing in terms of how we really value the customer relationship and doing the right thing. And so working on the positive side of these behaviors, getting those critical few identified, and the people that can support you, those amazing examples of what the good culture should be and highlighting them really can provide that entire message to the company about where the culture should go.

SARAH GREEN CARMICHAEL: So I just want to know, is there anything else that you think that we can’t end today without explaining this xyz factor of how strategy and execution can get a little closer together?

PAUL LEINWAND: Well, there’s no question that a very important topic, and it’s on the minds of so many executives today, is change. And what we learned in the research is that these companies, instead of trying to chase change and being worried about being agile in every dimension, they’re trying to shape their own future. They’re trying to get in front of change. They’re trying to think about how their industries are going to evolve.

They’re getting so close to their customers, like the Genius Bar of Apple, or how Ikea store managers visit people in their homes, to understand not just what customers or consumers are saying, but their very basic ways of living their life and getting in front of where they’re headed. And so that’s an incredibly important point, because when we connect strategy to execution, we want to make sure that the identity of the company, the strategy, isn’t going to change wholesale. It’s a little bit like Jeff Bezos said, that he often get questions about what’s going to change. He often doesn’t get the question, what’s not going to change? And the latter is likely the more important question.

We’re so worried about disruption. We’re so worried about change. And those are very important topics, but we can’t lose sight of what gives us an advantage. Because without an advantage, we’re up against too much when change comes. If at least we’ve got the advantage, we have the best possible shot at managing change.

SARAH GREEN CARMICHAEL: Well, that is a fantastic way to end, I think. Paul, thank you so much.

PAUL LEINWAND: Thank you.

SARAH GREEN CARMICHAEL: That was Paul Leinwand, and the book is “Strategy that Works.” For more, visit hbr.org.