Almost half of all strategic initiatives fail, according to the Harvard Business School. Leaders and organizations need a system of prioritization to sort through the possibilities. This article will consider three ways to align opportunities with business goals and value creation a/k/a “strategic initiatives”, to make the most of limited time and resources.
Leaders must be able to identify the projects most likely to bring the growth opportunities in the short, medium, and long term, since organizations can’t pursue everything. There are only so many eggs to put in different baskets. Prioritization is essential to maximize the benefits of strategic initiatives.
Before undertaking any strategic initiatives, make sure they align with the organization’s mission and value proposition, says the Harvard Business School. Without alignment, leaders risk diluting their resources or missing opportunities that are better suited to the organization. Yet it’s all too easy to omit this step in the excitement of the moment.
Next, ask leaders to identify each business unit’s goals and strategies. This is intended “to get business unit leaders on the same page” and address misunderstandings. Once leaders reach consensus, ask what things need to change (““change needs”) to reach the organization’s goals, according to another Harvard Business Review article.
Just like “change orders” when building a house, these “change needs” remedy and supplement original strategic weaknesses in the blueprint, which “signal innovation opportunities” the author writes. This process allows only projects that align with the organization’s purpose and address its change needs to move forward.
Another way to prioritize is to consider each strategic initiative’s potential return on investment (ROI). The Harvard Business School advises, “Think not only from a financial standpoint but also in terms of effort and associated risk.” The bottomline question, according to the author, is the strategic initiative “worth it”?
The standard approach is simply to measure risk against reward. A better approach is to ask, how are we measuring risk and reward? Answering that question requires leaders to think through their key performance indicators (KPI), which too often fail to consider all stakeholders.
“Organizations operate in environments defined by their key stakeholders,” according to the Harvard Business Review. The author states that “an organization is only as strong as [the] weakest link in its group of key stakeholders.” And that “measuring performance is measuring relationships.” (Emphasis added.)
Unless the organization pays attention to its key relationships, it risks underperforming, losing its competitive advantage, and losing customers. Leaders need to make sure their KPIs reflect all affected parties: customers, suppliers, employees, and potentially others as well. Each organization has its own unique group of stakeholders. ROI cannot be estimated if key relationships are missing from the KPIs.
A final way to prioritize strategic initiatives is to estimate their ability to create value for the organization.
The value stick. Value creation can be measured by using what Felix Oberholzer-Gee of the Harvard Business School calls the “value stick.” At the top of the value stick is “Willingness to Pay” (WTP), the highest price customers will pay for a product or service. At the bottom of the value stick is “Willingness to Sell” (WTS), the lowest price at which suppliers and employees are willing to provide goods and services.
The highest price (WTP) and lowest cost (WTS) are ideal cases. The difference between the actual cost and the actual price sets the organization’s margin – the value it can capture. Oberholzer-Gee advocates what he calls a “value based strategy” to maximize the margin and prioritize strategic initiatives.
Value drivers. Oberholzer-Gee argues that a strategic initiative is not worth pursuing unless it drives value by doing one of the following:
– Create customer value: Creating customer value increases WTP by providing more innovative products and services and improving customer experience. Apple products are a prime example of the principle.
– Create employee value: Creating employee value makes work more attractive, which allows employers to pay lower wages, according to the author. But he acknowledges that employee satisfaction (ESAT) contributes to higher productivity, which also increases value creation. Organizations should be wary of treating wages as a zero sum game. Both monetary rewards and intrinsic motivation contribute to ESAT and value creation.
– Create supplier value: Creating supplier value means lowering supplier costs so that the WTS price point goes down. Increasing sales volume is one way to lower supplier costs, as is increasing operational efficiency. The author gives the examples of (1) Best Buy creating “stores within stores” to feature selected brands, and (2) Nike helping suppliers lower costs by teaching “lean production” methods.
Prioritizing strategic initiatives requires leaders to consider their unique positions and needs. Even though there is no “one size fits all” solution, keeping the organization’s purpose, relationships, and value drivers in mind will provide a solid foundation for decision making. Each of the above approaches captures a part of the equation; in combination they can guide decision making.
If you would like to see TEP’s customized prioritization of strategic initiatives, please contact us.
Copyright ©️2025 by Dr. Vic Porak de Varna. All rights reserved.
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