How Middle Market Companies Map Their Growth Strategy Futures
The Importance of Strategy
Strategy is one of the most powerful drivers of growth for
middle market companies. While some types of strategies
are associated with faster revenue growth than others—
exploiting marketplace opportunities is more lucrative than
maximizing efficiencies, for example—the National Center
for the Middle Market wanted to understand how the strategy
process contributes to growth for middle market firms. By
looking at attitudes toward strategy, approaches to strategic
planning, the challenges companies face in developing and
executing strategy, and what the best performing companies
do differently in the strategy arena, we uncovered three critical
components of strategy—definition, development process,
and execution—that work together to enable companies
to more rapidly realize their corporate objectives and growth
goals. The purpose of this analysis is to provide middle market
leaders with an in-depth understanding of what strategy
practices are most effective for companies of their size.
Recognizing that planning processes that work for large
companies might not be practical or relevant, we looked for
insights among top-performing middle market companies
and sought to develop guidelines executives can use to direct
the strategy process in their own organizations.
EXECUTIVE SUMMARY
Strategy helps companies define where to compete, what
resources they need, and what priorities they set; it guides their
choices about what to do (and not to do) to achieve their aims.
For three out of five middle market companies (60%),
maximizing revenue growth is the primary strategic objective.
Whether middle market companies wish to grow, improve
sustainability or profitability, prep the company for sale, or
pursue some other ultimate objective, strategy is imperative.
Without it, a company can be blown by winds or moved by
tides. With it, a business can harness those forces and its own
resources to move toward a goal it has chosen.
Indeed, in The DNA of Middle Market Growth, the Center’s
recent comprehensive analysis of data from 20,000 middle
market companies, we learned that a formal growth strategy
is second only to market expansion as a driver of growth for
the middle market overall. It accounts for nearly 15% of the
growth of the average middle market company and is the
number one driver of growth for companies we called “Efficiency
Experts,” which seek to grow by virtue of the leanness of their
operations. In other words, sustained growth is not possible
without a strategy to define and direct the investments and
activities that create the growth.
We therefore decided to analyze the strategy factor more deeply,
to discover the elements of superior strategic planning and how
they contribute to company growth. In doing so, we found that
strategic excellence is a three-legged stool: the strategy itself,
the process by which it is developed, and the programs that
ensure that it is executed:
FIRST, COMPANIES MUST BE ABLE TO DEFINE
AND EASILY ARTICULATE THEIR STRATEGIES.
The strategy should clearly describe the basic elements of where
the company competes, what it sells, how it wins and defends
markets, and how it sets itself apart from the competition. The
more succinct the strategy statement is, the easier it will be to
internalize for all stakeholders—employees who play a role in
carrying it out, as well as the customers, suppliers, and partners
who must ultimately buy into the strategy in order for the
company to succeed.
SECOND, COMPANIES NEED A PROCESS FOR
DEVELOPING STRATEGY THAT IS BOTH ROBUST
AND INCLUSIVE.
The formality of the process—how well it’s documented or
how many rules govern it—matters much less than three other
factors. One is the extent to which executives know and react
to market and industry trends and conditions. Second is how
much executives seek out ideas from across and throughout
the organization. The third is their knowledge of thinking on
strategy and management.
Third, companies require the ability to execute strategy by engaging the entire company in the process.
Companies can’t just plan on success. They must be able
to execute against their defined path for growth. Successful
execution success relies heavily on how well companies
communicate strategy and translate it into specific targets,
plans, budgets, and incentives.
The fastest-growing middle market firms set themselves apart
on all three elements of strategy—and on the degree to which
the elements work together. In this report, we document the
best-in-class strategy practices of these high-performance firms
and reveal the connections between the three components
of effective strategy. We also provide a set of questions that
companies at all levels can use to build, refine, and improve
their strategy efforts and thus help further their growth goals.
KEY FINDINGS
A WELL-DEFINED STRATEGY LEADS TO FASTER GROWTH. BUT NEARLY TWO OUT OF FIVE MIDDLE
MARKET BUSINESSES LACK A CLEARLY DEFINED STRATEGY TO GUIDE BUSINESS DECISIONS.
Companies with well-defined strategies report year-over-year revenue growth that is 26% higher than the growth
of companies with less-defined strategies. When these companies can articulate the value they offer, they grow
even faster—twice as fast as companies that can’t speak to their value proposition. Yet, more than a third of middle
market companies operate without a well-defined overarching business strategy.
A WELL-DEFINED STRATEGY INCLUDES A CLEAR-EYED ASSESSMENT OF THE CAPABILITIES
AND RESOURCES NEEDED TO CARRY IT OUT.
Defining strategy helps companies better understand what they need to do to achieve their goals, including
assigning or finding resources to address any issues that may stand in the way of success. Companies that
understand the obstacles they must surmount are more confident that their strategy will lead to success.
THE STRATEGY DEVELOPMENT PROCESS DOES NOT NEED TO BE FORMAL. IT DOES NEED
TO BE INCLUSIVE AND RIGOROUS.
Middle market companies are justifiably leery about overburdening lean organizations with complex processes.
High-growth companies do not necessarily employ an elaborate strategic planning process with written rules and
guidelines. They do have a strategy development team. They invite input from outside sources and from employees
at all levels of the organization, they ensure that there is an opportunity for management’s assumptions and plans
to be questioned, and they make an effort to stay current on strategy management thinking, industry trends, and
best practices.
STRATEGY EXECUTION RELIES ON HOW WELL A COMPANY DEFINES AND DEVELOPS ITS STRATEGY.
Companies that invest in clearly defining their strategies and that have an established and inclusive strategy
development process are much more successful at delivering on the strategies they develop. In these companies,
strategy execution is much more likely to meet the expectations of company leaders.
COMPANIES THAT ARE MOST SATISFIED WITH EXECUTION ALIGN GOALS, KEY PERFORMANCE
INDICATORS, AND INCENTIVES WITH STRATEGY AND KEEP EMPLOYEES AT ALL LEVELS
CONNECTED TO THE PLAN.
Satisfaction with strategy execution is much higher when all activities align with the strategy. This includes
investments, budgeting, and other big-picture topics. It also ties in day-to-day operations and talent management.
Strategy is not one-and-done; it is part of daily work.
A Well-Defined Strategy Drives Growth
All companies—and middle market companies in particular—
have finite resources. While it’s true that some companies can
thrive, at least for a time, on their ability to turn on a dime and
seize whatever opportunities come their way, at some point,
improvisation has to yield to planning. Companies need to
make choices and tradeoffs about their offerings, markets,
and customers so they can create a competitive advantage—
something they do better than anyone else—and pinpoint the
markets where they have the right to win.
Only this way can companies target their best opportunities
for profitable growth and focus their efforts and activities on
shared objectives for maximizing those opportunities. They
can create barriers to entry that give them the ability to defend
the business they’ve seized. Strategy becomes necessary for
ensuring that companies do more than grow fast, but that they
also grow profitability and efficiently, and ultimately evolve
into what their leaders envision. Simply put, when agility is not
enough, strategy steps in. See the company spotlight (pg. 10)
on Incept for a case in point.
Having a Clear Strategy is Highly Valuable
The 62% of middle market companies that say they have a
well-defined strategy enjoy a year-over-year growth rate of
8.6%, much above the 6.8% growth rate reported by those that
are less purposeful and specific about their business direction.
These companies are also better able to clearly articulate their
value proposition: Among those with a well-defined strategy,
76% can speak to how they add value, compared to just 26%
of companies with a less-defined strategy. That group—those
with a well-defined strategy plus a clear value proposition—
grows even faster: This subset boasts an annual revenue growth
rate of 9.3%, which is 50% higher than peers not able to easily
communicate the value they offer.
Interestingly, those value propositions tend to have broad or fairly
extensive appeal to all or many potential groups of customers.
This is somewhat counterintuitive. Experts often propose that
niche strategies will be more effective than strategies that aim
to include everyone: In other words, don’t try to be Amazon,
selling everything from A to Z. The data, however, suggest that
broad appeal works, so long as the strategy is clearly defined and
the value can be communicated. The numbers reveal that it is
important to identify and define the market, customer set, or area
you want to serve, and then serve those people with a broadly
valuable set of offerings.
A Well-Defined Strategy Leads to a Well-Built Plan
Good strategies are realistic. They consider the challenges a
company faces as well as the resources it has at its disposal
to surmount those challenges. By laying out a feasible plan
of attack, good strategy breeds greater confidence. Indeed,
companies that are good at defining their strategies appear
to have a much better grasp on the hurdles they face going
forward, and they are much more likely to have a plan in place
for tackling those challenges. Only a quarter of companies
with less-defined strategies feel the same.
It follows, then, that companies with well-defined strategies are
also more confident. They are more likely to believe that their
strategy will lead to success, that it clearly indicates how they
create value for customers, and that it leverages their company
strengths and differentiates the business from competitors.
It is interesting to note that across the middle market, about
a quarter of executives do not feel confident in the ultimate
success of their strategies, and the percentage is much higher
among companies with ill-defined strategies. This number is
surprisingly high, considering the executives probably had a hand
in helping to create the strategies in which they lack confidence.
Different Strategic Priorities Produce Different Growth Rates
The research demonstrates that a well-defined strategy
drives growth, regardless of the content or priorities of the
strategy. That said, some strategic plans will result in faster
growth than others.
Broadly speaking, middle market executives ground their strategy in one of four areas: seeking favorable market positions; building and deploying capabilities; acting and reacting with superior agility; and leveraging operational excellence. Companies that see positional advantage grow fastest, on average. Leveraging operational excellence is the most common choice. However, companies that prioritize efficiency above identifying
and taking advantage of new marketplace opportunities tend
to grow more slowly than companies that do the opposite and
put opportunity first.
For the most part, the literature of strategy argues that
operational excellence is not technically strategy because
it does not create competitive advantage by itself (see, e.g.,
Michael E. Porter, "What is Strategy"1), and that companies
should position themselves to seize and develop relatively
unexploited market opportunities (see, e.g., Chan Kim and
Renee Mauborgne, "Blue Ocean Strategy"2). Indeed, the
Center’s The DNA of Middle Market Growth study shows that
the growth opportunities created by operational superiority
are not as great as those created by innovation and investment
in new offerings and markets.
While this holds true for the best-of-the-best middle market
companies, positional and agility strategies are not always
the easiest strategies for companies to master.
Indeed, across the middle market, executives say they are
much more effective at developing and taking advantage of
company strengths than they are at other strategic priorities.
This is not necessarily a bad thing. A brilliant strategy poorly
executed may be less valuable in the long run than a good
strategy delivered superbly.
1 https://hbr.org/1996/11/what-is-strategy
2 https://hbr.org/2004/10/blue-ocean-strategy
Companies without defined strategy may be failing to capitalize on their full growth potential.
Nearly two out of five middle market businesses currently
operate without a well-defined strategy to guide business
decisions. While only a nominal percentage say they
don’t have a strategy at all, a third of middle market
companies operate under some loose assumptions
related to the company’s direction. But nothing is set
down to give leaders solid guidance upon which to
gauge choices and tradeoffs.
Often, these companies operate in less competitive
or slower-changing marketplaces where a clear-cut
competitive advantage may not be as important as it is
when competition is stiff and the landscape is changing
rapidly. Some companies may also still be in the process
of establishing their direction.
In general, middle market businesses that lack clear strategy are:
- Doing business in slower-changing, less
competitive industries where less differentiation
exists between companies.
- More likely to operate just one versus multiple lines
of business.
- Smaller, with less than $100 million in annual revenues.
- Less likely to have private equity ownership and more
likely to be family-owned.
- More likely to be in construction or manufacturing.
However, lack of strategy can be costly. Businesses that do not have clear direction:
- Grow slower in terms of both revenue and employment.
- Are less satisfied with strategy execution and less confident their strategy will lead to success.
- Less likely to have a relevant value proposition that they can clearly articulate.
- Have less of a grasp on the challenges they face and the resources needed to tackle those challenges.
Company Spotlight
Incept: From Rapid Expansion to Focused Growth
When Incept, a multi-channel contact center, opened its doors
25 years ago, the five-person team decided to start big. One of
the founders was lucky enough to land Microsoft at a tradeshow,
and the business was off and running. The call center quickly
grew to 200 people. For the first 10 years, it bounced between
major “whales” including Ford, Honda, and Monster.com.
“Starting off with such huge accounts really blew any idea of
strategy out of the water,” says CEO Sam Falletta. “We’d get
a major deal. Then we would focus on what we did, not who
we are. There was enough meat to justify that approach.”
While exciting, the process of changing from one major
customer to another every couple of years was also exhausting.
“It whipped the whole organization around and didn’t feel very
sustainable,” says Falletta.
Several things happened to cause the company’s leaders
to rethink their approach. Do Not Call legislation and the
international outsourcing boom changed the game for the
entire industry, causing many U.S. based call centers to
close their doors. Stumbling into a new, underserved market
changed things for the Incept team.
“Through a referral, we started working with a regional
blood center,” explains Falletta. “We found that the blood
donation industry, an industry that provides an essential
service to people in need in the community, was one we
could really be passionate about. Our people liked being
lifesavers and not just telemarketers.”
The company’s leaders realized this newfound direction fit nicely
into Jim Collins’ Hedgehog Concept: finding the intersection
between your passion, what you can do better than anyone else,
and what drives your economic engine.
“It was like we woke up one day and realized we’re now doing
strategy,” Falletta says. For the first time, Incept could clearly
articulate the market it would serve—and the markets it would
not. “We decided to go all in and fundamentally shift our
approach from grabbing any major prospect to focusing on
this specific industry.”
Over the years, the company has honed its strategy and made
a commitment to continually working on the business. Incept
now has three KPIs (market share, employee turnover, and gross
margin), which serve as indices of its three strategic pillars:
1. Customer Satisfaction
How well the company does at gaining new accounts and retaining existing ones,
2. Employee Engagement
The ability to retain employees in an industry that’s notorious
for high-turnover, thus limiting the time and money spent on
finding and training new people, and
Operating Efficiency
Which reduces costs and waste and allows the company to
retain a greater percentage of every dollar earned
Every year, the leadership team chooses three different focuses
or themes within each of its key metrics and engages the entire
company in projects around the themes. Projects are then
reviewed and refined every 90 days, and employees are kept
up to date through weekly town hall meetings.
The focus on strategy has enabled much more stable, profitable
growth for the business and has helped Incept find ways to
cut employee turnover in half. Perhaps most important, it has
given the business’s leaders a way to assess opportunities and
make choices.
“We now know what opportunities we want to pursue and what
we’ll accept if it comes to us. And we know what we’ll say ‘no’
to, what we don’t have the time or energy to pursue, or what will
distract us from what we truly want to be,” says Falletta. “As they
say, strategy is a choice.”
Self-Assessment
8 Questions to Ask About the Strategy Itself
1. CAN WE CLEARLY AND CONCISELY STATE WHAT
OUR STRATEGY IS?
At a minimum, a strategy must answer three questions:
What are we trying to do? What do we sell and where do
we play? How do we win? Don’t confuse strategy with goals:
“Grow 8% next year” is not a strategy.
2. DOES OUR STRATEGY LEVERAGE THE SAME SET
OF CAPABILITIES ACROSS ALL LINES OF BUSINESS?
Companies that leverage the same capabilities across almost
all of their portfolio are 25% more likely to be fast growers
than companies for which this is only somewhat true.
3. HAVE WE STAKED OUT A UNIQUE VALUE
PROPOSITION AND IDENTIFIED THE CUSTOMERS
FOR WHICH IT IS HIGHLY RELEVANT?
4. IS OUR STRATEGY AMBITIOUS, OR DOES IT ALLOW
US TO COAST?
5. HAVE WE DEVELOPED A TAILORED VALUE CHAIN?
Have you developed a tailored value chain? This element
of strategy is not intuitive; but it’s absolutely essential
and part of what separates real strategy from more than
just good marketing. To establish a competitive advantage,
a company must deliver its distinctive value through
a distinctive value chain, or a unique configuration of
activities that best delivers the value. It must perform
different activities than rivals, or perform similar activities
in different ways, in order to achieve better performance
than its peers.
6. DOES OUR STRATEGY EXPRESS A CLEAR
UNDERSTANDING OF THE RESOURCES (CAPITAL,
INTELLECTUAL CAPITAL, AND OTHER) THAT WE
POSSESS AND NEED, AND SET PRIORITIES FOR
INVESTMENT, RESOURCE ALLOCATION, AND HIRING?
Do these core choices provide sufficient guidance
to decision makers?
7. DOES OUR STRATEGY TAKE INTO ACCOUNT
COMPETITOR ACTION AND REACTION?
A surprisingly large number of companies formulate strategy
without considering that their rivals have plans of their own—
and might also counterattack.3 Just over a quarter—26%—say
they take full account of the competition. Their average growth
rate is 10.5%, vs 7.0% for those who only somewhat consider
competition or don’t consider it at all.
8. DOES OUR STRATEGY HELP US SAY "NO"?
“Strategy is choice,” the saying goes. Middle market companies
in particular must guard against spreading time and money
over too many strategic initiatives. A strong strategy is explicit
about what is not to be done.
3Kevin Coyne and John Horn, "Predicting Your Competitor's Reaction,"Harvard Business Review, April 2009
Strategy Development Should Include
Input from Many Sources
How well a strategy is defined (or not defined) impacts growth. So does the actual process of defining that
strategy. Interestingly, it is not how formal or informal the process is; rather, it’s who and what contribute
to the process and the inputs that are factored in that appear to have a connection with growth rate.
STRATEGIC PLANNING NEED NOT BE
A Complicated PROCESS
Generally speaking, most middle market firms have a strategy
development process that’s not too formal or too informal.
They document some aspects of the process. Fewer than a
third of companies rely on highly formalized written rules and
guidelines to govern the development of strategy. Companies
typically address strategy on an annual basis. They plan out
one to two years each time they meet.
Not surprisingly, larger middle market companies are more
likely than their smaller siblings to have more formal strategy
development processes. Probably this is because they are also more likely to need to coordinate strategy across multiple lines of business and geographies.
The formality of the strategy development process does not
seem to have a significant impact on growth rate one way or
the other. Regardless of company size or how detailed the
strategy planning calendar is, the important thing is to take
time to work ON the business and not just IN the business.
Even a skeletal strategic planning process will help companies
focus resources on the opportunities that have the greatest
potential to deliver growth and avoid wild-goose chases.
Include the Right Inputs—Both Internal and External
Fast-growing firms adopt a strategy development process
that collects ideas and information from many sources,
ranging from management and employee perspectives
to customer and competitor actions. Four practices are
especially common among fast-growing firms (companies
with year-over-year revenue growth of 10% or more):
1. ESTABLISHING A DESIGNATED STRATEGY
PLANNING TEAM.
A little more than half (55%) of middle market firms of all sizes
say they have formal strategy planning team in place. This team
most often includes the CEO, CFO, business unit heads, and
operations leaders. Sometimes the heads of marketing and
sales and HR leaders are also included. Rarely do mid-sized
companies involve outside advisors as part of this team.
Looking at fast-growing businesses, 62% say they have this team
in place compared to just 50% of slower-growing businesses.
2. INVITING INPUT FROM ALL EMPLOYEES,
NOT JUST MANAGEMENT.
Most often in the middle market, strategy development is
spearheaded by a few top executives. That doesn't mean
they act in isolation. The formal strategy development team
may be heavily stacked with senior-level leaders; however,
employees are often invited to contribute ideas or critique
those of executives.
Companies that have processes for including input and
challenges from employees at all levels of the organization
are significantly more confident that their strategies will lead
to success. And they are right. Among the fastest-growing firms,
70% have processes in place to allow bottom-up ideas to reach
management compared to 55% of slower-growing organizations.
Six out of 10 of the fast growers have defined specific steps for
challenging management assumptions, compared to 42% of
slower-growing organizations. In other words, the fast growers
are nearly 50% more likely than slower-growing companies to
encourage the bottom to challenge the top.
3. CONSULTING A VARIETY OF OUTSIDE SOURCES
OF INFORMATION.
When developing strategy, middle market leaders consider
a range of inputs, including customers’ needs, the overall
economy, and competitors’ actions. In general, fast-growing
companies place greater importance on all of the various inputs
than their slower growing peers, and high-growth firms are most
concerned with keeping tabs on customers’ needs and industry
trends. Regardless of growth rate, the inputs companies consider
to be most important are also the most challenging to identify.
However, fast growers find it somewhat easier to keep the pulse
of critical factors that impact strategy.
4. KEEPING UP WITH MANAGEMENT THINKING.
Fast-growing companies set themselves apart by more
rigorously staying on top of the latest in the fields of strategy
and management. In particular, leaders from fast-growing
companies are more likely to consult periodicals and books on
strategy management and strategy process, and they spend
more time reading the business press. This provides theory and
context executives can use to shape the insights they gain from
employees and external sources and turn them into ideas and
plans for success. We uncovered the same insight in The DNA
of Middle Market Growth report: Keeping up to date with the
latest management techniques is an important subfactor within
the formal growth strategy growth driver.
Self-Assessment
7 Questions to Ask About the Strategic Planning Process
1. Do we have a well-defined strategic planning process?
One in six middle market companies has little or no formal
strategy process—but just one in nine fast growers does.
A $15MM company will not fill black binders with slides and
analytics and consultants’ reports. But even smaller companies
gain from some structure. Indeed, small companies can benefit
particularly because devoting time and energy to strategy
helps the team understand how to focus its attention. The
data support the point: Among middle market firms with
less than $50 million in annual revenue, those with a highly
or somewhat formalized strategy have an average annual
growth rate of 9.5% compared to a 5.5% growth rate for
companies that have a mostly informal strategy.
2. ARE PEOPLE SPECIFICALLY ASSIGNED TO A TEAM
WITH STRATEGIC RESPONSIBILITY?
Having a team is important—62% of high-growth firms have
a formal team charged with the development of strategy
compared to just 50% of businesses that grow more slowly.
3. DOES OUR STRATEGY TAKE ACCOUNT OF
ECONOMIC, INDUSTRY, AND OTHER TRENDS?
Companies whose strategy process is informed by analysis
of outside forces outperform others.
4. DOES OUR PROCESS SEEK BOTTOM-UP INPUT?
Those companies that allow employees at all level to
weigh in on strategy grow faster than those that don’t.
They are also nearly twice as likely to be satisfied with
their strategies overall and to be confident that those
strategies will lead to success.
5. DOES OUR PROCESS INCLUDE SPECIFIC
WAYS TO CHALLENGE MANAGEMENT’S IDEAS
AND ASSUMPTIONS?
When management puts its ideas out to be challenged
and tested, 60% say they are confident that the resulting
strategy will succeed. By contrast, only 14% of executives
in companies where ideas go unchallenged are confident
of success—and these doubtful people are the very leaders
who formulated the strategy!
6. DO WE REVIEW OUR STRATEGY REGULARLY?
Customers, costs, and competitors change, so strategy
needs to evolve. Yet strategy should not be a telltale,
changing with every shift in the wind.
7. ARE WE KEEPING UP WITH THE BEST IDEAS
ABOUT STRATEGY AND MANAGEMENT?
When executives stay current with management thinking
and business news, they produce better strategies.
Successful Strategy Execution Requires
a Disciplined, Comprehensive Approach
No matter how inclusive or buttoned up the strategy
development process is, or how sound or well-defined the
strategy itself, even the best laid plans can go wrong if they
are not executed properly. Indeed, about a third of middle
market companies find the various components of strategy
execution (obtaining financial resources, translating strategy
into goals, communicating strategy, and overcoming resistance)
to be highly challenging. Costs or limited funding are the
primary constraints for the typical middle market company.
For fast-growers, however, human capital—finding the
bandwidth and finding the talent—is a greater constraint.
Interestingly, companies with a well-defined strategy and those
with a less well-defined strategy are equally likely to report
execution challenges. However, having a well-defined strategy
does lead to much higher levels of satisfaction with execution
overall. Presumably this is because those with well-defined
strategies are able to define their obstacles more precisely—
and plan ways around them. Among those companies that
say their strategy is well-defined, 70% are very or extremely
satisfied with execution; just 35%—half as many—companies
with less-well-defined strategies say the same.
A robust strategy development process that includes ideas from
employees at all levels is also strongly correlated to satisfaction
with execution. Among companies that allow bottom-up ideas
to reach management, 67% are highly satisfied with execution,
compared to just 41% of companies that do not take employees’
ideas into account.
The takeaway: Work that goes into defining and developing
strategy translates into better execution. All of the elements
(strategy definition, strategy development, and strategy
execution) are mutually reinforcing. We can surmise that even
if the perfect strategy were to be somehow dropped on your
desk, it would be less likely to produce results in execution
than a less-perfect strategy that is well defined and developed
through an inclusive process.
As General George S. Patton said, “Good tactics can save
a bad strategy. Bad tactics will destroy even the best strategy.”
The elements of execution—aligning budgets, key performance
indicators (KPIs), and talent management to strategy—will
provide feedback that will make strategy development stronger
and better informed. Indeed, strategy development, planning,
and execution can be a virtuous circle.
ALIGNING STRATEGY WITH BUSINESS PROCESSES
Once a company’s strategy is defined and developed, bringing
it to life requires alignment between the strategy and all business
processes and functions. Clearly, financial decisions, investments,
and major initiatives need to tie back to the company’s overall
objectives. The goals and KPIs that govern day-to-day operations
should also be clearly linked to strategic vision. While companies
understand this, the power of strategy to direct day-to-day
operations weakens at lower levels of the hierarchy or more
granular levels of operational detail. There is also a significant
disconnect between company strategy and talent planning.
These weaknesses and disconnections tend to disappear
for the most successful companies and those that are most
satisfied with execution. These companies are significantly
more likely than their peers to ensure strategy is infused into
every aspect of the business. This is particularly true when it
comes to innovation, technology planning, and human resources,
including hiring, compensation, and incentives and rewards.
STRATEGY EXECUTION REVIEW AND
EMPLOYEE ENGAGEMENT
Most middle market companies review strategy execution at
least quarterly. The more regularly they gauge progress, the
more satisfied they are with the results. As with the development
process, companies that report greater satisfaction with
execution keep employees engaged in the review process.
The better executers are more apt to give employees updates
on progress toward goals on an ongoing basis or at least
monthly. They hold more departmental meetings and host more
company-wide town halls. They provide specific feedback about
how employee performance contributes to strategic objectives.
Employees are more likely to have individual or departmental
KPIs that are specifically linked to corporate strategy.
STRATEGY EXECUTION AND GROWTH
Strategy execution satisfaction—and the many factors that
contribute to it, including linking strategy to business processes,
frequent reviews, and tying employee performance to strategic
KPIs—is clearly aligned with growth. Middle market companies
enjoying year-over-year revenue growth of 10% or more
have much more positive experiences in executing strategy.
They are significantly more likely than slower growing firms to
agree that they can translate strategy into action and that their
strategy is realistic and flexible enough to react to changing
marketplace conditions.
In addition, high-growth companies are more likely to believe
that all important stakeholders have a solid understanding
of their strategy. This may be because fast-growing firms are
more likely to prioritize communicating strategy with a wide
range of important audiences.
The Center uncovered similar findings in our Organizing for
Innovation in the Middle Market study: The best performers
engage more people in the process. The fact that highgrowth
firms also have a well-defined, easy-to-articulate
strategy probably factors into their satisfaction, too. The
more succinct and straightforward a strategy is, the easier
it is for all stakeholders to embrace and apply day to day.
Company Spotlight
Unified: Keeping Pace in a Rapidly Changing Industry
Companies that operate in fast-changing industries tend to
experience higher revenue growth. This may be because this
kind of environment lends itself to a strategy based on identifying
and exploiting marketplace opportunities and trends—a strategic
focus that appears to drive the fastest growth. It may also be that
turbulent industries tend to be fast-growing.
Either way, companies in rapidly changing marketplaces need
to be more nimble than their rivals. This doesn’t mean that
they hang on for dear life, like a bronco rider. To the contrary,
companies in fast-changing industries are more likely to have
well-defined strategy, to be able to articulate the value they
offer, and to include input from employees at all levels of the
organization in the strategy development process.
To be sure, these companies change their strategy more
frequently than peers on more placid ponies. But they don’t
go without a plan.
Unified, a seven-year-old New York City company, that provides
software and services to major brands and agencies to help them
manage and optimize their investments in social media advertising.
Peter Nesbitt, VP of Strategic Finance & Corporate Development,
says his organization reviews strategy every quarter.
“When we started it was like the wild, wild West,” he says. “The
founders of the company knew social media was going to be big,
that it would generate a lot of data, and it would create problems
for companies in how to manage that data.”
At the time of Unified’s founding, no one else in the industry
was doing what it did, so the startup was able to pitch blue-chip
Fortune 100 companies, a rare opportunity in the software space.
“The leaders knew this was needed now, by big companies. They
found white space and went after it full force,” Nesbitt reflects.
Of course, social media has grown and expanded over the
years. Today, major brands have VPs of Social and teams entirely
dedicated to managing social media. Unified has rolled with
those changes, adapting the strategy to fit a marketplace that is
simultaneously more lucrative and more crowded.
“The market’s caught up to us, and we’re ready for that,” Nesbitt
says. “Today we have a lot more conversations with customers
and potential customers who understand the social media space
better, and who know more what they want and need. We talk to
them about the features that they like and learn about how they
want to be approached and how software should be sold. That
input factors into our strategy and how we adjust the way we
go to market.”
Unified looks for strategy input internally as well. Employees
across the business have opportunities to share their insights
and everyone is empowered to speak directly to the CEO. The
company also makes it a priority, through monthly town hall
meetings, to ensure all employees understand the mission,
vision, and direction of the business and how they contribute,
which helps them make better day-to-day decisions to advance
the company’s strategic objectives.
Because it’s hard for a company to think long-term when
operating in such a fast-moving marketplace—every quarter,
there are new KPIs and new types of ad sets to consider in
the social advertising world—Unified finds it is very important
to maintain a point of view as to where the industry is going.
The company is not alone in this way of thinking. Amazon’s
CEO Jeff Bezos says, “It helps to base your strategy on things
that won’t change… I very rarely get asked ‘What’s not going
to change in the next five to ten years?’ At Amazon we’re
always trying to figure that out, because you can really spin
up flywheels around those things.”4
Unified builds its product and customer roadmaps around its
point of view. However, the leaders realize those maps may
need be tweaked along the way. “We understand that our
strategy is perpetually and incrementally evolving,” Nesbitt
says. “It’s a constant conversation and iterative process for us
with a feedback loop that brings in a variety of perspectives.”
By staying nimble, constantly soliciting feedback from multiple
sources, and investing the time and effort in keeping strategy up
to date, Unified is positioned to continue to grow along with its
industry and take quick advantage of teams new opportunities.
4 https://hbr.org/2007/10/the-institutional-yes
Self-Assessment
6 Questions to Ask About Executing
the Strategy
1. DO WE COMMUNICATE OUR STRATEGY FULLY
AND FREQUENTLY WITH EMPLOYEES?
Executives who live and breathe company strategy every day
often overestimate how well it is understood by employees
broadly. An annual meeting or occasional town hall is not
enough to ensure that employees understand your strategy.
2. IS OUR BUDGET PROCESS ALIGNED
WITH STRATEGY?
Particularly in large organizations, the budgeting process
might proceed by its own pace and logic, tying into strategy
only after the fact. Instead, budgets should be drafted after
a strategy it described.
3. HAVE WE TRANSLATED STRATEGY INTO ACTION
PLANS FOR EACH LINE OF BUSINESS AND FUNCTION?
Execution depends on translating aspirations into targets,
targets into initiatives, and initiatives into plans. Strategy
should shape the activities of all P&L line operations and also
functions like human resources and IT.
4. DO WE CREATE KEY PERFORMANCE INDICATORS TO
TRACK OUR PROGRESS TOWARD OUR GOALS?
Does what you measure align with your strategy? Are these
regularly reviewed at all levels of the organization? Are they
fairly consistent from year to year?
5. CAN EVERY EMPLOYEE SAY HOW HE OR SHE
CONTRIBUTES TO THE COMPANY’S STRATEGIC PLAN?
The day-to-day decisions of employees have enormous
collective impact on strategy execution.
6. DO INCENTIVES AND BONUSES SUPPORT
STRATEGIC GOALS?
The best strategy will be accelerated if incentives support
it and derailed if they run counter to it.5 Who gets praised
and promoted is at least as important as incentive programs
like bonuses.
5Steven Kerr, "On the Folly of Rewarding A, While Hoping for B,"Academy of Management Journal, vol. 18, no.4, December 1975
ABOUT THE REPORT
The U.S. Middle Market
The U.S. middle market comprises nearly 200,000 companies
that employ 44.5 million people and generate more than
$10 trillion in combined revenue annually. The middle market
is defined by companies with annual revenues between $10
million and $1 billion. In addition to their geographic and
industry diversity, these companies are both publicly and
privately held and include family-owned businesses, sole
proprietorships, and private equity-owned companies. While
the middle market represents approximately 3% of all U.S.
companies, it accounts for a third of U.S. private-sector GDP
and jobs. The U.S. middle market is the segment that drives
U.S. growth and competitiveness.
The Importance of Strategy
Strategy is one of the most powerful drivers of growth for
middle market companies. While some types of strategies
are associated with faster revenue growth than others—
exploiting marketplace opportunities is more lucrative than
maximizing efficiencies, for example—the National Center
for the Middle Market wanted to understand how the strategy
process contributes to growth for middle market firms. By
looking at attitudes toward strategy, approaches to strategic
planning, the challenges companies face in developing and
executing strategy, and what the best performing companies
do differently in the strategy arena, we uncovered three critical
components of strategy—definition, development process,
and execution—that work together to enable companies
to more rapidly realize their corporate objectives and growth
goals. The purpose of this analysis is to provide middle market
leaders with an in-depth understanding of what strategy
practices are most effective for companies of their size.
Recognizing that planning processes that work for large
companies might not be practical or relevant, we looked for
insights among top-performing middle market companies
and sought to develop guidelines executives can use to direct
the strategy process in their own organizations.
How the Research was Conducted
Building on findings from The DNA of Middle Market Growth
report published by the Center and its sponsors in summer
2018, the Center surveyed 400 active financial decision
makers from middle market businesses across a range of
industries and geographies to learn more about companies'
specific actions and attitudes around strategy. Respondents
completed a 25-minute, self-administered online survey
between August 16 and August 28, 2018.
Special thanks to our academic and business partners for their
contributions and support in developing this report: Michael
Leiblein, Associate Professor, Management & Human Resources,
The Ohio State University Fisher College of Business; Anne Petrik,
Director of Research, Vistage; and Nick Araco, Chairman and
Cofounder, The CFO Alliance.
The National Center for the Middle Market
The National Center for the Middle Market is a collaboration
between The Ohio State University’s Fisher College of Business,
SunTrust Banks Inc., Grant Thornton LLP, and Cisco Systems.
It exists for a single purpose: to ensure that the vitality and
robustness of middle market companies are fully realized as
fundamental to our nation’s economic outlook and prosperity.
The Center is the leading source of knowledge, leadership, and
innovative research on the middle market economy, providing
critical data analysis, insights, and perspectives for companies,
policymakers, and other key stakeholders, to help accelerate
growth, increase competitiveness and create jobs in this sector.