Business leaders know that great strategies with great execution produce winning companies. They also know that winning companies are far outnumbered by mediocre ones. What they may not realize is that it’s the path from strategy to execution that often separates the two.
The typical path goes something like this: You start by setting your goals. These could be financially oriented (grow earnings a certain amount by so-and-so year) or strategic (become the leader in this-or-that market). Then you prioritize the actions that will get you there: invest here, cut there, reorganize this, buy that. And then you implement like mad: align the organization around your goals and priorities, review your progress quarterly, reward performance accordingly, and so on. Of course, some companies are much better than others at following this track. That could explain the difference between winning and mediocre companies — but in my experience something much more significant is at play.
Take Cardinal Health, one of the world’s largest distributors of pharmaceuticals. The company started out as a food distributor, but its founder and then CEO, Bob Walter, decided in the early 1980s that he would make a better living by distributing high-margin drugs instead of low-margin food. That sounds like a typical move from an unattractive market to a more attractive one. And if that’s all it was, it may not have amounted to much. But Walter had a big idea. At the time, the distribution of medicines was well established, but it was also highly fragmented among numerous local players. This made the sourcing of prescription drugs exceedingly complex for nationalizing pharmacy retailers and regionalizing hospital groups. Walter’s idea solved that problem. He created the “prime vendor model,” whereby Cardinal would aggregate the supply of drugs from the pharmaceutical manufacturers on behalf of a pharmacy retailer or hospital group. This breakthrough idea brought much needed, rational consolidation to a fractured system. He saw a big problem, resolved to crack it, turned a simple but novel idea into an innovative strategy, and overcame the many barriers (including initial resistance from both suppliers and buyers) to executing on that strategy. And over the course of about 20 years, he turned a mediocre food distribution business into a healthcare company worth over $US20 billion.