Most of us intuitively know that Strategy is important. But a study by Morten Hansen, a UC Berkeley Professor, in 2018 suggested that we may have underestimated the importance of strategy by a long shot. At least for me, the study's findings showed me that Strategy is much more important than I previously thought. And mind you, I am a strategist by occupation.
The research: Rigorous Academic Approach
Morten and his team surveyed 5,000 managers and employees across various jobs and industries in the USA. They surveyed sales reps, lawyers, trainers, actuaries, brokers, medical doctors, software programmers, engineers, store managers, plant supervisors, marketers, HR people, consultants, nurses, and casino dealers. They sampled bosses and direct reports in addition to employees so as not to rely on self-reported data only. They covered women, men, young workers, old workers, white collar, blue collar, highly educated employees, and less educated employees – to make the sample as representative as possible.
Then, he and his team run a rigorous statistical regression analysis. For those unfamiliar with regression analysis, it is a statistical model that can predict the value of a predicted variable (commonly denoted as the Y-variable) based on the values of predictor variables (commonly denoted as the X-variables). Depending on the nature of the data, we can use linear, transformed linear, or non-linear equations. Morten used the ordinary least square regression in his research, implying a linear function (i.e., following this relationship Y = A + B1 * X1 + B2 * X2 + X3 * B3 + … + Bn * Xn + E).
The outcome: Importance of Strategy
The outcome was shocking! It turned out that intense, targeted efforts in the selected activities (my definition of Winning Strategy, i.e., sharp and relentless focus – read more here) went a long way toward explaining differences in performance. In fact, 'strategy' accounted for a whopping 66% of the variation in performance among the 5,000 people in the dataset.
Marten provided us with an example to get an idea of how remarkable this effect is.
He explains we all know that smoking will kill us, yet smoking only explains 18% of the variation in people's average life expectancy.
He described we all know having a good salary is crucial for building financial resources, yet income only explains 33% of the variation in people's net worth.
He also illustrated the famous basketball star Stephen Curry is famous for hitting three-point shots, twenty-two feet away from the basket. But he has landed just 44% of these shots during his professional career.
So, 66% is kind of a big, big deal. It is like telling you that if you have a sharply focused strategy, your odds of winning will soar up like an eagle soaring high in the sky.
Being Selective is More Important than Being Lucky and Working Hard
Yup, you read it right. The study also implied that: Having a winning strategy is more important than being lucky or working hard.
Strategy, i.e., being selective about what you do and then putting intense effort into what you choose to do, explains 66% of the performance variance.
Meanwhile, Luck, i.e., the random factor, only explains 24% of the performance variance.
And Working Hard, i.e., in terms of effort exerted, only explains 6% of the performance variance.
What does this mean?
Having a sharply-focused strategy is 2.75 times more likely to make you a high performer than having good luck. This means you may encounter bad luck episodes in life, but if you stick to having a sharp strategy, you are bound to win eventually.
Having a sharply-focused strategy is 16.5 times more likely to make you a high performer than working hard. This means working-smart beats working-hard most of the time!
The Key Takeaway
Be selective in what you do – whether you are an individual or a company. Then, apply all of your efforts relentlessly to those focus areas. And you will win, most of the time, as the odds are in your favor.
Continue to explore the secrets of Winning Strategy here.
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