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October 7, 2004

Strategy and Execution

We talk alot about market risk vs. execution risk when looking at companies.

What we mean by market risk is that you are betting on some change (often in consumer behavior) that will bring a big market along with it (e.g. betting on e-commerce in 1995 meant belief in a trend). By execution risk, we mean that a big market already exits but that you are betting on the ability to out execute others in capturing the pot of gold the market already represents (e.g. betting on e-Commerce today means finding some in or advantage that others don't).

There is always execution risk in every company but each will have more or less market risk depending on the situation. There really is no statement of which primary bet is better just that you need to be conscious of which and how best to mitigate.

Emergic recently highlighted a very intersting view of this from Fast Company:

"Never is execution more important than when innovation is at the heart of a strategy.

That is because innovation always involves treading into uncertain waters. And as uncertainty rises, the value of a well-thought-out strategy drops. In fact, when pursuing entirely new business models, no amount of research can resolve the critical unknowns. All that strategy can do is give you a plausible starting point. From there, you must experiment, learn, and adapt.

Execution. For a proven business, it is about performing at or above known standards. Many large, established organizations are able to sustain success because they are ruthless about holding their managers accountable to meeting or exceeding standards.

Executing an experimental business is different. It is about zeroing in on the best possible strategy. And in the process, discovering what standards are possible."

Posted by at October 7, 2004 9:24 PM

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