574  Strategic Management: Mindsets and Behaviors
2. The right incentives for top management. Most management incentive plans suf-
fer from short-term bias and are heavily weighted to a single year’s account-
ing and earnings measures. Even those based on share price performance 
typically rely on earnings over a single year to determine how many shares an 
executive receives. Ideally, incentives should weight more to revenue growth 
and achieving strategic milestones, even if they are measured qualitatively.
3. An engaged, supportive board of directors. To be engaged and supportive, 
board members must understand and back up the strategy, enabling 
managers to avoid skimping on investment to meet short-term profit 
growth. To do this, they must be familiar with the details of the strategy 
and understand performance at a granular level. This equips them to 
ensure that managers are striking the right balance between investments 
and current financial performance.
The Right Decision Makers
Managing strategically requires the conviction to make difficult choices. A 
CEO’s core activities in pursuit of value creation are setting targets and al-
locating resources, such as capital, R&D, and people. Yet targets and resource 
allocation often don’t align with tough strategic choices, either because deci-
sions are not made at the right level or because the CEO strives for consensus, 
which results in compromises that dilute strategic efforts.
One remedy is to create a kind of funnel effect in which broad debate about 
a company’s investment options eventually narrows down to a subset of the 
executive team that makes the ultimate allocation decisions. For example, the 
CEO, chief operating officer (COO), and chief financial officer (CFO) might 
organize a broad discussion among division and business unit leaders and 
others to field strategy ideas and pitches for resources. Then the top three ex-
ecutives might meet separately to debate, narrow down options, and decide 
on final targets and resource allocation. This approach helps to overcome a 
common dynamic: business unit leaders maneuvering to secure maximum 
resources for their units, rather than having the allocation process sort out 
what’s best for the company’s overall strategy. Tough calls on final allocation 
decisions should also be easier to make when fewer people are in the room.
This kind of funnel effect helped the CEO of a financial technology com-
pany where resource allocation decisions had long been made by a group of 
more than 15 executives. The CEO preferred to build consensus but realized 
that consensus tended to make everyone a little bit happy at the cost of poorly 
aligning investment spending with strategic priorities. He soon realized that 
the only way to improve resource allocation was to make the decisions himself.
That said, modifications may be necessary, depending on the culture of the 
company or in countries where consensus is essential. For example, a CEO 
could shape her own proposed allocation plan and come back to the senior 
management team to gain consensus support for it.