The Business Outcomes Matrix: Decoding Strategy and Team Dynamics

Why do some companies thrive while others falter? This question captures the essence of business strategy and is crucial for every business leader and investor. The key to success often lies in the dynamic interplay between a company's strategic direction and its executive team's ability to execute. Using the business outcomes matrix below, we will explore a framework that provides insights into this question.

Business outcomes matrix

Understanding the Matrix

This matrix is divided into four quadrants, each representing a unique combination of the quality of your strategy and the strength of your team:

1. Failure (Bad Strategy, Bad Team)

This quadrant represents the worst-case scenario for any company—having both a poor strategy and an ineffective team. A bad strategy might involve misreading market trends, focusing on the wrong customer needs, or failing to differentiate from competitors. Coupled with a team that lacks the necessary skills, vision, or drive, companies in this quadrant are typically on a downward trajectory. The result is often a failure to deliver value, leading to declining revenues, loss of market share, and, eventually, insolvency.

Kodak's stock since IPO: failure (source: The Economist)

Example: Kodak

Strategy: Kodak’s strategy was heavily anchored in its historical success with film photography, neglecting the rapid advancement and consumer shift toward digital technology.

Execution Issues: Despite pioneering digital photography technology, Kodak's leadership was slow to capitalize on this innovation, continuing to focus on traditional film products. The team lacked the vision and urgency needed to transition their business model to digital, missing critical market opportunities.

Outcome: Kodak’s failure to pivot resulted in a dramatic decline in market relevance and financial stability, culminating in bankruptcy in 2012. This case illustrates how a once-dominant player can falter without strategic agility and robust team execution aligned with technological trends. 

Transitioning from this dire situation, we find companies that manage to harness strong internal capabilities to offset strategic missteps.

2. Pivot (Bad Strategy, Good Team)

In this quadrant, a company’s initial strategy is flawed, but the team is strong. A bad strategy could stem from poor market analysis, an outdated business model, or a misguided product focus. However, a good team recognizes the shortcomings and has the capability to pivot—changing course to align with market demands or new opportunities. Companies in this quadrant often survive and even thrive by leveraging their strong teams to correct course, despite starting with a flawed strategy.

Adobe stock since IPO: A very profitable pivot (source: Google Finance) 

Example: Adobe

Strategy: Originally, Adobe’s business model was centered around selling boxed software, a common approach in the early days of  software. Their flagship products, such as Photoshop and Illustrator, were sold as perpetual licenses, requiring customers to pay a significant upfront cost for each version.

Execution Issues: As the market began to shift toward more flexible and accessible software delivery methods, Adobe's boxed software model became increasingly outdated. The strategy failed to keep pace with changing consumer preferences that favored lower upfront costs and regular updates. This model also limited recurring revenue, which became a critical factor in the software industry’s growth.

Team Effectiveness: Despite the strategic missteps, Adobe had a strong, visionary team that recognized the need for a significant strategic pivot. The team was well-equipped with technical expertise and market foresight, which facilitated a bold move to transition their business model.

Outcome: Adobe's decision to shift to a subscription-based model (SaaS or Software as a Service) with the launch of Adobe Creative Cloud revolutionized its business structure. This transition not only stabilized the company's revenue streams by introducing regular, predictable income but also allowed continuous updates and improvements to their software, enhancing customer satisfaction and retention. The successful pivot repositioned Adobe as a leader in the creative software industry, maintaining its dominance and expanding its market share in the face of rising competitors.

While some companies manage to turn around a bad strategy, others face a different kind of challenge.

3. Tossup (Good Strategy, Bad Team)

The Tossup quadrant represents a scenario where a company has a strong, well-conceived strategy but a weak or ineffective team that struggles with execution. The term "tossup" implies that the outcome is uncertain—it could go either way. Even though the company has a good plan or market positioning, the lack of a capable team introduces significant risk. The company might succeed if the strategy is strong enough to carry it through, despite the team's deficiencies. However, it's just as likely that the company could fail to realize its potential because the team is unable to execute the strategy effectively.

In other words, a "tossup" suggests that the company's future is uncertain and could result in either success or failure, depending on whether the team can overcome its shortcomings or if external factors favor the strategy enough to compensate for internal weaknesses.

eBay stock since IPO: Future remains uncertain (source: Google Finance)

Example: eBay 

Strategy: eBay's strategy to create and dominate the online auction and secondary market was highly effective, tapping into an untapped niche of person-to-person online sales. This strategy helped establish eBay as a major player in e-commerce.

Execution Issues: Despite its strategic strengths, eBay has encountered execution challenges, particularly in areas like technology updates, competition response, and international expansion. For instance, eBay struggled to maintain its technological edge against competitors like Amazon, which excelled in logistics and user experience. Also, eBay's management made several attempts to diversify through acquisitions such as Skype, which did not work out as expected and was later sold at a loss.

Outcome: The outcomes of eBay’s execution missteps have been mixed. While the company has remained profitable and retains a significant user base, it has lost much of its market dominance and growth momentum to competitors who executed more effectively in key areas like marketplace logistics, modern payment systems, and customer experience.

eBay's journey illustrates how a strong strategic vision can achieve relative success despite shortcomings in execution, placing it in the Tossup quadrant during certain periods. The company's ability to maintain relevance depends on how effectively it can align its operational capabilities with its strategic goals moving forward. 

From the uncertainties of the Tossup quadrant, we move to the ideal scenario.

4. Success (Good Strategy, Good Team)

This scenario is ideal, wherein both the strategy and the team are strong. A good strategy involves understanding market needs, leveraging core competencies, and positioning the company for sustainable growth. When coupled with a highly capable team that excels in execution, innovation, and leadership, the company is likely to experience significant success. Companies in this quadrant often become industry leaders, enjoying sustained growth, profitability, and market dominance.

Apple stock since IPO: Eventually got the right strategy-team mix (source: Google Finance)

Example: Apple

Strategy: Apple’s strategy focuses on integrating cutting-edge technology with innovative design to create unique consumer products and a seamless ecosystem of services. This approach is aimed at delivering a superior user experience and fostering high customer loyalty.

Team Effectiveness: Apple’s team has excelled in innovation, product development, and market strategy. This effectiveness is supported by a strong culture of creativity and meticulous attention to detail, allowing Apple to set industry standards repeatedly.

Outcome: Apple’s consistent execution of its strategy has made it one of the most valuable companies in the world. Its ability to innovate and capture premium market segments has resulted in sustained growth and profitability, making it a leader in technology and consumer electronics. Products like the iPhone, iPad, and Mac not only dominate their categories but also revolutionize interactions between technology and consumers. 

Conclusion 

Investing wisdom from giants like Warren Buffett, who suggests even a wonderfully run business should succeed under less competent management, underscores the importance of strong, enduring company fundamentals. However, discerning a company’s strategy is often simpler than assessing the true effectiveness of its team. Many investors focus primarily on financial metrics and sustainable competitive advantages, which might suggest a capable management team if earnings grow or Return on Invested Capital (ROIC) remains robust over several years. Yet, this perspective can overlook situations where a business might actually be in the tossup quadrant, performing well not because of but despite its management.

The interplay between strategy and team execution is crucial for the sustained success of any business. For CEOs and business leaders, it is imperative to understand and proactively manage team capabilities. This may involve evolving team composition to align with strategic goals or adapting strategies in response to changing market dynamics. Indeed, success is not sustainable without continuous adjustments in strategy and team structure. Future success of Adobe and Apple is not guaranteed. Kodak and eBay illustrate that businesses can thrive temporarily but must remain responsive to a multitude of external factors—such as regulatory changes, technological shifts, and competitive movements—to sustain success. In a dynamic market, a static approach is a recipe for obsolescence. Therefore, businesses must continuously adapt their strategies and teams to not only respond to immediate challenges but also anticipate future trends.

Thanks to Mike Polacek and Laurent Parenteau for helping me refine my thinking.