"Things that matter most must never be at the mercy of things that matter least." —Goethe
Strategy, above all, is about defining the right priorities. For a long time, I assumed, in line with conventional wisdom, that the optimal number of priorities is five. I now believe that I was wrong. Of course, this is not an exact science, but the evidence shows that a lower number is likely to be much more effective.
The need to prioritize arises from the inescapable reality of limited resources. These resources fall into three categories:
- Material (money, physical assets)
- Temporal (time)
- Human (knowledge, creative energy, commitment)
The law of limited resources forces us into a zero-sum game. Every additional thing we do subtracts energy and effort from everything else.
During Apple’s dark days in 1996, I had dinner with an Apple executive. “What are the chances that Apple will recover from its decline?” I asked. The answer was stunning. “Zero,” he replied. “Apple is as good as dead. We are just awaiting the funeral.”
Steve Jobs returned to the company in 1997 and, against the odds, rescued Apple from its death spiral. Commentators mostly laud him for his innovative flair and aesthetic sensibilities. These no doubt played a role, but above all was Jobs’s ability to focus on very few things and exclude the rest.
The first thing Jobs did was reduce Apple’s bloated product line by 70 percent – to just two desktops and two portable computers. All Apple’s resources and the commitment of its people were focused on that limited range of activities. This convergence of energy was the springboard for the company’s spectacular success. Jobs understood the recipe for harnessing the power of focus: subtract first, then multiply.
The renowned military expert, Antoine Jomini, defined strategy as “The concentration of mass upon critical points.” It is all about leverage. The so-called Pareto Principle explains the logic as follows:
- There is invariably an imbalance between inputs and results.
- The majority of inputs typically have little effect.
- A small minority of inputs make a disproportionate difference to the outputs.
- Identifying and leveraging these “vital few” is essential for success.
The Pareto principle has come to be known as “the 80/20” rule. Here are some examples that illustrate this phenomenon:
- 20 percent of software code drives 80 percent of the usage.
- 15 percent of the world population uses 80 percent of the energy.
- 25 percent of the world population owns 80 percent of the wealth.
- 28 percent of beer drinkers consume 80 percent of the beer.
The key takeaway is that there is no 50/50. To have the right priorities, we need to understand the few things that are most important. Then we have to achieve unity of action by keeping those main things the main things. That goes to the heart of functioning strategically.
In my strategy workshops up to now, I have emphasized, “No more than five” priorities. But I’ve noticed that participants fall prey to the “anchoring” effect and become fixated on reaching five. When they get to three or four, they begin to ask themselves the futile question “what more can we think of?” as they stretch to reach five. In doing so, the whole discipline of focus gets lost and it becomes a numbers game. Afterwards, few of them can recite all five without a “cheat sheet.”
Where does this orthodoxy of five priorities come from? One much quoted source is a 1956 article by psychologist George Miller called, “The magic of the number seven, plus or minus two.” This article purported to show that most people can remember about seven items in serial-order memory tasks. Take away two, and you are in safe territory with five!
But Nelson Cowan, Professor of Psychology at the University of Missouri, has pointed out the flaw in this logic. He argues that in Miller’s experiments, people were able to recall seven items simply because of “chunking” into smaller groupings. For example, a seven-digit phone number is more easily remembered as three chunks: 246-89-21. Cowan has studied what he calls “working memory” – “The small amount of information that can be … accessible in order to be used in ongoing mental tasks.” His conclusion? “Our focus of attention is limited. People can follow a maximum of four objects and sometimes fewer.”
There is strong evidence to support Cowan’s conclusion.
- A survey of 1,800 global executives by Paul Leinwand and Cesare Mainardi found that as the executive team’s priority list grows, their company’s revenue growth declines relative to its peers. The reverse is also true. They found that organizations with a maximum of three priorities were most likely to achieve above average growth.
- In an article in the Sloan Management Review, Donald and Charles Sull and James Yoder cite a large survey showing that in firms with five priorities, only one-quarter of the managers could list three of them.
- Finally, in a study of 150 hospitals, Wharton professor Drew Carton found that when hospitals had more than four core values, no improvements were achieved for reducing heart attack readmissions or increasing return on assets.
All said, we have good reason to contest the efficacy of five priorities. They become a wish list that few can remember, let alone act on. We vastly underestimate the amount of simplification, synthesis and repetition that is required for employees to buy into even a small set of ideas. The weight of evidence suggests that the degradation of working memory is not linear; it is exponential. Going beyond four priorities risks a wipeout.
Robert Iger served as the CEO of The Walt Disney Company from 2005 to 2020. During his tenure, the company’s market capitalization increased from $48 billion to $257 billion. He tells the story in his book, The Ride of a Lifetime.
On the lead-up to his appointment, the board asked Iger to define his priorities for the future of the company. He started to make a list, but when he got to five, he realized, “I hadn’t prioritized any of them… My overall vision lacked clarity and inspiration … I quickly landed on three clear priorities. They have guided the company since the moment I was named CEO.”
Here, in summary, are the priorities Iger presented to the board:
- We must devote most of our time and capital to the creation of high-quality branded content. Great brands will become even more powerful in guiding consumer behavior.
- We must embrace technology to the fullest extent, first by using it to create higher quality products, and then to reach consumers in more modern, more relevant ways.
- We must become a truly global company by penetrating certain markets, particularly the world’s most populous countries, like China and India.
Iger goes on to say, “The future was about organizing the entire company’s mission, all of our businesses, and every one of our 130,000 employees around these three priorities.”
Note the stark clarity and memorability of Iger’s three priorities – content, technology, globalization. They fit together as an integrated story. He doesn’t just list them; he explains their strategic logic. Most important, he doesn’t smother them by adding to them.
Determining the “right” number of priorities is not a mathematical formula, it is a cognitive one based on the limits of working memory. People can more easily internalize and act on priorities when we can weave them together into a compelling story like Iger did. When we we stretch the list, we lose the story.
Let me illustrate the impact of focus with a personal gardening story. I had planted geraniums on the balcony outside my home office in the hope of beautifying my view. Despite giving them plenty of care and feeding, they looked pretty miserable. I’m no gardener, so I appealed to my wife, Laura, for help. She grabbed her gardening shears and cut away large parts of these ailing plants. “What on earth have you done?” I asked her, looking in dismay at the few stems that remained. “I have released the power of pruning,” she replied. “Just wait a week to see the benefit.” Sure enough, one week later I had a bountiful array of geraniums, much admired by my guests and a source of pleasure for me.
The geranium example illustrates a universal law. Whenever you remove the unproductive parts of any system, all its remaining life forces will be concentrated on the few things that matter most and that system will flourish, whether it is your garden or your business.