Actions speak louder than words – writes The Undercover Fund Manager 


A business can have a great strategy, with values plastered on walls and clever advertising campaigns. But in the end only one thing matters: do they practice what they preach?

Numerous companies claim to put the customer first. Only a small handful really do. This is why, when you call a company, you’re often greeted with “Press one for this, two for that”, and put on hold for 20 minutes. 

The same applies to pretty much every aspect of business. The stated intention is different from the reality. 

Most companies publicly state “People are our greatest asset”. But when you look at their employee retention and engagement, it paints a rather different picture.

Either the company doesn’t really believe it, and are just saying it, which breaks another commonly stated value, “Act with honesty and integrity”. Or they do believe it, but haven’t managed to pull it off. I suspect it’s a combination of both.

That’s the thing. It’s easy to sit around boardrooms discussing what should be done, replete with PowerPoints, strategy days and nodding consultants. It’s far, far harder to actually execute. Even on something that should be simple, like picking up the phone.


“In theory there is no difference between theory and practice – in practice there is“ –Yogi Berra


Because companies often struggle with the basics, they tend to lean more heavily on strategies, PowerPoints and consultants than they should. Having analysed the data to death, they might conclude the strategy isn’t ‘working’ and needs to change. More often than not, this isn’t the case. It’s that they haven’t executed properly in the first place.

“Behind the scenes Amazon has executed flawlessly on systems, infrastructure and software”

Why do most people love shopping on Amazon? It’s because they have the stuff you want and your order turns up the next day. Sounds simple, but it isn’t. Behind the scenes Amazon has executed flawlessly on systems, infrastructure and software to make it happen.

Next, the UK retailer, has achieved great success by doing the basics well (see my recent thread). Here’s what CEO Lord Wolfson says on execution:


“It is not enough for us to have a plausible ‘strategy’; success will, in the main, depend upon the quality of our execution; on our ability to adapt and develop our organisation to deliver sensible decisions and actions at every level. Failure to execute well, in most areas of the business, will materially undermine our ability to grow sales and profits.”


What makes great companies great isn’t fancy strategies, or even fancy tech in most cases. It’s a profound mastery of the basics, combined with strong execution of well-defined priorities. 

This explains why one retailer, paint company or pub group can consistently out-perform its peers, despite selling a virtually identical product. If the nature of the business was all that mattered, no such advantage would exist. 

But it isn’t. It’s about distribution, customer service, getting the best from employees, balancing stakeholder interests, optimising processes, problem solving and much, much more. Which all comes back to having the right priorities (easier said than done, given all the external pressures facing public companies) and great execution. 



How can investors identify great operators?


It’s all about asking the right questions:


  • Does the company have a track record of out-performing peers, which is hard to explain based on the nature of the business itself? 
  • Do the actions of the company match the stated priorities? 
  • Do these priorities change depending on the business cycle, etc? They shouldn’t generally. It’s easier to put customers and employees first in good times; it’s how companies behave in bad times and crises that really matters.
  • Does the company have a history of strong operational execution or has it been prone to mishaps?
  • Does the company have a history of navigating challenging market conditions better than peers? Business operations get most tested in difficult times. The current supply-chain pressures are a good test.
  • Does the company talk at length about operational initiatives and provide supporting data so investors can track progress?
  • Is there evidence of constant incremental improvement or is the business resting on its laurels? 
  • Does the company understand opportunity cost? Business is all about trade-offs – no company can do everything. In order to do a few things well, some things should be de-emphasised and some shouldn’t be done at all. Sol Price, the retailing legend who pioneered the warehouse club discount model once said: 


“The basics of our concept may be easy to understand, but that doesn’t mean it is easy to implement. Imitators of our concept who maintain the discipline are likely to succeed, but only if they resist the temptation of…doing other things that add cost.”


  • What Key Performance Indicators (KPIs) does the company measure itself against? Are these in line with the stated priorities? Pay particular attention to non-financial KPIs and how the business is performing against these. Sole emphasis on financial KPIs, eg, growth in profit margins, can be telling in itself. 
  • How is management incentivised? On customer outcomes or just profit growth?
  • Does senior management take pride in the day-to-day, nuts and bolts of business operations – the stuff that’s really boring but essential like IT, data storage and logistics? Or are they more focused on grand strategies and investor relations?
  • Does the company possess an entrepreneurial spirit and a bias for action? Bureaucracy is one of the biggest barriers to effective operational execution. 
  • Does the business think and act long term? Operational improvements can be time-consuming and costly; often a company must take one step back before taking two steps forward. Look for companies with the willingness and capacity to suffer. 




Judging the operational effectiveness of a business is more an art than a science. There are no formulas I can offer. Perhaps this is why investors often under-appreciate its importance.

There is likely another reason why investors gloss over it. The benefits of strong execution compound over time, as do the costs of executing poorly. If you’re renting a stock for a year or two, you probably don’t care about all the boring stuff behind the scenes, which hardly move the dial anyway in the short term. 

Over time, businesses that excel at operational execution widen the gap between themselves and their competitors, reinforcing established moats and building new ones. The result? Greater value creation over a longer period. 

“I have always had the soul of an operator, somebody who wants to make things work well, then better, then the best they possibly can.”
–Sam Walton, Walmart founder


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