Outwardly, fund management is in rude health, in spite of the recent turbulence. Markets are awash with liquidity and governments worldwide are promoting private pensions. Margins remain firmly north of 30 per cent. But scratch the surface and you find unsuspected turmoil.

Institutional clients now want more for less, as in other global industries. They want absolute returns and liability matching, backed by a value-for-money fee structure that separates alpha and beta. Retail clients want retirement-oriented products that can replicate the benefits available under final salary pension schemes.

"After a good run of 15 years, the case for a step change is hard to make. But clients and pension consultants are much more demanding now. The old ways of doing things no longer work," says John Fraser, chief executive at UBS Global Asset Management.

Not surprisingly, three in every four fund managers worldwide are adopting a more strategic approach to business growth under which better returns and quality service are the end goals.

Delivery will be via superior investment capabilities, client engagement, and organisational stability defined by the ability to replicate successes.

"Today, the media scrutiny is acute. If you stop communicating about your initiatives, people think you are not doing anything. We are aware of the huge pressures to have copycat strategies and are now fully equipped to face this issue," says Gilles Glicenstein, chief executive of BNP Paribas Asset Management.

The core challenge then is not only to craft a credible business strategy but also to execute it effectively. This is easier said than done. For experience suggests that strategy has been a much used and abused word in fund management.

For example, four years ago I encountered fivedifferent definitions of the word in separate conversations with top executives in a large European fund house: strategy is about goals; it covers actions to achieve these goals; it involves giant leaps such as mergers or outsourcing; it is the stuff of top table discussion; and it is about how the outside world perceives us.

Without a common understanding of what strategy meant, discussions were often akin to a dialogue between the deaf or an invitation to inaction. The image of intelligent people regularly churning out strategic blueprints that used clever words to say a lot about nothing was not uncommon then. Many chief executives were former portfolio managers who often confused the buzz of investment function with leadership. They were strong on intentions but short on deliverables.

But things have moved on since. Today, many more businesses recognise that strategy is about goals, actions and results.

According to Michael Gordon, chief investment officer at Fidelity International: "Growing competition has ensured that execution is more important than ever. There are so many players with so many strategies that just having a good idea and a plan is no longer enough. Discipline is often the key to successful execution."

This emphasis on implementation has in turn focused attention on three overlapping areas. The key area concerns leadership. In successful fund houses, top executives are adopting a style that is stronger on deeds than words; blending a light touch approach with intensive communication; displaying creative dissatisfaction with the status quo; challenging complacency; and giving open, honest, real-time feedback.

In order to depersonalise issues, they also run regular open forums for movers and shakers from all parts of the business to debate new ideas, subject them to a reality check, allocate accountability, create momentum and monitor outcomes.

The second area concerns engagement. It is recognised that strategy is no longer a cerebral activity in which the top bosses produce ingenious forward-looking plans and their minions execute them. Rather, it is an iterative activity between them. After all, few business plans survive reality; most require course correctionsas unforeseen situations arise.

The third area concerns the operating model. It is becoming more hybrid as large and medium houses promote high conviction investment strategies by creating product-based boutiques in which portfolio managers have the necessary autonomy, space and accountability for generating new ideas and executing them. The resulting decentralisation is then backed by increased co-ordination in distribution activities and outsourcing of back office work.

Thus, as fund managers go back to their time-honoured mission to deliver absolute returns, they are creating a professional overlay of skills and infrastructure to exploit opportunities created by a new breed of unforgiving clients. The future belongs to those who can go beyond the hype and navigate the unfamiliar transition.