Friday, May 15, 2015

Strategic Planning Analogy #550: Adapt Our Strategy

I knew an executive who got a big bonus because he hit all his numbers. Unfortunately, he hit his numbers by totally ignoring the strategy.

His strategic mandate was to spend a lot of money converting his division to a radically different position—one more suited to the future. Instead, he did not spend that money, so it fell down to his bottom line, making his profits far higher than the goal.

Unfortunately, because he did not reposition the division, it was no longer able to succeed in the marketplace. In the following year, losses were huge and the division was sold at a huge loss. The division was destroyed, but the executive got to keep his big bonus from the prior year.

Execution is important in business. But not just any execution, just execution which leads to strategic success.

In the story, the executive executed in a way which maximized his bonus. However, that execution also destroyed the business.

Although this example may be extreme, it is common for corporate strategies to not get properly executed, even though there are mechanisms in place to encourage right behavior.

Hence, it is not enough to just focus on getting the strategy right. One must also make sure the strategy is executed properly.

The principle here is twofold. First, without proper execution, a strategy is fairly worthless. Second, the traditional business tools of execution are not working. As a result, strategies are failing.

These findings were discussed in the March 2015 issue of the Harvard Business Review. The article, by Donald Sull, Rebecca Homkes, and Charles Sull, was titled “Why Strategy Execution Unravels—and What to Do AboutIt.” They started by looking at a study of 400 CEOs who said that their number one challenge was “executional excellence.”

The authors then did their own research and found out that most companies were doing a pretty good job of implementing the standard tools of execution. These included things like translating strategy into objectives, cascading those objectives down the hierarchy, measuring progress, and rewarding performance. More than 80% of managers surveyed said that their goals were limited in number, specific, and measurable and that they had the funds needed to achieve them. Yet, in spite of this, good strategic execution eluded them.

The authors then did further research to figure out what was going wrong. Here’s where the article started to get a bit murky and meandering. As a result, I took their findings and repackaged them into something I feel is more actionable and easier to understand.

Wrong Definition of Execution
First of all, the authors found that businesses had the wrong definition for execution. In its simplest form, I would say that the definition used by businesses to define execution would be “Hit My Numbers.” The idea was that if the strategy was successfully cascaded down into individual numerical objectives, then if everyone did their part and hit their numbers, everything would be okay.

Unfortunately, that is the wrong definition of execution. I think a better definition would be “Adapt Our Strategy.” As will be seen below, by changing these three words, we get closer to the root of the problems in execution and pointed in the direction of how to fix it.

1. Priortization
There is only so much a person can do on top of their everyday responsibilities in order to execute a strategy. Therefore, one needs to be clear on what is most important to focus on for execution. Priorities must be made. In the old definition, the priorities would focus would be on specific numbers (hit the NUMBERS). Instead, the definition should be focused on specific strategic outcomes (adapt out STRATEGY).

The article (and my experience) find several problems with the numbers focus, such as:

  • There are usually way too many numbers to hit, coming from too many different sources, including the everyday non-strategic numeric goals, all jumbled together.
  • People usually do not understand the linkage between the numbers and the strategic intent, so they aren’t sure how to achieve the numbers in a way that advances the strategy. Hence, they could find ways to achieve the numbers without achieving the strategy (as we saw in our story). In fact, effort to achieve the numbers can become effort taken away from execution of the greater strategy.
  • Numeric goals tend to get frozen in time and not get adjusted to changing conditions in the marketplace. Hence, they eventually become out of step with what you really need to accomplish.
  • Too much focus on numbers can lead to micromanaging and locking down on the minutia rather than trying to achieve the big picture.
By contrast, if you focus your priorities more on the strategy and strategic outcomes, you are more likely to properly execute the strategy. This is a focus on what the company is supposed to look like in the future—what it stands for, how it is perceived, what products it delivers, what its position is, and what are the right trade-offs to make with limited resources. These should be the priorities, and they can be measured. This moves the management from number chasing to building a winning formula for success.

2. Agility
In an ever-changing and dynamic world, a rigid process is your enemy. Unfortunately, the current state of execution principles tends to be rather rigid. Budgets get locked down; personnel get locked down; numeric goals get locked down. People are rewarded with promotions and bonuses based on their ability to hit what is locked down rather than their ability to adapt to the environment.

In fact, being agile and adapting is practically punished, because it upsets the rules of execution. You are no longer sticking to the script; you are changing the rules of engagement. It is risky for your career to be agile, because you are no longer in lock step towards hitting the numbers.

Yet, without agility, it is impossible to effectively execute a strategy in today’s environment. Therefore, it should not surprise us that our rigid process is hindering our execution.

The HBR article found two main problems with the rigid process. First, it caused adjustments and adapting to come way too slowly. Slow reaction can lead to strategic death today. Second, because there was no mechanism for incorporating change into the system, there was no way to ensure that the changes moved in the direction of the strategy.

Shockingly, the authors’ studies found that 51% of the executives said they could find financing for projects outside the scope of the overall strategy. In other words, change was not linked to strategic objectives. Over time, hundreds of these little exceptions to the “official” strategy become the de facto strategy. After all, your strategy is the result of what you do, not what you say. So if your change mechanism allows you to do anything, you strategy becomes “do anything.” No wonder execution of the stated strategy is so hard to come by.

The solution is to first build agility into the process. Encourage it; reward it. Second, keep agility from turning into anarchy and randomness by building mechanisms into your execution process to ensure that the changes bring you closer to your desired strategic outcomes rather than further away.
In other words, instead of focusing on “HITTING a number,” which implies attacking a fixed location, focus on “ADAPTING our strategy,” which implies agility in order to get closer to achieving one’s desired strategic outcome.

3. Cooperation
The authors found out that the current state of execution processes are pretty good at getting activities to work properly within a particular bureaucratic silo (the vertical dimension). Unfortunately, they tended to fail at getting cooperation between silos (the horizontal dimension).

Unfortunately, excellence in strategy execution requires horizontal cooperation. This issue needs to be fixed. Part of the problem is that we have done such a good job of targeting the numeric goals at what the individual silo can control, that we have frozen out cross-functional accountability.

People get rewarded for hitting THEIR numbers. Since they are not collectively OUR numbers, we tend to ignore the issues of other silos. Some experts may argue that you shouldn’t hold people accountable for things not totally under their control. My counter to that argument is that there is no better way to foster cooperation than to make it impossible to hit a goal unless you cooperate with others. We have to move the mindset from reaching MY goals to reaching OUR company’s desired outcome.

When you broaden the prioritization from individual numbers to corporate outcomes, you get people focused on the big picture—the overall strategy. Is it no wonder that we get poor execution on the overall strategy when all the individuals are working on optimizing something else? Hold people accountable (at least in part) for the big picture. You’d be amazed how much influence people have on other silos when their personal success is dependent upon it.

Poor execution can make strategic planning useless. Therefore, we need to focus more effort on getting the execution right. The problem with the current state of the art in execution is that it:

  1. Doesn’t get the proper priorities understood or adapted out in the field;
  2. Doesn’t allow for the flexibility to adapt to the changing environment in order to meet the strategy; and
  3. Doesn’t sufficiently encourage cross-silo (horizontal) coordination.
To rectify these problems we need to redefine execution from “Hitting My Numbers” to “Adapting Our Strategy.”

Next time you see someone get a fat bonus check, look to see if the company’s strategy was also rewarded.

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