THE STORY
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:
- Doesn’t get the proper priorities understood or adapted out in the field;
- Doesn’t allow for the
flexibility to adapt to the changing environment in order to meet the
strategy; and
- 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.
No comments:
Post a Comment