Strategic Planning Analogy #550: Adapt Our Strategy

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.

THE ANALOGY
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
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.

SUMMARY
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.”

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

Strategic Planning Analogy #492: Straight Line Nearsightedness

THE STORY

Imagine two executives who were told to get from point A to point B. The first executive wanted to be very efficient in his task. He knew that the shortest distance between two points was a straight line, so he drew a straight line between points A & B.  “This straight line,” said the first executive, “will be my path to success.”

Unfortunately, his straight line was drawn directly through the middle of a large zoo. This posed many challenges to his straight line approach. Following the line, this executive first had to find a way to break into a lions’ cage. Then he had to find a way to get around the man-eating lions in that cage without being eaten. Then he had to find a way out of the lion’s cage on the other side. This process was repeated as he had to get through the cages of poisonous snakes, hungry crocodiles, and other wild beasts.

These challenges were very difficult, but each time, the first executive found a workable solution.

As the first executive reached point B on the other side of the zoo, he was very proud of himself.  He thought, “I’m an excellent executive. I found the shortest path to point B. Then I successfully found an answer to every challenge on that path. I overcame every obstacle and reached my destination without any serious injuries. My boss will call me a hero.”      

However, there was nobody waiting for this first executive when he got to point B.  He later found out that the second executive had gotten to point B days earlier.  What she had done was called a taxi and had the taxi driver drive around the zoo to the other side.  It took less than an hour. 

The first executive did get a response from his boss, but it was not to be called a hero.  Instead, his boss called him an idiot, told him he was fired and that he would have to personally pay for all the damages he made to the zoo.

THE ANALOGY

The first executive considered himself to be a hero because of all the great accomplishments he performed. He made a quick decision on finding the shortest path and then found solutions to all of the problems along that path. And since they were difficult and dangerous problems, his ability to solve them without injury was that much more remarkable. Yes, he had quite the long list of impressive achievements.

Yet, his boss called him an idiot. Why? Because it was an expense, destructive and excessively time-consuming way to get to Point B. The goal was not to achieve a long list of impressive feats of management, but to quickly and efficiently get to the other side of the zoo. That could be done with a quick taxi ride.

I see a similar type of occurrence in the world of strategic planning. We set a strategic goal to get from point A to point B. Then we set loose the executives to go down that path. Once the executives get moving along the path, they lose sight of the big picture and only see the obstacles immediately in front of them. Then, one by one, they tackle each of those daily obstacles.

The big picture gets lost while attention moves to the obstacles immediately in front of us. At the moment each obstacle is conquered, we may feel like a hero. But all that “heroic” effort is really a waste of time, because it is unnecessary,

That first executive could have saved a lot of time and effort by waking around those cages rather than trying to go through them. Or better yet, he could have followed the second executive’s approach and just taken a cab around the zoo. It may make for a much less impressive list of accomplishments, but the big strategic goal is accomplished a whole lot faster and easier.

THE PRINCIPLE

The principle here is that the importance of the task is often correlated to distance. In other words, achieving the big strategic goals off in the distance are usually far more important to the ultimate success of the business than conquering the crisis of the day. Yet in practice, we tend to operate in the opposite direction. We spend most of our time tackling the challenge immediately in front of us. Like that first executive, we get so intent on finding a way through the lions’ cage in front of us that we miss the quick and easy path to the bigger goal on the other side of the zoo.

We can call it nearsightedness, because the executives lose site of the distant goal and can only see the challenge immediately in front of them. In the past, I have referred to it as the tyranny of the immediate.  The immediate becomes our master and tortures us into submitting to its wishes rather than freeing us to achieve the larger, more distant (and more important) goal.

So how can we minimize activities like the first executive in the story and may our executives act more like the second executive? Here are some suggestions.

1.  Keep the Distance Continually in View

When executives become nearsighted, we need to help them by giving them corrective vision so that they can see the bigger goal in the distance all the time. If the only time your company focuses on the distant goal is at an annual off-site meeting, then the battle is lost. The near-term challenge will win the daily battle for the limited executive’s time. The distant goal will be forgotten until the next year’s annual meeting, when people wonder why they are no closer to the goal.

There are several ways to get the distant goal clearly visible on a daily basis.  For example, you can change the culture so that a simple question is asked at EVERY meeting and when important daily decisions are made.  That question is this: Does your decision get us closer to achieving our big goal or not?  Or perhaps it can be worded like this:  What decision gets us faster to where we want to ultimately be?

Another way to do it is by linking the goal to a position or philosophy.  For example, if your goal is to win via innovation, you can look at daily decisions about what to tackle as a choice to focus on those activities which most support innovation. 

I was very impressed when I recently visited the Walmart headquarters.  When I listened in on how daily decisions were being made, it was obvious that the long term goals, positions and philosophies were deeply ingrained into the process.  Every decision seemed to go through the same filter:  Is this going to help Walmart bring lower prices to their targeted consumers so that they live better lives on their limited incomes?  The challenge of the day did not seem to overpower the drive to spend time on what was most critical to their long term success.

So be a pest and make sure the big vision become imbedded in the daily grind.

2. Watch What You Reward

We like to reward “heroic” levels of effort which overcome huge challenges.  It’s human nature.  But often times, that effort is just foolishness in disguise. That first executive in the story overcame numerous challenges in that zoo.  But it was all an effort in foolishness that kept him from achieving the important goal.

Spending a lot of time and effort to overcome a huge challenge is huge mistake if the challenge can be avoided. You don’t need to fix problems if you can avoid them in the first place (like going around, rather than through a lions’ cage). And some problems aren’t worth the effort to fix them (the cost benefit ratio is wrong). And then there are the opportunity costs…all that effort to fix that problem is effort that was unavailable for more important tasks.

Therefore, don’t automatically reward great effort which overcame a challenge. First, find out if the problem could have been avoided or whether the problem was worth the effort or whether the effort prevented more important accomplishments.  If this is the case, then perhaps punishment is more appropriate.

People do what gets rewarded.  If overcoming challenges is what gets rewarded, then people will find (or even create) lots of challenges to work on.  They will be like the first executive in the story—busy on the wrong things, but looking good while doing it. That second executive didn’t look all that heroic (all she did was take a taxi).  But she was the one who got the important big picture stuff accomplished. That is what should be rewarded.

The more you link rewards to achieving the big picture, the more likely folks will focus on that.  Remember, standing on your head while juggling may take more effort and look more impressive than walking, but it will never get you to your destination.  Those who just keep walking towards the goal are the real heroes, not the jugglers of the inconsequential “crisis of the day.”    

3. Just Say No

Although it is tempting to want to roll up one’s sleeves to tackle the challenge of the day, it may be more heroic to just say no.  Don’t spend any time focused on it at all.  This can be done in two ways.  First, one can set up rules in advance for how issues are to be handled.  That way, the old crisis of the day is no longer a crisis because we have established the protocol in advance for how to handle it.  Instead, the old challenge requiring executive effort becomes a routine event that just goes through the system based on the established protocol. You’d be surprised at how many crises are just routine events that are merely missing a protocol.

Second, one can delegate the problem to someone else lower in the organization.  This will free up your time to devote to more critical long-term issues that only you can solve. 

I’m reminded of what management guru Peter Drucker said in his book “The Effective Executive: The Definitive Guide to Getting the Right Things Done.”  In the book, Drucker says, “Effective executives concentrate on the few major areas where superior performance will produce outstanding results. They force themselves to set priorities and stay with their priority decisions. They know that they have no choice but to do first things first—and second things not at all. The alternative is to get nothing done.”

This is what my second executive in the story did.  She ignored the zoo entirely and only did the important thing—getting to point B quickly and effectively by taxi.

SUMMARY

Although the challenges immediately in front of us may appear at the moment to be the best use of our time, that is rarely true.  Instead, it is getting to those more distant major strategic goals which is the most effective use of our time.  To help get executives focused on the bigger picture, we need to a) keep the distance in view on a daily basis, b) stop rewarding great effort focused on the wrong thing, and c) just say no to the crisis of the day.

FINAL THOUGHTS

If you look at a newspaper from a week ago, you may find that what seemed important enough to put on the front page then no longer seems all that critical if read today.  The same can be said about most of the crises of the day.  A week later you may wonder why it seemed so important then.

Analogy #213: Wait for the Votes

THE STORY
In election years, the media seem to take great pleasure in declaring winners before all the votes are counted. Heck, they like to declare winners before the voting has started. What if other businesses did the same thing?

What if race tracks declared winners before the race was over? The race track would pay off betters based on their estimates of how the race would end up based on only half of the race being finished. Is that fair?

Or how about if Olympic gold medals were handed out based on estimated outcomes when only part of the competition was completed? Taken to an extreme, they could even pass out the medals before the competition even begins, based on projected performances.

In Tennis, the athletes are seeded in order based on estimated abilities. Why not skip the tennis matches and just give out the awards based on the seeding?

As another example, we could tip the service staff at a restaurant before the meal, based on the reputation of the staff or how they were rated by a restaurant critic.

Well, I think we know why we don’t do these things. First of all, people do not always live up to your expectations. The favored horse doesn’t always win; the best athlete can have a bad day. You can end up rewarding the wrong person if you reward too quickly. Second, if you reward people before they perform, they may not be as motivated to excel at finishing the performance well. Why give excellent service if you get the tip in advance?

No thank you. I’ll think I’ll wait until the results are in before I declare winners, pay off bets, hand out awards, or give out tips.

THE ANALOGY
It seems a little ridiculous to give out rewards too early in the game, perhaps even unjust or criminal. Yet we seem to do that in the business world all the time.

For example, there has been study after study throughout the decades concerning the success rates for acquisitions. Depending on the study methodology, somewhere between 60 to 90% of these deals fail. In other words, most of the deals will destroy value.

In spite of all the potential for failure, we pay investment bankers huge funds at the moment the deal is consummated—as a “reward” for helping us get the deal done. Since most deals fail, why are we rewarding these investment firms so well for very likely helping us destroy value?

Don’t you think we’d get better service from investment bankers (and have a higher success rate) if we withheld payment until it was known whether or not they were winners in helping us do a successful deal? Why do you think all those investment houses got into trouble in the current financial meltdown? I think a lot of it had to do with a system that provided them with huge financial rewards before all the votes were in on the quality of their performance. Why only do good work if the bad work is equally rewarded? It was about quantity, not quality.

The same goes for the home mortgage crisis. We rewarded the people writing the loans at the moment the papers were signed. This was too early in the race…it was not known yet which loans would be winners. Why try to win a race if you are rewarded every time you simply enter the race? As a result, we ended up with a lot of loser loans.

In the legal profession, there are many lawyers who only get paid if they are successful in working on your behalf. In other words, rewards aren’t handed out until we know who the winner is. Wouldn’t it be a novel idea to try something like that with the reward system in your company?

THE PRINCIPLE
The principle here is about linking rewards to success. Now you may be saying to yourself, “Of course I link rewards to success. Bonuses are only paid out if we successfully achieve the numbers.”

The problem is that the bonus cycle tends to be shorter than the strategy cycle. Getting a strategy successfully in place and then adhering to it/strengthening it can take years. Bonuses are paid out much sooner, before one knows whether:

a) The Strategy is Successful;
b) Whether the Strategy Has Been Successfully Implemented.

This is like paying off on bets before the horse race is over.

Here are some tips to help ensure that the rewards are going to the true winners.

1) Set Goals Around Success Rather Than Task Completion
The mortgage lenders were rewarded for signing up loans. The investment bankers were rewarded for doing a deal. In other words, they were rewarded for completing tasks. It didn’t matter how well the task was done. Rewards came whether the ultimate result of the task was successful or not. Bad mortgages and bad deals were rewarded the same as good ones, because they required the same task.

Just because a task is completed does not mean one is any closer to the goal. For example, I can think up all kinds of ways to temporarily boost sales which could end up obliterating the strategy—or worse yet, destroy the company. Does Enron come to mind?

Getting sales today which destroy your image, disappoint customers, involve illegal or immoral acts, move the company towards selling the wrong thing, or cause you to sell at a great financial loss are not successful sales. Similarly, not all near-term profits are a sign of long-term success. A profit “at any cost” is too high a cost. If I sell off the resources needed to create future profits today, how do I create profits tomorrow?

If all you do is reward people for completing tasks, the tasks will indeed get done. However, you may not like the long-term results caused by how the tasks get done. By contrast, if you reward success (both strategic and financial), people will find the proper tasks to reach the success. In other words, if you reward the right outcome, the process will take care of itself, but if you reward the process, you can get a horrible outcome.

Therefore, once a strategy is created, determine the key drivers of strategic success. Put a measurement to key drivers, and reward on that measure.

2) Link to the Big Picture
I believe that any reward system needs to not only reward people for the things they have complete control over, but also for achieving broader success for the entire organization. Success usually requires cooperation between business silos. If you only reward silo optimization, then the cross-functional necessities will get missed.

The big strategic picture should be important to everyone. People should be able to see how their function helps in achieving the big strategic picture. And part of the rewards need to be dependent on getting the entire company closer to that strategic goal.

You’d be amazed at how much indirect control/influence an area has in helping the get the cross-functional big-picture goals achieved, IF you put it into the reward system. Remember, it really doesn’t do you a whole lot of good to have one area humming along at full speed if the rest of the company is dragging you into failure. We’re all in this together.

3) Put Patience Into Your Payout
The problem with many reward systems is that it is easy to “game” them. In other words, people find ways to trick the system so that they can get rewards without really doing the things that lead to success.

One of the common ways to game a system is to take advantage of the difference between the timing of the bonus cycle and the strategy cycle. For example, if a strategic initiative takes two years and the reward is paid annually, one could game the system to push all of the “problems” into the second year, so that one could get a big reward in the first year. Granted, this would probably not get one a big reward in the second year, but if you averaged out the weak performance over the two years, it might have been less than the big bonus gained in the first year through gaming the system.

One way to get around this is to put some of the annual reward into a “bank” and only pay it out once it is determined that the strategic initiative was ultimately a success. If the long-term results are a failure, the money in the bank is forfeited back to the company. It may take a year or two to find out whether you really earned that reward.

Sure, this can be a tricky process to implement. But think of all those bad deals and bad mortgages which would not have happened if patience had been put into the system so that those people only got rewarded for the good ones.

Don’t pay it all out when the deal is done or the year is over. Hold some back until it is known if the effort leads to success.

4) Watch Out for Unintended Consequences
There is usually more than one way to hit a reward target. People will tend to pick the easy way over the successful way. For example, one company wanted to encourage the strategic intent of increasing innovation. To do so, they set reward targets based on the percent of sales coming from new products. That sounded pretty good, until they found out that some areas were achieving the goal by prematurely killing off profitable old businesses. It got to the reward, but did not live true to the strategic intent of accelerating innovation. Instead, it accelerated closing down good businesses.

Therefore, when setting the targets, try to think through the potential unintended consequences in advance. That way, you can minimize their unwelcome intrusion later on. For more on unintended consequences, see the blog on the "Chisholm Trail."

SUMMARY
Just as you wouldn’t want to reward a race horse before the race is over, you shouldn’t want to reward people in your business for actions until you know whether or not the actions lead to strategic success. One needs to set up a reward system that ensures that only the ultimate winning activities get rewarded. To do so requires: a) setting goals around successes rather than mere task completion, b) linking rewards to the strategic big picture, c) delaying some rewards until success is truly known, and d) avoiding goals with bad unintended consequences.

FINAL THOUGHTS
I knew someone who was handed a division to turnaround. There was money put into the budget to spend on repositioning the division. The person did not spend the money to turnaround the division. As a result, he got a huge bonus that year for exceeding budgeted profits, largely from not spending the repositioning money. The following year, the division was sold to an investor at a huge loss because it had not been successfully repositioned. Was that huge bonus really earned for achieving strategic success?

Analogy #186: Fat Cats

THE STORY
I have a cat which is terribly overweight. We try to get her to exercise, but she’d much rather just eat and sleep.

One thing the cat will do is go outside and walk around a bit. To encourage her to go outside more, we decided to reward that effort. Since her favorite reward is food, we would give her food as a reward after having spent time outside.

We wanted her to associate getting food with going out—to encourage her to go out and exercise more. Instead, she associated getting food with coming back in. So she started coming in more. Rather than spending a lot of time outside exercising, she would go out for only a few minutes and then come back in—expecting to get some food.

The cat would try to keep this routine up for awhile—go out for a couple of minutes, come back in for some food, immediately go back out for a couple of minutes, get more food, and so on. As a result of this routine, she was actually gaining weight rather than losing weight.

Obviously, this reward system had some flaws in it.

THE ANALOGY
We wanted to get the cat to exercise, but since she didn’t want to, we gave in to her food cravings to try to entice the right behavior. We did not end up getting the right behavior, because she found a loophole to fulfill her cravings without performing the right behavior. All we ended up with was a fat cat.

There are many “fat cats” in the business world as well. These are people who find a way to get excessively rich at the expense of the company without giving back much in return. We entice these people to come and stay with lots of money, because that’s what supposedly motivates them. In return, we expect to get some great productivity out of them.

However, just like my cat, they find a way to get what they want without helping to get what I want. In the end, they remain “fat cats” and I look like a big fat loser.

THE PRINCIPLE
The principle here is about getting the right linkage between motivators and desired outcomes. The closer the linkage, the higher the likelihood of success. In the case of my cat, the linkage was weak. I wanted to motivate exercise, but I did not choose a motivator directly related to exercise. I did not make exercise more exciting. I did not reduce the barriers to exercise to make it easier. I did not enhance her self-esteem through exercise.

Instead, I did the opposite. I rewarded her for stopping the exercise and coming back inside. I wanted her to become healthier, but the reward made her less healthy.

I was looking for a distant connection, where even though I did not really make exercise more appealing, I created a reward that loosely was connected to the exercise. It was so loose that she found a way to disconnect the reward from the task and get the food without the exercise.

In the business world, monetary rewards can often be just as ineffective. They are only loosely and indirectly tied to business behavior. For generations, study after study has shown that money is, at best a short-term motivator. After that, it doesn’t work well. People find loopholes to get the money without doing the desired work. Things like back-dating options or padding the budget get more attention than doing the work.

Enron failed because it relied too much on obscenely high monetary rewards to motivate behavior. To get their hands on all that money, the employees started bending the work rules. Rather than earning the money through hard work, attention moved to earning it through questionable business practices.

Shortly before the Enron meltdown, I spoke with one of their top executives about this issue. I was concerned that extremely high goals tied to extremely high monetary rewards could create people issues. He said that this practice tended to lure employees from investment banking who were used to this type of environment, so it worked fine with them. You get the type of people who are most in tune with your rewards. Enron wasn’t luring energy experts who loved the business. They were luring people who would stop at nothing to get their hands on big piles of cash.

According to Anders Dahlvig, CEO of IKEA, “Paying the highest as a strategy is a dangerous path to go on, as you only get people who are motivated by money, and they will leave when they get a better offer.” Instead, Dahlvig wants to find people who are motivated by more work-related items, so he tries to be the best at things like recognition, development and work conditions.

Marcus Buckingham at Gallop has done a lot of research into this area and agrees that they more you reward with items that are closely linked to the actual activity of work, the better off you are. Buckingham has boiled it down to 12 questions:

1. Do I know what is expected of me at work?
2. Do I have the materials and equipment that I need in order to do my work right?
3. At work, do I have the opportunity to do what I do best every day?
4. In the past seven days, have I received recognition or praise for doing good work?
5. Does my supervisor, or someone at work, seem to care about me as a person?
6. Is there someone at work who encourages my development?
7. At work, do my opinions seem to count?
8. Does the mission or purpose of my company make me feel that my job is important?
9. Are my coworkers committed to doing quality work?
10. Do I have a best friend at work?
11. In the past six months, has someone at work talked to me about my progress?
12. This past year, have I had opportunities at work to learn and grow?

If you focus on this more than the monetary rewards, you will get highly motivated employees who will give you their best. It lures the people who want a place where working well is highly valued. These are the people you want.

This is the driving force in the culture at Google. They wanted to build an environment where hard, dedicated workers want to be. They filled the campus with all sorts of perks (like food and entertainment), so that you’d want to stick around the office. They created a highly collaborative environment, where people could bond, making it even more desirable to stick around. They give freedom to pursue one’s own projects, one of the greatest motivators to the truly creative. Successful project completion is highly valued and recognized.

By using the motivators which are most tightly linked to the desired behavior, Google has a long waiting list of great people who are begging to work there.

I’ve been at places where the culture has shifted away from this to more of a money-based reward culture. The pattern is always the same. First, many of the best, most creative people leave. Of the ones who stay, they tend to be less emotionally tied to the company, so they don’t work as long or as hard. People who love the business are replaced by people who love the money. Teamwork is replaced by selfish greed. Performance suffers.

Passion is a wonderful thing. I’d take a roomful of people passionate about the business over those who are only there for a paycheck any day. Therefore, create motivations which appeal to passionate people.

Just as it’s hard to get a cat to lose weight when you bribe them with food, it’s hard to get a good work ethic when you bribe employees with non-work rewards like money. Money makes people want to leave work and enjoy spending the money. It makes people think of early retirement. And over time, it doesn’t make folks want to be better, more loyal employees.

SUMMARY
Executives frequently say that their most important asset is their people. Yet, when it comes time to develop strategies, people concerns are often just an afterthought, if mentioned at all. A key part of any good strategy should be making sure that you have the right people, properly motivated. Proper motivations try to get as tightly linked to the day to day work life as possible. This tends to have much greater success than mere cold cash.

FINAL THOUGHTS
One time, I was working at a company which had just released its proxy statement. Employees started reading the document to see how much money all the top executives where making (which, by the way, was quite a bit more than what those reading the proxy were making). Employees started complaining about the seeming pay “injustice.”

Finally, someone said that the reason the top executives make so much is because it takes that kind of money to lure that level of talent. Not being particularly impressed with these leaders, my response was, “You mean to say that if I paid less money, I could get a better level of talent?”

Sometimes, less money can actually improve the talent, provided you substitute it with something more closely linked to motivating talented leaders.

It's the Tactics

THE STORY
One time I was invited to be a part of a roundtable of retail strategists, sponsored by the Corporate Executive Board. There were about 18 retailers represented at the roundtable. Included in this mix was a broad spectrum of retail types, from high-end fashion to low-end commodities, from big box stores to little stores.

Some of these retail strategists came from what I call “tier 1” retailers, retailers who are respected for being among the best in the business. Others represented “tier 2” retailers—good firms, but with a few weaknesses.

At one point the question was asked, “What is your greatest strategic challenge.” We went around the table so that everyone could respond. The tier one retailers gave a variety of different answers to the question. The tier two retailers, however, mostly gave the same answer. They responded that their greatest strategic challenge was in trying to get the people out in the field to execute the strategy designed at headquarters. This problem was not mentioned by the tier one retailers. Gee, do you think there is a connection here?

THE ANALOGY
The fun and sexy part of strategic planning is the creation of the grand and glorious vision. This is where we create the story about how our company is going to achieve great success in the marketplace. The dull and more mundane part of the process can be making sure that the vision comes to life in the tactics out in the field.

Although this may not be as sexy, the story above seems to imply that the great companies seem to find a way to excel at getting tactical execution in the field. By contrast, the second tier companies struggle more with tactical execution. It would appear that unless one can master the art of the tactics, it is extremely difficult to achieve tier one status.

THE PRINCIPLE
Although there can be many reasons why a firm has difficulties in getting its field to execute the tactics, they tend to revolve around three principles:

1) Great Tactical Execution Requires Great Strategic Direction
2) Great Tactical Execution Requires Proper Motivation
3) Great Tactical Execution Requires Focus

These three principles are discussed below.

1) Great Tactical Execution Requires Great Strategic Direction
It is a lot easier to execute tactics if they are rooted in a great strategy. If your company’s strategy is based on a well crafted and well articulated position in the marketplace, then it is easier to make that position a reality.

Great strategic positions have the following characteristics:

a) Desirable: You are providing a solution which a significant number of people want.
b) Believable: There is ample evidence to convince people you are capable of delivering on that promised solution better than any one else.
c) Ownable: You are uniquely positioned to own this solution in the minds of the marketplace. Nobody else holds that position anywhere near as well as your company. It is your distinct point of market differentiation.
d) Achievable: You have built an infrastructure and competency so that you can truly deliver this solution better than anyone else. Given the constraints of who you are, this is a winnable position for the firm.

If you have a strong position like this and clearly communicate it to your employees and customers, then tactics are easier to achieve. Everyone can see what is important to your success, and the chosen success is based on owning something your firm can achieve.

To paraphrase my father, “Most great companies succeed because their selling proposition is so great that their employees cannot screw up enough to stop the success.”

If you have a vision which is not based on providing a unique and desirable solution in the marketplace, then consumers have a more difficult time finding a reason to patronize you. If the customer doesn’t have a compelling reason to choose you, then it is much harder for the field employees to get them to choose you.

If your vision is just to become better and become more like the market leader, you are facing a difficult execution battle. Why should a consumer switch from the market leader to patronize you if you are not as good as the leader (even if you are closer to being like the leader than before)? Even if you become good enough to be equal to the leader, why should a customer switch? To give your employees a shot at executing something great, you need to supply them with a plan that allows them to provide a point of superiority.

Without first developing a compelling position, expectations for field performance are often little more than “hopes.” You hope the field can pull it off these unrealistically high levels of performance, but you haven’t put anything in place that would make that hope very likely.

2) Great Tactical Execution Requires Proper Motivation
There’s an old saying that people perform best on that for which they are rewarded. Therefore, if you want great tactical execution of strategies out in the field, you need to reward that type of behavior.

I have seen instances where top executives will give “lip service” to the strategy when talking to the field, but reward them for something else. Whether it is intentional or not, when the employee out in the field hears this, their takeaway is something like this:

“If you have any spare time, it would be nice if you could put some effort behind the strategy, but your ‘day job’ comes first. If you do your day job right, you will get a big financial reward. If you do your day job wrong, you will get severely punished. If you do the strategic strategy right, I might give you a pat on the back, but still yell at you if the day job requirements suffered as a result.”

In such a situation, it is no wonder why it is difficult to get the strategy executed out in the field. The people out in the field are pragmatic and do what gets rewarded. If strategic tactics are not rewarded, then good luck in trying to get people to do them. You have to make these key tactics an important part of their “day job” definition.

Another problem occurs when rewards are given out even when performance has been poor. In his new book “Doing What Matters,” author James Kilts talks about his philosophy which allowed him to be so successful at Kraft, Nabisco and Gillette. When Kilts came to Gillette, the company was in trouble and was not executing well. What Kilts noticed was that people were rewarded for effort rather than performance. Kilts quickly changed that so that you were rewarded for succeeding rather than just trying. Suddenly, he started seeing a lot more successes.

3) Great Tactical Execution Requires Focus
Based on my observations, people in the field are far more likely to succeed if the company is focused. There are two aspects of focus which need emphasis—focus in scope and focus in time.

If you give people a list of 100 things to excel in, it is highly unlikely that they can achieve perfection at all 100. In fact, with that large of a load, it is likely that nothing will be done perfectly. However, if you narrow the list to about 4 to 6 items, it is likely that one can do well at all of them. This is the principle of focus in scope. Narrow the scope of areas of excellence so that it is manageable.

Focus on only 4 to 6 areas where execution is critical. Later, as these areas are mastered, one can change the focus to a short list of other tactical areas. Thus, instead of trying to get it all done at once, do it sequentially in small bites. Find a simple metric to measure each of the handful of executional behaviors you desire and tie this to rewards.

Next comes the focus in time. When you spend time with the people in the field, what topics dominate the discussion? When the people in the field are working, how much time do they spend on these handfuls of expectations? The goal should be to get so focused on these handfuls of behavior that they become a meaningful part of every day. A large part of every day should focus on these important tasks.

For example, the key metrics should be updated as frequently as possible—daily, if it makes sense. Every day, when the field gets to work, they should be aware of the most recent performance on these metrics, not only for the entire company, but for their particular area. Not only does this provide great feedback on performance, but it also shows that you are serious about these issues. Whenever you talk to the people in the field, bring up the key areas and the most recent metrics. The more time spent on the key areas, the more likely they will get executed well.

SUMMARY
Great strategies are more than just great ideas. They are great ideas executed greatly out in the field. The strategic planning process does not end when the idea forming is completed. The process must include making sure the hand-off to the field is done properly. To ensure good field execution, it pays to have a strategy built upon a viable position, with proper rewards, and proper focus.

FINAL THOUGHTS
I’ve seen compensation systems that were so complex that nobody could figure out which behavior would optimize their reward. Hence, reward systems need to be focused as well.