The Secrets to Successful Strategy Execution
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The Elements of Strong Execution · 1. Everyone has a good idea of the decisions and actions for which he or she is responsible. · 2. Important information about ... Youhave1freearticlesleftthismonth. Youarereadingyourlastfreearticleforthismonth. Subscribeforunlimitedaccess. Createanaccounttoread2more. Strategyexecution TheSecretstoSuccessfulStrategyExecution Researchshowsthatenterprisesfailatexecutionbecausetheygostraighttostructuralreorganizationandneglectthemostpowerfuldriversofeffectiveness—decisionrightsandinformationflow. by GaryL.Neilson, KarlaL.Martin, and ElizabethPowers by GaryL.Neilson, KarlaL.Martin, and ElizabethPowers FromtheMagazine(June2008) Tweet Post Share Save GetPDF BuyCopies Print Summary. Reprint:R0806C Whenacompanyfindsitselfunabletoexecutestrategy,alltoooftenthefirstreactionistoredrawtheorganizationchartortinkerwithincentives.Farmoreeffectivewouldbetoclarifydecisionrightsandimprovetheflowofinformationbothupthelineofcommandandacrosstheorganization.Then,therightstructuresandmotivatorstendtofallintoplace. Thatconclusionisborneoutbytheauthors’decadesofexperienceasBooz&Companyconsultantsandbythesurveydatathattheyhavebeencollectingforalmostfiveyearsfrommorethan125,000employeesofsome1,000organizationsinmorethan50countries.Fromthisdatatheyhavedistilled—andrankedinorderofimportance—thetop17traitsexhibitedbytheorganizationsthataremosteffectiveatexecutingstrategy. Thesinglemostcommonattributeofsuchcompaniesisthattheiremployeesareclearaboutwhichdecisionsandactionstheyareresponsiblefor.Asaresult,decisionsarerarelysecond-guessed,andaccuratecompetitiveinformationquicklyfindsitswayupthehierarchyandacrossorganizationalboundaries.Managerscommunicatethekeydriversofsuccess,sofrontlineemployeeshavetheinformationtheyneedtounderstandtheimpactoftheirday-to-dayactions. Motivators—likeperformanceappraisalsthatdistinguishhigh,adequate,andlowperformersandrewardsforfulfillingparticularcommitments—arealsoimportantbutaremosteffectivewhenappliedafterdecisionrightsandinformationflowshavebeenaddressed.Thatholdstrueforstructuralmovesaswell.Surprisingly,themosteffectivestructuralmovesturnouttobepromotingpeoplelaterally—andmoreslowly. Howcanyoumakethemosteducatedandcost-efficientdecisionsaboutwhichchangeinitiativestoimplement?Theauthorshavedevelopedapowerfulonlinediagnosticandsimulationtoolthatcanhelpyoutesttheeffectivenessofvariousapproachesvirtually,withoutriskingsignificantamountsoftimeandmoney. Tweet Post Share Save GetPDF BuyCopies Print TheIdeainBrief Abrilliantstrategymayputyouonthecompetitivemap.Butonlysolidexecutionkeepsyouthere.Unfortunately,mostcompaniesstrugglewithimplementation.That’sbecausetheyoverrelyonstructuralchanges,suchasreorganization,toexecutetheirstrategy. Thoughstructuralchangehasitsplaceinexecution,itproducesonlyshort-termgains.Forexample,onecompanyreduceditsmanagementlayersaspartofastrategytoaddressdisappointingperformance.Costsplummetedinitially,butthelayerssooncreptbackin. ResearchbyNeilson,Martin,andPowersshowsthatexecutionexemplarsfocustheireffortsontwoleversfarmorepowerfulthanstructuralchange: Clarifyingdecisionrights—forinstance,specifyingwho“owns”eachdecisionandwhomustprovideinput Ensuringinformationflowswhereit’sneeded—suchaspromotingmanagerslaterallysotheybuildnetworksneededforthecross-unitcollaborationcriticaltoanewstrategy Tackledecisionrightsandinformationflowsfirst,andonlythenalterorganizationalstructuresandrealignincentivestosupportthosemoves. TheIdeainPractice Thefollowingleversmattermostforsuccessfulstrategyexecution: DecisionRights Ensurethateveryoneinyourcompanyknowswhichdecisionsandactionsthey’reresponsiblefor. Example: Inoneglobalconsumer-goodscompany,decisionsmadebydivisionalandgeographicleaderswereoverriddenbycorporatefunctionalleaderswhocontrolledresourceallocations.Decisionsstalled.Overheadcostsmountedasdivisionsaddedstafftocreatebulletproofcasesforchallengingcorporatedecisions.Tosupportanewstrategyhingingonsharpercustomerfocus,theCEOdesignatedaccountabilityforprofitsunambiguouslytothedivisions. Encouragehigher-levelmanagerstodelegateoperationaldecisions. Example: Atoneglobalcharitableorganization,country-levelmanagers’inabilitytodelegateledtodecisionparalysis.Sotheleadershipteamencouragedcountrymanagerstodelegatestandardoperationaltasks.Thisfreedthesemanagerstofocusondevelopingthestrategiesneededtofulfilltheorganization’smission. InformationFlow Makesureimportantinformationaboutthecompetitiveenvironmentflowsquicklytocorporateheadquarters.Thatway,thetopteamcanidentifypatternsandpromulgatebestpracticesthroughoutthecompany. Example: Atoneinsurancecompany,accurateinformationaboutprojects’viabilitywascensoredasitmovedupthehierarchy.Toimproveinformationflowtoseniorlevelsofmanagement,thecompanytookstepstocreateamoreopen,informalculture.Topexecutivesbeganminglingwithunitleadersduringmanagementmeetingsandheldregularbrown-bagluncheswherepeoplediscussedthecompany’smostpressingissues. Facilitateinformationflowacrossorganizationalboundaries. Example: Tobettermanagerelationshipswithlarge,cross-productcustomers,aB2Bcompanyneededitsunitstotalkwithoneanother.Itchargeditsnewlycreatedcustomer-focusedmarketinggroupwithencouragingcross-companycommunication.Thegroupissuedregularreportsshowingperformanceagainsttargets(byproductandgeography)andsuppliedroot-causeanalysesofperformancegaps.Quarterlyperformance-managementmeetingsfurtherfosteredthetrustrequiredforcollaboration. Helpfieldandlineemployeesunderstandhowtheirday-to-daychoicesaffectyourcompany’sbottomline. Example: Atafinancialservicesfirm,salespeopleroutinelycraftedcustomizedone-offdealswithclientsthatcostthecompanymorethanitmadeinrevenues.Salesdidn’tunderstandthecostandcomplexityimplicationsofthesetransactions.Managementaddressedtheinformationmisalignmentbyadoptinga“smartcustomization”approachtosales.Forcustomizeddeals,itestablishedstandardizedback-officeprocesses(suchasriskassessment).Italsodevelopedanalyticalsupporttoolstoarmsalespeoplewithaccurateinformationonthecostimplicationsoftheirproposedtransactions.Profitabilityimproved. Leerenespañol Leremportuguês IDEAINPRACTICE: Anin-depthlookathowoneEuropeanindustrial-goodscompanyusedtheideasinthisarticletoimproveexecution. INTERACTIVETOOL:Usethissimulatortotesttheeffectivenessofvariouschangeinitiatives. Abrilliantstrategy,blockbusterproduct,orbreakthroughtechnologycanputyouonthecompetitivemap,butonlysolidexecutioncankeepyouthere.Youhavetobeabletodeliveronyourintent.Unfortunately,themajorityofcompaniesaren’tverygoodatit,bytheirownadmission.Overthepastfiveyears,wehaveinvitedmanythousandsofemployees(about25%ofwhomcamefromexecutiveranks)tocompleteanonlineassessmentoftheirorganizations’capabilities,aprocessthat’sgeneratedadatabaseof125,000profilesrepresentingmorethan1,000companies,governmentagencies,andnot-for-profitsinover50countries.Employeesatthreeoutofeveryfivecompaniesratedtheirorganizationweakatexecution—thatis,whenaskediftheyagreedwiththestatement“Importantstrategicandoperationaldecisionsarequicklytranslatedintoaction,”themajorityansweredno. Executionistheresultofthousandsofdecisionsmadeeverydaybyemployeesactingaccordingtotheinformationtheyhaveandtheirownself-interest.Inourworkhelpingmorethan250companieslearntoexecutemoreeffectively,we’veidentifiedfourfundamentalbuildingblocksexecutivescanusetoinfluencethoseactions—clarifyingdecisionrights,designinginformationflows,aligningmotivators,andmakingchangestostructure.(Forsimplicity’ssakewerefertothemasdecisionrights,information,motivators,andstructure.) Ineffortstoimproveperformance,mostorganizationsgorighttostructuralmeasuresbecausemovinglinesaroundtheorgchartseemsthemostobvioussolutionandthechangesarevisibleandconcrete.Suchstepsgenerallyreapsomeshort-termefficienciesquickly,butinsodoingaddressonlythesymptomsofdysfunction,notitsrootcauses.Severalyearslater,companiesusuallyendupinthesameplacetheystarted.Structuralchangecanandshouldbepartofthepathtoimprovedexecution,butit’sbesttothinkofitasthecapstone,notthecornerstone,ofanyorganizationaltransformation.Infact,ourresearchshowsthatactionshavingtodowithdecisionrightsandinformationarefarmoreimportant—abouttwiceaseffective—asimprovementsmadetotheothertwobuildingblocks.(Seetheexhibit“WhatMattersMosttoStrategyExecution.”) WhatMattersMosttoStrategyExecution Whenacompanyfailstoexecuteitsstrategy,thefirstthingmanagersoftenthinktodoisrestructure.Butourresearchshowsthatthefundamentalsofgoodexecutionstartwithclarifyingdecisionrightsandmakingsureinformationflowswhereitneedstogo.Ifyougetthoseright,thecorrectstructureandmotivatorsoftenbecomeobvious. Take,forexample,thecaseofaglobalconsumerpackaged-goodscompanythatlurcheddownthereorganizationpathintheearly1990s.(Wehavealteredidentifyingdetailsinthisandothercasesthatfollow.)Disappointedwithcompanyperformance,seniormanagementdidwhatmostcompaniesweredoingatthattime:Theyrestructured.Theyeliminatedsomelayersofmanagementandbroadenedspansofcontrol.Management-staffingcostsquicklyfellby18%.Eightyearslater,however,itwasdéjà vu.Thelayershadcreptbackin,andspansofcontrolhadonceagainnarrowed.Inaddressingonlystructure,managementhadattackedthevisiblesymptomsofpoorperformancebutnottheunderlyingcause—howpeoplemadedecisionsandhowtheywereheldaccountable. Thistime,managementlookedbeyondlinesandboxestothemechanicsofhowworkgotdone.Insteadofsearchingforwaystostripoutcosts,theyfocusedonimprovingexecution—andintheprocessdiscoveredthetruereasonsfortheperformanceshortfall.Managersdidn’thaveaclearsenseoftheirrespectiverolesandresponsibilities.Theydidnotintuitivelyunderstandwhichdecisionsweretheirstomake.Moreover,thelinkbetweenperformanceandrewardswasweak.Thiswasacompanylongonmicromanagingandsecond-guessing,andshortonaccountability.Middlemanagersspent40%oftheirtimejustifyingandreportingupwardorquestioningthetacticaldecisionsoftheirdirectreports. Armedwiththisunderstanding,thecompanydesignedanewmanagementmodelthatestablishedwhowasaccountableforwhatandmadetheconnectionbetweenperformanceandreward.Forinstance,thenormatthiscompany,notunusualintheindustry,hadbeentopromotepeoplequickly,within18monthstotwoyears,beforetheyhadachancetoseetheirinitiativesthrough.Asaresult,managersateverylevelkeptdoingtheiroldjobsevenaftertheyhadbeenpromoted,peeringovertheshouldersofthedirectreportswhowerenowinchargeoftheirprojectsand,alltoofrequently,takingover.Today,peoplestayintheirpositionslongersotheycanfollowthroughontheirowninitiatives,andthey’restillaroundwhenthefruitsoftheirlaborsstarttokickin.What’smore,resultsfromthoseinitiativescontinuetocountintheirperformancereviewsforsometimeafterthey’vebeenpromoted,forcingmanagerstolivewiththeexpectationsthey’dsetintheirpreviousjobs.Asaconsequence,forecastinghasbecomemoreaccurateandreliable.Theseactionsdidyieldastructurewithfewerlayersandgreaterspansofcontrol,butthatwasasideeffect,nottheprimaryfocus,ofthechanges. TheElementsofStrongExecution Ourconclusionsariseoutofdecadesofpracticalapplicationandintensiveresearch.Nearlyfiveyearsago,weandourcolleaguessetouttogatherempiricaldatatoidentifytheactionsthatweremosteffectiveinenablinganorganizationtoimplementstrategy.Whatparticularwaysofrestructuring,motivating,improvinginformationflows,andclarifyingdecisionrightsmatteredthemost?Westartedbydrawingupalistof17traits,eachcorrespondingtooneormoreofthefourbuildingblocksweknewcouldenableeffectiveexecution—traitslikethefreeflowofinformationacrossorganizationalboundariesorthedegreetowhichseniorleadersrefrainfromgettinginvolvedinoperatingdecisions.Withthesefactorsinmind,wedevelopedanonlineprofilerthatallowsindividualstoassesstheexecutioncapabilitiesoftheirorganizations.Overthenextfouryearsorso,wecollecteddatafrommanythousandsofprofiles,whichinturnallowedustomorepreciselycalibratetheimpactofeachtraitonanorganization’sabilitytoexecute.Thatallowedustorankall17traitsinorderoftheirrelativeinfluence.(Seetheexhibit“The17FundamentalTraitsofOrganizationalEffectiveness.) The17FundamentalTraitsofOrganizationalEffectiveness Fromoursurveyresearchdrawnfrommorethan26,000peoplein31companies,wehavedistilledthetraitsthatmakeorganizationseffectiveatimplementingstrategy.Heretheyare,inorderofimportance. Rankingthetraitsmakesclearhowimportantdecisionrightsandinformationaretoeffectivestrategyexecution.Thefirsteighttraitsmapdirectlytodecisionrightsandinformation.Onlythreeofthe17traitsrelatetostructure,andnoneofthoserankshigherthan13th.We’llwalkthroughthetopfivetraitshere. 1.Everyonehasagoodideaofthedecisionsandactionsforwhichheorsheisresponsible. Incompaniesstrongonexecution,71%ofindividualsagreewiththisstatement;thatfiguredropsto32%inorganizationsweakonexecution. Blurringofdecisionrightstendstooccurasacompanymatures.Youngorganizationsaregenerallytoobusygettingthingsdonetodefinerolesandresponsibilitiesclearlyattheoutset.Andwhyshouldthey?Inasmallcompany,it’snotsodifficulttoknowwhatotherpeopleareupto.Soforatime,thingsworkoutwellenough.Asthecompanygrows,however,executivescomeandgo,bringinginwiththemandtakingawaydifferentexpectations,andovertimetheapprovalprocessgetsevermoreconvolutedandmurky.Itbecomesincreasinglyunclearwhereoneperson’saccountabilitybeginsandanother’sends. Oneglobalconsumer-durablescompanyfoundthisoutthehardway.ItwassorifewithpeoplemakingcompetingandconflictingdecisionsthatitwashardtofindanyonebelowtheCEOwhofelttrulyaccountableforprofitability.Thecompanywasorganizedinto16productdivisionsaggregatedintothreegeographicgroups—NorthAmerica,Europe,andInternational.Eachofthedivisionswaschargedwithreachingexplicitperformancetargets,butfunctionalstaffatcorporateheadquarterscontrolledspendingtargets—howR&Ddollarswereallocated,forinstance.Decisionsmadebydivisionalandgeographicleaderswereroutinelyoverriddenbyfunctionalleaders.Overheadcostsbegantomountasthedivisionsaddedstafftohelpthemcreatebulletproofcasestochallengecorporatedecisions. Decisionsstalledwhiledivisionsnegotiatedwithfunctions,eachlayerweighinginwithquestions.Functionalstaffersinthedivisions(financialanalysts,forexample)oftendeferredtotheirhigher-upsincorporateratherthantheirdivisionvicepresident,sincefunctionalleaderswereresponsibleforrewardsandpromotions.OnlytheCEOandhisexecutiveteamhadthediscretiontoresolvedisputes.Allofthesesymptomsfedononeanotherandcollectivelyhamperedexecution—untilanewCEOcamein. EssentialBackground WhatIsStrategy? CompetitiveStrategy Feature MichaelE.Porter It’snotoperationaleffectiveness,forone. Save Share Thenewchiefexecutivechosetofocuslessoncostcontrolandmoreonprofitablegrowthbyredefiningthedivisionstofocusonconsumers.Aspartoftheneworganizationalmodel,theCEOdesignatedaccountabilityforprofitsunambiguouslytothedivisionsandalsogavethemtheauthoritytodrawonfunctionalactivitiestosupporttheirgoals(aswellasmorecontrolofthebudget).Corporatefunctionalrolesanddecisionrightswererecasttobettersupportthedivisions’needsandalsotobuildthecross-divisionallinksnecessaryfordevelopingtheglobalcapabilitiesofthebusinessasawhole.Forthemostpart,thefunctionalleadersunderstoodthemarketrealities—andthatchangeentailedsomeadjustmentstotheoperatingmodelofthebusiness.IthelpedthattheCEObroughtthemintotheorganizationalredesignprocess,sothatthenewmodelwasn’tsomethingimposedonthemasmuchasitwassomethingtheyengagedinandbuilttogether. 2.Importantinformationaboutthecompetitiveenvironmentgetstoheadquartersquickly. Onaverage,77%ofindividualsinstrong-executionorganizationsagreewiththisstatement,whereasonly45%ofthoseinweak-executionorganizationsdo. Headquarterscanserveapowerfulfunctioninidentifyingpatternsandpromulgatingbestpracticesthroughoutbusinesssegmentsandgeographicregions.Butitcanplaythiscoordinatingroleonlyifithasaccurateandup-to-datemarketintelligence.Otherwise,itwilltendtoimposeitsownagendaandpoliciesratherthandefertooperationsthataremuchclosertothecustomer. Considerthecaseofheavy-equipmentmanufacturerCaterpillar.1Todayitisahighlysuccessful$45billionglobalcompany,butagenerationago,Caterpillar’sorganizationwassobadlymisalignedthatitsveryexistencewasthreatened.DecisionrightswerehoardedatthetopbyfunctionalgeneralofficeslocatedatheadquartersinPeoria,Illinois,whilemuchoftheinformationneededtomakethosedecisionsresidedinthefieldwithsalesmanagers.“Itjusttookalongtimetogetdecisionsgoingupanddownthefunctionalsilos,andtheyreallyweren’tgoodbusinessdecisions;theyweremorefunctionaldecisions,”notedonefieldexecutive.CurrentCEOJimOwens,thenamanagingdirectorinIndonesia,toldusthatsuchinformationthatdidmakeittothetophadbeen“whitewashedandvarnishedseveraltimesoveralongtheway.”Cutofffrominformationabouttheexternalmarket,seniorexecutivesfocusedontheorganization’sinternalworkings,overanalyzingissuesandsecond-guessingdecisionsmadeatlowerlevels,costingthecompanyopportunitiesinfast-movingmarkets. AbouttheData Wetestedorganizationaleffectivenessbyhavingpeoplefilloutanonlinediagnostic,atoolcomprising19questions(17thatdescribeorganizationaltraitsandtwothatdescribeoutcomes).Todeterminewhichofthe17traitsinourprofileraremoststronglyassociatedwithexcellenceinexecution,welookedat31companiesinourdatabaseforwhichwehadresponsesfromatleast150individual(anonymouslycompleted)profiles,foratotalof26,743responses.Applyingregressionanalysistoeachofthe31datasets,wecorrelatedthe17traitswithourmeasureoforganizationaleffectiveness,whichwedefinedasanaffirmativeresponsetotheoutcomestatement,“Importantstrategicandoperationaldecisionsarequicklytranslatedintoaction.”Thenwerankedthetraitsinorder,accordingtothenumberofdatasetsinwhichthetraitexhibitedasignificantcorrelationwithourmeasureofsuccesswithina90%confidenceinterval.Finally,weindexedtheresulttoa100-pointscale.Thetoptrait—“Everyonehasagoodideaofthedecisionsandactionsforwhichheorsheisresponsible”—exhibitedasignificantpositivecorrelationwithoursuccessindicatorin25ofthe31datasets,foranindexscoreof81. Pricing,forexample,wasbasedoncostanddeterminednotbymarketrealitiesbutbythepricinggeneralofficeinPeoria.SalesrepresentativesacrosstheworldlostsaleaftersaletoKomatsu,whosecompetitivepricingconsistentlybeatCaterpillar’s.In1982,thecompanypostedthefirstannuallossinitsalmost-60-yearhistory.In1983and1984,itlost$1millionaday,sevendaysaweek.Bytheendof1984,Caterpillarhadlostabilliondollars.By1988,then-CEOGeorgeSchaeferstoodatopanentrenchedbureaucracythatwas,inhiswords,“tellingmewhatIwantedtohear,notwhatIneededtoknow.”So,heconvenedataskforceof“renegade”middlemanagersandtaskedthemwithchartingCaterpillar’sfuture. Ironically,thewaytoensurethattherightinformationflowedtoheadquarterswastomakesuretherightdecisionsweremademuchfurtherdowntheorganization.Bydelegatingoperationalresponsibilitytothepeopleclosertotheaction,topexecutiveswerefreetofocusonmoreglobalstrategicissues.Accordingly,thecompanyreorganizedintobusinessunits,makingeachaccountableforitsownP&Lstatement.Thefunctionalgeneralofficesthathadbeenall-powerfulceasedtoexist,literallyovernight.Theirtalentandexpertise,includingengineering,pricing,andmanufacturing,wereparceledouttothenewbusinessunits,whichcouldnowdesigntheirownproducts,developtheirownmanufacturingprocessesandschedules,andsettheirownprices.Themovedramaticallydecentralizeddecisionrights,givingtheunitscontrolovermarketdecisions.ThebusinessunitP&Lswerenowmeasuredconsistentlyacrosstheenterprise,asreturnonassetsbecametheuniversalmeasureofsuccess.Withthisaccurate,up-to-date,anddirectlycomparableinformation,seniordecisionmakersatheadquarterscouldmakesmartstrategicchoicesandtrade-offsratherthanuseoutdatedsalesdatatomakeineffective,tacticalmarketingdecisions. Within18months,thecompanywasworkinginthenewmodel.“Thiswasarevolutionthatbecamearenaissance,”Owensrecalls,“aspectaculartransformationofakindofsluggishcompanyintoonethatactuallyhasentrepreneurialzeal.Andthattransitionwasveryquickbecauseitwasdecisiveanditwascomplete;itwasthorough;itwasuniversal,worldwide,allatonetime.” 3.Oncemade,decisionsarerarelysecond-guessed. Whethersomeoneissecond-guessingdependsonyourvantagepoint.Amoreseniorandbroaderenterpriseperspectivecanaddvaluetoadecision,butmanagersupthelinemaynotbeaddingincrementalvalue;instead,theymaybestallingprogressbyredoingtheirsubordinates’jobswhile,ineffect,shirkingtheirown.Inourresearch,71%ofrespondentsinweak-executioncompaniesthoughtthatdecisionswerebeingsecond-guessed,whereasonly45%ofthosefromstrong-executionorganizationsfeltthatway. Recently,weworkedwithaglobalcharitableorganizationdedicatedtoalleviatingpoverty.Ithadaproblemothersmightenvy:Itwassufferingfromthestrainbroughtonbyarapidgrowthindonationsandacorrespondingincreaseinthedepthandbreadthofitsprogramofferings.Asyoumightexpect,thisnonprofitwaspopulatedwithpeopleonamissionwhotookintensepersonalownershipofprojects.Itdidnotrewardthedelegationofeventhemostmundaneadministrativetasks.Country-levelmanagers,forexample,wouldpersonallyoverseecopierrepairs.Managers’inabilitytodelegateledtodecisionparalysisandalackofaccountabilityastheorganizationgrew.Second-guessingwasanartform.Whentherewasdoubtoverwhowasempoweredtomakeadecision,thedefaultwasoftentohaveaseriesofmeetingsinwhichnodecisionwasreached.Whendecisionswerefinallymade,theyhadgenerallybeenvettedbysomanypartiesthatnoonepersoncouldbeheldaccountable.Anefforttoexpeditedecision-makingthroughrestructuring—bycollocatingkeyleaderswithsubject-matterexpertsinnewlyestablishedcentralandregionalcentersofexcellence—becameinsteadanotherlogjam.Keymanagersstillweren’tsureoftheirrighttotakeadvantageofthesecenters,sotheydidn’t. Second-guessingwasanartform:Whendecisionswerefinallymade,theyhadgenerallybeenvettedbysomanypartiesthatnoonepersoncouldbeheldaccountable. Thenonprofit’smanagementanddirectorswentbacktothedrawingboard.Weworkedwiththemtodesignadecision-makingmap,atooltohelpidentifywheredifferenttypesofdecisionsshouldbetaken,andwithittheyclarifiedandenhanceddecisionrightsatalllevelsofmanagement.Allmanagerswerethenactivelyencouragedtodelegatestandardoperationaltasks.Oncepeoplehadaclearideaofwhatdecisionstheyshouldandshouldnotbemaking,holdingthemaccountablefordecisionsfeltfair.What’smore,nowtheycouldfocustheirenergiesontheorganization’smission.Clarifyingdecisionrightsandresponsibilitiesalsoimprovedtheorganization’sabilitytotrackindividualachievement,whichhelpeditchartnewandappealingcareer-advancementpaths. 4.Informationflowsfreelyacrossorganizationalboundaries. Wheninformationdoesnotflowhorizontallyacrossdifferentpartsofthecompany,unitsbehavelikesilos,forfeitingeconomiesofscaleandthetransferofbestpractices.Moreover,theorganizationasawholelosestheopportunitytodevelopacadreofup-and-comingmanagerswellversedinallaspectsofthecompany’soperations.Ourresearchindicatesthatonly21%ofrespondentsfromweak-executioncompaniesthoughtinformationflowedfreelyacrossorganizationalboundarieswhereas55%ofthosefromstrong-executionfirmsdid.Sincescoresforeventhestrongcompaniesareprettylow,though,thisisanissuethatmostcompaniescanworkon. Acautionarytalecomesfromabusiness-to-businesscompanywhosecustomerandproductteamsfailedtocollaborateinservingakeysegment:large,cross-productcustomers.Tomanagerelationshipswithimportantclients,thecompanyhadestablishedacustomer-focusedmarketinggroup,whichdevelopedcustomeroutreachprograms,innovativepricingmodels,andtailoredpromotionsanddiscounts.Butthisgroupissuednoclearandconsistentreportsofitsinitiativesandprogresstotheproductunitsandhaddifficultysecuringtimewiththeregularcross-unitmanagementtodiscusskeyperformanceissues.Eachproductunitcommunicatedandplannedinitsownway,andittooktremendousenergyforthecustomergrouptounderstandtheunits’variousprioritiesandtailorcommunicationstoeachone.Sotheunitswerenotaware,andhadlittlefaith,thatthisnewdivisionwasmakingconstructiveinroadsintoakeycustomersegment.Conversely(andpredictably),thecustomerteamfelttheunitspaidonlyperfunctoryattentiontoitsplansandcouldn’tgettheircooperationonissuescriticaltomultiproductcustomers,suchaspotentialtrade-offsandvolumediscounts. Historically,thislackofcollaborationhadn’tbeenaproblembecausethecompanyhadbeenthedominantplayerinahigh-marginmarket.Butasthemarketbecamemorecompetitive,customersbegantoviewthefirmasunreliableand,generally,asadifficultsupplier,andtheybecameincreasinglyreluctanttoenterintofavorablerelationships. Oncetheissuesbecameclear,though,thesolutionwasn’tterriblycomplicated,involvinglittlemorethangettingthegroupstotalktooneanother.Thecustomerdivisionbecameresponsibleforissuingregularreportstotheproductunitsshowingperformanceagainsttargets,byproductandgeographicregion,andforsupplyingasupportingroot-causeanalysis.Astandingperformance-managementmeetingwasplacedonthescheduleeveryquarter,creatingaforumforexchanginginformationface-to-faceanddiscussingoutstandingissues.Thesemovesbredthebroaderorganizationaltrustrequiredforcollaboration. 5.Fieldandlineemployeesusuallyhavetheinformationtheyneedtounderstandthebottom-lineimpactoftheirday-to-daychoices. Rationaldecisionsarenecessarilyboundedbytheinformationavailabletoemployees.Ifmanagersdon’tunderstandwhatitwillcosttocaptureanincrementaldollarinrevenue,theywillalwayspursuetheincrementalrevenue.Theycanhardlybefaulted,eveniftheirdecisionis—inthelightoffullinformation—wrong.Ourresearchshowsthat61%ofindividualsinstrong-executionorganizationsagreethatfieldandlineemployeeshavetheinformationtheyneedtounderstandthebottom-lineimpactoftheirdecisions.Thisfigureplummetsto28%inweak-executionorganizations. Wesawthisunhealthydynamicplayoutatalarge,diversifiedfinancial-servicesclient,whichhadbeenbuiltthroughaseriesofsuccessfulmergersofsmallregionalbanks.Incombiningoperations,managershadchosentoseparatefront-officebankerswhosoldloansfromback-officesupportgroupswhodidriskassessments,placingeachinadifferentreportingrelationshipand,inmanycases,indifferentlocations.Unfortunately,theyfailedtoinstitutethenecessaryinformationandmotivationlinkstoensuresmoothoperations.Asaresult,eachpursueddifferent,andoftencompeting,goals. FurtherReading BringingSciencetotheArtofStrategy Strategy Feature A.G.Lafley,RogerMartin,JanW.Rivkin,andNicolajSiggelkow P&Gusedrigorandcreativity.Yourcompanycantoo. Save Share Forexample,salespeoplewouldroutinelyenterintohighlycustomizedone-offdealswithclientsthatcostthecompanymorethantheymadeinrevenues.Salesdidnothaveaclearunderstandingofthecostandcomplexityimplicationsofthesetransactions.Withoutsufficientinformation,salesstaffbelievedthattheback-endpeopleweresabotagingtheirdeals,whilethesupportgroupsconsideredthefront-endpeopletobecowboys.Atyear’send,whenthedatawerefinallyreconciled,managementwouldbemoanthesharpincreaseinoperationalcosts,whichoftenerasedtheprofitfromthesetransactions. Executivesaddressedthisinformationmisalignmentbyadoptinga“smartcustomization”approachtosales.Theystandardizedtheend-to-endprocessesusedinthemajorityofdealsandallowedforcustomizationonlyinselectcircumstances.Forthesecustomizeddeals,theyestablishedclearback-officeprocessesandanalyticalsupporttoolstoarmsalespeoplewithaccurateinformationonthecostimplicationsoftheproposedtransactions.Atthesametime,theyrolledoutcommonreportingstandardsandtoolsforboththefront-andback-officeoperationstoensurethateachgrouphadaccesstothesamedataandmetricswhenmakingdecisions.Onceeachsideunderstoodthebusinessrealitiesconfrontedbytheother,theycooperatedmoreeffectively,actinginthewholecompany’sbestinterests—andtherewerenomoreyear-endsurprises. CreatingaTransformationProgram Thefourbuildingblocksthatmanagerscanusetoimprovestrategyexecution—decisionrights,information,structure,andmotivators—areinextricablylinked.Uncleardecisionrightsnotonlyparalyzedecisionmakingbutalsoimpedeinformationflow,divorceperformancefromrewards,andpromptwork-aroundsthatsubvertformalreportinglines.Blockinginformationresultsinpoordecisions,limitedcareerdevelopment,andareinforcementofstructuralsilos.Sowhattodoaboutit? Sinceeachorganizationisdifferentandfacesauniquesetofinternalandexternalvariables,thereisnouniversalanswertothatquestion.Thefirststepistoidentifythesourcesoftheproblem.Inourwork,weoftenbeginbyhavingacompany’semployeestakeourprofilingsurveyandconsolidatingtheresults.Themorepeopleintheorganizationwhotakethesurvey,thebetter. Onceexecutivesunderstandtheircompany’sareasofweakness,theycantakeanynumberofactions.Theexhibit,“MappingImprovementstotheBuildingBlocks:SomeSampleTactics”shows15possiblestepsthatcanhaveanimpactonperformance.(Theoptionslistedrepresentonlyasamplingofthedozensofchoicesmanagersmightmake.)Alloftheseactionsaregearedtowardstrengtheningoneormoreofthe17traits.Forexample,ifyouweretotakestepsto“clarifyandstreamlinedecisionmaking”youcouldpotentiallystrengthentwotraits:“Everyonehasagoodideaofthedecisionsandactionsforwhichheorsheisresponsible,”and“Oncemade,decisionsarerarelysecond-guessed.” MappingImprovementstotheBuildingBlocks:SomeSampleTactics Companiescantakeahostofstepstoimprovetheirabilitytoexecutestrategy.The15hereareonlysomeofthepossibleexamples.Everyonestrengthensoneormoreofthebuildingblocksexecutivescanusetoimprovetheirstrategy-executioncapability:clarifyingdecisionrights,improvinginformation,establishingtherightmotivators,andrestructuringtheorganization. Youcertainlywouldn’twanttoput15initiativesinasingletransformationprogram.Mostorganizationsdon’thavethemanagerialcapacityororganizationalappetitetotakeonmorethanfiveorsixatatime.Andaswe’vestressed,youshouldfirsttakestepstoaddressdecisionrightsandinformation,andthendesignthenecessarychangestomotivatorsandstructuretosupportthenewdesign. Tohelpcompaniesconstructanimprovementprogramwiththegreatestimpact,we’vedevelopedanorganizational-changesimulator. Tohelpcompaniesunderstandtheirshortcomingsandconstructtheimprovementprogramthatwillhavethegreatestimpact,wehavedevelopedanorganizational-changesimulator.Thisinteractivetoolaccompaniestheprofiler,allowingyoutotryoutdifferentelementsofachangeprogramvirtually,toseewhichoneswillbesttargetyourcompany’sparticularareaofweakness.(Foranoverviewofthesimulationprocess,seethesidebar“TestDriveYourOrganization’sTransformation.”) Test-DriveYourOrganization’sTransformation Youknowyourorganizationcouldperformbetter.Youarefacedwithdozensofleversyoucouldconceivablypullifyouhadunlimitedtimeandresources.Butyoudon’t.Youoperateintherealworld. How,then,doyoumakethemost-educatedandcost-efficientdecisionsaboutwhichchangeinitiativestoimplement?We’vedevelopedawaytotesttheefficacyofspecificactions(suchasclarifyingdecisionrights,formingcross-functionalteams,orexpandingnonmonetaryrewards)withoutriskingsignificantamountsoftimeandmoney.Youcangotowww.simulator-orgeffectiveness.comtoassembleandtryoutvariousfive-steporganizational-changeprogramsandassesswhichwouldbethemosteffectiveandefficientinimprovingexecutionatyourcompany. Youbeginthesimulationbyselectingoneofsevenorganizationalprofilesthatmostresemblesthecurrentstateofyourorganization.Ifyou’renotsure,youcantakeafive-minutediagnosticsurvey.Thisonlinesurveyautomaticallygeneratesanorganizationalprofileandbaselineexecution-effectivenessscore.(Although100isaperfectscore,nobodyisperfect;eventhemosteffectivecompaniesoftenscoreinthe60sand70s.) Havingestablishedyourbaseline,youusethesimulatortochartapossiblecourseyou’dliketotaketoimproveyourexecutioncapabilitiesbyselectingfiveoutofapossible28actions.Ideally,thesemovesshoulddirectlyaddresstheweakestlinksinyourorganizationalprofile.Tohelpyoumaketherightchoices,thesimulatoroffersinsightsthatshedfurtherlightonhowaproposedactioninfluencesparticularorganizationalelements. Onceyouhavemadeyourselections,thesimulatorexecutesthestepsyou’veelectedandprocessesthemthroughaweb-basedenginethatevaluatesthemusingempiricalrelationshipsidentifiedfrom31companiesrepresentingmorethan26,000dataobservations.Itthengeneratesabarchartindicatinghowmuchyourorganization’sexecutionscorehasimprovedandwhereitnowstandsinrelationtothehighest-performingcompaniesfromourresearchandthescoresofotherpeoplelikeyouwhohaveusedthesimulatorstartingfromthesameoriginalprofileyoudid.Ifyouwish,youmaythenadvancetothenextroundandpickanotherfiveactions.Whatyouwillseeisillustratedabove. Thebeautyofthesimulatorisitsabilitytoconsider—consequence-free—theimpactonexecutionofendlesscombinationsofpossibleactions.Eachsimulationincludesonlytworounds,butyoucanrunthesimulationasmanytimesasyoulike.Thesimulatorhasalsobeenusedforteamcompetitionwithinorganizations,andwe’vefoundthatitengendersveryengagingandproductivedialogueamongseniorexecutives. Whilethesimulatorcannotcapturealloftheuniquesituationsanorganizationmightface,itisausefultoolforassessingandbuildingatargetedandeffectiveorganization-transformationprogram.Itservesasavehicletostimulatethinkingabouttheimpactofvariouschanges,savinguntoldamountsoftimeandresourcesintheprocess. Togetasenseoftheprocessfrombeginningtoend—fromtakingthediagnosticprofiler,toformulatingyourstrategy,tolaunchingyourorganizationaltransformation—considertheexperienceofaleadinginsurancecompanywe’llcallGoodwardInsurance.Goodwardwasasuccessfulcompanywithstrongcapitalreservesandsteadyrevenueandcustomergrowth.Still,itsleadershipwantedtofurtherenhanceexecutiontodeliveronanambitiousfive-yearstrategicagendathatincludedaggressivetargetsincustomergrowth,revenueincreases,andcostreduction,whichwouldrequireanewlevelofteamwork.Whiletherewerepocketsofcross-unitcollaborationwithinthecompany,itwasfarmorecommonforeachunittofocusonitsowngoals,makingitdifficulttospareresourcestosupportanotherunit’sgoals.Inmanycasestherewaslittleincentivetodosoanyway:UnitA’sgoalsmightrequiretheinvolvementofUnitBtosucceed,butUnitB’sgoalsmightnotincludesupportingUnitA’seffort. Thecompanyhadinitiatedanumberofenterprisewideprojectsovertheyears,whichhadbeencompletedontimeandonbudget,buttheseoftenhadtobereworkedbecausestakeholderneedshadn’tbeensufficientlytakenintoaccount.Afterlaunchingashared-servicescenter,forexample,thecompanyhadtorevisititsoperatingmodelandprocesseswhenunitsbeganhiringshadowstafftofocusonpriorityworkthatthecenterwouldn’texpedite.Thecentermightdecidewhattechnologyapplications,forinstance,todeveloponitsownratherthansetprioritiesaccordingtowhatwasmostimportanttotheorganization. Inasimilarway,majorproductlauncheswerehinderedbyinsufficientcoordinationamongdepartments.Themarketingdepartmentwoulddevelopnewcoverageoptionswithoutaskingtheclaims-processinggroupwhetherithadtheabilitytoprocesstheclaims.Sinceitdidn’t,processorshadtocreateexpensivemanualwork-aroundswhenthenewkindsofclaimsstartedpouringin.Nordidmarketingasktheactuarialdepartmenthowtheseproductswouldaffecttheriskprofileandreimbursementexpensesofthecompany,andforsomeofthenewproducts,costsdidindeedincrease. Toidentifythegreatestbarrierstobuildingastrongerexecutionculture,GoodwardInsurancegavethediagnosticsurveytoallofits7,000-plusemployeesandcomparedtheorganization’sscoresonthe17traitswiththosefromstrong-executioncompanies.Numerousprevioussurveys(employee-satisfaction,amongothers)hadelicitedqualitativecommentsidentifyingthebarrierstoexecutionexcellence.Butthediagnosticsurveygavethecompanyquantifiabledatathatitcouldanalyzebygroupandbymanagementleveltodeterminewhichbarriersweremosthinderingthepeopleactuallychargedwithexecution.Asitturnedout,middlemanagementwasfarmorepessimisticthanthetopexecutivesintheirassessmentoftheorganization’sexecutionability.Theirinputbecameespeciallycriticaltothechangeagendaultimatelyadopted. Throughthesurvey,GoodwardInsuranceuncoveredimpedimentstoexecutioninthreeofthemostinfluentialorganizationaltraits: •Informationdidnotflowfreelyacrossorganizationalboundaries.SharinginformationwasneveroneofGoodward’shallmarks,butmanagershadalwaysdismissedthemountinganecdotalevidenceofpoorcross-divisionalinformationflowas“someothergroup’sproblem.”Theorganizationaldiagnosticdata,however,exposedsuchplausibledeniabilityasaninadequateexcuse.Infact,whentheCEOreviewedtheprofilerresultswithhisdirectreports,heheldupthechartoncross-groupinformationflowsanddeclared,“We’vebeendiscussingthisproblemforseveralyears,andyetyoualwayssaythatit’sso-and-so’sproblem,notmine.Sixty-sevenpercentof[our]respondentssaidthattheydonotthinkinformationflowsfreelyacrossdivisions.Thisisnotso-and-so’sproblem—it’sourproblem.Youjustdon’tgetresultsthatlow[unlessitcomes]fromeverywhere.Weareallonthehookforfixingthis.” Contributingtothislackofhorizontalinformationflowwasadearthoflateralpromotions.BecauseGoodwardhadalwayspromotedupratherthanoverandup,mostmiddleandseniormanagersremainedwithinasinglegroup.Theywerenotadequatelyapprisedoftheactivitiesoftheothergroups,nordidtheyhaveanetworkofcontactsacrosstheorganization. •Importantinformationaboutthecompetitiveenvironmentdidnotgettoheadquartersquickly.Thediagnosticdataandsubsequentsurveysandinterviewswithmiddlemanagementrevealedthatthewronginformationwasmovinguptheorgchart.Mundaneday-to-daydecisionswereescalatedtotheexecutivelevel—thetopteamhadtoapprovemidlevelhiringdecisions,forinstance,andbonusesof$1,000—limitingGoodward’sagilityinrespondingtocompetitors’moves,customers’needs,andchangesinthebroadermarketplace.Meanwhile,moreimportantinformationwassoheavilyfilteredasitmovedupthehierarchythatitwasallbutworthlessforrenderingkeyverdicts.Eveniflower-levelmanagersknewthatacertainprojectcouldneverworkforhighlyvalidreasons,theywouldnotcommunicatethatdimviewtothetopteam.Nonstartersnotonlystarted,theykeptgoing.Forinstance,thecompanyhadaprojectunderwaytocreatenewincentivesforitsbrokers.Eventhoughthisapproachhadbeenpreviouslytriedwithoutsuccess,noonespokeupinmeetingsorstoppedtheprojectbecauseitwasapriorityforoneofthetop-teammembers. •Noonehadagoodideaofthedecisionsandactionsforwhichheorshewasresponsible.Thegenerallackofinformationflowextendedtodecisionrights,asfewmanagersunderstoodwheretheirauthorityendedandanother’sbegan.Accountabilityevenforday-to-daydecisionswasunclear,andmanagersdidnotknowwhomtoaskforclarification.Naturally,confusionoverdecisionrightsledtosecond-guessing.Fifty-fivepercentofrespondentsfeltthatdecisionswereregularlysecond-guessedatGoodward. ToGoodward’scredit,itstopexecutivesimmediatelyrespondedtotheresultsofthediagnosticbylaunchingachangeprogramtargetedatallthreeproblemareas.Theprogramintegratedearly,oftensymbolic,changeswithlonger-terminitiatives,inanefforttobuildmomentumandgalvanizeparticipationandownership.Recognizingthatapassive-aggressiveattitudetowardpeopleperceivedtobeinpowersolelyasaresultoftheirpositioninthehierarchywashinderinginformationflow,theytookimmediatestepstosignaltheirintentiontocreateamoreinformalandopenculture.Onesymbolicchange:theseatingatmanagementmeetingswasrearranged.Thetopexecutivesusedtositinaseparatesection,thephysicalspacebetweenthemandtherestoftheroomfraughtwithsymbolism.Nowtheyintermingled,makingthemselvesmoreaccessibleandencouragingpeopletoshareinformationinformally.Regularbrown-bagluncheswereestablishedwithmembersoftheC-suite,wherepeoplehadachancetodiscusstheoverallculture-changeinitiative,decisionrights,newmechanismsforcommunicatingacrosstheunits,andsoforth.Seatingattheseeventswashighlychoreographedtoensurethatamixofunitswasrepresentedateachtable.Icebreakeractivitiesweredesignedtoencourageindividualstolearnaboutotherunits’work. Thisarticlealsoappearsin: HBR’s10MustReadsonStrategy StrategyandExecution Book 24.95 AddtoCart Save Share Meanwhile,seniormanagerscommencedtherealworkofremedyingissuesrelatingtoinformationflowsanddecisionrights.Theyassessedtheirowninformalnetworkstounderstandhowpeoplemakingkeydecisionsgottheirinformation,andtheyidentifiedcriticalgaps.Theoutcomewasanewframeworkformakingimportantdecisionsthatclearlyspecifieswhoownseachdecision,whomustprovideinput,whoisultimatelyaccountablefortheresults,andhowresultsaredefined.Otherlonger-terminitiativesinclude: Pushingcertaindecisionsdownintotheorganizationtobetteraligndecisionrightswiththebestavailableinformation.Mosthiringandbonusdecisions,forinstance,havebeendelegatedtoimmediatemanagers,solongastheyarewithinpreestablishedboundariesrelatingtonumbershiredandsalarylevels.Beingclearaboutwhoneedswhatinformationisencouragingcross-groupdialogue. Identifyingandeliminatingduplicativecommittees. Pushingmetricsandscorecardsdowntothegrouplevel,sothatratherthanfocusonsolvingthemysteryof who causedaproblem,managementcangetrighttotherootcauseof why theproblemoccurred.Awell-designedscorecardcapturesnotonlyoutcomes(likesalesvolumeorrevenue)butalsoleadingindicatorsofthoseoutcomes(suchasthenumberofcustomercallsorcompletedcustomerplans).Asaresult,thefocusofmanagementconversationshasshiftedfromtryingtoexplainthepasttochartingthefuture—anticipatingandpreventingproblems. Makingtheplanningprocessmoreinclusive.Groupsareexplicitlymappingoutthewaystheirinitiativesdependonandaffectoneanother;sharedgroupgoalsareassignedaccordingly. Enhancingthemiddlemanagementcareerpathtoemphasizetheimportanceoflateralmovestocareeradvancement. GoodwardInsurancehasjustembarkedonthisjourney.Theinsurerhasdistributedownershipoftheseinitiativesamongvariousgroupsandmanagementlevelssothattheseeffortsdon’tbecomesilosinthemselves.Already,solidimprovementinthecompany’sexecutionisbeginningtoemerge.Theearlyevidenceofsuccesshascomefromemployee-satisfactionsurveys:Middlemanagementresponsestothequestionsaboutlevelsofcross-unitcollaborationandclarityofdecisionmakinghaveimprovedasmuchas20to25percentagepoints.Andhighperformersarealreadyreachingacrossboundariestogainabroaderunderstandingofthefullbusiness,evenifitdoesn’tmeanabettertitlerightaway.••• Executionisanotoriousandperennialchallenge.Evenatthecompaniesthatarebestatit—whatwecall“resilientorganizations”—justtwo-thirdsofemployeesagreethatimportantstrategicandoperationaldecisionsarequicklytranslatedintoaction.Aslongascompaniescontinuetoattacktheirexecutionproblemsprimarilyorsolelywithstructuralormotivationalinitiatives,theywillcontinuetofail.Aswe’veseen,theymayenjoyshort-termresults,buttheywillinevitablyslipbackintooldhabitsbecausetheywon’thaveaddressedtherootcausesoffailure.Suchfailurescanalmostalwaysbefixedbyensuringthatpeopletrulyunderstandwhattheyareresponsibleforandwhomakeswhichdecisions—andthengivingthemtheinformationtheyneedtofulfilltheirresponsibilities.Withthesetwobuildingblocksinplace,structuralandmotivationalelementswillfollow. 1.ThedetailsforthisexamplehavebeentakenfromGaryL.NeilsonandBruceA.Pasternack,Results:KeepWhat’sGood,FixWhat’sWrong,andUnlockGreatPerformance(RandomHouse,2005). AversionofthisarticleappearedintheJune2008issueofHarvardBusinessReview. HBRLearning StrategyPlanningandExecutionCourse AccelerateyourcareerwithHarvardManageMentor®.HBRLearning’sonlineleadershiptraininghelpsyouhoneyourskillswithcourseslikeStrategyPlanningandExecution.EarnbadgestoshareonLinkedInandyourresume.Accessmorethan40coursestrustedbyFortune500companies.Freeforalimitedtime! Howtodevelopawinningstrategy—andputittowork. StartCourse LearnMore&SeeAllCourses ReadmoreonStrategyexecution orrelatedtopics TransparencyandDecisionmakingandproblemsolving GN GaryL.NeilsonisaseniorvicepresidentintheChicagoofficeofBooz&Company. KM KarlaL.Martin([email protected])isaprincipalinthefirmâsSanFranciscooffice. EP ElizabethPowers([email protected])isaprincipalintheNewYorkoffice. 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