Is Poor Strategy Execution Delaying the Economic Recovery?

It seems that each month we hear how economic indicators point to the beginnings of a recovery only to hear the following month that economists misread the tea leaves? Today the WSJ has a headline, Bernanke Says Recovery to Start Off Slowly, in it he says the economic recovery "is likely to be relatively slow at first, with unemployment declining only gradually from high levels,". NO KIDDING?! Could he have played that any safer? But this is not about Bernanke or whether or not the recession should be labeled a Bush Recession or Obama Recession. This is to argue that poor strategy execution is delaying the economic recovery.

While many are looking for a magic pill to kick-start the economic recovery, like "Going Green" or "Cash for Clunkers", we should be looking at improving strategy execution of corporate America. There are many statistics from reputable sources that point to poor execution. Here are a few…

"62% of more than 1,500 executives describe their organizations as mediocre – or worse – at strategy execution"

- 2006 American Management Association Survey

"82% of Fortune 500 CEO's feel their organization did an effective job of strategic planning. Only 14% of the same CEO's indicated that their organization did an effective job of implementing the strategy."

- Fortune Magazine

    "Only 12% of companies successfully execute their strategy."

                    - Harvard Business Publishing

    "Excellence and consistency in strategy execution are the top two concerns of CEOs worldwide."

                    - The Conference Board's CEO Challenge Survey

So what is preventing you from executing your strategy? For some companies it could be the wrong strategy. For those that have an achievable strategy, I believe they fall short in how they manage their strategic assets: human, financial, and information capital. In short, companies fail to align their organizations horizontally as well as vertically to the corporate strategy. Companies go through an exercise of goal cascading, but do they really know what drives performance and success? Are the goals identified correctly? Are they prioritized so that the entire organization is working together towards achieving those goals or are they working in silos towards their own objectives?

While I do not as of yet have the empirical data to support this argument, I have enough experience working with companies to see this lack of alignment. No one is effectively managing or avoiding the conflicting resource requirements put on strategic assets and support functions to deliver results for front line units. Strategic Alignment is more than goal management or goal cascading. That just deals with vertical alignment, but does not keep the organization cross-functionally aligned. Companies need to prioritize across the organization to ensure all resources are used effectively to achieve their strategies. This helps avoid the resource conflicts so many organizations struggle with today. Those who follow the Baldridge Model for performance excellence would call this integrating the strategy into the organization. In order to effectively align all parts of the organization leaders must identify the following:

1. What each org unit does to achieve core strategies
   
2. Drivers of performance for each activity that supports those strategies
   
3. Metrics that measure those drivers
   
4. Barriers to achievement (human, financial, information, political, environmental, etc.)
   
5. Required employee behaviors, knowledge, skills, and abilities for success.
   

For item 3 above, leaders must understand how to act on those metrics. In other words, they must understand what they mean and the levers to push or pull to move the needle in the right direction. Robert Simons describes this brilliantly in his book Performance Measurement and Control Systems for Implementing Strategy. In it he discusses the importance of understanding either the input, the process, or the output of.

Once companies have this information they should look at the impact each strategic initiative has on the performance of the organization and the time/resources it takes to successfully execute. With this information they should be able to map out or prioritize the initiatives to ensure effective utilization of strategic assets to accomplish those strategies. This information combined with a capability assessment of their strategic assets will reveal whether or not the strategies defined for the corporation are achievable. If not, of course the planning process should be refined into something that is still a stretch but also realistic.

This is a quick high-level discussion of improving alignment, which leads to improved execution, and of course requires more detail. The point is most companies are not doing this even at this high-level. In order to achieve sustainable breakthrough performance, the kind of performance that would kick-start an economic recovery and possibly prevent another recession of this magnitude, companies need to be laser-focused on improving strategy execution. Strategy execution is dependent on alignment.

Are you bridging your strategy execution gap or building a bridge to nowhere? Is your business aligned to effectively execute strategy? Are your business processes clearly defined, documented, and understood? Are you organized effectively to execute your business strategy? Is the critical business information you need available, timely, relevant to support execution? Do you know what chasing your current strategies is costing you?

If you answered 'No' to any of the above, you may be building a bridge to nowhere and delaying the recovery your company needs to sustain or improve its competitive position. Take the Strategic Alignment Questionnaire™ at https://www.cncincsolutions.com/questionnaire and find out how you can start improving your strategy execution.

 

-RH

 

Know Your External Environment

Is your strategy the right strategy for your business? Are you overlooking opportunities? Are you avoiding threats that could risk the long-term viability of your business? Mortgage lenders take note. Do you even know what opportunities and threats your company is facing today? Knowing your external environment is essential in maintaining or enhancing your competitiveness. Business is changing at an alarming rate. Consider former U.S. Secretary of Education Richard Riley's assumption that the top 10 in-demand jobs in 2010 may not have existed in 2004 because much of the technology required for those jobs is still being developed. 2010 is around the corner. Are you prepared to compete?

Understanding your external environment is not just about knowing what your customers need or what your competition is doing. It is that and so much more. You have to know the political environment, the economic environment, fads, trends, mega-trends, etc. It is not just a matter of knowing what opportunities and threats are out there but knowing whether or not you have the time and resources to respond accordingly.

Often times there is a window of opportunity to seize market share before the blue waters become shark infested red waters (Blue Ocean Strategy). If you are keeping your eye on your external environment you'll be able to see these opportunities and threats and determine if you have the internal or external capability to take advantage. Assume you see an opportunity to build a product. If you do not have the internal capability, you need to see if your suppliers or 3^rd party alliances can partner with you to collaborate on development to seize the opportunity.

Take P&G as an example of knowing their external environment. Not just what their customers need, but what alliances could they take advantage of to seize opportunities? P&G understands it does not have the internal capability to build and deliver the products its customers want/need. To take advantage of these opportunities they created a "Connect-and-Develop" strategy. They would collaborate with 3^rd parties to take a product/technology they possessed and transform it into a new P&G product. Among the most successful connect-and-develop products to hit the market are Olay Regenerist, Swiffer Dusters, the Crest SpinBrush, and the Mr. Clean Magic Eraser.

According to A.G. Lafley, CEO & Chariman of the Board, "External collaboration plays a key role in nearly 50 percent of P&G's products. We've collaborated with outside partners for generations but the importance of these alliances has never been greater. Our vision is simple. We want P&G to be known as the company that collaborates — inside and out — better than any other company in the world."

Knowledge of your external environment is essential to strategy development. You have to know if you have the ability to execute a strategy and transform your assets into customer/shareholder value. To take advantage of an opportunity, do you have the people, finances, and information assets to be successful? I refer to this as "Have it", "Build it", "Buy it". If you have the people, finances, and information to deliver, then pursuing that opportunity is an achievable strategy. If you don't have it, but have time to "Build it" then it is an achievable strategy assuming you know how to build that capability. If time constraints exist, building the capability may not be an option and you are left with "Buy it". If you do not have the financial resources to build or buy the capability it is a strategy you should abandon. Otherwise it will serve as a source of your strategy execution gap and you are not only missing the opportunity but you are throwing money away in your pursuit of it. You are also preventing the company from executing achievable strategies by misaligning your people, financial, and information resources.

Without going into too much detail we have to also discuss political and economic forces as part of the external environment. With the new administration focus on going green and creating incentives for clean sources and uses of energy, there is great opportunity for companies that have the internal and external capability to execute. Healthcare is another huge area of opportunity, but can also serve as a threat to some businesses. Knowledge of your external environment combined with a hedgehog concept (Jim Collins – Good to Great) will help you develop strategies that are not only achievable but serve to maintain or enhance your competitive advantage.

-RH

Executing Strategy in a Downturn

Based on recent Fed projections from the April 28-29 FMOC meeting, the economic outlook is getting darker. Unemployment is projected to be between 9.2% and 9.6% at year end. For more info on the worsening pessimism checkout Sudeep Reddy's blog at WSJ (http://blogs.wsj.com/economics/2009/05/20/fomc-forecasts-the-pessimism-worsens/ ). So this so called downturn may last longer and possibly claim more companies. What are you doing to stay out of the economy's wake? Do you have a strategy to lead your company out of the downturn? If you do, can you execute that strategy? How do you know?

According to an American Management Association survey, "62% of more than 1,500 executives describe their organizations as mediocre – or worse – at strategy execution". Those statistics are from 2006 when the economy was much stronger. The economy and the Obama administration are going to influence these numbers and I'm betting they move in the wrong direction. If you are like one of the executives in the survey and describe your organization as mediocre or worse at executing strategy, you better figure out why. How long will you last with that level of performance?

Companies that have clearly defined strategies based on a deep knowledge of the external environment, ability to execute, and alignment of human, financial, and information capital to that strategy are going to be the ones that take the lead out of the downturn. They know the threats facing their company and the opportunities they should pursue. They seek "blue waters" (Blue Ocean Strategy). If they don't have the capability, they build it. All employees in these companies understand the corporate strategy and how they contribute towards execution. In these companies Performance Management is a business function, not just an HR function.

You must have knowledge of your organization's external environment. Know how economic and political factors might threaten your business or create opportunities. Know what your competitors are doing. Know what your customers needs are. Be on the lookout for fads, trends, and mega trends that might change the way you do business (i.e. globalization, the internet, web 2.0). Do you have this deep knowledge of your external environment? How do you know?

Your ability to execute is critical to bridging the strategy/execution gap. It's been said by many that your strategy is only as good as your ability to execute. You can have the best strategy in the world, but if you can't execute its worthless. Do you have the resource capability (financial, people, information) to execute? How do you know?

Aligning human, financial, and information resources to your strategy is also critical to execution. If you are not aligned in these areas, you will likely have similar results to those companies in the AMA survey. Measure your degree of alignment. If you are poorly aligned, you are widening the strategy/execution gap and not closing it. Do you have alignment? How do you know?

Jim Collins, author of Good to Great and Built to Last, has an excerpt of his new book How the Mighty Fall in this week's businessweek (http://www.businessweek.com/magazine/content/09_21/b4132026786379.htm?chan=magazine+channel_cover+story). The book was conceived with the idea of answering the question, "How would you know if you were on the path to decline?" One pivotal finding is the Five Stages of Decline and that you "can reach stage four of decline before deterioration becomes fully apparent." YIKES!

-RH

How Do You Define Strategy?

I've seen a lot of different responses to this question. Some people see strategy as just "Vision/Mission/Goals" or "Vision/Mission/Values". Others see strategy as the plan for creating customer and shareholder value and sustainable competitive advantage. One response I've seen referenced a few times is that of a military leader that goes something like this…"Strategy is everything you do to prepare for the upcoming encounter or challenge, every plan, decision, and preparation, right up to the minute the first gun fires. From there on, it's tactics." As an ex-military member I'm in agreement for the most part. I just wonder what would the need be for generals/admirals after the first gun fires?

Here is a response I gave to this same question on LinkedIn.

"First off, I do not believe Vision/Mission/Values or Goals to be strategy. Rather I see them as the companies "Strategic Identity". What they want to be, why they exist, and what values they believe are critical to success. With that said, I define "Strategy" as HOW you translate intangible assets into tangible results in order to sustain or improve your competitive position in the marketplace.

Companies need to understand the market need and identifying ways to create sustainable competitive advantage for long-term success. This includes, which industries to compete in, which products/services to offer and how to leverage resources (internal & external alliances) for executing on that strategy. It should include ways to protect/defend your position from the competition. The strategy should result from research and analysis to determine how to beat the competition for customer loyalty. Analysis should include an external analysis, a la Porter's Five Forces: Bargaining Power of Suppliers (Oil Companies), Bargaining Power of Buyers (Walmart has tremendous power over its suppliers), Barriers to Entry (high start-up costs), Threat of Substitutes (Internet & Kimble over Newspapers), and Rivalry (Level of competition). Some like using SWOT analysis. The only issue I have with this is it implies performing an internal analysis (SW) before external analysis (OT). I subscribe to the school of thought that you must know your external environment before evaluating your strengths and weaknesses.

The strategy of the organization should drive the activities it engages in. This is where I see many companies struggle. They do not define activities that align their resources to support execution of the strategy. In other words, they do not know which value creating process leverage intangible assets to create customer/shareholder value. Even when they do, many companies fail to align cross-functionally to execute strategy. That is to say, many functions of the business compete for resources to achieve their goals, which usually results in silo'd execution similar to drilling a tunnel from two ends and missing each other in the middle. Probably went off on a tangent or two, but that should describe what Strategy is."

Of course developing a strategy and managing it are two different things entirely. We'll hit on this in an upcoming blog entry.

-RH

Make Things Happen vs. Let Things Happen

When we finally pull out of this economy we will look back and see all the dead companies it has left in its wake. Complete industries have suffered significant loss; banking and real estate are two obvious examples. Those companies lying in the wake of the economy are likely those with executive teams who choose to "Let Things Happen" while those that leave the economy in their wake are those who "Make Things Happen."

This economy is a major external force putting a strain on companies' strategy. Executive teams cannot ignore the effects this external force will have on their company's performance. They are forced to act on one of the following:

• Weather the storm and hoping for the best
  
• Switch to cost management strategies
  
• Innovate your way out
  
• Reinvent the company to take advantage of new/greater opportunities
  

Weathering the storm and hoping for the best is akin to sticking your head in the sand. Any executive team following this line of action deserves what gets. Unfortunately, that would likely be at the expense of employees and customers.

Switching to cost management strategies is prudent, but this strategy alone is like treating the symptom and not really curing what ails the company. This may buy the company time until it can develop growth strategies to pull itself out or it can delay the inevitable and ultimately place executive teams along with those that elect to weather the storm.

Innovate your way out is great on paper, but it is easier said than done. This is especially true in highly competitive industries. Many executive teams are looking for ways to be innovative, and it is likely that companies in highly competitive industries will develop similar innovative strategies. Assuming a company can create some form of advantage, it will be the company that has the core competencies and/or capability to execute. Companies that pursue an innovative strategy without the capability are likely to speed up the process of becoming another dead company in the wake of the economy.

Reinventing the company is high risk / high reward strategy. It requires executive teams highly in tune with their external environment. They must know not only what opportunities exist but where it stands to take advantage of those opportunities in relation to the competition. They must also be familiar with their internal environment and know what they can execute on. Do they have the right resources in-house to be successful? If not do they have the alliance partnerships that can help bridge the gap until they can create the internal capability?

One example of reinventing the company is that of retired CEO, Darwin E. Smith, of Kimberly-Clark and his decision to "sell the mills" (http://www.jimcollins.com/lib/articles/01_01_a.html). Darwin Smith is a perfect example of a leader who "Makes Things Happen".