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