Last Updated Jun 9, 2008 8:10 PM EDT
The Idea in Brief
Most companies' strategies deliver only 63% of their promised financial value. Why? Leaders press for better execution when they really need a sounder strategy. Or they craft a new strategy when execution is the true weak spot.
How to avoid these errors? View strategic planning and execution as inextricably linked--then raise the bar for both simultaneously. Start by applying seven deceptively straightforward rules, including: keeping your strategy simple and concrete, making resource-allocation decisions early in the planning process, and continuously monitoring performance as you roll out your strategic plan.
By following these rules, you reduce the likelihood of performance shortfalls. And even if your strategy still stumbles, you quickly determine whether the fault lies with the strategy itself, your plan for pursuing it, or the execution process. The payoff? You make the right midcourse corrections--promptly. And as high-performing companies like Cisco Systems, Dow Chemical, and 3M have discovered, you boost your company's financial performance 60% to 100%.
The Idea in Practice
Seven rules for successful strategy execution:
1. Keep it simple. Avoid drawn-out descriptions of lofty goals. Instead, clearly describe what your company will and won't do.
Executives at European investment-banking giant Barclays Capital stated they wouldn't compete with large U.S. investment banks or in unprofitable equity-market segments. Instead, they'd position Barclays for investors' burgeoning need for fixed income.
2. Challenge assumptions. Ensure that the assumptions underlying your long-term strategic plans reflect real market economics and your organization's actual performance relative to rivals'.
Struggling conglomerate Tyco commissioned cross-functional teams in each business unit to continuously analyze their markets' profitability and their offerings, costs, and price positioning relative to competitors'. Teams met with corporate executives biweekly to discuss their findings. The revamped process generated more realistic plans and contributed to Tyco's dramatic turnaround.
3. Speak the same language. Unit leaders and corporate strategy, marketing, and finance teams must agree on a common framework for assessing performance. For example, some high-performing companies use benchmarking to estimate the size of the profit pool available in each market their company serves, the pool's potential growth, and the company's likely portion of that pool, given its market share and profitability. By using the shared approach, executives easily agree on financial projections.
4. Discuss resource deployments early. Challenge business units about when they'll need new resources to execute their strategy. By asking questions such as, "How fast can you deploy the new sales force?" and "How quickly will competitors respond?" you create more feasible forecasts and plans.
5. Identify priorities. Delivering planned performance requires a few key actions taken at the right time, in the right way. Make strategic priorities explicit, so everyone knows what to focus on.
6. Continuously monitor performance. Track real-time results against your plan, resetting planning assumptions and reallocating resources as needed. You'll remedy flaws in your plan and its execution--and avoid confusing the two.
7. Develop execution ability. No strategy can be better than the people who must implement it. Make selection and development of managers a priority.
Barclays' top executive team takes responsibility for all hiring. Members vet each others' potential hires and reward talented newcomers for superior execution. And stars aren't penalized if their business enters new markets with lower initial returns.
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Copyright (c) 2008 Harvard Business School Publishing Corporation. All rights reserved.
Harvard Business Review
by Donald N. Sull
Sull identifies another important cause of strategic underperformance: active inertia. Through active inertia, executives cling to strategic formulas that brought success in the past--even though emerging business realities call for new formulas. The strategic frames of the past become blinders; processes harden into routines; relationships become shackles; and values turn into dogmas. Sull offers additional advice for avoiding active inertia. Rather than asking, "What should we do?" ask, "What's hindering us?" You'll focus leaders' attention on the strategic frames, processes, relationships, and values that must change if your company hopes to define a new direction.
Harvard Business Review
by Robert S. Kaplan and David P. Norton
A strategy map--a Balanced Scorecard tool developed by Robert Kaplan and David Norton--can help you apply the seven rules Mankins and Steele define. The map enables you to graphically depict the cause-and-effect assumptions underlying your company's strategy. In clear, concrete language, it shows the objectives you must achieve to execute your strategy, the performance measures you'll use, and the targets you've set for each measure. Using Mobil North American Marketing and Refining Company as an example, Kaplan and Norton explain how to create your strategy map and develop themes for its four "perspectives": financial, customer, internal processes>, and learning and growth. The Mobil division used a strategy map to transform itself from a centrally controlled manufacturer of commodity products to a decentralized, customer-driven organization.
Harvard Business Review
by Michael Dell, Kevin Rollins, Thomas A. Stewart, and Louise O'Brien
This article describes how Dell Computer constantly identifies strategic priorities--Mankins's and Steele's rule #5--as new business realities emerge. For example, top executives realized that Dell had a very visible group of employees who'd gotten rich from stock options. But as CEO Kevin Rollins maintains, "You can't build a great company on employees who say, ?If you pay me enough, I'll stay.'" To reignite the company's spirit, Dell implemented an employee survey whose results spurred the creation of the Winning Culture initiative, now a top operating priority. The company also defined the highly motivating Soul of Dell: Focus on the customer, be open and direct in communications, be a good global citizen, have fun in winning. Now people stay at Dell for reasons other than money.