Article: Why companies need to translate strategy to execution

#ChangeManagement

Why companies need to translate strategy to execution

"Most companies fail to live up to their potential, not because of their strategies, but because of their inability to optimally execute them," says Jai Sinha, Booz & Company(India) Ltd.
Why companies need to translate strategy to execution
 

A full transformation of an organisation is impossible without the engagement of senior management

 

In the case of passive-aggressive organisations, a long history of seeing corporate initiatives ignored and then fade away makes employees almost hopelessly jaded

 

“Most companies fail to live up to their potential, not because of their strategies, but because of their inability to optimally execute them”, says Jai Sinha, Booz & Company (India) Ltd.

Companies today struggle to implement strategies because of over reliance on structural changes in their organizations. Structural change is impor-tant and has its place, but most powerful executors of strategy focus on two different aspects from structural change:

1. Decision rights – Who makes decisions and how?
2. Information flows – Does the right information reach decision makers quickly and across organizational silos?

Tackle these two first, and the third and fourth aspects of driving implementation – ‘structural change’ and aligning ‘motivating factors’ can follow later to support these moves. Our findings are surprisingly consistent across countries. Indian companies are no different from the global average and face a similar set of execution challenges.

The Path to Effective Execution

Most companies, by their own admission, cannot sustain superior results. Their vision and strategy are clear, but they are unable to get past the barriers that stand between them and enduring exceptional performance. Sustainable success is therefore a matter of execution.

There are four fundamental, interdependent building blocks of great execution, which are captured in what we call as an ‘Organization’s DNA’. These factors determine the speed and consistency of implementation of the strategy. The first two elements are the most important, and most often ignored.

1. Decision rights: Everyone has a good idea of the decisions/actions for which he or she is responsible; and
2. Information flows: Important information about the competitive environment, customer feedback, and internal events gets to headquarters and across silos quickly.

The last two play a supporting role:
3. Motivators: What objectives, incentives and career alternatives do people have?
4. Structure: What is the organization model, including ‘lines and boxes’?

Example of Dysfunctional Decision Rights

In a consumer goods company, decisions made by regional and divisional leaders were overridden by corporate functional leaders. Decisions were slow. Overheads increased as divisions hired people to put together robust cases for challenging corporate decisions. Management solved this by firmly delegating decisions to the divisions and held them accountable for profitability.

Example of Information Flow Issues

At a financial services firm, sales people often crafted one-off deals with clients that cost more than revenues. The sales people did not understand the cost and complexity of their decisions. The problem was rectified when the sales people were armed with information pertaining to the cost of their decisions, using a smart customization approach.

The Seven Different Organization Personalities

Based on our research, there are seven types of organizations – three of which are effective and four that are in-effective Recognizing the type of organization is the first step, which enables development of targeted interventions to move towards a better execution profile.

Our research shows that the majority of organizations have unhealthy profiles, India being broadly similar to the rest of the world.

More than 50 per cent of organizations in India state that their execution is weak. The largest number of respondents, around 25 per cent, characterize their organization as suffering from a cluster of pathologies we place under the label ‘Passive-Aggressive’. The category takes its name from the organization’s quiet but tenacious resistance, in every way but openly to corporate directives. In Passive-Aggressive organizations, people pay those directives lip service, making only enough effort to appear compliant.

In contrast to responses from the healthiest resilient organizations, people working in Passive-Aggressive organizations feel strongly that they do not know which decisions they are responsible for, that no decision is ever final, that good information is hard to obtain, and that their performance is not accurately appraised.

In contrast, the Resilient organization gets these most important elements right – clarity of decision rights, no second guessing of decisions, free availability of the right information and accurate performance appraisals.

A Case in Point

A consumer products company we studied was founded by an entrepreneur who began by selling a single product, which became a great success. The founder made virtually every major decision not only about strategy but also about marketing, sales, and operations. When a couple of companies in a distant region became available for purchase, the company pounced on them. The founder put a Vice President in charge for overseeing both acquisitions, assuring the VP that his door would always be open. The VP believed that product development should be tailored to local markets and kept close to home. The founder reluctantly agreed to a pilot program in which a formulation of the product modified for local tastes would be developed with‘periodic’ oversight from headquarters.

However, as development progressed, the founder became increasingly involved. More often than not, he overrode the local development team’s recommendations. The final product, representing the founder’s wishes, met with lukewarm demand. Not wanting to thwart regional initiative, the founder turned the pilot process into established practice. All the people involved in regional product development, however, recognized that they really were not calling the shots. Nevertheless, they continued to pretend to be in control while never insisting on actually having it.

Misunderstandings and misrepresentations concerning who really has control over which decision, are often the first signs that an organization is slipping into the Passive-Aggressive territory. Instead of vesting authority in the units and holding them accountable for results, management teams like the one in this company tighten the reins. Weakened divisional managers, who are already unclear about the boundaries of their own authority, and fearful of losing what is left of it, come to take little personal responsibility for the success of the enterprise.

Changing Colors – Getting Dysfunctional Organizations Back on Track

The first order of business is the greatest challenge of all: getting an organization’s attention. In the case of Passive-Aggressive organizations, a long history of seeing corporate initiatives ignored and then fade away makes employees almost hopelessly jaded. A significant event or action is required to shake the organization from its stupor, like replacing a few key personnel and bringing in new blood.

Second, choose a handful, say four to five initiatives that are critical and will have maximum impact if set right. In most organizations, these are the traits that correspond to information flows and decision rights. How to identify the initiatives that are most cost efficient to implement is the key question. We have developed a way to test the efficacy of suggested actions using our simulator, where you begin by selecting the closest of the seven organization types you believe your organization belongs to. Then you select five out of 28 possible actions you can take and the simulator calibrates the impact based on previous empirical results collected across 26,000 data observations to compute your potential improvement.

Third, make decisions, and make it stick. Clarifying and articulating decision rights is often the first order of business in fixing dysfunctional organizations. One executive says “We had many people who could say no, but few people who could say yes and make it stick.” Once decision rights are clarified, they must be respected. If they are, people in the organization begin to count on one another and trust that what is planned will be done.

Fourth, spread the word—and the data. No organization can make good decisions without having access to the relevant information. However, to know what is relevant, people must be clear about which issues deserve the highest priority. This is not just a matter of sending out a memo or two. At a very successful consumer retailer, for example, every Monday morning, the eight members of the executive committee and invited guests convene to discuss strategic issues and survey the week that was and the week ahead. They arrive knowing which of the 2,500 products in the inventory are moving and which are not in its thousands of stores. By 11 AM the senior executive team has determined the week’s priorities and begins relaying them to all executives down to the Vice President level.

Last, match motivators to contribution. At a recent client, any executive who was promoted to Vice President automatically was given a new car. Senior Management’s bonuses were paid quarterly and were heavily skewed toward cash rather than stock. The staff was not motivated as the company’s performance was not linked to theirs. On changing this practice to a stock based compensation for employees to whom the longer term mattered, and for the rest, tying their bonuses to revenues that they could influence, created a fundamental change in working patterns and results.

Conclusion

Organizational success is the result of superior execution ability and agility. To achieve success, managers must assemble the right program of high-leverage actions integrated across four key organizational levers: decision rights, information, motivators and structure.

A full transformation of an organization is impossible without the engagement of senior management. But even those in the middle of the organization can make a difference within their own scope of influence. Large organizations are made up of many small overlapping units. Even if they are not entirely independent, most of us can make changes in ours. If you are a brand manager in a Passive-Aggressive company, for instance, you can make it clear to your team that delivering on promises matters. Then find an opportunity to prove it. Slowly, your division can become a source of initiative in a sea of lassitude. You may not change the whole company overnight, but you just might begin to set a new tone.

Topics: #ChangeManagement, C-Suite, Culture, Leadership

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