The recent financial shake-up that has left the United States on the brink of a recession is proof that some strategies, in this case that of massly granted real estate loans, do not work. This is easy to see…..at least in hindsight. But good strategies often fail too, and when that happens it's hard to pinpoint the causes.
However, despite the evident importance of planning and execution, not enough attention has yet been given to how to determine which leadership processes and actions can best help us to make our strategy successful.
In general, more importance has been given to planning strategies than to executing them. This deficiency is recognized by business schools. According to Lawrence G. Hrebiniak of the Wharton School of Business, "Even though we have well-educated managers, they still must gain experience through the hard knocks that await them in real life."
This lack of experience in executing strategies can have serious consequences. In a recent survey carried out by the consulting firm Marakon Associates among Senior Managers of more than 197 companies, the responses concluded that only 63% of the companies obtained the expected results of their strategic plans. Much of the failure was due to mistakes made in executing the strategy.
But can an execution methodology be taught? Analysts think that managers can at least be trained on the most important variables of good strategy execution.
If you introduce these critical factors into your strategic model, you can at least follow their evolution and ask the pertinent questions in due course.
The pitfalls of poor timing
Although the strategic plan can fail for several reasons, one of the most common is when the objectives are changed. A classic example of this type is that of Hewlett-Packard, which after acquiring Compaq developed plans to compete with its rival Dell by continuously changing objectives: thus one week it competed on prices, the next on service or designed direct sales policies that they collided with the interests of the established sales channels. As a result HP CEO Carla Fiorina lost her position and HP is still trying to solve the problems arising from these errors.
The first step is to define the challenges. According to Richard Steele, from the New York office in Marakon, “lately the challenge in executing a strategy is in the good synchronization of its parts.: having the right product, for the right customer, at the right time. Synchronization is difficult for a number of reasons, in part because any mid-size organization today sells multiple products to multiple customers in multiple markets and channels. The need to work with economies of scale leads to a very complex sales matrix. For example, when an industry in a European Common Market member country introduces changes in production, it can alter the distribution parameters of its products in the 22 countries that make up the market. Making the right adaptations is not easy.
Another classic example of lack of synchronization is that of United Airlines, when it attempted the strategy of launching a low-priced subsidiary to compete with aggressive, low-cost companies like Southwest. At first it seemed like a good idea, but United tried to compete without changing its old cost structure. The result was bad.
In other circumstances, the strategic plans fail because they do not communicate well to all the personnel involved. Hrebiniak says that he has had clients with whom he has collaborated in defining detailed and expensive strategic plans….that are available only to managers while the rest of the staff is kept in ignorance regarding said plans.
Resistance to change plays an important role as well. For example, management wants to impose greater standardization of a product, but some marketing manager may disagree. It is important to break down these resistances by integrating all personnel with the desired objectives.
On some occasions there may be solid reasons for resistance, as the chosen strategy may respond to management's plans but is not shared by the lower levels of the company. For example, imagine that the selected strategy is to promote one brand at the expense of another.
This may seem appropriate in some markets, but generalization to all markets is sometimes counterproductive. Regional managers who disagree with this policy will offer resistance to change. And that is what makes a strategic plan fail.
There are also cultural factors. A typical mistake is to try to transfer a successful marketing formula to all markets without taking into account that each market has its own characteristics. Even successful companies like Wal Mart make serious mistakes in this regard. When this company started operating in Brazil, it tried to establish agreements with suppliers in the same way as it did in the United States, where the company has great negotiating power. Instead, Brazilian suppliers have greater relative power in their country and simply refused to work with the company and forced it to change its strategy.
Cultural problems are not only external. Analysts note that consumers change brands on a biannual basis. For their part, the operational and investment plans take longer to be implemented and there is a new lack of synchronization.
But the biggest factor is the lack of follow-up by managers. Once a decision is made on a strategic plan, it is not followed up on its execution. Less than 15% of companies routinely follow a check on the execution of their strategic plans. Performance indicators are only followed during the first year and then control is usually abandoned. Also companies often ignore failures and this makes it even more difficult to identify the causes of the error and to correct them.
According to the experts, continuous communication is key to executing the strategies. “We have been able to verify that companies that show good results in their strategic plans tend to show intense communication work between managers and staff.
People versus Processes
What can be done? Mankins says there are two courses of action to improve strategy execution.
A first stream of thought emphasizes the subject in people. By having the right person doing the right things, execution problems will tend to be solved. But within this current there are two positions. There are those who maintain that the right people are not promoted from the company cadres but that they must be hired from outside. The idea is to hire people with a different perspective and without internal commitments, so that they can carry out the changes that are required. Others, on the other hand, believe in internal promotion through training and the creation of a culture of responsibility tied to individual performance. For example, James McNerney, President and CEO of 3M, argues that by improving the performance of each individual by 15%,Regardless of what hierarchical position it occupies, a company can achieve and make superior performance sustainable.
Another group of experts emphasizes processes rather than people. If you have the wrong people, surely nothing will turn out well. But how many companies take to the streets to hire the wrong people for a function? All companies try to hire the right people; So the problem may be more than just selecting the right staff. It may be that better execution processes and more discipline are required in its follow-up. Experts tend to conclude that a combination of both theories is most appropriate for best results. A recent survey finds a high correspondence between high profits with a policy of implementing strategies that combines the selection of the correct personnel with a continuous improvement in the processes.
Five critical factors to improve the execution of your strategy
Whichever path is chosen, it would appear that there are specific factors that companies can focus on to improve their chances of success. Improving strategic execution is a continuous process, which can be reinforced with the following actions:
Develop an execution model
Strategic criteria are abundant. For example Michael Porter, creator of the theory of comparative advantages, suggests the creation of models that conceptualize and make permanent the objectives of market leadership.
Hrebiniak argues that it is important for strategists to have a model that includes the critical factors that must be taken into account when deciding to implement a strategic plan. Without a specific plan, the different actors in the strategy will tend to delegate the execution to other people, which will only bring bad results.
Choosing the right metrics
Although sales and market share metrics are always the most consulted, it is observed that companies are more frequently recruiting other metrics that help them evaluate not only their financial performance but also whether a strategic plan is successful or not. For example, when a large cable communications company found that the speed of penetration in a new market was highly correlated with the number of crews of home services, executives understood the importance of having these adequate personnel.
It is important to choose flexible metrics that can adapt to changes in market conditions. For example, the sale of units can be a good metric for a car producer, but if the interest rate goes up it will affect the level of sales. A good set of metrics, which follow the cause-effect methodology, can be very helpful in these cases.
And what about the metrics of those service units that do not have a specific indicator? Sometimes staff departments such as legal, human resources or IT think that there are no metrics that can measure their contribution to the execution of the strategy. In such cases, it is convenient to establish metrics according to what internal clients indicate as a good service.
Don't forget to plan
As said before, the most common thing is to establish plans and then forget them. A golden rule to avoid this is to hold exclusive follow-up meetings of the strategic plan, where no other issues are discussed.
Evaluate results frequently
Results evaluation is an annual exercise in most organizations. However, the companies that report high profits also indicate that they have a culture of evaluating strategies more frequently. For example, Wal-Mart, which is a leader in strategy execution, has daily monitoring of the most representative metrics on the performance of its stores. Last Christmas, Wal Mart was able to verify several days in advance that its sales strategy for that event was not working and could change it, significantly reducing the damage that was caused.
Communicate
Hrebiniak argues that the executives who design the strategies often have a different business cultural background than those who must carry out the execution. Asking questions and being attentive to the evolution of the plan approaches both positions with a healthy effect on the results.
