The Keys To Strategy Execution

In the recent AMA/HRI Strategy Execution Survey 2006, commissioned by the American Management Association, the HRI team specifically wanted to find out what drives execution and what its primary components are. The research team also wanted to know if there are significant differences in how higher-performing and lower-performing organizations execute their strategies. Therefore, they made an effort to identify which companies—based on self-reports—are best at strategy execution and which excel in the areas of revenue growth, market share, profitability, and customer satisfaction.

In Larry Bossidy's and Ram Charan's best-selling book, Execution (Crown Business, 2002), they described the seven essential behaviors of leaders as:

• Know your people and your business
• Insist on realism
• Set clear goals and priorities
• Follow Through
• Reward the doers
• Expand people's capabilities
• Know yourself

Bottom line: those orgainzations that lived by the book - Bossidy's and Charan's that is - excelled at executing strategy.

Biography: Maurice “Mo” Cayer, Ph.D.

Maurice “Mo” Cayer is the head of Management & Leadership Development programs at the American Management Association, a leading training and development organization. Mo is also a Professor of Psychology and Management at the University of New Haven. His career includes having been Director, Organizational & Leadership Development for Bayer Healthcare, NA & Pharmaceutical. At GE Capital Corp., he was the Leader, Best Practices & Program Development, designing a wide variety of Organizational Development interventions, and classroom (e.g., Six Sigma, Strategic Leadership Skills) and web-based training and applying GE’s legendary Work-Out and Change Processes. In addition, he also has retail experience, having been R.H. Macy & Co.’s Vice President, Organizational Development & Executive Compensation, and in various HRD roles at the JCPenney Co. Earlier, Mo was the Manager, Strategies for Service Excellence, for DDI. Mo has his Ph.D. in Industrial & Organizational Psychology from NYU where he also taught as an Adjunct Professor.

Excerpts from "The Keys To Strategy Execution"  from the AMA/HRI

Within this study, the research team defined strategy as “a major plan that an organization makes to attain a defined and positive business goal,” and it defined strategy execution as “the process of implementing such plans and achieving such goals.” The AMA/HRI team specifically wanted to find out what drives execution and what its primary components are.We also wanted to know if there are significant differences in how higher-performing and lower-performing organizations execute their strategies. Therefore, we made an effort to identify which companies—based on self-reports—are best at strategy execution and which excel in the areas of revenue growth, market share, profitability, and customer satisfaction.

Higher performers tend to be better at executing strategies. That is, companies that enjoy higher performance (based on the four factors mentioned above) also tend to be better at executing strategies (based on two different survey indicators).

Above everything else, clarity is crucial to the execution of strategy. “Creating a clear strategy” was ranked as the single most important strategic action for companies implementing strategies.

What’s more, out of 57 different approaches to strategy execution, “defining clear goals to support strategy” was ranked second in importance, “ensuring clear accountability” was fourth, and “having a clear focus on implementing/executing strategy” was sixth. Overall, organizations are not achieving clarity to the degree they should. Although clear strategies and clear goals were of top importance, they were ranked only 11th and 10th in terms of the extent to which companies use those approaches. There is a particularly large difference between the extent to which companies value a clear strategy and the extent to which they actually deliver on such a strategy.

Higher-performing companies are much more likely than lower performers to provide clarity. In fact, out of the top six major areas of difference between higher and lower performers, three of them (clear strategy, clear goals, and clear focus) deal with clarity. Alignment practices are widely used and highly valued. Alignment practices account for four out of the top 10 most commonly used strategy execution methods. They are also among the top 10 most highly valued practices. Among the top 10 are “aligning strategy with the corporate vision/mission statement,” “aligning organizational goals with strategy,” “aligning business unit’s goals with organizational goals,” and “aligning business units with strategy.” Higher-performing organizations are considerably more likely to use certain alignment strategies. Specifically, higher performers are more likely to align organizational goals with strategy and to align incentives, rewards, and recognition with strategy. Speed and adaptability are differentiators.

The practice representing the largest difference between higher and lower performers is “demonstrating the ability to quickly and effectively execute when new strategic opportunities arise.” Another strategic action representing a large difference is “having an adaptive organizational infrastructure.” These two items suggest that adaptive organizational infrastructures—in combination with strategic clarity—help organizations react more quickly to new strategic opportunities. Decision-making speed remains a major problem. The largest difference between the extent to which organizations take a strategic action and the extent to which they consider that action important is in the area of “ensuring appropriate decision-making speed.” This means, in essence, that companies value such speed much more than they can actually attain it. Employee engagement is a concern. “Ensuring employees at all levels feel engaged in and motivated by the execution process” was ranked 52nd of 57 practices in terms of the extent to which companies do this. But it was ranked 25th in terms of its overall importance.

The importance of communication as a best practice to execute strategy is worth noting. Earlier research made communication a peripheral concern, focusing instead on issues such as organizational structure and processes such as reward systems and resource allocation (Schultz, Hatch, and Larsen 2000). More recent literature suggests, however, that communication is key to proper execution.

The needs and demands of customers easily surfaced as the top factor influencing an organization’s ability to execute its strategy—both today and in 10 years, according to the AMA/HRI Strategy Execution Survey 2006.

Another top factor influencing an organization’s ability to execute its strategic plans both today and in 10 years is workforce capability, according to the AMA/HRI Strategy Execution Survey 2006. On a 5-point scale, workforce capability averaged 3.64 as a factor today and 4.06 as a factor in 10 years. Why are such capabilities so important? A workforce made up of talented and engaged people is a huge advantage in executing strategy, but employees can also be viewed, from some perspectives, as a risk. In an interview with Leaders magazine, Mark V.Mactas, chairman and CEO of Towers Perrin, noted that to execute well, organizations must understand that people are “both a core component of risk and one of the principal avenues to risk mastery” (“Turning Risk,” 2006). Especially in today’s knowledge economy, with many companies pursing multiple strategies, execution is doomed to failure unless workers understand the strategies, have the skills and talent to implement them, and are motivated to do so. Risks associated with factors such as high labor costs and turnover can also cause employers to stumble. “Until our technologists crack the code of artificial intelligence, successful companies will need to depend to a greater extent than ever on human intelligence, innovation, and inspiration,” says Mactas.

Technological change is also ranked among the top factors influencing an organization’s ability to execute its strategic plans both today and in 10 years,

Survey respondents indicated that they also consider the creativity or innovation of an organization to be an important driver of strategy execution, both today and in 10 years, according to the AMA/HRI Strategy Execution Survey 2006. On a 5-point scale, internal creativity, or innovativeness, averaged 3.51 as a factor today and 4.06 as a factor in 10 years. An environment that prizes the formulation of innovative ideas and uses a “disciplined approach” for turning those ideas into action is the kind of culture that improves the chances of strategy success, according to Patrick Kulesa (2005), global research director for ISR. He notes, “Successful innovation companies excel at setting the stage for generating new ideas and also have the business discipline and processes necessary to take those new ideas to market.”

Actions rated highest in the importance and value to organizations were aligning organizational goals with strategy, aligning strategy with the corporate vision/mission statement, aligning the business units with strategy, and aligning business units’ goals with the organization’s goals.

But the AMA/HRI survey also uncovered some serious gaps between how important a strategic action is to the organization and the extent to which the firm actually takes that action. Among the biggest gaps were in the areas of “utilizing succession planning to develop leaders who are good at strategy execution,” “eliminating conflicting objectives in regard to meeting the strategy,” “translating organizational goals into actionable deliverables,” and “aligning incentives, rewards, and recognition to the strategy.”

A culture that supports strategy execution exhibits clear and open communication, respect for ideas, tolerance for failure, and an ability to engage employees’ passion for the firm’s mission. While leaders play an important role in establishing such an environment, a firm’s culture is created one person, one decision, and one action at a time. Let’s first take a look at the role of communication in creating a culture of execution. In the Towers Perrin (2005) survey noted above, ratings among U.S. employees for leaders’ ability to effectively communicate the reasons for important business decisions were somewhat dismaying. Just 40% of employees rated leaders favorably, 27% gave them mixed reviews, and one-third (33%) rated them unfavorably. Understanding why a firm is taking a particular approach or strategy is critical to employees’ buy-in and subsequent performance. But even more disconcerting than an unclear decision is an environment of indecision. A 2005Wall Street Journal Online article suggests that most employees would prefer a poor decision to no decision whatsoever

One lingering cultural perception that needs to change is the opinion that “smart people plan and grunts execute,” says Lawrence G. Hrebiniak, author of Making Strategy Work: Leading Effective Execution and Change, in a 2005 interview with Knowledge@Wharton. Mindsets that hold on to the premise that strategy making is superior to strategy implementation are outdated and inaccurate. Hrebiniak posits that strategy execution is more complicated today than ever before, as it involves more people and takes more time. “Executive strategy requires ownership at all levels,” says Hrebiniak, requiring concurrent consideration of planning and doing (“Got a Good Strategy?” 2005). “The greater the overlap of doers and planners, the greater [the] probability of success,” he says. Hrebiniak laments that business education programs often cover how to plan but that lessons on how to execute—a “competitive business advantage”—must typically be learned in the workforce.

Openness to change is considered to be the most important leadership characteristic to support strategy execution. Other leadership characteristics that were viewed as supporting strategy execution included interpersonal communications, support for innovation, flexibility, and group communications (AMA/HRI 2005).

Communication. Managers must have excellent communication skills to ensure strategy execution. The involvement of senior management in communicating strategy is an especially important factor in employees’ understanding of organizational strategy and how their jobs contribute, according to Angela Sinickas, president of international communication consultancy Sinickas Communications, Inc. Her recent analysis of audits showed, however, that there is plenty of room for improvement. On average, only 38% of responding employees categorized themselves as well informed or very well informed about their firms’ organizational strategy, findings that show little change since 2002 (Sinickas 2006).

In Harvard Business Review, Paul Rogers and Marcia Blenko (2006, p. 54), partners in London’s Bain & Company, noted, “A good decision executed quickly beats a brilliant decision implemented slowly.” A Bain survey of 350 global firms found that the best-performing organizations were noted for the “quality, speed and execution of their decision making” (Rogers and Blenko 2006).

The AMA/HRI Strategy Execution Survey 2006 and HRI research found that, as in the Marakon Associates survey, a lack of adequate resources was viewed as the primary barrier today. Other top barriers include government regulations, lack of follow-through, inadequate communication/feedback, and competitive pressures.

One survey found that the biggest impediment to successfully executing a business strategy was not change but simply doing things the way they’ve always been done. According to the April 2005 Leadership Pulse survey of more than 300 worldwide executives, more than one-third of the respondents (35%) included “past and habits” as one of the top 15 barriers to strategy execution, making it the number-one answer

Resources
American Management Association
AMA Webcast "Agility & Resilience"
Institute for Corporate Productivity (Formerly HRI)

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