Why Strategy Execution Unravels, from Sull, Homkes & Still

We think a lot about the relationship between strategy and execution at Converge, reflecting often on the famous quote attributed to Peter Drucker, “Culture eats strategy for lunch”. Execution is about culture and leadership. Poorly executed strategies are not just a shame – they waste precious human and financial resources, are tough on morale, and undercut long-term performance. This think piece from a recent article in Harvard Business Review talks about large companies – the authors surveyed 7600 managers in 262 companies across 30 industries – but the lessons are also valid in the social and public spheres, and in smaller organizations. I found this article to be the most useful thing I’ve ever read on the topic.

Taming-strategy-400x379A recent survey of more than 400 global leaders found that executional excellence was the number one challenge, heading a list of some 80 issues, including innovation, geopolitical instability, and top-line growth. Two-thirds to three-quarters of organizations struggle with execution. And it’s no wonder: Research reveals that several common beliefs about implementing strategy are just plain wrong. Here are five of the most pernicious myths:

Execution equals alignment

Whereas companies have effective processes for cascading goals downward in the organization, their systems for managing horizontal performance commitments lack teeth. When asked to identify the single greatest challenge to executing company strategy, 30% cite failure to coordinate across units. Managers also say they are three times more likely to miss performance commitments because of insufficient support from other units than because of their own teams’ failure to deliver. More than half of managers want more structure in the processes to coordinate activities across units – twice the number who want more structure in the management by objectives system. Processes to align activities with strategy up and down the hierarchy are generally sound. The real problem is coordination: People in other units can’t be counted on.

Execution means sticking to the plan

After investing enormous amounts of time and energy formulating a plan and its associated budget, executives view deviations as a lack of discipline that undercuts execution. Unfortunately, no strategy survives contact with reality. Managers and employees at every level need to adapt to facts on the ground, surmount unexpected obstacles, and take advantage of fleeting opportunities. Strategy execution, as we define it, consists of seizing opportunities that support the strategy while coordinating with other parts of the organization on an ongoing basis. Real time adjustments require firms to be agile.

According to a study by McKinsey, firms that actively reallocated capital expenditures across business units achieved an average shareholder return 30% higher than the average return of companies that were slow to shift funds. Only 11% of managers believe that all their company’s strategic priorities have the human and financial resources needed for success. That’s a shocking statistic: It means that nine managers in 10 expect some of their organization’s major initiatives to fail for lack of resources. Instead of focusing on resource allocation alone, with its connotation of one-off choices, managers should concentrate on the fluid reallocation of funds, people, and attention. Fewer than one third of managers believe their organizations reallocate funds to the right places quickly enough to be effective. The reallocation of people is even worse. Only 20% of managers say their organizations do a good job of shifting people across units to support strategic priorities. Companies also fail to disinvest. Eight in 10 managers say their companies fail to exit declining businesses or to kill unsuccessful initiatives quickly enough. Resources, both human and financial, are too often trapped in unproductive uses.

Communication equals understanding

Only half of middle managers can name any of their company’s top five priorities. Only 55% of middle managers can name even one of their company’s top five priorities. Fewer than one-third of the management team could name even two. Just over half of all top team members say they have a clear sense of how major priorities and initiatives fit together. It’s pretty dire when half the C-suite cannot connect the dots between strategic priorities, but matters are even worse elsewhere. Fewer than one-third of senior executives’ direct reports clearly understand the connections between strategic priorities, and the share plummets to 16% for frontline supervisors and team leaders.

E-mails and meetings about strategy are endless. Many executives believe that relentlessly communicating strategy is a key to success. How can so much communication yield so little understanding? Part of the problem is that executives measure communication in terms of inputs (the number of emails sent or town halls hosted) rather than by the only metric that actually counts – how well key leaders understand what’s communicated. A related problem occurs when executives dilute their core messages with peripheral considerations. Top executives add to the confusion when they change their messages frequently – a problem flagged by nearly one-quarter of middle managers.

A performance culture drives execution

When their companies fail to translate strategy into results, many executives point to a weak performance culture as the root cause. The data tells a different story. Fewer than one-third of managers say they can have open and honest discussions about the most difficult issues, while one-third say that many important issues are considered taboo. Corporate cultures rarely support the candid discussions necessary for agility. Half the managers believe that their careers would suffer if they pursued but failed at novel opportunities or innovations.

When it comes to hires, promotions, and nonfinancial recognition, past performance is two or three times more likely than a track record of collaboration to be rewarded. Performance is critical, of course, but if it comes at the expense of coordination across the organization, it undermines execution. Companies need to reward other things besides hitting the numbers, including agility, teamwork, and ambition. We ask respondents what would happen to a manager in their organization who achieved his objectives but failed to collaborate with colleagues in other units. Only 20% believe the behavior would be addressed promptly; 60% believe it would be addressed inconsistently or after a delay, and 20% believe it would be tolerated.

Execution should be driven from the top

If top executives insist on making the important calls themselves, they diminish managers’ decision-making skills, initiative, and ownership of results. Top-down execution has drawbacks in addition to the risk of unraveling after the departure of a strong CEO. It helps to remember that effective execution in complex organizations emerges from countless decisions and actions at all levels. Concentrating power at the top may boost performance in the short term, but it degrades an organization’s capacity to execute over the long run.

Frequent and direct intervention from on high encourages middle managers to escalate conflicts rather than resolve them, and over time they lose the ability to work things out among themselves. Top executives could help by adding structured processes to facilitate coordination. In many cases they could also do a better job of modeling teamwork. One-third of managers believe that factions exist within the C-suite and that executives there focus on their own agendas rather than on what is best for the company.

Many executives try to solve the problem of execution by reducing it to a single dimension. They focus on tightening alignment up and down the chain of command – by improving existing processes, such as strategic planning and performance management, or by adopting new tools, such as the balanced scorecard. These are useful measures, to be sure, but relying on them as the sole means of driving execution ignores the need for coordination and agility in volatile markets. If managers focus too narrowly on improving alignment, they risk developing ever more refined answers to the wrong question.

If common beliefs about execution are incomplete at best and dangerous at worst, what should take their place? The starting point is a fundamental redefinition of execution as the ability to seize opportunities aligned with strategy while coordinating with other parts of the organization on an ongoing basis.

Why Strategy Execution Unravels – And What to Do About It. 

Donald Sull, Rebecca Homkes, Charles Still

Harvard Business Review, March 2015