The Secrets to Successful Strategy Execution

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Question Description

Introduction

What is the purpose of the book/article? Why was it written?

(2) Analysis

What are the major points of the book/article?

If the article includes a case, what are the major concepts presented?

(3) Conclusion

What are your take a ways? How can these concepts help prepare you to become a better manager?

Do you see any application of these concepts to your current class project? Explain in detail.

(4) Resource listing

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www.hbr.org Research shows that enterprises fail at execution because they go straight to structural reorganization and neglect the most powerful drivers of effectiveness— decision rights and information flow. The Secrets to Successful Strategy Execution by Gary L. Neilson, Karla L. Martin, and Elizabeth Powers Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 2 The Secrets to Successful Strategy Execution 13 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications Reprint R0806C The Secrets to Successful Strategy Execution The Idea in Brief The Idea in Practice A brilliant strategy may put you on the competitive map. But only solid execution keeps you there. Unfortunately, most companies struggle with implementation. That’s because they overrely on structural changes, such as reorganization, to execute their strategy. The following levers matter most for successful strategy execution: Though structural change has its place in execution, it produces only short-term gains. For example, one company reduced its management layers as part of a strategy to address disappointing performance. Costs plummeted initially, but the layers soon crept back in. Research by Neilson, Martin, and Powers shows that execution exemplars focus their efforts on two levers far more powerful than structural change: COPYRIGHT © 2008 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. • Clarifying decision rights—for instance, specifying who “owns” each decision and who must provide input • Ensuring information flows where it’s needed—such as promoting managers laterally so they build networks needed for the cross-unit collaboration critical to a new strategy Tackle decision rights and information flows first, and only then alter organizational structures and realign incentives to support those moves. DECISION RIGHTS • Ensure that everyone in your company knows which decisions and actions they’re responsible for. Example: In one global consumer-goods company, decisions made by divisional and geographic leaders were overridden by corporate functional leaders who controlled resource allocations. Decisions stalled. Overhead costs mounted as divisions added staff to create bulletproof cases for challenging corporate decisions. To support a new strategy hinging on sharper customer focus, the CEO designated accountability for profits unambiguously to the divisions. • Encourage higher-level managers to delegate operational decisions. Example: At one global charitable organization, country-level managers’ inability to delegate led to decision paralysis. So the leadership team encouraged country managers to delegate standard operational tasks. This freed these managers to focus on developing the strategies needed to fulfill the organization’s mission. INFORMATION FLOW • Make sure important information about the competitive environment flows quickly to corporate headquarters. That way, the top team can identify patterns and promulgate best practices throughout the company. Example: At one insurance company, accurate information about projects’ viability was censored as it moved up the hierarchy. To improve information flow to senior levels of management, the company took steps to create a more open, informal culture. Top executives began mingling with unit leaders during management meetings and held regular brown-bag lunches where people discussed the company’s most pressing issues. • Facilitate information flow across organizational boundaries. Example: To better manage relationships with large, cross-product customers, a B2B company needed its units to talk with one another. It charged its newly created customer-focused marketing group with encouraging cross-company communication. The group issued regular reports showing performance against targets (by product and geography) and supplied root-cause analyses of performance gaps. Quarterly performance-management meetings further fostered the trust required for collaboration. • Help field and line employees understand how their day-to-day choices affect your company’s bottom line. Example: At a financial services firm, salespeople routinely crafted customized one-off deals with clients that cost the company more than it made in revenues. Sales didn’t understand the cost and complexity implications of these transactions. Management addressed the information misalignment by adopting a “smart customization” approach to sales. For customized deals, it established standardized back-office processes (such as risk assessment). It also developed analytical support tools to arm salespeople with accurate information on the cost implications of their proposed transactions. Profitability improved. page 1 Research shows that enterprises fail at execution because they go straight to structural reorganization and neglect the most powerful drivers of effectiveness—decision rights and information flow. The Secrets to Successful Strategy Execution by Gary L. Neilson, Karla L. Martin, and Elizabeth Powers COPYRIGHT © 2008 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. A brilliant strategy, blockbuster product, or breakthrough technology can put you on the competitive map, but only solid execution can keep you there. You have to be able to deliver on your intent. Unfortunately, the majority of companies aren’t very good at it, by their own admission. Over the past five years, we have invited many thousands of employees (about 25% of whom came from executive ranks) to complete an online assessment of their organizations’ capabilities, a process that’s generated a database of 125,000 profiles representing more than 1,000 companies, government agencies, and not-for-profits in over 50 countries. Employees at three out of every five companies rated their organization weak at execution—that is, when asked if they agreed with the statement “Important strategic and operational decisions are quickly translated into action,” the majority answered no. Execution is the result of thousands of decisions made every day by employees acting according to the information they have and their own self-interest. In our work helping harvard business review • june 2008 more than 250 companies learn to execute more effectively, we’ve identified four fundamental building blocks executives can use to influence those actions—clarifying decision rights, designing information flows, aligning motivators, and making changes to structure. (For simplicity’s sake we refer to them as decision rights, information, motivators, and structure.) In efforts to improve performance, most organizations go right to structural measures because moving lines around the org chart seems the most obvious solution and the changes are visible and concrete. Such steps generally reap some short-term efficiencies quickly, but in so doing address only the symptoms of dysfunction, not its root causes. Several years later, companies usually end up in the same place they started. Structural change can and should be part of the path to improved execution, but it’s best to think of it as the capstone, not the cornerstone, of any organizational transformation. In fact, our research shows that actions having to do with page 2 The Secrets to Successful Strategy Execution Gary L. Neilson (neilson_gary@bah .com) is a senior vice president in the Chicago office of Booz & Company, a management-consulting firm. He is a coauthor of “The Passive-Aggressive Organization” (HBR, October 2005). Karla L. Martin (martin_karla@bah .com) is a principal in the firm’s San Francisco office. Elizabeth Powers (powers_elizabeth@bah.com) is a principal in the New York office. harvard business review • june 2008 decision rights and information are far more important—about twice as effective—as improvements made to the other two building blocks. (See the exhibit “What Matters Most to Strategy Execution.”) Take, for example, the case of a global consumer packaged-goods company that lurched down the reorganization path in the early 1990s. (We have altered identifying details in this and other cases that follow.) Disappointed with company performance, senior management did what most companies were doing at that time: They restructured. They eliminated some layers of management and broadened spans of control. Managementstaffing costs quickly fell by 18%. Eight years later, however, it was déjà vu. The layers had crept back in, and spans of control had once again narrowed. In addressing only structure, management had attacked the visible symptoms of poor performance but not the underlying cause—how people made decisions and how they were held accountable. This time, management looked beyond lines and boxes to the mechanics of how work got done. Instead of searching for ways to strip out costs, they focused on improving execution— and in the process discovered the true reasons for the performance shortfall. Managers didn’t have a clear sense of their respective roles and responsibilities. They did not intuitively understand which decisions were theirs to make. Moreover, the link between performance and rewards was weak. This was a company long on micromanaging and second-guessing, and short on accountability. Middle managers spent 40% of their time justifying and reporting upward or questioning the tactical decisions of their direct reports. Armed with this understanding, the company designed a new management model that established who was accountable for what and made the connection between performance and reward. For instance, the norm at this company, not unusual in the industry, had been to promote people quickly, within 18 months to two years, before they had a chance to see their initiatives through. As a result, managers at every level kept doing their old jobs even after they had been promoted, peering over the shoulders of the direct reports who were now in charge of their projects and, all too frequently, taking over. Today, people stay in their positions longer so they can follow through on their own initiatives, and they’re still around when the fruits of their labors start to kick in. What’s more, results from those initiatives continue to count in their performance reviews for some time after they’ve been promoted, forcing managers to live with the expectations they’d set in their previous jobs. As a consequence, forecasting has become more accurate and reliable. These actions did yield a structure with fewer layers and greater spans of control, but that was a side effect, not the primary focus, of the changes. The Elements of Strong Execution Our conclusions arise out of decades of practical application and intensive research. Nearly five years ago, we and our colleagues set out to gather empirical data to identify the actions that were most effective in enabling an organization to implement strategy. What particular ways of restructuring, motivating, improving information flows, and clarifying decision rights mattered the most? We started by drawing up a list of 17 traits, each corresponding to one or more of the four building blocks we knew could enable effective execution—traits like the free flow of information across organizational boundaries or the degree to which senior leaders refrain from getting involved in operating decisions. With these factors in mind, we developed an online profiler that allows individuals to assess the execution capabilities of their organizations. Over the next four years or so, we collected data from many thousands of profiles, which in turn allowed us to more precisely calibrate the impact of each trait on an organization’s ability to execute. That allowed us to rank all 17 traits in order of their relative influence. (See the exhibit “The 17 Fundamental Traits of Organizational Effectiveness.) Ranking the traits makes clear how important decision rights and information are to effective strategy execution. The first eight traits map directly to decision rights and information. Only three of the 17 traits relate to structure, and none of those ranks higher than 13th. We’ll walk through the top five traits here. 1. Everyone has a good idea of the decisions and actions for which he or she is responsible. In companies strong on execution, 71% of individuals agree with this statement; that figure drops to 32% in organizations weak on execution. page 3 The Secrets to Successful Strategy Execution Blurring of decision rights tends to occur as a company matures. Young organizations are generally too busy getting things done to define roles and responsibilities clearly at the outset. And why should they? In a small company, it’s not so difficult to know what other people are up to. So for a time, things work out well enough. As the company grows, however, executives come and go, bringing in with them and taking away different expectations, and over time the approval process gets ever more convoluted and murky. It becomes increasingly unclear where one person’s accountability begins and another’s ends. One global consumer-durables company found this out the hard way. It was so rife with people making competing and conflicting decisions that it was hard to find anyone below the CEO who felt truly accountable for profitability. The company was organized into 16 product divisions aggregated into three geographic groups—North America, Europe, and International. Each of the divisions was charged with reaching explicit performance targets, but functional staff at corporate headquarters controlled spending targets— how R&D dollars were allocated, for instance. Decisions made by divisional and geographic leaders were routinely overridden by functional leaders. Overhead costs began to mount as the divisions added staff to help them create bulletproof cases to challenge corporate decisions. Decisions stalled while divisions negotiated with functions, each layer weighing in with questions. Functional staffers in the What Matters Most to Strategy Execution When a company fails to execute its strategy, the first thing managers often think to do is restructure. But our research shows that the fundamentals of good execution start with clarifying decision rights and making sure information flows where it needs to go. If you get those right, the correct structure and motivators often become obvious. Information 54 Decision Rights 50 Motivators 26 Structure 25 Relative Strength (out of 100) harvard business review • june 2008 divisions (financial analysts, for example) often deferred to their higher-ups in corporate rather than their division vice president, since functional leaders were responsible for rewards and promotions. Only the CEO and his executive team had the discretion to resolve disputes. All of these symptoms fed on one another and collectively hampered execution—until a new CEO came in. The new chief executive chose to focus less on cost control and more on profitable growth by redefining the divisions to focus on consumers. As part of the new organizational model, the CEO designated accountability for profits unambiguously to the divisions and also gave them the authority to draw on functional activities to support their goals (as well as more control of the budget). Corporate functional roles and decision rights were recast to better support the divisions’ needs and also to build the cross-divisional links necessary for developing the global capabilities of the business as a whole. For the most part, the functional leaders understood the market realities—and that change entailed some adjustments to the operating model of the business. It helped that the CEO brought them into the organizational redesign process, so that the new model wasn’t something imposed on them as much as it was something they engaged in and built together. 2. Important information about the competitive environment gets to headquarters quickly. On average, 77% of individuals in strong-execution organizations agree with this statement, whereas only 45% of those in weak-execution organizations do. Headquarters can serve a powerful function in identifying patterns and promulgating best practices throughout business segments and geographic regions. But it can play this coordinating role only if it has accurate and up-to-date market intelligence. Otherwise, it will tend to impose its own agenda and policies rather than defer to operations that are much closer to the customer. Consider the case of heavy-equipment manufacturer Caterpillar.1 Today it is a highly successful $45 billion global company, but a generation ago, Caterpillar’s organization was so badly misaligned that its very existence was threatened. Decision rights were hoarded at the top by functional general offices located at headquarters in Peoria, Illinois, while page 4 The Secrets to Successful Strategy Execution The 17 Fundamental Traits of Organizational Effectiveness From our survey research drawn from more than 26,000 people in 31 companies, we have distilled the traits that make organizations effective at implementing strategy. Here they are, in order of importance. STRENGTH INDEX RANK ORGANIZATION TRAIT (OUT OF 100) 1 Everyone has a good idea of the decisions and actions for which he or she is responsible. 81 2 Important information about the competitive environment gets to headquarters quickly. 68 3 Once made, decisions are rarely second-guessed. 58 4 Information flows freely across organizational boundaries. 58 5 Field and line employees usually have the information they need to understand the bottom-line impact of their day-to-day choices. 55 6 Line managers have access to the metrics they need to measure the key drivers of their business. 48 Managers up the line get involved in operating decisions. 32 Conflicting messages are rarely sent to the market. 32 The individual performance-appraisal process differentiates among high, adequate, and low performers. 32 10 The ability to deliver on performance commitments strongly influences career advancement and compensation. 32 11 It is more accurate to describe the culture of this organization as “persuade and cajole” than “command and control.” 29 12 The primary role of corporate staff here is to support the business units rather than to audit them. 29 13 Promotions can be lateral moves (from one position to another on the same level in the hierarchy). 29 14 Fast-track employees here can expect promotions more frequently than every three years. 23 15 On average, middle managers here have five or more direct reports. 19 16 If the firm has a bad year, but a particular division has a good year, the division head would still get a bonus. 13 17 Besides pay, many other things motivate individuals to do a good job. 10 7 8 9 BUILDING BLOCKS harvard business review • june 2008 ■ Decision Rights ■ Information ■ Motivators ■ Structure page 5 The Secrets to Successful Strategy Execution About the Data We tested organizational effectiveness by having people fill out an online diagnostic, a tool comprising 19 questions (17 that describe organizational traits and two that describe outcomes). To determine which of the 17 traits in our profiler are most strongly associated with excellence in execution, we looked at 31 companies in our database for which we had responses from at least 150 individual (anonymously completed) profiles, for a total of 26,743 responses. Applying regression analysis to each of the 31 data sets, we correlated the 17 traits with our measure of organizational effectiveness ...
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