Strategising is One Thing, Execution is Another

Many business leaders go through a cycle. Every year they go into a planning session and come up with a stack of slides that outline the strategy and goals for the coming year. Yet, few manage to achieve the results that matter even though the strategy itself is sound and often backed up by a comprehensive evaluation of the market, the competition and the capabilities of the organisation.

It is highly unlikely that companies will be able to foresee future trends better than its competitors and formulate better strategies.
Strategy consultants engaged by some of these companies are also likely to arrive at the same conclusions. What is really going to set these companies apart will be how well they will be able to execute the strategies that they have formulated and respond to the shift in trends.

In a recent report by the Economist Intelligence Unit entitled Why Good Strategies Fail – Lessons for the C-suite, 61% of senior global executives surveyed acknowledge that their firms often struggle to bridge the gap between strategy formulation and its day-to-day implementation. While many experts agree that strategy execution is extremely important, it has been given very little attention in business school curriculum as well as in academic and business publications compared to strategy formulation.

In my opinion, two key elements are important for execution. These elements can be understood with an analogy of a football team.

1. Employee alignment to strategy

In a football team, the team manager (The C-suite) determines the match strategy and selects the players (employees) who can, as a team, execute the strategy on the pitch. The players need to understand how their individual roles are linked to the strategy laid out by the team manager.

However, in most organisations very little emphasis is placed to align people towards effective execution of strategy in an organisation. In his book, Making Strategy Work, Wharton’s associate professor of management, Lawrence G. Hrebiniak, states that the task of execution always involves more people compared to the task of strategy formulation.

Thus, communication down the line of the organisation or across different functions becomes a huge challenge. A manager will not be able to execute well without the synchronisation of the people within the organisation. This eventually leaves the task of execution to the manager and a few of his lieutenants.

The challenge then, as in football, is to align everyone to play their part in the success of the organisation. The problem becomes more pronounced once a company grows beyond a handful of people. Before long, employees will be “boxed” within departments with a specific job scope. They will eventually lose sight of the company’s objectives and “behave” within the task of their job scope.

“My job is to prepare invoices to be sent to our customers” would be a typical answer of an employee in charge of invoicing, for example. How delays in invoicing (and collection) affect the company’s cash flow will be the least of the employee’s concern. It is therefore very important that employees understand how their individual roles within their respective departments align to the bigger picture of organisational objectives.

2. Keeping score

During the 1997 Asian financial crisis, I was a young manager running part of the Malaysian business operations within a global IT technology company. Revenue, when reported in US dollars, was dramatically hit – not only because customers were re-negotiating and delaying their purchases, but more so of the spiralling exchange rate.

We had to keep our profits in check to avoid implementing drastic measures such as employee retrenchment. It was during this time that I took great pains to educate my managers and engineers about the basics of business management - the difference between orders and revenue, the various operational cost elements and their linkages to operational processes and that often forgotten basic rule of business: profits shown in the income statement do not necessarily mean cash in the bank.

In my monthly review meetings that involved managers and engineers alike, I flashed the financials and went through revenue streams and cost items line by line. This little activity always seemed to be the highlight of the meeting. It got everyone excited and there was this new-found drive and willingness to contribute. We discussed various ways to be more efficient in our business operations and spin off process improvement projects.
Process improvement teams saw the fruit of their labour reflected in the financial bottom-line in the following months. This kept the momentum and excitement of participating in the operations of the business going.

The concept of educating employees on financials and how their roles impact the bottom line is not new. The concept first came into prominence in a 1986 edition of Inc. magazine and eventually became known as Open Book Management (OBM). The Inc. article described how SRC, a dying division of International Harvester beat the odds to become America’s most competitive small companies.

The head of SRC at that time, Jack Stack, and 12 other employees bought the business from Harvester in 1983 and struck out on their own. They developed a meticulously detailed financial reporting system and involved all levels of employees to meet the financial objectives. The system proved to be highly successful.

The point is this: in order to ensure that your employees are totally engaged, you have to keep score. When employees understand how a company functions and how it makes money, they will not be task-oriented or reduced to “doing their job”.

They are most likely to take responsibility as they know enough about the company to understand how their individual or team actions (or the lack of it) affect the company. So make the time to educate employees on the basics of business management. Next week, we will discuss the role of leaders.