3 REASONS WHY GOOD STRATEGIES FAIL: EXECUTION, EXECUTION ...
(Part 1 out of 2)
(Part 1 out of 2)
From Vivendi to Webvan, the shortcomings of a bad strategy are usually painfully obvious — at least in retrospect. But good strategies fail too, and when that happens, it’s often harder to pinpoint the reasons. Yet despite the obvious importance of good planning and execution, relatively few management thinkers have focused on what kinds of processes and leadership are best for turning a strategy into results.
As a result, says Wharton management professor Lawrence G. Hrebiniak, MBA-trained managers know a lot about how to decide a plan and very little about how to carry it out. ”Making Strategy Work: Leading Effective Execution and Change (Wharton School Publishing). “Even though they are good managers, over time they really have to learn through the school of hard knocks, through experience, which means they make a lot of mistakes.”
This lack of expertise in execution can have serious consequences. In a recent survey of senior executives at 197 companies conducted by management consulting firm Marakon Associates and the Economist Intelligence Unit, respondents said their firms achieved only 63% of the expected results of their strategic plans. Michael Mankins, a managing partner in Marakon’s San Francisco office, says he believes much of that gap between expectation and performance is a failure to execute the company’s strategy effectively.
But can better execution be taught? “I think you can at least make people aware of the key variables,” says Hrebiniak. “You can develop a model…. If people know what the key variables are, they know what to look for and what questions to ask.”
The Pitfalls of Poor Synchronization
While execution can go wrong for a variety of reasons, one of the most basic may be allowing the focus of the strategy to shift over time. The attempt by Hewlett-Packard, after it acquired Compaq, to compete with Dell in PCs through scale is a classic example of goal-shifting — competing on price one week, service the next, while trying to sell through often conflicting, high-cost channels. The result: CEO Carly Fiorina lost her job and HP still must resolve some key strategic issues.
The first step is to define the challenge. Ultimately, argues Richard Steele, a partner in Marakon’s New York office, the challenge of execution is mostly a matter of synchronization — getting the right product to the right customer at the right time. Synchronization is hard for a variety of reasons, including the fact that “any large company these days sells multiple products to multiple customers in multiple geographies. In order to pursue the scale benefits of size — those benefits of scale through consolidation — you now have more and more complexity across the matrix.” For example, Steele says, a regional manufacturing initiative in Europe may involve reconfiguring 15 different supply chains and understanding the markets of 15 different countries. “It’s really tough to do.”
Another classic example of mis-synchronization: United Air Lines’ TED, which attempted to set up a competitive subsidiary to compete against upstarts such as Southwest. This was a good idea as far as it went, but United tried to compete using its same old cost structure — the main reason it was losing markets to the low-cost airlines in the first place.
At other times, plans fail simply because they don’t get communicated to all the people involved. “I’ve done consulting where a major strategic thrust has been developed, and a month or two later I go down four or five levels and ask people how they’re doing. They haven’t even heard of the program,” Hrebiniak says.
Strategies also flop because individuals resist the change. For example, headquarters might want more standardization in a product, but a local marketing executive disagrees with the idea. “He might say, ‘I need more nuts in my chocolate bar’ or ‘I need a different pack size,’” Steele says. “You can only get the cost benefit and you can only consolidate if everybody agrees that we are actually going to execute the strategy.”
Many times, there can be sound reasons for resistance. Sometimes a strategy might make sense at the highest level, but its full impact on the whole organization has not been fully considered, according to Steele. For example, imagine that the general strategy calls for promoting one brand throughout the company while taking resources away from another brand. That might make sense in one market, yet be completely counterproductive elsewhere. Faced with the choice to promote a product that’s considered an advantaged brand in one market but lags in his own, a country manager is likely to try to fight or circumvent the strategy. “Human nature will say, ‘I’m not going to synchronize with you. I’m not going to spend the money where you want me to spend it. And I’m going to fight it,’” Steele says. “And that’s what he does.”
Cultural factors can also hinder execution. Companies sometimes try to apply a tried-and-true strategy without realizing that they are operating in markets that require a different approach. Even such a world-beater at execution as Wal-Mart, for instance, has sometimes made some missteps because of culture. One example: When Wal-Mart first moved in to Brazil, it tried to lay down terms with suppliers in the same way it does in the U.S., where it carries huge weight in the market. Suppliers simply refused to play, and the company was forced to reevaluate its strategy.
Internal cultural factors may also present problems. Steele points out that marketers typically move from brand to brand over two-year cycles. At the same time, operations executives advance at a slower, steadier five-year pace, which gives each of them very different perspectives both about the organization’s past and its future. Employee incentives may create friction as well. “We hope for A but reward B. We say, ‘Do this under the strategy,’ but the incentives have been around for 25 years and they reward something else totally,” Hrebiniak says.
Yet the biggest factor of all may be executive inattention. Once a plan is decided upon, there is often surprisingly little follow-through to ensure that it is executed, the experts at Wharton and Marakon note.
One culprit: “Less than 15% of companies routinely track how they perform over how they thought they were going to perform,” says Mankins. Instead, only the first year’s goals are measured — and executives often set first-year goals deliberately low in order to meet a threshold for a bonus. He argues that this lack of introspection makes it easier for companies to ignore failed plans. And ignoring failure makes it that much harder to identify execution bottlenecks and take corrective action.
According to Mike Perigo, a partner in Marakon’s San Francisco office, frequent communication is essential if plans are to be executed well. “We have found that very effective companies have regular dialogues between the leadership team and unit managers,” he says.
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