Business Strategy: Execution Is the Key
Two decades ago, I was working with the Organizational Effectiveness Group in AT&T's new Consumer Products division, a business created after the court-mandated breakup and reorganization of the company in 1984. I remember one particular day that made an impression on me that would last for years.
I was talking to Randy Tobias, the head of the division. I had met Randy while doing some work for Illinois Bell, and here we were talking about his division's strategic issues and challenges. Randy later moved into the chairman's office at AT&T and then became a successful CEO of Eli Lilly, but his comments that day years ago were the ones that affected me most.i
Here was a new business thrust headlong into the competitive arena. Competition was new to AT&T at the time. Competitive strategy for the business was nonexistent, and Tobias was laboring to create that elusive original plan. He focused on products, competitors, industry forces, and how to position the new division in the marketplace. He handled expectations and demands from corporate as he forged a plan for the business and helped position it in the AT&T portfolio. He created a strategic plan where previously there had been none, a Herculean task and one well done at the time.
On that day, I recall asking Randy what was the biggest strategic challenge confronting the business. I expected that his answer would deal with the problem of strategy formulation or some competitive threat facing the division. His answer surprised me.
He said that strategy formulation, while extremely challenging and difficult, was not what concerned him the most. It was not the planning that worried him. It was something even bigger and more problematic.
It was the execution of strategy that concerned him above all else. Making the plan work would be an even bigger challenge than creating the plan. Execution was the key to competitive success, but it would take some doing.
I, of course, sought further clarification and elaboration. I can't remember all of his points in response to my many questions, but here are some of the execution challenges he raised that day, referring to his own organization. He mentioned the following:
The culture of the organization and how it was not appropriate for the challenges ahead
Incentives and how people have been rewarded for seniority or "getting older," not for performance or competitive achievement
The need to overcome problems with traditional functional "silos" in the organization's structure
The challenges inherent in managing change as the division adapted to new competitive conditions
This was the first elaboration of execution-related problems I had ever heard, and the message has stayed with me over the years. It became clear to me that day that:
Execution is a key to success
It also struck me in those early days with AT&T that, although execution is a key to success, it is no easy task. Here was a company with an ingrained culture and structure, a set way of doing things. For the company to adapt to its new competitive environment, major changes would be necessary, and those changes would be no simple cakewalk. Obviously, developing a competitive strategy wouldn't be easy, but the massive challenges confronting the company made it clear to me early on that:
Making strategy work is more difficult than the task of strategy making
Execution is critical to success. Execution represents a disciplined process or a logical set of connected activities that enables an organization to take a strategy and make it work. Without a careful, planned approach to execution, strategic goals cannot be attained. Developing such a logical approach, however, represents a formidable challenge to management.
Even with careful development of an execution plan at the business level, execution success is not guaranteed. Tobias's strategic and execution plans for the Consumer Products division were well thought out. Yet troubles plagued the division's progress. Why? The problem was with the entire AT&T corporation. The company was about to go through a huge metamorphosis that it simply was not equipped to deal with and make work. Execution plans at the business level founder or fail if they don't receive corporate support. AT&T was, at the time, a slow-moving behemoth in which change was vehemently resisted. Well-prepared and logical plans at the Consumer Products business level were hampered by a poor corporate culture. Tobias' insights and potentially effective execution actions were blunted by corporate inertia and incompetence.
Although execution is critical to strategic success, making strategy work presents a formidable challenge. A host of factors, including politics, inertia, and resistance to change, routinely can get in the way of execution success.
Fast forwarding to the present, I just finished a few weeks working with managers from Deutsche Post, Aventis Pharmaceutical, and Microsoft, talking to them about execution problems. I also just participated in a Wharton executive program on strategic management and was debriefing with a few of the participants.
The major point cutting through all the conversations is the importance and difficulty of executing strategy. Two decades after my conversation with Randy Tobias, managers are still emphasizing that execution is a key to success. They are arguing that making strategy work is important and is more difficult than strategy making. Plans still fail or wither on the vine because of poor execution.
The striking aspect of all this is that managers apparently still don't know a great deal about the execution of strategy. It is still seen as a major problem and challenge.
Management literature has focused over the years primarily on parading new ideas on planning and strategy formulation in front of eager readers, but it has sorely neglected execution. Granted, planning is important. Granted, people are waking up to the challenge and are beginning to take execution seriously.
Still, it is obvious that the execution of strategy is not nearly as clear and understood as the formulation of strategy. Much more is known about planning than doing, about strategy making than making strategy work.
Is execution really worth the effort? Is execution or implementation truly a key to strategic success?
Consider one relatively recent comprehensive study of what contributes to company success.ii In this study of 160 companies over a five-year period, success was strongly correlated, among other things, with an ability to execute flawlessly. Factors such as culture, organizational structure, and aspects of operational execution were vital to company success, with success measured by total return to shareholders. Other recent works have added their support to this study's finding that execution is important for strategic success, even if their approach and analysis are less rigorous and complete.iii These works then, in total, support the view I've held for years:
Sound execution is criticalA focus on making strategy work pays major dividends
Despite its importance, execution is often handled poorly by many organizations. There still are countless cases of good plans going awry because of substandard execution efforts. This raises some important questions.
If execution is central to success, why don't more organizations develop a disciplined approach to it? Why don't companies spend time developing and perfecting processes that help them achieve important strategic outcomes? Why can't more companies execute or implement strategies well and reap the benefits of those efforts?
The simple answer, again, is that execution is extremely difficult. There are formidable roadblocks or hurdles that get in the way of the execution process and seriously injure the implementation of strategy. The road to successful execution is full of potholes that must be negotiated for execution success. This was the message two decades ago, and it still is true today.
Let's identify some of the problems or hurdles affecting implementation. Let's then focus on confronting the obstacles and solving the problems in subsequent chapters of this book.
Managers Are Trained to Plan, Not Execute
One basic problem is that managers know more about strategy formulation than implementation. They are trained to plan, not execute plans.
In most MBA programs I've looked at, students learn a great deal about strategy formulation and functional planning. Core courses typically hone in on competitive strategy, marketing strategy, financial strategy, and so on. The number of courses in most core programs that deal exclusively with execution or implementation? Usually none. Execution is most certainly touched on in a couple of the courses, but not in a dedicated, elaborate, purposeful way. Emphasis clearly is on conceptual work, primarily planning, and not on doing. At Wharton, there is at least an elective on strategy implementation, but this is not typical of many other MBA programs. Even if things are beginning to change, the emphasis still is squarely on planning, not execution.
Added to the lack of training in execution is the fact that strategy and planning in most business schools are taught in "silos," by departments or disciplines, and execution suffers further. The view that marketing strategy, financial strategy, HR strategy, and so on is the only "right" approach is deleterious to the integrative view demanded by execution.
It appears, then, that most MBA programs (undergrad, too, for that matter) are marked by an emphasis on developing strategies, not executing them. Bright graduates are well versed in strategy and planning, with only a passing exposure to execution. Extrapolating this into the real world suggests that there are many managers who have rich conceptual backgrounds and training in planning but not in "doing." The lack of formal attention to strategy execution in the classroom obviously must carry over to a lack of attention and consequent underachievement in the area of execution in the real world.
If this is trueif managers are trained to plan, not to executethen the successful execution of strategy becomes less likely and more problematic. Execution is learned in the "school of hard knocks," and the pathways to successful results are likely fraught with mistakes and frustrations.
It also follows logically that managers who know something about strategy execution very likely have the advantage over their counterparts who don't.
If managers in one company are better versed in the ways of execution than managers in a competitor organization, isn't it logical to assume, all other things being equal, that the former company may enjoy a competitive advantage over the latter, given the differences in knowledge or capabilities? The benefits of effective execution include competitive advantage and higher returns to shareholders, so having knowledge in this area would clearly seem to be worthwhile and beneficial to the organization.
Let the "Grunts" Handle Execution
Another problem is that some C-level and other top-level managers actually believe that strategy execution or implementation is "below them," something best left to lower-level employees. Indeed, the heading of this section comes from an actual quote from a high-level manager.
I was working on implementation programs at GM, under the auspices of Corporate Strategic Planning. In the course of my work, I encountered many competent and dedicated managers. However, I also ran across a few who had a jaundiced view of execution. As one of these managers explained:
"Top management rightfully worries about planning and strategy formulation. Great care must be taken to develop sound plans. If planning is done well, management then can turn the plans over to the grunts whose job it is to make sure things get done and the work of the planners doesn't go to waste."
What a picture of the planning and execution process! The planners (the "smart" people) develop plans that the "grunts" (not quite as smart) simply have to follow through on and make work. "Doing" obviously involves less ability and intelligence than "planning," a perception of managerial work that clearly demeans the execution process.
The prevailing view here is that one group of managers does innovative, challenging work (planning) and then "hands off the ball" to lower levels for execution. If things go awry and strategic plans are not successful (which often is the case), the problem is placed squarely at the feet of the "doers," who somehow screwed up and couldn't implement a perfectly sound and viable plan. The doers fumbled the ball despite the planners' well-designed plays.
Every organization, of course, has some separation of planning and doing, of formulation and execution. However, when such a separation becomes dysfunctionalwhen planners see themselves as the smart people and treat the doers as "grunts"there clearly will be execution problems. When the "elite" plan and see execution as something below them, detracting from their dignity as top managers, the successful implementation of strategy obviously is in jeopardy.
The truth is that all managers are "grunts" when it comes to strategy execution. From the CEO on down, sound execution demands that managers roll up their sleeves and pitch in to make a difference. The content and focus of what they do may vary between top and middle management. Nonetheless, execution demands commitment to and a passion for results, regardless of management level.
Another way of saying this is that execution demands ownership at all levels of management. From C-level managers on down, people must commit to and own the processes and actions central to effective execution. Ownership of execution and the change processes vital to execution are necessary for success. Change is impossible without commitment to the decisions and actions that define strategy execution.
The execution of strategy is not a trivial part of managerial work; it defines the essence of that work. Execution is a key responsibility of all managers, not something that "others" do or worry about.
Planning and Execution Are Interdependent
Even though, in reality, there may be a separation of planning and execution tasks, the two are highly interdependent. Planning affects execution. The execution of strategy, in turn, affects changes to strategy and planning over time. This relationship between planning and doing suggests two critical points to keep in mind.
Successful strategic outcomes are best achieved when those responsible for execution are also part of the planning or formulation process. The greater the interaction between "doers" and "planners" or the greater the overlap of the two processes or tasks, the higher the probability of execution success.
A related point is that strategic success demands a "simultaneous" view of planning and doing. Managers must be thinking about execution even as they are formulating plans. Execution is not something to "worry about later." All execution decisions and actions, of course, cannot be taken at once. Execution issues or problem areas must be anticipated, however, as part of a "big picture" dealing with planning and doing. Formulating and executing are parts of an integrated, strategic management approach. This dual or simultaneous view is important but difficult to achieve, and it presents a challenge to effective execution.
Randy Tobias had this simultaneous view of planning and doing. Even as he was formulating a new competitive strategy for his AT&T division, he was anticipating execution challenges. Competitive strategy formulation wasn't seen as occurring in a planning vacuum, isolated from execution issues. Central to the success of strategy was his early identification and appreciation of execution-related factors whose impact on strategic success was judged to be formidable. Execution worries couldn't be put off; they were part and parcel of the planning function.
In contrast, top management at a stumbling Lucent Technologies never had this simultaneous view of planning and execution.
When it was spun off from AT&T, the communications, software, and data networking giant looked like a sure bet to succeed. It had the fabled Bell Labs in its fold. It was ready to hit the ground running and formulate winning competitive strategies. Even as the soaring technology market of the late 1990s helped Lucent and other companies, however, it couldn't entirely mask or eliminate Lucent's problems.
One of the biggest problems was that management didn't anticipate critical execution obstacles as they were formulating strategy. Its parent, Ma Bell, had become bureaucratic and slow moving, and Lucent took this culture with it when it was spun off. The culture didn't serve the company well in a highly competitive, rapidly changing telecom environment, a problem that was not foreseen. An unwieldy organizational structure, too, was ignored during Lucent's early attempts at strategy development, and it soon became a liability when it came to such matters as product development and time to market. More agile competitors such as Nortel beat Lucent to market, signaling problems with Lucent's ability to pull off its newly developed strategies.
One thing that was lacking at Lucent was top management's having a simultaneous view of planning and doing. The planning phase ignored critical execution issues related to culture, structure, and people. The results of this neglect were extremely negative, only magnified by the market downturns in 2000 and thereafter.
Execution Takes Longer than Formulation
The execution of strategy usually takes longer than the formulation of strategy. Whereas planning may take weeks or months, the implementation of strategy is usually played out over a much longer period of time. The longer time frame can make it harder for managers to focus on and control the execution process, as many things, some unforeseen, can materialize and challenge managers' attention.
Steps taken to execute a strategy take place over time, and many factors, including some unanticipated, come into play. Interest rates may change, competitors don't behave the way they're supposed to (competitors can be notoriously "unfair" at times, not playing by our "rules"!), customers' needs change, and key personnel leave the company. The outcomes of changes in strategy and execution methods cannot always be easily determined because of "noise" or uncontrolled events. This obviously increases the difficulty of execution efforts.
The longer time frame puts pressure on managers dealing with execution. Long-term needs must be translated into short-term objectives. Controls must be set up to provide feedback and keep management abreast of external "shocks" and changes. The process of execution must be dynamic and adaptive, responding to and compensating for unanticipated events. This presents a real challenge to managers and increases the difficulty of strategy execution.
When the DaimlerChrysler merger was consummated in 1998, many believed that the landmark deal would create the world's preeminent carmaker. Execution since has been extremely difficult, however, and the six years after the merger have seen many new problems unfold. The company has faced one crisis after another, including two bouts of heavy losses in the Chrysler division, a series of losses in commercial vehicles, and huge problems with failed investments in an attempted turnaround at debt- burdened Mitsubishi Motors.iv Serious culture clashes also materialized between the top-down, formal German culture vs. the more informal and decentralized U.S. company. Angry shareholders at the 2004 meeting created and mirrored internal dissent and issued an ultimatum to Jurgen Schrempp to turn things around fast.
The six years after the merger presented problems unforeseen at the time of the merger. Execution always takes time and places pressure on management for results. But the longer time needed for execution also increases the likelihood of additional unforeseen problems or challenges cropping up, which further increases the pressure on managers responsible for execution results. The process of execution is always difficult and sometimes quarrelsome, with problems only exacerbated by the longer time frame usually associated with execution.
Execution Is a Process, Not an Action or Step
A point just made is critical and should be repeated: Execution is a process. It is not the result of a single decision or action. It is the result of a series of integrated decisions or actions over time.
This helps explain why sound execution confers competitive advantage. Firms will try to benchmark a successful execution of strategy. However, if execution involves a series of internally consistent, integrated activities, activity systems, or processes, imitation will be extremely difficult, if not impossible.v
Southwest Airlines, for example, does many things differently than most large airlines. It has no baggage transfer, serves no meals, issues no boarding passes, uses one type of airplane (reducing training and maintenance costs), and incents fast turnaround at the gate. It has developed capabilities and created a host of activities to support its low-cost strategy. Other airlines are hard pressed to copy it, as they're already doing everything Southwest isn't. They're committed to different routines and methods. Copying Southwest's execution activities, in total, would involve difficult trade-offs, markedly different tasks, and major changes, which complicates the problem of developing and integrating new execution processes or activities. This is not to say that competitors absolutely cannot copy Southwest; indeed, other low-cost upstarts and traditional airlines are putting increasing competitive pressure on Southwest. This is simply arguing that such imitation is extremely hard to do.
Execution is a process that demands a great deal of attention to make it work. Execution is not a single decision or action. Managers who seek a quick solution to execution problems will surely fail in attempts at making strategy work. Faster is not always better!
Execution Involves More People than Strategy Formulation DOES
In addition to being played out over longer periods of time, strategy implementation always involves more people than strategy formulation. This presents additional problems. Communication down the organization or across different functions becomes a challenge. Making sure that incentives throughout the organization support strategy execution efforts becomes a necessity and, potentially, a problem. Linking strategic objectives with the day-to-day objectives and concerns of personnel at different organizational levels and locations becomes a legitimate but challenging task. The larger the number of people involved, the greater the challenge of effective strategy execution.
I once was involved in a strategic planning project with a well-known bank. Another project I wasn't directly involved in had previously recommended a new program to increase the number of retail customers who used certain profitable products and services. A strategy was articulated and a plan of execution developed to educate key personnel and to set goals consistent with the new thrust. Branch managers and others dealing with customers were brought in to corporate for training and to create widespread enthusiasm for the program.
After a few months, the data revealed that not much had changed. It clearly was business as usual, with no change in the outcomes that were being targeted by the new program. The bank decided to do a brief survey to canvas customers and branch personnel in contact with customers to determine reactions to the program and see where modifications could be made.
The results were shocking, as you've probably guessed. Few people knew about the program. Some tellers and branch personnel did mention that they had heard about "something new," but nothing different was introduced to their daily routines. A few said that the new program was probably just a rumor, as nothing substantial had ever been implemented. Others suggested that rumors were always circulating, and they never knew what was real or bogus.
Communication and follow-through for the new program were obviously inadequate, but the bank admittedly faced a daunting task. It was a big bank. It had many employees at the branch level. Educating them and changing their behaviors was made extremely difficult by the bank's size. Decentralized branch operations ensured that problems were always "popping up" in the field, challenging employees' attention and making it difficult to introduce new ideas from corporate to a large group of employees.
In this example, the number of people who needed to be involved in the implementation of a new program presented a major challenge to the bank management. One can easily imagine the communications problems in even larger, geographically dispersed companies such as GM, IBM, Deutsche Post, GE, Exxon, Nestlé, Citicorp, and ABB. The number of people involved, added to the longer time frames generally associated with strategy execution, clearly creates problems when trying to make strategy work.