It’s shocking that research after research finds that between 70-90% of strategies fail miserably or only deliver very marginal results. Fortune Magazine famously reported that just 1 out of 10 strategies were executed successfully. Research has also consistently found that failure is rarely the result of poor strategy formulation, but rather is due to an inability to execute.
These statistics might not be surprising, given that other research efforts find that senior management spends no more than 5% of their time managing strategy – An equally appalling finding, as managing strategy is essentially what the leadership team is paid to do.
Drilling deeper into why there’s a massive chasm between formulation and execution we can point to the historic lack of a robust strategy management framework. Yes, organizations have been engaged in strategic planning since the 1960s, but this is not strategy management: plans were beautifully crafted then left on the shelf till the next annual round of planning. They were rarely executed.
In their 2008 book The Execution Premium: Linking Strategy to Operations for Competitive Advantage, the Balanced Scorecard co-creators Drs Robert Kaplan and David Norton introduced the six steps “Execution Premium Process (XPP) that weaved together strategy formulation, execution and learning. Moreover, the XPP provided a blueprint for aligning operations to strategy. I have found the XPP to be a useful tool for getting management teams to think about how to align strategic goals with day-to-day performance and up the chances of strategic success.
The XXP steps are: 1. Develop the Strategy; 2. Translate the Strategy; 3. Align the Organization; 4. Plan Operations; 5. Monitor and Learn; 6. Test and Adapt. I will summarize each in turn.
Stage 1: Develop the strategy
At this stage organisational leaders address three questions.
- What business are we in and why (clarify mission, values and vision)? The MVV statements establish guidelines for formulating and executing the strategy.
- What are the key issues (conduct strategic analysis)? Managers review the situation on their competitive and operating environments since they last crafted their strategy.
- How can we best compete (formulate the strategy)? This considers areas such as the customer value proposition, key processes required to create the differentiation in the strategy, and human capital and technological requirements to enable the delivery of the strategy.
Stage 2: Translate the strategy
In this stage, managers translate the strategy by developing strategic objectives, measures, targets, initiatives and budgets that guide action and resource allocation. Companies typically address five questions at this stage.
- How do we describe our strategy (create Strategy Maps)? This describes the objectives required to deliver to the strategy. It is now common for organisations to cluster related objectives according to perhaps three or four strategic themes (such as customer management or operational excellence). This makes it easier for managers to separately plan and manage each of the key components of the strategy but still have them operate coherently.
- How do we measure our plan (select KPIs and targets)? In this stage, managers convert the objectives defined in the Strategy Map into a scorecard of measures, targets and gaps (that must be closed over the lifetime of the plan).
- What action programs does our strategy need (choosing strategic initiatives)? The initiatives and action programs aimed at achieving the Strategy Map objectives and closing the performance gaps (as is to desired state) indentified by the targets that support the strategic measures.
- How do we fund our initiatives? Executing strategy requires that the portfolio of initiatives be executed simultaneously in a coordinated manner. This requires explicit funding for the portfolio of initiatives.
- Who will lead the execution of strategy (create theme teams)? Companies are introducing a new accountability structure for executing strategy through strategic themes. Theme owners and teams are accountable for and provide feedback on the execution of the strategy within each theme.
Stage 3: Align the organisation with the strategy
At this stage, managers ask three key questions,
- How do we ensure that all organisational units are on the same page? This is about devolving the strategy and scorecard to lower level business units.
- How do we align support units with business unit and corporate strategies? This is about creating Strategy Maps and scorecards for support units such as HR and finance, as two examples.
- How do we motivate employees to help execute the strategy? Essentially this is about proper communication and the linking of personal objectives and (more common in the commercial sector) incentive compensation to the scorecard.
Stage 4: Plan operations
Companies need to align process improvement activities with strategic priorities. At this stage managers focus on two key questions.
- What business process improvements are most critical for executing the strategy? Companies must focus on Six Sigma, reengineering and other efforts on improving performance to a strategic objective. Moreover, they should create customised dashboards consisting of key indicators for local process performance.
- How do we link strategy with operating plans and budgets? The process improvement plans and the high level strategic measures and targets on the Balanced Scorecard must be converted into an operating plan for the year.
Stage 5: Monitor and learn
This is where the organisation monitors the execution of its strategic and operating plans and learns from experience. To do this they hold two meetings: an operational review meeting and a strategy review meeting, which answer two questions.
- Are our operations under control (operational review meeting)? Companies hold these meetings to review short-term performance and respond to recently identified problems that need immediate attention.
- Are we executing our strategy well (strategy review meeting)? These meetings review the progress of the strategy, identify problems and order remedial action.
Step 6: Test and adapt the strategy
This is where organisations question whether their fundamental strategic assumptions remain valid. Managers ask one question:
- Is our strategy working (hold a strategy testing and adapting meeting)? Periodically, the senior team meets to question and challenge the strategy and, if necessary, to adapt it.
Note that “test and adapt,” is not simply about the annual strategy retreat. With predictive analysis and Big Data transforming how we gather and make sense of data, organisations are increasingly testing and adapting their strategies on an ongoing basis: the best are becoming strategically agile and are blurring the lines between strategy and operations as “strategic,” findings are rapidly converted into operational solutions.
Note too that initiatives and process improvement serve as a sort of extra step (sandwiched between steps 4 and 5) as this is where the real work of strategy execution takes place. Strategic initiatives deliver the step-change performance improvements, while process improvements deliver the ongoing, or continuous, performance improvement. Both are required for success, and should be aligned.