We know how critical a company’s strategy is to it’s success and have also seen how difficult it is for many organizations to execute that strategy. That’s why last month we launched our strategic planning module to help companies easily execute their long-term strategies.
We’ve found that as a company looks to create a sustainable advantage, they not only need to develop competencies in strategy setting and operational excellence, but create deep linkages between the two. The highest performing companies do so by maintaining a living strategy, explicitly tying tactics to that strategy, clearly articulating ownership with specific, measurable goals and keeping a high level of transparency throughout the entire process.
The importance of an adaptable strategy
Due to increasing competition between companies, the Red Queen Effect has become more present today that it ever has been. This forces companies to continually grow their markets, enter new markets, or protect their markets in order to achieve their growth targets. In order to constantly adapt and evolve, companies must become more agile, develop faster and collaborate with partners more efficiently. 60% of outperforming companies collaborate with customers to determine product strategy, according to IBM.
The constant need for speed and adaptability requires companies to be good at two components – strategy and operational excellence. The strategy should contain a secret, while operational excellence enables companies to successfully implement the secret. As Michael Porter says, “Operational effectiveness (OE) means performing similar activities better than rivals perform them. Operational effectiveness includes but is not limited to efficiency…In contrast, strategic positioning means performing different activities from rivals’ or performing similar activities in different ways,” according to Michael E. Porter in “What is Strategy?”
The challenges of strategy execution
The most common managerial tool for bridging strategy and execution is the strategic planning process. As recently as 2013, companies have been struggling with strategic execution.
Additionally, strategy execution isn’t something new. Google’s Ngram Viewer, count of phrases in books, has been logging term as early as the 1960s.
Despite over 50 years worth of books written on the subject, strategic execution is still a huge issue for most organizations. The bridge between strategy and execution remains shaky with many challenges preventing a clear solution.
1. Plans aren’t relevant: Employees rarely know how they contribute to a strategic plan because:
- No one owns the strategy
- Strategy tends to be ambiguous and not tied to key results
- Strategy isn’t broken down into actionable goals
- Individuals rarely understand how they contribute to the company strategy
2. Plans tend to focus on improving process and not empowering people: To make strategic planning more relevant, many companies have to have additional meetings to get people aligned and then model and run scenario analyses. This results in management spending an enormous amount of time on the planning process. Companies should put lots of time and effort into developing a strategy, but management should need to spend countless hours in planning and coordination meetings that an OKR framework can provide.
3. Strategy is static: They say that time waits for no one and a company’s strategic plan is no exception. Companies have aggressive growth targets that require ambitious plans. However, given that all companies operate in the same way, markets are changing at a terrifying pace. It can take quarters if not years before a company realizes that their assumptions are no longer valid and the plan is inappropriate.
4. Companies struggle to balance leading and lagging indicators: Companies either choose to drive strategy through financial analysis or qualitative projects. They rarely find a balance between both KPIs and milestones (projects). Execution becomes difficult because it’s challenging for a company to translate their vision to a strategy, to tactics and then to quarterly goals.
5. Strategy waterfalls lead to misalignment both vertically and horizontally: Most companies fail to meet their objectives because there’s a misalignment between headquarters, different functions and geographies. Even if individuals understand the strategy, their goals can be misinterpreted, creating conflict as shown below.
How companies can bridge strategy and execution
Behind closed doors, the BetterWorks product team has interviewed COOs and other business unit heads to identify the problems listed above and to learn about how they try to mitigate these issues. The common practice is for companies to use a hodgepodge of presentations and spreadsheets to manage their strategic plan.
However, whenever we hear of multi-billion, multinational organizations admit to a patina of bespoke documents, we believe that there is an opportunity for technology to streamline the process and align the people. With our newest module–strategic planning–we try to help companies bridge strategy and execution:
1. Strategy should be living and adaptable. The common practice is for companies to use PowerPoint to set and communicate the strategy, a spreadsheet to operationalize the strategy, then PowerPoint again to report on it quarterly, and a separate financial system to measure the KPIs. Companies need to simplify the process because each transfer to another medium creates friction and introduces risk into the system. Companies need to live and breathe the strategy. This will lead to more agility in the plan.
2. Focus on ownership and accountability. Give managers authority the ability to adjust their goals to align with changing objectives. The myth is that execution is just sticking to the plan. Execution is about the ability to adjust the plan as necessary and empowering the teams to do so.
3. Allow explicit linkages between the individual and the strategy. The BetterWorks OKR model creates a network of goals across owners. Individuals can easily see how their key result connect to the company’s overall plan.
4. Plans provide the measurable key result that include both leading and lagging indicators and key milestones. Where many companies fail is in understanding that at some point the KPI transforms into an operational task — like launching a new product, or successfully entering a new market.
5. Make strategy transparent and allow top-down and bottoms up contributions. To counteract horizontal and vertical misalignment, companies should make their strategies transparent, accessible, and more open.
It’s no longer sufficient for your team to develop competencies in strategy setting and operational excellence as separate entities. By linking strategy and execution, you will mitigate the challenges associated with driving strategy, and begin seeing your company’s goals go from infancy to completion.