“If you can’t measure it, you can’t manage it. If you can’t manage it, you can’t improve it.”
Kaplan and Norton (and many others)
According to Professor Robert Kaplan and Dr Dave Norton, companies that effectively execute their strategy evidence an impressive 50-150% increase in value. Those that don’t continue to battle the odds of success.
The desktop research around strategy execution speaks volumes:
• Fortune Magazine cites that “….less than 10% of strategies effectively formulated are effectively executed”
• Harvard Business Review states that “…the prize for closing the strategy- performance gap is huge : increasing performance by at least 50% for most organisations”
• Bossidy & Charan in their book “Execution” cite that “…in the majority of cases – 70% – of the problem isn’t bad strategy [thinking] but bad execution [action]”
• Chris Zook in his book “Profit from the Core” states that “….more than 2/3 of companies had targets that exceeded 9% real growth; yet less than 1 company in 10 achieved this level of profitable growth.”
What desktop research is showing us is that companies that fail to forecast and target success, will generally miss the target. In plain English, the same adage holds true “what gets measured gets done”. And yet despite innumerate measures, companies STILL fail to hit their targets and achieve strategic goals and objectives – and the question “why?” has to be hot on the tail of this statement.
REAL RESEARCH TO UNDERSTAND WHY?
Why is successful strategy execution so difficult to achieve?
Kaplan and Norton have dedicated a lifetime of study to understanding the field of strategy and execution. Why do some companies succeed while others fail even when both have seemingly impressive leadership teams? Is it the thinking, or is it the action? Is it really around metrics or is strategy driven by culture and behaviour change?
The Balanced Scorecard didn’t just ‘appear’ in the halls of Harvard. It evolved as one of the best ways to combat the Four Barriers to Strategy Execution. Kaplan and Norton’s research has identified four key themes, or barriers, that appear to interfere with successful strategy implemenation. Their research also supports that a startling 80-90% of companies FAIL when it comes to strategy execution. Here’s what they found:
1. The People Barrier: only 25 % of managers have incentives directly linked to strategy implementation.
2. The Vision Barrier: only 5% of the work-force actually understand the strategy the organisation intends to execute.
3. The Management Barrier: a staggering 85 % of executive teams spend less than an hour per month discussing strategy.
4. The Resource Barrier: alarmingly more than 60% of organisations fail to link their strategy to a live budget.
The ongoing frustration of wanting to achieve something great often outstrips the company’s ability to implement their thinking. The results can be devastating and leaders can quickly lose credibility having promised and communicated one thing, yet fail to implement on the other hand. While the perception of leadership integrity remains challenged, its important to make clear that often the thinking is in tact, but it’s the execution that is poor.
WHAT TO DO?
The temptation for any business is to try to ‘nail’ all four barriers in one go. That alone may be a strategy, but will probably result in continuing poor execution. Perhaps a better strategy is to target one barrier at a time, and over time, with the goal of eliminating them totally. As each barrier becomes a strategy in and of itself, over time, each barrier will be diluted if not eliminated completely. And, when that happens, the strategic thinking has a chance to surface over the traditional mindsets and restrictions that inhibit success.
THE 10-20% EXECEPTION VS THE 80-90% NORM
Those organisations that enjoy an impressive 50 – 150% increase in value have a formal process for strategy execution. Through this lens they have commonly identified what we can today call the “conventional wisdom” of stratgy execution:
1.FINANCIAL: They recognise that financial indicators are lag indicators and only measure the tangible outcomes of the strategy.
2.CUSTOMER: They revere the customer value proposition and define them as their source of value.
3.PROCESSES: They acknowledge that strategic processes create value for customers and shareholders.
4.LEARNING & GROWTH: They know that aligned intangible assets drive improvement in the strategic process.
ENTER, KAPLAN & NORTON’S 6 STAGE CLOSED LOOP MANAGEMENT SYSTEM FOR SUCCESSFUL EXECUTION
This is how Kaplan and Norton deliberately ensure you overcome the Four Barriers to successful strategy execution.
1. DEVELOP THE STRATEGY: Formulate your mission, vision & values – all the fundamentals. Keep in mind Google’s mission – “To organise the world’s information and make it universally accessible and useful.” And that of Bill Gates: “To put a PC on every person’s desk.’
2. TRANSLATE THE STRATEGY: This means having to create strategy maps and themes with measures and targets, assigning portfolios and providing funding to ensure that you overcome the Vision Barrier.
3. ALIGN THE ORGANISATION: This includes all business units, support units and employees. Ensure you overcome the People Barrier through initiatives that support strategy execution. Never under-estimate the investment required and the power of appropriate change management and communication in strategy execution.
4. PLAN THE OPERATIONS – Devise resource and capacity plans as well as key process improvements that will be required to make sure the Resource Barrier does not hinder the success of your strategy.
BOTTOM LINE : EXECUTE, MONITOR & LEARN
Make sure you properly review your strategy and operations to overcome the management barrier. TEST and review the profitability, devise hypotheses in terms of cause and effect and be alert to emerging strategies, new opportunities and risks. ADAPT where necessary.
This strategy execution system coupled with leaders who affirm their fundamental goals and purpose with quantifiable outcomes, Norton and Kaplan have continuously shown how much value you can derive by implementing strategy maps and balanced scorecards. This is why they have been acknowledged by Harvard Business Review for creating one of the most significant management tools in the past 75 years.
Dr David Norton is the co-creator of the Balanced Scorecard and leading global practitioner in applying the Balanced Scorecard in both the Private and Public Sector. Together with Professor Robert Kaplan, he has been acclaimed by Harvard Business Review for his significant contribution to the management profession in the past 75 years. More recently Thinkers 50 have ranked them in their Hall of Fame alongside Tom Peters, Kenichi Ohmae, Warren Bennis, Howard Gardner, Henry Mintzberg, Charles Handy, Philip Kotler and Ikujiro Nonaka for their mammoth contribution to business management and leadership.
On the 11th September 2014 Dr Norton will present a full day seminar in Johannesburg on EXECUTING STRATEGY IN A NEW ECONOMY – Balanced Scorecard Essentials.