Five Reasons Most Companies Fail at Strategy Execution
If your organisational culture has these five characteristics, all
attempts to implement strategic change will likely be doomed.
It’s no longer a secret that most companies struggle
with strategy execution. McKinsey research tells us, for example,
that 70 percent of change
efforts fall short of desired results. The financial
losses implied by statistics like these are massive, and corporate leaders have
taken notice. Today’s senior leaders realise that implementation is at least
half of the leadership challenge when it comes to improving performance via
strategic change. Too frequently, however, they seek solutions in the wrong
place.
When I speak to executives about what constitutes
effective strategy execution, they very often emphasise the importance of
“communication”. If they could only master the art of communicating the new
corporate strategy, employee alignment would be guaranteed and resistance
overcome. Of course, having a clear and consistent message is essential. But
within organisational culture there can be powerful, unspoken messages that
contradict official rhetoric. Peter Drucker famously said, “Culture eats
strategy for breakfast.” I believe the same could be said of strategy execution.
Collective emotions
Managers are usually uncomfortable dealing with emotions
in business settings, especially the all-important collective
emotions — i.e., various emotions experienced by different
stakeholder groups inside and outside the organisation, including employees,
customers, communities, and investors. However, as much as managers may want
their intended strategy to succeed, they still find it difficult to accept that
the fate of their best-laid plans depends on the emotional allegiance of these
groups. Instead, they assume their communications—which often focus only on the
intellectual “left brain” rather than incorporating the “right brain”, the seat
of emotional engagement—will be heeded when their back is turned.
My prior research shows that executives who are receptive
to the subtle, non-verbal signs of collective emotion are more
likely to have the credibility required to lead strategic change.
Sadly, such leaders are still few and far between.
Over time, emotionally illiterate leadership gives rise
to a change-averse corporate culture. While profits are high and the economic
climate remains promising, the problem stays under the radar—much like the
early stage of cancer. But when a change in course becomes necessary, senior
leaders find that no matter how hard they try, transformation never takes root.
Microsoft’s woes
Consider what happened internally at Microsoft in the
year or two just before the iPhone came out. Having gotten wind of Apple’s
impending game changer, Microsoft chairman Bill Gates tasked then-CEO Steve
Ballmer with creating a copycat device to forestall Cupertino’s market
dominance. Ballmer passed the word to his senior vice-presidents, each of whom
had at his disposal thousands of engineers and an R&D budget running into
the hundreds of millions of dollars. Their combined failure to produce an
acceptable iPhone equivalent is the stuff of tech legend.
What went wrong? Despite their shared mandate, the
departments didn’t cooperate fully with one another. A big part of the problem,
experts agree, was Microsoft’s infamously cutthroat “stack ranking” system,
which forced managers to grade employee performance on the curve. Regardless of
individual performance, a certain percentage of staffers would always be ranked
as “below average” or “poor”. Low-ranking employees were ineligible for
promotions and pay rises, and would sometimes be shown the door.
As a result of stack ranking, Microsoft’s top talents
were wary of and competitive with one another, seeking to surround themselves
with employees who would make them look better by comparison. Any collaboration
between them was stifled by the dehumanising corporate culture.
In November 2013, reports surfaced that Microsoft
had abandoned stack
ranking. Three months later, Ballmer stepped down as CEO.
Microsoft’s story may be high-profile, but it is not
unique. Wherever there is a lack of emotionally incisive leadership, employees
will tend to fall back on the basic human instinct of self-preservation.
Ironically, what is “survival mode” for employees may well spell the death of a
corporate strategy.
In my decades of experience working with executives
representing dozens of nationalities, I have identified five main emotion-based
barriers to strategy execution within organisations. Each one presents a major
danger to transformational efforts by preventing the necessary sense of urgency
and commitment to a common task from taking hold throughout the organisation.
· Mistrust
and low sharing of useful and timely information – A “politics first”
mentality that prizes appearance management above action. This causes a
situation where no one wants to be the bearer of bad news. As with
Microsoft, Nokia and
probably Volkswagen, problems will come to leaders’ attention only when it is
too late. Strategic alignment is further hindered by information-hoarding among
players who see their colleagues as competitors.
· Low
receptivity to effortful change – Effortful change (even
when it’s obviously beneficial, e.g. quitting smoking or staying on a diet) is
easy to profess, difficult to do. Leaders must demonstrate their own
willingness and ability to change before asking it of others.
· More
talk than action, then misaligned action – As I suggested above,
communication for intellectual understanding does not elicit emotional
engagement to implement the new strategy. When leaders fail to inspire the
collective toward a common goal, each team will tend to veer off in its own
direction. It becomes impossible to integrate all the silos.
· Mechanistic
action – When under high time and performance pressure, employees
become creatures of habit rather than taking risks to become innovative.
· Complacency
– Confronted with the potential effort and risk of strategic
change, the organisation as a whole believes the status quo is good enough, so
why do the hard work to change it?
Balance is the key
Leaders already spend a lot of time and energy making a
solid left-brained case for their strategy, as they should. But without a
corresponding effort to engage emotionally and a culture that supports that
effort, the spirit of change will quickly fade from the scene. To execute a
strategy successfully, you need a good plan and an even better culture. I will
discuss how this could be done in future blogs.
Quy Huy is
Professor of Strategic Management at INSEAD. He is also Programme Director of
the Strategy
Execution Programme, part of INSEAD’s suite of Executive
Development Programmes.
Read more at http://knowledge.insead.edu/blog/insead-blog/five-reasons-most-companies-fail-at-strategy-execution-4441?utm_source=INSEAD+Knowledge&utm_campaign=47554952f2-14_Jan_mailer1_14_2016&utm_medium=email&utm_term=0_e079141ebb-47554952f2-249840429#eLo9iAd8WReHk7DA.99
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