BUSN 595 Lee College he Secrets to Successful Strategy Execution Essay Review attached Coursepacks: The Secrets to Successful Strategy Execution, Using the

BUSN 595 Lee College he Secrets to Successful Strategy Execution Essay Review attached Coursepacks: The Secrets to Successful Strategy Execution, Using the Balanced Scorecard as a Strategic Management System, Turning Great Strategy into Great Performance and the Guide to Article Review. This assignment is intended to improve your understanding of the concepts presented and help you integrate your knowledge and experiences in the development of strategy.Carefully review the required articles.Complete a 3-5 page paper following the suggestions provided in the Guide to Article Review www.hbr.org
Companies typically realize
only about 60% of their
strategies’ potential value
because of defects and
breakdowns in planning and
execution. By strictly
following seven simple rules,
you can get a lot more than
that.
Turning Great Strategy
into Great Performance
by Michael C. Mankins and Richard Steele
Included with this full-text Harvard Business Review article:
1 Article Summary
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
2 Turning Great Strategy into Great Performance
11 Further Reading
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
Reprint R0507E
Turning Great Strategy into Great Performance
The Idea in Brief
The Idea in Practice
Most companies’ strategies deliver only
63% of their promised financial value. Why?
Leaders press for better execution when
they really need a sounder strategy. Or they
craft a new strategy when execution is the
true weak spot.
Seven rules for successful strategy execution:
COPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
How to avoid these errors? View strategic
planning and execution as inextricably
linked—then raise the bar for both simultaneously. Start by applying seven deceptively straightforward rules, including: keeping your strategy simple and concrete,
making resource-allocation decisions early
in the planning process, and continuously
monitoring performance as you roll out
your strategic plan.
By following these rules, you reduce the
likelihood of performance shortfalls. And
even if your strategy still stumbles, you
quickly determine whether the fault lies
with the strategy itself, your plan for pursuing it, or the execution process. The payoff?
You make the right midcourse corrections—promptly. And as high-performing
companies like Cisco Systems, Dow Chemical, and 3M have discovered, you boost
your company’s financial performance 60%
to 100%.
• Keep it simple. Avoid drawn-out descriptions of lofty goals. Instead, clearly describe
what your company will and won’t do.
Example:
Executives at European investment-banking giant Barclays Capital stated they
wouldn’t compete with large U.S. investment banks or in unprofitable equitymarket segments. Instead, they’d position
Barclays for investors’ burgeoning need for
fixed income.
• Challenge assumptions. Ensure that the
assumptions underlying your long-term
strategic plans reflect real market economics and your organization’s actual performance relative to rivals’.
Example:
Struggling conglomerate Tyco commissioned cross-functional teams in each business unit to continuously analyze their markets’ profitability and their offerings, costs,
and price positioning relative to competitors’. Teams met with corporate executives
biweekly to discuss their findings. The revamped process generated more realistic
plans and contributed to Tyco’s dramatic
turnaround.
• Speak the same language. Unit leaders
and corporate strategy, marketing, and finance teams must agree on a common
framework for assessing performance. For
example, some high-performing companies use benchmarking to estimate the size
of the profit pool available in each market
their company serves, the pool’s potential
growth, and the company’s likely portion of
that pool, given its market share and profitability. By using the shared approach, executives easily agree on financial projections.
• Discuss resource deployments early. Challenge business units about when they’ll
need new resources to execute their strategy. By asking questions such as, “How fast
can you deploy the new sales force?” and
“How quickly will competitors respond?”
you create more feasible forecasts and
plans.
• Identify priorities. Delivering planned performance requires a few key actions taken
at the right time, in the right way. Make
strategic priorities explicit, so everyone
knows what to focus on.
• Continuously monitor performance. Track
real-time results against your plan, resetting
planning assumptions and reallocating resources as needed. You’ll remedy flaws in
your plan and its execution—and avoid
confusing the two.
• Develop execution ability. No strategy can
be better than the people who must implement it. Make selection and development
of managers a priority.
Example:
Barclays’ top executive team takes responsibility for all hiring. Members vet each others’ potential hires and reward talented
newcomers for superior execution. And
stars aren’t penalized if their business enters
new markets with lower initial returns.
page 1
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Companies typically realize only about 60% of their strategies’
potential value because of defects and breakdowns in planning and
execution. By strictly following seven simple rules, you can get a lot
more than that.
Turning Great Strategy
into Great Performance
COPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
by Michael C. Mankins and Richard Steele
Three years ago, the leadership team at a
major manufacturer spent months developing
a new strategy for its European business. Over
the prior half-decade, six new competitors had
entered the market, each deploying the latest
in low-cost manufacturing technology and
slashing prices to gain market share. The performance of the European unit—once the
crown jewel of the company’s portfolio—had
deteriorated to the point that top management was seriously considering divesting it.
To turn around the operation, the unit’s
leadership team had recommended a bold
new “solutions strategy”—one that would leverage the business’s installed base to fuel
growth in after-market services and equipment financing. The financial forecasts were
exciting—the strategy promised to restore
the business’s industry-leading returns and
growth. Impressed, top management quickly
approved the plan, agreeing to provide the
unit with all the resources it needed to make
the turnaround a reality.
Today, however, the unit’s performance is
nowhere near what its management team
had projected. Returns, while better than before, remain well below the company’s cost of
capital. The revenues and profits that managers had expected from services and financing
have not materialized, and the business’s cost
position still lags behind that of its major
competitors.
At the conclusion of a recent half-day review
of the business’s strategy and performance, the
unit’s general manager remained steadfast and
vowed to press on. “It’s all about execution,”
she declared. “The strategy we’re pursuing is
the right one. We’re just not delivering the
numbers. All we need to do is work harder,
work smarter.”
The parent company’s CEO was not so sure.
He wondered: Could the unit’s lackluster performance have more to do with a mistaken
strategy than poor execution? More important, what should he do to get better performance out of the unit? Should he do as the
general manager insisted and stay the course—
focusing the organization more intensely on
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page 2
Turning Great Strategy into Great Performance
Michael C. Mankins (mmankins@
marakon.com) is a managing partner
in the San Francisco office of Marakon
Associates, an international strategyconsulting firm. He is also a coauthor
of The Value Imperative: Managing
for Superior Shareholder Returns
(Free Press, 1994). Richard Steele
(rsteele@marakon.com) is a partner
in the firm’s New York office.
execution—or should he encourage the leadership team to investigate new strategy options?
If execution was the issue, what should he do
to help the business improve its game? Or
should he just cut his losses and sell the business? He left the operating review frustrated
and confused—not at all confident that the
business would ever deliver the performance
its managers had forecast in its strategic plan.
Talk to almost any CEO, and you’re likely to
hear similar frustrations. For despite the enormous time and energy that goes into strategy
development at most companies, many have
little to show for the effort. Our research suggests that companies on average deliver only
63% of the financial performance their strategies promise. Even worse, the causes of this
strategy-to-performance gap are all but invisible to top management. Leaders then pull the
wrong levers in their attempts to turn around
performance—pressing for better execution
when they actually need a better strategy, or
opting to change direction when they really
should focus the organization on execution.
The result: wasted energy, lost time, and continued underperformance.
But, as our research also shows, a select
group of high-performing companies have
managed to close the strategy-to-performance
gap through better planning and execution.
These companies—Barclays, Cisco Systems,
Dow Chemical, 3M, and Roche, to name a
few—develop realistic plans that are solidly
grounded in the underlying economics of their
markets and then use the plans to drive execution. Their disciplined planning and execution
processes make it far less likely that they will
face a shortfall in actual performance. And, if
they do fall short, their processes enable them
to discern the cause quickly and take corrective
action. While these companies’ practices are
broad in scope—ranging from unique forms of
planning to integrated processes for deploying
and tracking resources—our experience suggests that they can be applied by any business
to help craft great plans and turn them into
great performance.
The Strategy-to-Performance Gap
In the fall of 2004, our firm, Marakon Associates, in collaboration with the Economist Intelligence Unit, surveyed senior executives from
197 companies worldwide with sales exceeding
$500 million. We wanted to see how successful
companies are at translating their strategies
into performance. Specifically, how effective
are they at meeting the financial projections set
forth in their strategic plans? And when they
fall short, what are the most common causes,
and what actions are most effective in closing
the strategy-to-performance gap? Our findings
were revealing—and troubling.
While the executives we surveyed compete
in very different product markets and geographies, they share many concerns about planning and execution. Virtually all of them struggle to produce the financial performance
forecasts in their long-range plans. Furthermore, the processes they use to develop plans
and monitor performance make it difficult to
discern whether the strategy-to-performance
gap stems from poor planning, poor execution,
both, or neither. Specifically, we discovered:
Companies rarely track performance against
long-term plans. In our experience, less than
15% of companies make it a regular practice to
go back and compare the business’s results
with the performance forecast for each unit in
its prior years’ strategic plans. As a result, top
managers can’t easily know whether the projections that underlie their capital-investment
and portfolio-strategy decisions are in any way
predictive of actual performance. More important, they risk embedding the same disconnect between results and forecasts in their future investment decisions. Indeed, the fact
that so few companies routinely monitor actual versus planned performance may help explain why so many companies seem to pour
good money after bad—continuing to fund
losing strategies rather than searching for new
and better options.
Multiyear results rarely meet projections.
When companies do track performance relative to projections over a number of years,
what commonly emerges is a picture one of
our clients recently described as a series of “diagonal venetian blinds,” where each year’s performance projections, when viewed side by
side, resemble venetian blinds hung diagonally. (See the exhibit “The Venetian Blinds of
Business.”) If things are going reasonably well,
the starting point for each year’s new “blind”
may be a bit higher than the prior year’s starting point, but rarely does performance match
the prior year’s projection. The obvious implication: year after year of underperformance
relative to plan.
harvard business review • july–august 2005
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page 3
Turning Great Strategy into Great Performance
The venetian blinds phenomenon creates a
number of related problems. First, because
the plan’s financial forecasts are unreliable,
senior management cannot confidently tie
capital approval to strategic planning. Consequently, strategy development and resource
allocation become decoupled, and the annual operating plan (or budget) ends up driving the company’s long-term investments and
strategy. Second, portfolio management gets
derailed. Without credible financial forecasts,
top management cannot know whether a particular business is worth more to the company and its shareholders than to potential
buyers. As a result, businesses that destroy
shareholder value stay in the portfolio too
long (in the hope that their performance will
eventually turn around), and value-creating
businesses are starved for capital and other resources. Third, poor financial forecasts complicate communications with the investment
community. Indeed, to avoid coming up short
at the end of the quarter, the CFO and head
of investor relations frequently impose a
“contingency” or “safety margin” on top of
the forecast produced by consolidating the
business-unit plans. Because this top-down
contingency is wrong just as often as it is
right, poor financial forecasts run the risk of
damaging a company’s reputation with analysts and investors.
A lot of value is lost in translation. Given the
poor quality of financial forecasts in most strategic plans, it is probably not surprising that
most companies fail to realize their strategies’
potential value. As we’ve mentioned, our survey indicates that, on average, most strategies
deliver only 63% of their potential financial
performance. And more than one-third of the
executives surveyed placed the figure at less
than 50%. Put differently, if management
were to realize the full potential of its current
strategy, the increase in value could be as
much as 60% to 100%!
As illustrated in the exhibit “Where the Performance Goes,” the strategy-to-performance
gap can be attributed to a combination of factors, such as poorly formulated plans, misapplied resources, breakdowns in communication, and limited accountability for results. To
Where the Performance Goes
Performance Loss
37% Average
7.5% Inadequate or unavailable
resources
communicated
5.2% Poorly
strategy
4.5% Actions required to execute
not clearly defined
4.1% Unclear accountabilities for
execution
63%
Average Realized
Performance
3.7% Organizational silos and culture
blocking execution
3.0% Inadequate performance
monitoring
consequences or
3.0% Inadequate
rewards for failure or success
2.6% Poor senior leadership
1.9% Uncommitted leadership
0.7% Unapproved strategy
obstacles (including inadequate
0.7% Other
skills and capabilities)
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Copyright © 2005 Harvard Business School Publishing Corporation. All rights reserved.
This chart shows the average performance loss implied by the importance ratings that managers in our
survey gave to specific breakdowns in the planning and execution process.
page 4
Turning Great Strategy into Great Performance
elaborate, management starts with a strategy
it believes will generate a certain level of financial performance and value over time
(100%, as noted in the exhibit). But, according
to the executives we surveyed, the failure to
have the right resources in the right place at
the right time strips away some 7.5% of the
strategy’s potential value. Some 5.2% is lost to
poor communications, 4.5% to poor action
planning, 4.1% to blurred accountabilities,
and so on. Of course, these estimates reflect
the average experience of the executives we
surveyed and may not be representative of
every company or every strategy. Nonetheless, they do highlight the issues managers
need to focus on as they review their companies’ processes for planning and executing
strategies.
The Venetian Blinds of Business
This graphic illustrates a dynamic common to many companies. In January
2001, management approves a strategic
plan (Plan 2001) that projects modest
performance for the first year and a high
rate of performance thereafter, as shown
in the first solid line. For beating the first
year’s projection, the unit management
is both commended and handsomely rewarded. A new plan is then prepared,
projecting uninspiring results for the first
year and once again promising a fast rate
of performance improvement thereafter,
as shown by the second solid line (Plan
2002). This, too, succeeds only partially,
so another plan is drawn up, and so on.
The actual rate of performance improvement can be seen by joining the start
points of each plan (the dotted line).
Performance
(return on capital)
30%
Plan Plan Plan Plan
2001 2002 2003 2004
20%
15%
10%
actual
performance
5%
0%
2000
2001
2002
2003
2004
2005
2006
Copyright © 2005 Harvard Business School
Publishing Corporation. All rights reserved.
25%
What emerges from our survey results is a
sequence of events that goes something like
this: Strategies are approved but poorly communicated. This, in turn, makes the translation of strategy into specific actions and resource plans all but impossible. Lower levels
in the organization don’t know what they
need to do, when they need to do it, or what
resources will be required to deliver the performance senior management expects. Consequently, the expected results never materialize. And because no one is held responsible
for the shortfall, the cycle of underperformance gets repeated, often for many years.
Performance bottlenecks are frequently
invisible to top management. The processes
most companies use to develop plans, allocate
resources, and track performance make it difficult for top management to discern whether
the strategy-to-performance gap stems from
poor planning, poor execution, both, or neither. Because so many plans incorporate
overly ambitious projections, companies frequently write off performance shortfalls as
“just another hockey-stick forecast.” And when
plans are realistic and performance falls short,
executives have few early-warning signals.
They often have no way of knowing whether
critical actions were carried out as expected,
resources were deployed on schedule, competitors responded as anticipated, and so on. Unfortunately, without clear information on how
and why performance is falling short, it is virtually impossible for top management to take
appropriate corrective action.
The strategy-to-performance gap fosters a
culture of underperformance. In many companies, planning and execution breakdowns are
reinforced—even magnified—by an insidious
shift in culture. In our experience, this change
occurs subtly but quickly, and o…
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