Challenges: Executing Corporate Strategy

In a study of 125,000 people representing more than 1,000 companies, government agencies, and not-for-profits in over 50 countries, researchers found that three out of five companies rated their organizations as weak at strategic execution.

In the article in Harvard Business Review exploring this research, the researches came to the conclusion that:

"Execution is the result of thousands of decisions made every day by employees acting according to the information they have and their own self-interest."

The problem starts with the fact that most people do not know what their right and responsibility to make decisions are. This is largely because the decision-making role of front-line employees has been generally ignored. The contrast between companies that we able to execute versus those who were not, the different was dramatic. In companies strong on execution, 71% of individuals understood that they needed to make decisions. Only  32% of those in organizations weak on execution had the same understanding.

Moving Decisions to the Front Lines

In most companies, the basic thinking was that information had to get to headquarters for certain strategic decision to be made. Though there is a difference between how quickly information gets to headquarters in good and bad companies ( 77% to 45%) the research found that the role of headquarters was in identifying patterns and spreading best practices. This was a coordinating role, not one of decision-making.

The well-know equipment maker, Caterpillar, for example found that the hierarchy no longer made sense in terms of making business decisions. As one field executive expressed it:

“It just took a long time to get decisions going up and down the functional silos, and they really weren’t good business decisions; they were more functional decisions.”

Caterpillar's CEO, Jim Owens,  noted that by the time information got to the top, it had been “whitewashed and varnished several times over along the way.”

The research found that the higher decision were made in the hierarchy, the poorer the quality of the decision was. Pricing issues were a great example. Only the people on the front lines can make pricing decisions based upon local market condition, which different from moment to moment in every market. When pricing decision were made further up in the hierarchy, it had to be made on the basis of cost rather than market.

Researches found that the more decision-making was moved down in the organization, the better the information passed to headquarters became.  They came to the conclusion that:

"Ironically, the way to ensure that the right information flowed to headquarters was to make sure the right decisions were made much further down the organization. By delegating operational responsibility to the people closer to the action, top executives were free to focus on more global strategic issues.:

The Flow of Information

There is no question about where the best information for making decision resides: at the front-lines of the competitive battle.

The research found that 61% of individuals in strong-execution organizations agreed that field and line employees have the information they need to understand the bottom-line impact of their decisions. This figure plummets to 28% in weak-execution organizations.

However, there is a question about where this information goes. As the pace of information increases, one key to the success of the enterprise is to move information across internal boundaries. Organization cannot afford to second-guess their front-line decision makers or the flow of information will stop. In companies the poorly executed strategy, 71% of people asked were worried abut their decision being second guessed. The predictable result is that information about decision was kept secret and almost 80% of those in the survey verified that information did not flow in these companies.

However, even in the best companies, there is a problem with information flow. Almost half (45%) of those in companies that were good at execution felt that information flowed freely between the various parts of the organization. At the Institute, we see this as symptomatic of the fact that most organization lack a vocabulary for discussing competitive situations on the front line. One of the benefits of our training is that it gives the entire organization a standard vocabulary and framework for communicating competitive and strategic issues.

If the key to success is moving more and more responsibility for competitive decisions to the front-lines, organization must rethink training. They must give their front-line people the perspective and tools they require to make those decision. This is why another  separate research project came to the fascinating conclusion that the  best corporate strategy is really being created at the front-line not at corporate headquarters at all.

Competitive Arenas: