When organizations have steadily declining results, putting in more and more resource in, and getting less and less value out, the reason is almost always the growth of an internal bureaucracy. The result is more planning and less execution. Sun Tzu was right about executing strategy while many of today's management gurus get it wrong. Organizations become more efficient by moving decisions-making out of bloated bureaucracies and into the front-lines. This research demonstrates that fact.
Study of Organizational Execution
In a study of 125,000 people representing more than 1,000 companies, government agencies, and not-for-profit organizations in over 50 countries, researchers found that three out of five organization rated their organizations as weak at strategic execution. In the article in Harvard Business Review exploring this research, the researchers 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, in increasingly complex organization, most of us do not know what our rights and responsibilities for making decisions are. In the research, the difference between organizations that were able to execute versus those who couldn't execute is dramatic. In organizations 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.
This Importance of Making Decisions
We are trained to think that others are looking out for our interests and that we are protected from making poor decisions by an organizational hierarchy. People look to the hierarchy for guidance. In most organizations, the basic thinking used to be that information had to get into the hierarchy for certain decisions to be made. Though there is a difference between how quickly information gets to headquarters in good and bad organizations (77% to 45%) the research found that the best role of an organization was in identifying patterns and spreading best practices not in making decisions about day-to-day practices.
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 decisions 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 is different from moment to moment in every market. When pricing decisions were made further up in the hierarchy, it had to be made on the basis of cost rather than market.
In a fast changing world, the bureaucracy is always behind the information curve. Laws cannot be passed quickly enough to protect people from all the dangers. The federal or state government cannot save you from the hurricane. Researchers 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 where services are delivered. 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.
As the pace of information increases, one key to the success of the organization is to move information across internal boundaries. More bureaucracy . Organizations cannot afford to second-guess their front-line decision makers or the flow of information will stop. In organizations that poorly executed strategy, 71% of people asked were worried about their decision being second guessed. The predictable result is that information about decisions was kept secret and almost 80% of those in the survey verified that information did not flow in these organizations.
However, even in the best organizations, there is a problem with information flow. Almost half (45%) of those in organizations 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 organizations 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, organizations 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 strategy is really being created from the bottom up not from the corporate headquarters down.