How to Stress-Test Your Strategy

Robert Simons, the Charles M. Williams Professor of Business Administration at the Harvard Business School, explains why management teams must ask themselves tough strategy questions. During this interview, Robert covers:

  • obstacles business leaders face when executing their business strategy
  • why companies need to focus on one primary customer
  • the importance in choosing which among shareholders, customers, or employees are most important to the company’s success
  • how executives should decide which few metrics to focus on
  • key approaches to effectively making tough priority selection decisions

Robert Simons on the StrategyDriven Podcast

Last month, we were privileged to talk with Robert about his new book, Seven Strategy Questions, on the StrategyDriven Podcast. Listen as we explore the seven strategy questions that can help an organization’s leaders identify gaps within their strategy and its execution.

Hank Moore

The Big Picture of Business – Situations Causing the Downtown and Corporate Scandals: Barriers to Progress and Business Growth

Every business, company or organization goes through cycles in its evolution. At any point, each program or business unit is in a different phase from the others. Every astute organization assesses the status of each branch on its Business TreeTM and orients its management and team members to meet constant changes and fluctuations.

It’s not that some organizations ‘click’ and others do not. Multiple factors cause momentum, or the lack thereof. As companies operate, all make honest and predictable mistakes. Those with a willingness to learn from the mistakes and pursue growth will be successful. Others will remain stuck in frames of mind that set themselves up for the next round of defeat or, at best, partial-success.

The saddest fact is that businesses do not always know that they’re doing anything wrong. They do not realize that a Big Picture must exist or what it could look like. They have not been taught or challenged on how to craft a Big Picture. Managers, by default, see ‘band-aid surgery’ as the only remedy for problems… but only when problems are so evident as to require action.

Is it any wonder that organizations stray off course? Perhaps no course was ever charted. Perhaps the order of business was to put out fires as they arose, rather than practicing preventive safety on the kindling organization. That’s how Business Trees in the forest burn.

This article studies obsolete management styles and corporate cultures that exist in the minds of out-of-touch management. Reliance upon many of these management tenets subsequently brought Enron and many others down.

This includes the characteristics of addictive organizations, their processes, promises and forms. It reviews the Addictive System, the company way and the organization as an addict. This chapter studies communications, thinking processes, management processes, self-inflicted crises and structural components of companies that go bad, or maybe never do what it takes to be good. Topics discussed include the society that produced business scandals, accountants and auditors, pedestals upon which CEOs are placed, spin doctoring, compensations and accountability issues with managers.

Companies are collections of individuals who possess fatal flaws of thinking. They come from different backgrounds and are products of a pop culture that puts its priorities and glories in the wrong places…a society that worships flash-and-sizzle over substance.

Characteristics of Corporate Arrogance

  • Support others who are like-minded to themselves
  • Scapegoat people who are the messengers of change
  • Blame others who cannot or will not defend themselves
  • Find public and vocal ways of placing blame upon others
  • Shame those people who make them accountable
  • Neither attends to details nor to pursue a Big Picture
  • Perpetuate co-dependencies
  • Selectively forgets the good that occurs
  • Find three wrongs for every right
  • Do little or nothing
  • At all costs, fight change… in every shape, form or concept
  • Making the wrong choices
  • Inability to listen. Refusal to hear what is said
  • Stubbornness
  • Listening to the wrong people
  • Failure to change. Fear of change
  • Comfort level with institutional mediocrity
  • Setting one’s self up for failure
  • Pride
  • Avoidance of responsibilities
  • Blaming and scapegoating others
  • People who filter out the truths
  • Non-risk-taking mode
  • Inaccessibility to independent thinkers
  • Calling something a tradition, when it really means refusal to change
  • Pretense
  • Worshiping false idols, employing artificial solutions
  • Preoccupation with deals, rather than running an ongoing business
  • Arrogant attitudes
  • Ignorance of modern management styles and societal concerns
  • Failure to benchmark results and accomplishments

Incorrect Assumptions that People Make

  • That wealth and success cure all ills
  • That business runs on data. That data projects the future
  • That data infrastructure hardware will navigate the business destiny and success
  • That all athletes are role models. That all well-paid athletes are national heroes
  • That the CEO can make or break the company single-handedly
  • That doctors don’t have to be accountable to their customers
  • That education stops after the last college degree received
  • That TV newscasters are celebrities and community leaders
  • That having an E-mail address or a website makes one an expert on technology
  • That the Internet is primarily an educational resource
  • That technology is the most important driving force in business and society
  • That buying the latest software program will cure all social ills and create success
  • That community stewardship applies to other people and does not require our own investment of time
  • That white-collar crime pays and that highly paid executives will avoid jail time
  • That senior corporate managers have all the answers and do not need to seek counsel
  • That return on shareholder investment is the only true measure of a company’s worth
  • That all people who grew up in the south are racist
  • That government bureaucrats are qualified to make decisions about taxpayer money
  • That activists for one cause are equally open-minded about other issues
  • That corporate mid-managers with expense accounts are community leaders
  • That deregulation is always desirable and in the public’s best interest
  • That home-based businesses are more wealth-producing than holding a job
  • That professionals can get by without developing public speaking and writing skills

Fatal Quotations Voiced to Justify Fatal Thinking

  • “Might makes right. Take no prisoners. Wear the other side down.”
  • “Everyone knows who we are and what we do.”
  • “Our accountants will catch it and take care of it.”
  • “It’s none of their business. The public be damned.”
  • “We’re not paying people to think…just to do. Make them understand.”
  • “We don’t need outsiders coming in and hogging the credit.”
  • “If you don’t cooperate with me, I’ll bring you down.”
  • “We cannot do that right now. Once this crisis is past, we can think about the future.”
  • “How does this contribute to our bottom line?”
  • “If it does not contribute directly to the bottom line, we’re not interested.”
  • “We have more business than we can handle.”
  • “Too much competition destroys free enterprise. We need to eliminate competition.”

Addictive Organizations

Addictive organizations are predicated upon maintaining a closed system. Alternately, they are marked by such traits as confusion, dishonesty and perfectionism. They are scarcity models, based upon quantity and the illusion of control. Only the high performers get the gold because there are not enough bonuses to go around. Addictive organizations show frozen feelings and ethical deterioration.

Addictive organizations dangle ‘the promise’ to employees, customers, stockholders and others affected. People are lured into doing things that enable the addictive management’s pseudopodic ego.

All that is different is either absorbed or purged. The addictive organization fabricates personality conflicts in order to keep people on the edge all the time. There exists a dualism of identifying the rightness of the choice and a co-dependence upon the rewards of the promise.

In such companies, the key person is an addict. The CEO and his chosen lieutenants have taken addictions with them from other organizations. The organization itself is an addictive substance, as well as being an addict to others. They numb people down and addict them to workaholism.

The addictive system views everything as ‘the company way.’ The entity is outwardly one big happy family. It is big and grandiose. The emphasis is upon the latest slogans of mission but does not look closely at how its systems operate. The term “mission” is a buffer, excuse, putdown and roadblock.

Rather than embrace the kinds of Big Picture strategies advocated in this book, the addictive system seeks artificial fixes to organizational problems, such as bonuses, benefits, slogans and promotions of like-minded executives.

Communications are always indirect, vague, written and confusing. People are purposefully left out of touch or are summarily put down for not co-depending. Secrets, gossip and triangulation persist, as a result. The addictive organization does communicate directly with the news media and often adopts a ‘no comment’ policy. Company officers (who should be accessible to media) are cloistered and unavailable. The addictive organization does not recognize that professional corporate communications are among the best resources in their potential arsenal.

The addictive system does not encourage managers to develop thinking and reasoning processes. The system portrays forgetfulness, selective memory and distorted facts into sweeping generalizations. We are expected to take them at their word, without requesting or demanding facts to justify.

In the addictive organization, those who challenge, blow whistles or suggest that things might be better handled are neither wanted nor tolerated. Addictive managers project externally originated criticism back onto internal scapegoats. There is always a strategy of people to blame and sins to be attributed to them.

Management processes tend to exemplify denial, dishonesty, isolation, self-centeredness, judgmentalism and a false sense of perfectionism. Intelligent people know that perfectionism does not exist and the quest for quality and excellence is the real game of life and business. Addictive organizations do not use terms like ‘quality’ and ‘excellence’ because such terms must be measured, periodically reexamined and communicated… the organization does not want any of that to occur.

There persists a crisis orientation, meaning that everything is down to the wire on deadlines (not to be confused with just-in-time delivery, which is a good concept). Things are kept perennially in turmoil, in order to keep people guessing or confused. Management seduces employees into setting up competing sides in bogus feuds and manipulating consumers.

Structural components include preserving the status quo, fostering political games, taking false measurements and pursuing activities that are incongruent with the organization’s announced mission.

7 Layers of Organizational Addictiveness – Companies That Go Bad… Self-Inflicted Crises

  1. Self Destructive Intelligence. There exists a logic override. Since the company does not believe itself to be smart enough to do the right things, then it creates a web of rationalism. Since the mind often plays tricks on itself, management capitalizes upon that phenomenon with people who may question or criticize.
  2. Hubris. This quality destroys those who possess it. Such executives exhibit stubborn pride, believing their own spin doctoring and surrounding themselves with people who spin quite well on their behalf. They adopt a ‘nobody does it as well as we can’ mentality. Such companies scorn connections, collaborations and partnering with other organizations.
  3. Arrogance. Omnipotent fantasies cause management to go too far. The feeling is that nothing is beyond their capacity to succeed (defined in their minds as crushing all other competition).
  4. Narcissism. Company executives possess excessive conceit. They are disconnected from outside forces, self-centered and show a cruel indifference to others. The view is that the world must gratify them.
  5. Unconscious Need to Fail. These companies try too hard to keep on winning. With victory as the only possible end game, all others must be defeated along the way. In reality, these people and, thus, their organizations, possess low self-esteem. Inevitably, they get beaten at their own games.
  6. Feeling of Entitlement. Walls and filters have been established which insulate top management from criticism (which is viewed as harming the chain of armor, rather than as potentially constructive). Anger stimulates many of their decisions. The feeling is that they deserve it all. Power satisfies appetites. These executives have poor human relations skills. They believe that excesses are always justified.
  7. Collective Dumbness. Such organizations have totally reshaped reality to their own viewpoints. The emperor really has no clothes, but everyone overlooks the obvious and avoids addressing it forthrightly. The organization dumbs down the overall intelligence level, so that people are in the dark and cannot readily make judgment calls. Cults of expertise function in vacuums within the company. Neurotic departmental units do not interface often with others. Employees are slaves of the system. There exists total justification for what is done and an ostrich effect toward calls for accountability.

About the Author

Hank Moore has advised 5,000+ client organizations worldwide (including 100 of the Fortune 500, public sector agencies, small businesses and non-profit organizations). He has advised two U.S. Presidents and spoke at five Economic Summits. He guides companies through growth strategies, visioning, strategic planning, executive leadership development, Futurism and Big Picture issues which profoundly affect the business climate. He conducts company evaluations, creates the big ideas and anchors the enterprise to its next tier. The Business Tree™ is his trademarked approach to growing, strengthening and evolving business, while mastering change. To read Hank’s complete biography, click here.

StrategyDriven Podcast Special Edition 57 – An Interview with Robert Simons, author of Seven Strategy Questions

StrategyDriven Podcasts focus on the tools and techniques executives and managers can use to improve their organization’s alignment and accountability to ultimately achieve superior results. These podcasts elaborate on the best practice and warning flag articles on the StrategyDriven website.

Special Edition 57 – An Interview with Robert Simons, author of Seven Strategy Questions explores the seven strategy questions that can help an organization’s leaders identify gaps within their strategy and its execution. By asking and effectively answering these questions, executives and managers gain the insight necessary to better align their organization’s day-to-day operations to the optimal achievement of mission goals; thereby enhancing overall bottom line results. During our discussion, Robert Simons, author of Seven Strategy Questions: A Simple Approach for Better Execution, shares with us his insights regarding:

  • the benefits of routinely asking the right strategy questions
  • the key Seven Strategy Questions and what makes them so important
  • how leaders can formally incorporate the Seven Strategy Questions into their business processes
  • actions executives should take to develop rising managers so that they instinctively ask the Seven Strategy Questions as a part of their internal thought process and the way they interact with their staffs

Additional Information

In addition to the outstanding insights Robert shares in Seven Strategy Questions and this special edition podcast are the resources accessible from his Harvard Business School Working Knowledge website.   Robert’s book, Seven Strategy Questions, can be purchased by clicking here.

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Thank you again for listening to the StrategyDriven Podcast!

About the Author

Robert Simons, author of Seven Strategy Questions, is the Charles M. Williams Professor of Business Administration at the Harvard Business School. For twenty-five years, he has taught accounting, management control, and strategy implementation courses in the Harvard MBA and Executive Education programs. Robert’s research has been published in the Harvard Business Review and the Strategic Management Journal, among others. To read Robert’s complete biography, click here.

Hank Moore

The Big Picture of Business – What Business Must Learn: Putting the economic downtown and recent events into perspective

The public does not react to any crisis until it is big enough and far-reaching to affect their daily lives. When business news gets on Page 1 of every day’s newspaper and every evening TV newscast, then the public notices and cares.

Business and organizational stories do not hit the public consciousness until there is a crisis. People decry the scandals and rest assured that such doings are not happening in their companies. Often, it is assumed that some protector or regulator will adequately address the issues. When the outcomes are of high magnitude, the outcry becomes larger. As people see the events as having a direct effect on the economy and their livelihood, they take notice and follow the stories more thoroughly.

The recent years succeeded in exploding a great many myths and presumptions about business. Formerly sainted icons went down in disgrace. Tactics deemed as ‘standard operating procedure’ for some companies were exposed and ridiculed by others. A few whistle blowers were lauded in the efforts, though others were attacked as the perpetrators of the chaos shuffled aside.

One must ask many simple and pertinent questions about a seemingly unsettling business future:

  • How did business get this far?
  • Why did the scandals and corporate disrepute occur?
  • What are the implications of Enron and other corporate scandals upon business?
  • Where are the next trends and opportunities?
  • How do we cope in the new environment?
  • What beacons of opportunity do we look for?
  • What will it now take to succeed and fail?
  • How do we react to and benefit from changes, rather than become victims of them?
  • Do we still take band-aid approaches (such as buying enterprise software)? Or, do we now see the need and importance to embrace longer-term approaches?
  • How far will we go to excel?
  • How creative must we become in the New Order of Business?
  • How far-reaching are business practices?
  • How much further should we extend ethics?
  • Where will the pendulum swing next?

Business in the 21st Century is real and dangerous. People suddenly feel lost. They are no longer in a safe port. They don’t know how to cope. Yesterday’s strategies simply do not work anymore.

Many of the old assumptions which business previously held have proven untrue and unworkable. We really must examine what we assumed before and what we can assume now. Business is at a juncture and needs new focus.

The victims’ fear and the public’s apathy enabled the crises to occur. This is the perfect climate for unethical people to have gotten away with murder. Sadly, many of the perpetrators did not see lapses in ethics… it was legal and just business to them.

It takes tragedies occurring in order for the system to stand back, take focus and fix what is wrong. It’s a whole new world. This chapter talks candidly about recent trends. Other chapters will discuss the need for and exciting opportunities for adaptability. By maintaining an awareness of further changing environments, there are further opportunities to be successful, ethical and move ahead of the competition.

The term CEO has recently been held in disfavor. We decry CEOs for the same reasons that we formerly sainted and canonized them. People are envious of the power, status and wealth of company heads. Yet, most CEOs were never trained on how to be CEOs, with all the responsibility, people skills, leadership and ethical management that must go along with the job.

The game of duping and fooling shareholders, customers and employees has ended… as well it should. We cannot ignore or compartmentalize board members, stockholders, employees and stakeholders anymore. We cannot fool them. We must listen to them and respect them.

Every organization in the world must reexamine how we will keep score in the New Order of Business. Continuing to justify blind spots will blur accountability. Having maintained too much of a myopic focus is what got so many companies in trouble already.

Thinking that we dodged the bullet while others got caught is a mentality that will still bring many other companies down in value and defeat. The scandals are not all aired in public yet. Up to 25% of our businesses are in peril and must take corrective actions, lest they be brought down in disgrace too.

Most of the downfalls, stumbles, false starts and incorrect handling of situations stemmed from business’ lack of focus on the macro… and over-emphasis upon certain micros, to the exclusion of other dynamics.

This chapter puts business events of the last two years into perspective… covering a broader scope of subjects than has been reported and discussed. This book states the case for more of a macro-focused approach to management. An analysis of business encompasses much more than accounting fraud and stated values of stocks.

What we do with fear and uncertainty determines who we are. It is time for fresh thinking, heightened ethical behavior and a shift to a macro focus. Rules and responsibilities within each sector of companies are changing. Each of us must ask what we can contribute and our roles in adapting to the crises.

High Costs, Learning Curves.

Corporate scandals of each of the last 10 years cost the U.S. economy more than $200 billion in lost investment savings, jobs, pension losses and tax revenue. The scandals resulted in one million job cuts. 401(k) plans dropped $13 billion as a result of these events alone. Recent corporate scandals have cost good businesses in reputation, credibility and support, by virtue of being lumped with some bad apples. Thus, consumer confidence dipped, and it will take years to fortify the trust in business.

Losses from 401(k) investment accounts alone totaled $175 billion, making them worth 30% less than they were two years ago. Public pension funds nationwide lost at least $6.4 billion as the stock market plummeted, amid a crisis of investor confidence. More than a million workers lost their jobs at the affected companies, while company executives cashed out billions of dollars of their stock.

This demonstrates the impact of accounting failures at high-profile companies. There has been $13 billion in lost federal tax revenue from companies with questionable accounting practices under-reporting their profits to the IRS. Twenty-three companies under investigation have laid off 162,000 workers.

We have been subjected to the second longest bear market in history, the longest being that of the Great Depression. The stock market is down 25%. We are now $7 trillion poorer than we used to be, thanks to Wall Street over-valuing of companies. Sweeping reforms by Wall Street and the Securities & Exchange Commission (SEC) are needed, forcing firms to separate their investment banking business from their stock advisory business.

There are 25 million small businesses in America… all affected in some way by corporate scandals. The healthcare industry is the primary business sector that is most expanding right now.

Steroid scandals periodically rock the sports world. The public decries the use of steroids but secretly supports the results that they yield (athletic records being set). The steroids usage norm in some team sports has the effect of institutionalizing breaking the rules, even though the health of some is seriously endangered. Temptations to break the rules for the hope of future financial gain are at the heart of corporate arrogance, greed, deceptions and double-dealings, as well as in the minds of some sports promoters.

Operational Statistics.

One out of every 12 businesses fails. 90% of all e-businesses will fail. 99% of all internet websites do not make a profit.

Retailers make 70% of their earnings in the fourth quarter of each year. That is why holiday sales are vital to their bottom line and, thus, the economy.

There have been 53 peacekeeping missions from 1948-2000, 40 of those from 1988-2000. Spending on peacekeeping peaked in 1994 at $3.2 billion, and is estimated at $2.2 billion for 2000. Successful peacekeeping missions include El Salvador, Namibia, and East Timor. Less successful include Somalia and Bosnia where there was less local support for their presence. A major report to the United Nations Millennium Summit calls for changes in the way in which peacekeeping operations are organized and financed. It also recommends they do not remain neutral when one side initiates aggression.

Airport screeners fail to detect fake bombs and guns 24 percent of the time.

52% of all high school students know someone who brought a weapon to school. 61% of those students did nothing about it. 52% of all high school students know someone who made a weapon-oriented threat. 56% of those students did nothing about it.

The Pentagon says that it cannot account for 25% of what it spends.

Shoplifting costs American business $10 billion per year.

Airlines say that delays caused by air traffic controllers cost them a combined $4 billion per year. For every 1-cent reduction in the cost of jet fuel, the airlines save $170 million.

Cargo theft costs the U.S. economy $6 billion per year. The victimized companies pass their recoveries from losses along to the customers. For example, $125 of the cost of each new personal computer goes to reimburse companies for previous thefts.

Consumers are cheated at gas pumps of self-serve marts each year in excess of $1 million because of faulty computer chips.

On any given day in the United States, over 100 convenience stores are robbed. Every day in the U.S., people steal $20,000 from coin-operated machines.

The average bank teller loses about $250 every year.

One third of our nation’s Gross National Product is spent in cleaning up mistakes. Yet, only 5.1% is spent on education, which is the key to avoiding mistakes on the front end.

Fires cost more than $150 billion per year in damage. Most fires are caused by carelessness: overloading electrical sockets, smoking in bed, failure to turn off kitchen burners, malfunctions with space heaters, allowing trash to accumulate, failure to repair electrical wiring and electrical breaker explosions. Electricity-related incidents account for half of all fires.

Learning the Lessons and Moving Forward.

The U.S. Congress enacted the Sarbanes-Oxley Act, corporate reform legislation, in 2002. The bill delineated new regulations, in response to the accounting scandals at WorldCom, Enron, Tyco and other large companies which left thousands of employees without retirement savings and investors with worthless stock shares.

The bill was intended to prevent malfeasance, restore investor confidence and crack down on corporate cheaters. It set up new regulations for corporate auditing practices and creates strict penalties for executives who hide debt in accounting tricks. It was the largest reform since changes were made to halt the Depression-era slide into bankruptcy.

Sarbanes-Oxley instituted extensive corporate governance reforms, including standards for advisors representing public companies and their nonpublic subsidiaries. Under it, business leaders are expected to embrace both the letter and spirit of the bill and other existing laws, designed to protect investors, employees and other stakeholders.

Unfortunately, the material covered by Sarbanes-Oxley represents only two percent of Corporate Responsibility and Ethics. As one who has conducted ethics audits and put programs into practice, I know that the reform did not go far enough. Thus, the economic downtown of the past two years. A more holistic approach to ethics would have averted many of the crises.

In moving forward, one must review those junctures where leaders and their companies recognize when a business is in trouble. These are the high costs of neglect, non-actions and wrong actions, per categories on The Business TreeTM:

  1. Product, Core Business. The product’s former innovation and dominance has somehow missed the mark in today’s business climate. The company does not have the marketplace demand that it once had. Others have streamlined their concepts, with greater success. Something newer has edged your company right out of first place.
  2. Processes, Running the Company. Operations have become static, predictable and inefficient. Too much band-aid surgery has been applied, but the bleeding has still not been stopped. Other symptoms of trouble have continued to appear… often and without warning.
  3. Financial Position. Dips in the cash flow have produced knee-jerk reactions to making changes. Cost cutting and downsizing were seemingly ready answers, though they took tolls on the rest of the company. The overt focus on profit and bean counter mentality has crippled the organizational effectiveness.
  4. Employee Morale and Output. Those who produce the product-service and assure its quality, consistency and deliverability have not been given sufficient training, empowerment and recognition. They have not really been in the decision making and leadership processes, as they should have been. Team members still have to fight the system and each other to get their voices heard, rather than function as a team.
  5. Customer Service. Customers come and go… at great costs that are not tallied, noticed or heeded. After the percentages drop dramatically, management asks “What happened?” Each link in the chain hasn’t yet committed toward the building of long-term customer relationships. Thus, marketplace standing wavers.
  6. Company Management. There was no definable style in place, backed by Vision, strategies, corporate sensitivities, goals and beliefs. Whims, egos and momentary needs most often guided company direction. Young and mid-executives never were adequately groomed for lasting leadership.
  7. Corporate Standing. Things have happened for inexplicable reasons. Company vision never existed or ceased to spread. The organization is on a downslide… standing still and doing things as they always were done constitutes moving backward.

These situations are day-to-day realities for troubled companies. Yes, they brought many of the troubles upon themselves. Yes, they compounded problems by failing to take swift actions. And, yes, they further magnify the costs of “band-aid surgery” by failing to address the root causes of problems.

Each year, one-third of the U.S. Gross National Product goes toward cleaning up problems, damages and otherwise high costs of failing to take proper action. On the average, it costs six times the investment of preventive strategies to correct business problems). This concept was addressed in another of my books, The High Cost of Doing NothingTM.

There are seven costly categories of doing nothing, doing far too little or doing the wrong things in business:

  1. Waste, spoilage, poor controls, lack of employee motivation.
  2. Rework, product recalls, make-good for inferior work, excess overhead.
  3. Poor controls on quality, under-capitalization, under-utilization of resources.
  4. Damage control, crisis management mode.
  5. Recovery, restoration, repairing wrong actions, turnover, damaged company reputation.
  6. Retooling, restarting, inertia, anti-change philosophy, expenses caused by quick fixes.
  7. Opportunity costs, diversifying beyond company expertise, lack of an articulated vision.

About the Author

Hank MooreHank Moore has advised 5,000+ client organizations worldwide (including 100 of the Fortune 500, public sector agencies, small businesses and non-profit organizations). He has advised two U.S. Presidents and spoke at five Economic Summits. He guides companies through growth strategies, visioning, strategic planning, executive leadership development, Futurism and Big Picture issues which profoundly affect the business climate. He conducts company evaluations, creates the big ideas and anchors the enterprise to its next tier. The Business Tree™ is his trademarked approach to growing, strengthening and evolving business, while mastering change. To read Hank’s complete biography, click here.

Richard Lepsinger

The 2010 Execution Round-Up: Six Companies That Couldn’t ‘Get It Done’ This Year (and Two That Did)

No doubt about it: 2010 saw its share of losers (and the occasional winner) in the business arena. Here are a few of this year’s headline makers and the lessons that can be learned from each of them.

It’s that time of year again: time for business owners and senior executives to take stock of the past twelve months. What did 2010 look like for you and your company? Did you struggle to regain your post-recession footing? Were employees engaged and focused? Are financials on track? The questions you could ask during your year-end assessment are endless. But there’s only one that really matters: Did your company effectively execute its plans and initiatives?

If an organization can’t get things done, nothing else matters – not the smartest strategy, not the most innovative business model, not even game-changing technology. And for many companies, there is a clear gap between intent and execution – we’ve seen plenty of evidence this year.

This assertion is backed by hard evidence. Recently, my company, OnPoint Consulting, conducted a study of over 400 companies. We found that 49 percent of the leaders surveyed in the study reported a gap between their organization’s ability to formulate and communicate a vision and strategy and its ability to deliver results.

This wasn’t the surprising part, though. What really shocked us was that only 36 percent of leaders who thought their company had an execution gap had confidence in their organization’s ability to close the gap between strategy and execution. That means a staggering 64 percent of leaders who saw an execution problem didn’t believe their company could fix it.

My research uncovered five characteristics and competencies, which I call ‘The Five Bridges,’ that enable people to traverse this execution gap. It is these bridges that differentiate the companies that are consistently able to get things done from those that aren’t. (I call the former ‘Gap Closers’ and the latter ‘Gap Makers.’)

Of course, time has marched on since the book was written, and plenty of other well-known companies have dropped the execution ball in the meantime (BP in the most spectacular fashion). To help the rest of us learn from the ‘living laboratory’ of real-world companies, I present the following lists – the first lamentably longer than the second!

OnPoint Consulting’s 2010 Execution Gap Maker Round-Up…

Execution Gap Maker #1: BP (Need I say more?)

It’s obvious from recent events that BP experienced an enormous execution gap. (More like a chasm, really.) Had the company focused on recognizing and closing that gap, it would have prevented this year’s unprecedented disaster. While the oil spill is a complex and tragic event, the cause can be traced back to BP’s failure to build the critical bridges.

Leading up to and after the oil spill BP violated almost all the guidelines of effective execution, including lacking an effective structure and lacking clear accountability. These gaps created another problem for them: In the critical stages following the spill, BP was unable to get input from those who had the knowledge and experience to make the best decisions about how to handle it.

What’s more, BP failed to empower people to use their best judgment and take appropriate action. Consider that hours before the explosion the rig crew was arguing about the best way to finish the oil well and move the rig to the next site. A Transocean mechanic testified that he overheard a ‘company man’ telling rig workers ‘how it’s going to be,’ and that although the rig workers felt the plan was too risky, they reluctantly agreed. And just after the explosion, as workers were scrambling for safety, a worker was yelled at by the captain (who worked for the rig’s owner, Transocean) for pressing the distress button without authorization, and when another worker was asked if he had called to shore for help, he said he had not because he did not have permission to do so.

The BRIDGE that failed: Employee Involvement in Decision Making… among others.

The LESSON: In order for any company to execute successfully, the right people have to be involved with the right decisions. BP provides a devastating example of what can happen when this isn’t the case.

Obviously, this lesson is even more critical when there is as much at stake as there was in the BP disaster. But really for any company trying to gain footing in a constantly changing business environment and tough economy, empowering the right people to make the right decisions can be the difference between landing that next great customer or account or not.

Execution Gap Maker #2: Nokia

Nokia’s share of the worldwide market for mobile phones continued to slip in 2010. It may surprise you to learn that about five years before Apple introduced the iPhone and three years before it launched an online applications store, Nokia was ready to introduce its own Internet-ready touch screen handset with a large display and had an early design of an online applications store. So what happened? Why was this once-dominant player unable to execute and maintain its market position?

It appears Nokia was not able to coordinate decisions and activities across departments or levels of management. Many innovative ideas became the victims of in-fighting among managers who had competing objectives. Plus, as a result of a lack of cross-organizational coordination and cooperation, Nokia wasn’t able to improve its proprietary operating system, Symbian, which would have allowed it to support a more sophisticated smartphone.

Execution Gap Makers #s 3 and 4: The Federal Drug Administration (FDA) and the Agriculture Department

In August of this year, thousands of consumers became ill after eating eggs that were contaminated with salmonella. The discovery of the contamination resulted in over half a billion eggs being pulled from store shelves. How could something like this, and on this scale, have happened?

Much of the blame has been attributed to poor federal oversight. And the cause appears to be a significant lack of coordination across federal agencies. You see, the responsibility for food safety is split between two agencies: The Agriculture Department is responsible for chickens, the grading of eggs for quality, and regulating liquid eggs that are used in industrial food production. But the FDA oversees the safety of eggs still in their shells.

So who inspected the Iowa farms to make sure the eggs were safe for human consumption? It turns out that no one did. It just fell through the cracks. The lack of coordination between these two agencies is one reason why so many consumer advocates believe we suffer from a dysfunctional food safety system.

The BRIDGE that failed for Gap Makers #2, 3, and 4: Company-Wide Coordination and Cooperation.

The LESSON: It’s critical that organizations learn to coordinate and collaborate decisions across organizational boundaries. But doing so requires more than faith and words alone.

Shared goals and clearly defined roles provide the foundation upon which cooperation and coordination can be built. In addition, people must be held accountable for results. This requires a combination of direct leader behavior and systems that encourage and reinforce the appropriate behavior among employees.

Execution Gap Maker #5: Johnson & Johnson

It’s been a bad year for J&J. Since 2009 McNeil Consumer Healthcare, the J&J division that makes over-the-counter drugs, has had eight recalls, including popular children’s versions of Tylenol, Motrin, Benadryl, and Zyrtec. Most disturbingly was what has been called the ‘phantom recall,’ in which contractors hired by J&J carried out a scheme to buy every package of Motrin by going store to store without informing the FDA.

Poor execution doesn’t happen overnight. It can often be traced back to a pattern of behavior that gradually erodes a company’s ability to deliver consistent high-quality results. At J&J it may go back to 2005 when employees reported a lack of alignment between manager behavior and company values and policies. When one million bottles of St. Joseph aspirin failed a quality test after a sample did not dissolve properly, quality workers who blocked the distribution of the bottles claimed their supervisor ordered them to retest the drugs and then average the scores to get a passing grade.

Fortunately, there was not a problem with the batch that was released, but it appears that the misalignment of leader behavior with company values in this situation laid the foundation for poor execution, and a potentially dangerous situation, in the future.

The BRIDGE that failed: Alignment Between Leader Actions and Company Values and Priorities.

The LESSON: Leader behavior must be aligned with company objectives and values. While this phrase has been said so often that it’s become a cliché, companies can’t afford to ignore it.

You don’t really understand how important value alignment is or the impact it has on effective execution until you see what happens when it’s not there. That’s why stories like the Johnson & Johnson one are so important. They remind us not to take it for granted or assume it’s a ‘no-brainer.’

Execution Gap Maker #6: Toyota

During 2010 Toyota recalled millions of cars due to a variety of defects. This was an extraordinary number for a company once recognized for the quality of its vehicles. What went wrong? It appears Toyota’s decentralized structure, which served it well for many years, turned into a liability as the company continued to grow and dominate worldwide markets.

For example, some of Toyota’s former U.S. senior executives believe that keeping the U.S. operations separated in a functional structure – rather than reporting to a single headquarters – forced each to report back to Japan. This required customer complaints to first make their way through the U.S. operation and then over to Japan where they were reviewed by a special committee – which would then have to communicate back to the U.S. All this had to happen before a recall could be issued.

The BRIDGE that failed: A Structure That Supports Execution.

The LESSON: Make sure you have a structure that supports execution. A good structure enhances accountability, coordination, and communication. Plus, it ensures that decisions are being made as close to the action as possible. Toyota’s structure slowed down decision making and the company’s ability to effectively respond to the recall crisis.

The Toyota breakdown also illustrates that the five execution bridges are not permanent. In fact, they are quite fragile. Once you’ve built them, you must keep vigilant watch over them and work hard to maintain them over time. It’s quite possible for a company to have a bridge in place one year, only to discover that over time it has weakened or even crumbled and is no longer able to help your people traverse the gap.

…And Its Execution Gap Closer Round-Up

Execution Gap Closer #1: Netflix

Netflix received considerable media attention this year as it demonstrated its ability to successfully execute its strategy to provide video over the Internet. The company began streaming movies to TV-connected devices such as the Nintendo Wii, Microsoft Xbox 360, and a new Blu-ray Disc player, and the strategy is already showing signs of paying off. Although the ability to deliver streaming video has just recently become a reality, Netflix has been preparing to replace its original business model of delivering DVDs through the mail since the company was formed in 1997.

The company’s readiness for change is incredible. A decade before the technology was even a commercial reality, it recognized that the delivery of movies over the Internet would eventually replace mail. Even the name they chose for the company reflected this awareness. They named the company ‘Netflix’ and not ‘Mailflix,’ which would have been an easier concept to understand more than a decade ago.

Execution Gap Closer (Well…Maybe) #2: Barnes & Noble

I would like to classify Barnes & Noble as a success, but it’s just not clear yet whether the company really fits in that category. The move to electronic books has caused booksellers to take a close look at how they do business, but the jury is still out on whether Barnes & Noble’s response to the dramatic changes in the publishing industry will be successful.

Barnes & Noble appears to be doing a lot of the right things. It developed the NOOK and has devoted significant space in its retail stores to display and promote it, and it has a broad online library. The big question is whether the company is fully committed to this change. Will it turn out like Netflix and successfully make the transition to a new method of delivery? Or will it end up more like Blockbuster, which has struggled to adapt to new technology and shift from bricks-and-mortar stores to an online-based business model?

The BRIDGE that held for Gap Closers #1 and 2: The Ability to Manage Change.

The LESSON: The ability to manage change is critical. Yet, despite all the effort and resources that have been devoted to helping them achieve this, managers and organizations still often get poor marks in this area. That said, yet another change management process or program is not the solution.

Change is made one person at a time. And our research, as well as the research of others, indicates that successful change is connected more to the individual and collective mindsets of employees than any process. People change when they are ready – not just when they understand the need for change. The most successful companies facilitate change-readiness and don’t just rely on making the business case to drive people’s motivation to change.

Yes, as these stories illustrate, execution is the real bottom line and my constant battle cry. It’s what I push my clients to focus on as they seek to improve organizational performance – and it’s the lens I urge all leaders to look through as they review 2010 and make their ‘business resolutions’ for 2011.

Execution is not a single-point event. It’s an ongoing process. But since your ability to execute well and consistently is the very fabric of success, I can think of no better place to focus your time and energy.

About the Author

Richard LepsingerRichard Lepsinger, author of Closing the Execution Gap: How Great Leaders and Their Companies Get Results, is president of OnPoint Consulting, a management advisory firm specializing in helping clients close the gap between strategy and execution and create a culture of getting things done. His client list includes Bayer Pharmaceuticals, Citibank, Coca-Cola Company, ConocoPhillips, Goldman Sachs, Johnson & Johnson, NYSE Euronext, PeopleSoft, Prudential, and Subaru of America, among many others. In addition to writing Closing the Execution Gap, he has co-authored four books on leadership including Flexible Leadership: Creating Value by Balancing Multiple Challenges and Choices, The Art and Science of 360 Degree Feedback, The Art and Science of Competency Models: Pinpointing Critical Success Factors in Organizations, and Virtual Team Success: A Practical Guide for Working and Leading from a Distance.