You have devised a great strategy for your company and all the indicators show that you should get a big return on investment. Yet when the year comes to end the results have brought not what the strategy suggested. What has happened? You spent so much time in getting the strategy right and now there is little to show for it. Unfortunately, this scenario is more common then you would think.
Companies only realise about 60% of their strategies potential because of defects and breakdowns in planning and execution. If you review the most common causes for the failure of strategic plans the findings are revealing and troubling.
Research into the strategy to performance gap published by the Harvard Business Review shows that virtually all companies surveyed struggled to produce the financial performance forecast in their long-range plans. Furthermore, the processes they used to develop plans and monitor performance make it difficult to determine whether the strategy to performance gap stems from poor planning, poor execution, both or neither. The biggest problems are: –
- Companies rarely track performance against long-term plans – the research shows that less than 15% of companies compare the business results with the performance forecast, drill down to analyse why the performance was not achieved and take this information into account when making new plans.
- Multiyear results rarely meet projections – This is demonstrated by a dynamic common to many companies. The 4 – year plan projects modest performance for the first year and a high rate of performance thereafter. Management meet its modest target for the first year and is recommended and prepares a new plan with a modest growth for the first year and a high rate of performance thereafter. The process is continued over the next years with only modest results over the projected years.
- A lot of value is lost in translation – Given the poor quality of financial forecast in most strategic plans it is probably not surprising that most companies fail to realise the strategic potential value. What emerges from the research is sequence of events that goes something like this: strategies are approved but poorly communicated. This makes the translation of strategy into specific actions and resource plans all but impossible. The lower end of the organisation doesn’t know what they need to do and when they need to do it and as result the expected results don’t materialise. If no one is held responsible for the shortfall the cycle of under performance gets repeated over and over again.
- Performance bottlenecks are frequently invisible to top management – When plans are realistic and performance falls short, executives have few early warning signals. They have often no way of early detection whether actions were carried out as planned, resources were deployed on schedule, competitors responded as anticipated etc. As result it is impossible to take corrective action on time.
- The established gap fosters a culture of under performance – If the strategy underperformance becomes the norm over the years’ then commitment cease to be binding promises with real consequences. The organisation becomes less self – critical and less honest in its shortcomings. Consequently it loses its capacity to perform.
However, there is a way out as a number of high performance companies have dealt with above described problems. They have created clear links between planning and execution and raising the standards of both of them. There are seven rules to follow and these are: –
- Keep it simple, make it concrete – Ensure that all staff member know the strategy and how it affects their day to day performance. Make certain that all employees know what they have to have delivered at the end of the year.
- Debate assumptions not forecast – Strategies are often based on assumptions and to make them come true staff need to know what you are thinking in order to engage in the process. When they understand the fundamentals and performance drivers they understand what exactly is required and understand better how to deliver on the performance.
- Use a rigorous framework, speak a common language – The specific framework a company uses to ground its strategic plans isn’t that important. What is critical is that the framework establishes a common language for dialogue between the management and employees one that strategy, marketing, finance and operations all understand and use!
- Discuss resource deployment early – Companies can create more realistic forecast and more executable plans if they discuss up front the level and timing of critical resource deployments.
- Clearly identify priorities – To deliver any strategy successfully managers must make thousands of tactical decisions and put them into action. Companies should agree on priorities, communicate relentlessly and hold managers accountable for executing against their commitments.
- Continuously monitor performance – Continuous monitoring of performance is particularly important and proactively monitoring the primary drivers of performance. Putting the Key Performance Indicators on the agenda of every management meeting should ensure that all keep the eye on the ball.
- Reward and develop execution capabilities – No list can be complete without a reminder that companies have to motivate and develop their staff, as at the end of the day no process can be any better than the people who have to make it work. This also includes development of staff members who have made it work.
The prize of closing the strategy to performance gap is huge – an increase of performance from 60% to 100%. However, the true benefit for companies who create tight links between their strategy, plans and performance is that will they experience a multiplier effect, as a result of their efforts they are willing and able to take on stretch commitments that inspire and transform companies.