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Published: April 19, 2010

 
 

Putting Strategy into Practice

Celebrating a “must-read” concept, based on data from thousands of companies: Information flow and decision rights are integral parts of the strategic process.

Note: This article refers to the HBR anthology Must-Reads on Strategy, which includes “The Secrets to Successful Strategy Execution” (beginning on page 81). 

Of all the false distinctions that dog business thinking — leadership versus management, profitability versus growth, short term versus long term — the most pernicious is the separation of strategy (where the company should go) from execution (getting there). Strategy without execution is daydreaming. What good is a blue ocean to one who cannot swim? Execution without strategy is pointless, even dangerous. What profit is there in doing the wrong things well?

Worse, the separation of strategy and execution lets both strategists and operators off the hook; it means that no one is held accountable for poor results. Strategists can claim that there is nothing wrong with the corporate plan; “those bozos just couldn’t execute it.” Those charged with implementation, for their part, may accuse the strategy of being impractical. Or they may devote their lives to the small tactical wins that made “the man in the gray flannel suit” such a sad sack, really. Strategy and execution are the left and right hands of the same organizational body: They should wash each other.

So it was profoundly right that the editors of Harvard Business Review (HBR), in compiling a new collection of their 10 most significant articles on strategy (Must-Reads on Strategy, [Harvard Business Press, 2009]), chose to devote half the volume to articles about execution. Leading this group was an article I commissioned when I was the editor of HBR: “The Secrets to Successful Strategy Execution,” by Gary L. Neilson, Karla L. Martin, and Elizabeth Powers, first published in 2008. It is a great honor for the authors to be included in the company of Michael Porter, Jim Collins and Jerry Porras, Clayton Christensen, and W. Chan Kim and Renee Mauborgne. And it is being celebrated at their firm, Booz & Company (which publishes strategy+business, and where I now work as chief marketing and knowledge officer).

But the article is also worth celebrating more generally — because it is a harbinger of the closing of that false gap between strategy and execution, and of a new understanding of the role of capabilities in driving strategy.

The Missing Link: Data

When I was running HBR, we on the editorial team occasionally discussed our frustration that there hadn’t been a really new, big idea in strategy for 20 years. We tried to fill the gap by publishing a lot of material about execution. But it was often narrow, and although the world changed rapidly, the sense-making tools available to executive decision makers didn’t expand very much. A lot of it is brilliant and important, but nothing sets the editorial heart racing like a truly new, big idea or a newly opened domain of knowledge.

The problem was ignorance — or, more precisely, a tapering off in the availability of data relevant to corporate strategy. As Walter Kiechel writes in his excellent The Lords of Strategy: The Secret Intellectual History of the Corporate World (Harvard Business Press, 2010), strategy as we know it today came into being in the 1970s and ’80s, when a handful of consultants and academics dug up and rigorously analyzed data on costs, customers, and competition that companies simply hadn’t studied before. Prior to that, as Kiechel points out, many companies didn’t even know their own costs, let alone their competitors’ — indeed, microeconomic theory argued that competitors’ costs would be about the same. Instead of “strategy,” companies had “planning” and schools taught “policy.”

When the new data became available, it changed how companies went to market. But the one remaining data-free zone was execution: No one fully understood the internal capabilities that explained why Company A managed to deliver on its brilliant strategy, while Company B, equally brilliant in its intent, stumbled coming out of the gate. Consultants and scholars had many hypotheses, but no real answers. Now some answers are emerging, with Neilson, Martin, and Powers making one of the first major contributions. Consequently, a company can now be as rigorously analytical about the way it carries out a strategy as it was in constructing it in the first place.

Data on Strategic Change

The “Successful Strategy Execution” article was derived from years of research (into what the authors and their colleagues call the “organizational DNA” project) on the experience of implementing strategy. Previously, most good strategists had data about markets, costs, and competitors, and heaven knows most managers collect and monitor operating data. But the Neilson-Martin-Powers data is unique: Using an online survey that culled both observations and conclusions from managers, they could track what went wrong, and what went right, between strategic intent and the realities of performance.

This had been a mystery. In many companies, an approach that might be called “faith-based strategy” has often been adopted by default. The leadership team announces a new corporate direction. They fund it. They change the company’s org chart structure. They realign incentives. And then, “a miracle occurs” — or, more likely, it doesn’t. The Neilson-Martin-Powers research empirically supports what many have long suspected: that a strategy cannot succeed with only conventional measures supporting the necessary changes.

The gathering of this data began in 2002, with a question: How does a company design its organization to generate results and successfully adapt when circumstances change? Neilson and his coauthors articulated four “building blocks” that mattered most in the execution of any kind of strategy: decision rights, information flow (including metrics), motivators, and of course the “lines and boxes” structure of an organization chart.

Curious about how different people in different types of companies applied these four aspects of organizational design, they set up an online public survey through which people could create a profile of their own companies. The link went viral. Within 14 months they had gathered 45,000 profiles — 15,000 from their own clients, and 30,000 from people who visited their website. By the time the HBR article was published, 125,000 people had filled out this profile; respondents represented more than 1,000 companies, government agencies, and not-for-profits in more than 50 countries.

Here’s what the data showed, when combined with in-depth studies of 31 client companies: Decision rights and information flows had twice as much impact on the success of a strategy as did changes in structure or motivators. Not only that: Executives introducing strategic change should address the questions of decision rights and information flow first. Once a company makes the structural change and fills the boxes of the org chart with names, the opportunity to make changes in the more critical areas vanishes. Any plans to “get to that later” evaporate. Says Gary Neilson, “We have not seen any exceptions to this pattern in our client work.”

Connecting Intent with Capability

In real life, executives all too often reach first to moving the lines and boxes on their organization charts — perhaps because this instrument of change is readiest to hand. Given a chance to reflect, however, they show a more sophisticated understanding of what really works. Thus, the article includes preliminary results from an online diagnostic simulation, in which visitors can preview some potential approaches to implementing strategy and gauge their impact on performance.

In this simulation, users choose among 28 possible actions they can take to change a company’s direction. The one they pick most often — “Clarifying and Streamlining Decision Making” — is indeed one of the best ways to ensure successful strategy execution.

As someone who helped bring this article to life, I find it gratifying indeed to celebrate its selection as a strategic “must-read.” In itself, “The Secrets of Successful Strategy Execution” reveals the leverage points — information flows and clear decision rights — that enable a company to put a new strategy into practice with confidence. But the greatest contribution of this body of work (and others like it) is perhaps yet to come, as a platform for future insights into the optimal relationship between strategy and execution, particularly in high-performance companies.

Author PROFILE:

  • Thomas A. Stewart is chief marketing and knowledge officer of Booz & Company. Formerly the editor of Harvard Business Review, he is the author of The Wealth of Knowledge: Intellectual Capital and the Twenty-first Century Organization (Currency, 2001).
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