Strategy Implementation

Kurt Verweire

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317909880
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Strategy implementation - or strategy execution - is a hot topic today. Managers spend significant resources on consulting and training, in the hope of creating brilliant strategies, but all too often brilliant strategies do not translate into brilliant performance.

This book presents new conceptual models and tools that can be used to implement different strategies. The author analyses how market leaders have benefitted from successful strategy implementation and provides the reader with a comprehensive and systematic framework to tackle strategy implementation challenges.

Have clear strategic choices been made? Are actions aligned with the strategy? What's the organizational context for the strategy? In answering these simple questions, the book provides students of strategic management, along with managers involved in designing and implementing strategies, with a valuable resource.

1 The Challenges of Strategy and Implementation

DOI: 10.4324/9781315849447-1

Some years ago, a friend of mine became a director and member of the executive committee of a European bank. Arthur Berthold was 33 and enthusiastic about his new assignment. After some management jobs in other financial institutions, he was now ready to lead a bank, together with two other directors. After some weeks, however, his enthusiasm had dropped significantly. Certainly, the bank had a nice mission statement and challenging goals, but already, in his first weeks, Arthur had noted that the directors and managers of the bank had totally different interpretations about how to reach those goals. The marketing and sales managers pursued market share without looking at profitability, whereas back office managers focused on efficiency but had lost sight of the customer. In addition, there were huge fights between the managers of the various departments of the bank. The culture was very competitive: every manager wanted to score, often at the expense of a colleague. Absenteeism and employee turnover were very high. On an average day, 9 per cent of the 335 employees did not show up. And the financial results were disastrous.

Despite all this, Arthur took the helm and was anxious to turn the company around. It was clear that the bank had to say goodbye to unprofitable customers and sell more products to existing customers. Furthermore, the bank needed to tap into new markets, either by selling new products or by addressing new customer segments. Over several months, Arthur engaged in strategy discussions with his managers. With the help of a performance management consultant, Hein Hilleman, he was able to confront them with the financial consequences of their unclear choices. It took time, but Arthur and Hein were able to generate discussions about whom the bank would serve (and not serve), what it would provide (and not provide), and where the bank would differentiate from the competition. Furthermore, they were working with the managers on specific approaches to analyse customer needs, sell and deliver, and develop further relationships with the bank’s best customers.

The discussions that emerged were tough but necessary to create clarity, direction and cohesion within the organization. Furthermore, managers and employees were challenged to come up with solutions to address the many issues in the company. Whenever a problem was brought to Arthur’s attention, he forced the employees to come up with solutions. He supported them when the solutions were in line with the strategic choices that they had agreed upon, but, often, Arthur refused their proposals and compelled the employees to rethink them.

Over time, the managers initiated new actions in the bank. For example, Gerhard Isenrich, a young manager who was responsible for about twenty bank branches, started a sales-and-service cultural change programme that helped grow sales spectacularly. This change programme forced employees to set targets and to debrief their results every week. In this way, a performance-oriented culture emerged, in which teams competed but shared best practices. Martin Schober, another manager, introduced a similar performance measurement initiative in the call centre. He also assigned new tasks to the call-centre employees by having them organize the sales meetings for the account managers. The account managers resisted this vigorously in the beginning, but Arthur and Martin were able to convince them that they could now spend more time with their customers, which further increased sales. Within 9 months, all of the managers had set up initiatives to help realize the bank’s new strategy.

The new initiatives created numerous tensions within the organization and were greeted with a lot of scepticism. However, Arthur was committed to his project and refused to be distracted by the people who did not buy in. He personally explained the situation to all of the managers and employees. He required the managers of all departments to set goals and report on their performance on a monthly basis. The directors and managers discussed the results, which led to a more open and transparent culture. Furthermore, management’s coaching in leadership style helped fuel a collaborative mindset throughout the organization. The results were impressive: after only 3 years, sales had grown spectacularly, and operating profits had doubled. Absenteeism and turnover decreased significantly as well.

When I invited Arthur to talk about his experiences in our school’s programmes, I saw that managers struggle with many of the same issues that Arthur had dealt with. So, I decided to investigate strategy implementation in greater detail to figure out what effective implementation entails.

Strategy implementation: a hot topic

Strategy implementation — or strategy execution — is a hot topic today. Managers spend billions of dollars on consulting and training in the hope of creating brilliant strategies.¹ However, all too often, brilliant strategies do not translate into brilliant performance. Firms seem to experience significant problems with translating the strategy into concrete activities and results. This observation was also made by Lawrence Hrebiniak from the Wharton School: ‘Formulating a consistent strategy is difficult for any management team, but making that strategy work — implementing it throughout the organization — is even more difficult.’³

TABLE 1.1 CEO Challenges 2010: The 10 challenges (n = 444)

Relative ranking		Challenge	Cite challenge as being of ‘greatest concern in the coming year’, %
Oct-Nov 2009	Oct-Nov 2008		Oct-Nov 2008	Oct-Nov 2009
1	1	Excellence in execution	42.3	55.4
2	2	Consistent execution of strategy by top management	39.9	47.0
3	5	Sustained and steady top-line growth	38.8	42.3
4	6	Customer loyalty/retention	33.5	40.1
5	3	Speed, flexibility, adaptability to change	29.0	46.6
6	15	Corporate reputation for quality products/services	24.1	20.2
7	16	Stimulating innovation/creativity/enabling entrepreneurship	23.0	18.2
8	9	Profit growth	22.7	34.6
9	7	Improving productivity	19.9	36.9
10	26	Government regulation	18.9	12.6
Source: The Conference Board (2010)^2 Note: Respondents were allowed to rate multiple challenges as being ‘greatest concern(s)’ in the coming year. The global CEO Challenge rankings are weighted to correct for regional representation. Each CEO’s responses are weighted by his or her respective region’s representation in global GDP (Asia, 21.7 per cent; Europe, 36.4 per cent; the United States, 23.7 per cent; and other, 18.2 per cent), according to the GDP data from the International Monetary Fund World Economic Outlook Database (as of September 2009).

Strangely enough, we have only recently come to realize that strategies are not implemented automatically. Nevertheless, for quite some time now, strategy execution has ranked high on top managers’ agendas. For example, each year the Conference Board publishes the CEO Challenge Research Report. Strategy execution ranked as a top priority in the CEO Challenge 2007 and 2010 Reports (see Table 1.1 for the results of the 2010 Report).

At the same time, there is an increased awareness that developing strategy implementation capabilities is an important driver for competitive advantage. Nithin Nohria, William Joyce and Bruce Roberson have provided academic evidence for this observation. The three authors conducted a groundbreaking study on why some firms consistently outperform their competitors. They studied 160 companies — four companies from forty different industries. For every industry, they selected a winner, a loser, a climber and a tumbler. As Figure 1.1 shows, winners consistently outperformed their peers, whereas losers consistently underperformed. Climbers started off poorly but improved significantly, whereas tumblers started off well but then fell far behind.

FIGURE 1.1 What really works Source: Nohria et al. (2003)⁴

Then Nohria et al. investigated which of the hundreds of well-known business tools and techniques help a company be great. The conclusion was surprising: companies that outperform their industry peers excel at only four primary management practices: strategy, execution, culture and structure. Winners supplemented their great skill in those areas with mastery of any two out of four secondary management practices: talent, innovation, leadership, and mergers and partnerships.

The message that I would like to emphasize here is that strategy formulation and implementation do matter — strategy (formulation) and execution are primary management practices — and that you need both a clearly stated and focused strategy and strategy implementation capabilities to be a winner in your market!

So strategy implementation is considered to be a prerequisite for high performance, but we all know that implementation is a source of frustration in many companies. Both academic and consulting studies report significant failure rates with strategy execution, ranging from 40 per cent to even 90 per cent. This made Larry Bossidy and Ram Charan conclude, in 2002, that execution is not only the biggest issue facing business today, it’s something that nobody has ever explained satisfactorily.⁵ Now, some 10 years later, nothing has really changed. True, there have been some good publications on the topic, but no generally accepted implementation framework has yet emerged. Unlike strategy formulation, strategy implementation is often seen as something of a craft, rather than a science, and our knowledge of the nature of strategy implementation and the reasons for its success or fa...