Strategy = Execution

Faster Improvement, Renewal, and Innovation in the New Economy

Jacques Pijl

• Editorial: Management Impact Publishing
• Año: 2020
• ISBN:
  9789462763531
• Categoría: Commerce
• Categoría: Stratégie commerciale

Strategy is only as brilliant as its execution. Strategy execution is the last competitive advantage, and strength, speed and agility in execution are more important than a perfectly mapped-out strategy based on feasibility and predictability.80% how-to with 50 innovation methods and new business models.Strategy = Execution is for leaders, professionals, and entrepreneurs who view strategy execution as their principal job instead of strategy definition.

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INTRODUCTION:
EFFECTIVENESS, AGILITY AND SPEED ARE KEY IN STRATEGY EXECUTION

The rise of Netflix / Watson has earned a PhD / the whale curve is dead / Philips declined to buy Apple

1.1Today’s No. 1 Challenge is to Innovate Faster

We need to increase the speed with which we improve, renew and innovate our business models. This is the key management issue of our day. Organizations are caught between a rock and a hard place. They’re notoriously bad at strategy execution, but this age of disruption leaves them no choice but to constantly improve, renew and innovate their existing business models. In other words, the skill that organizations are sorely lacking is the very one they need most in order to succeed. That’s what leaders, professionals and entrepreneurs lose sleep over. And so they should. As one CEO recently told me, “All of us need to get better at this. Now. It’s nothing short of our social responsibility. Our continued existence depends on it.” This is exactly why I wrote this book. Obviously, there are worse problems in the world today. Just take a look at the news. Even so, I am convinced that increasing our effectiveness in strategy execution is a big deal. We spend the better part of our lives working, so it’d better be on something worthwhile. People want their work to be meaningful and have a purpose. Organizations are now deliberately choosing which social values they want to reflect. We are outgrowing our old obsession with shareholder value. What counts now is value in terms of social responsibility, diversity and regional and national development. This ambition has become one of our main strategic goals. Effective strategy execution creates value and the means by which we formulate meaningful objectives.

1.2Organizations Suck at Strategy Execution

Research has repeatedly shown that organizations are not good at strategy execution. This is nothing new. We’ve known this for decades and the numbers are shocking. Estimates of the failure rate range from 60 to 90%. It depends how you define failure, of course, which is something I discuss in greater detail in Chapter 9. But even if we take a highly critical view of the percentages presented in most studies, the failure rate is never less than 50%.¹ We all know examples: massive government IT projects that get bogged down, private sector mergers that never deliver the projected synergies, big restructurings that go off the rails, and cultural change programs that evaporate into thin air. Organizations are full of good intentions, but these intentions often end up paving the proverbial road to hell. This is precisely where we can gain a competitive edge, but there is a more general imperative: every organization needs to become better at strategy execution.

1.3The New Normal

The world will never be the same as before the financial crisis of 2008. There have been too many economic, social, cultural and technological changes. Globalization and changing consumer behavior are big factors, too. All these influences are ramping up the demands on our business models at mind-boggling speed. At the same time, the rate of change is accelerating. We no longer live in an era of change, but in a change of era, to quote Jan Rotmans, professor of Transition Studies and Sustainability.² Allow me to enumerate a few phenomena that I described in my previous book, Het Nieuwe Normaal [The New Normal].³

Business models are crumbling before our eyes. Business models are under great pressure in many industries—travel, real estate and financial services, to name just a few. These are known as glacier industries because they are simply melting away as a result of climate change in the business world. It’s only a matter of time before other industries suffer the same fate. Studies show that digital disruption is affecting all sectors so we can expect a lot more melting business models in the years ahead.⁴

The traditional media are another glacier industry; in some segments, earnings are melting away by 10% a year. The director of Netflix brought up this problem at a recent keynote speech at the Cannes Advertising Festival. He asked how long media buyers would continue to attend that festival to decide on their viewers’ behalf what they get to see and when. Just consider how bizarre it is that late night talk shows air when most people have already gone to bed. We spend a lot of time watching TV, yet it is one of the few products that does not allow us to choose what we consume and when. No wonder the rise of Netflix was so rapid. In the Netherlands, for instance, the channel attracted 600,000 subscribers in its first six months. This shows that linear television is fighting a losing battle. In the United States, 75% of late night shows are no longer viewed live but on demand. Yet even Netflix is now under threat from newer concepts.

Industries are converging. The triple helix model of innovation entwining government, education and business, probably offers as many opportunities as each of these sectors individually.⁵ The parties involved in this helix understand the value of cooperation and are increasingly tackling challenges together to foster economic growth and regional development. One successful example of this is Brainport Eindhoven, a cooperative alliance between the Dutch government, knowledge institutes and companies like ASML (semiconductor equipment manufacturer) and Philips Medical. Another one, Yes!Delft, offers startup programs for young high-tech firms operating near the world-class research centers of Delft University of Technology.⁶ In the USA, technology companies work side by side with institutions of higher learning in North Carolina’s Research Triangle Park, in Silicon Valley, and at MIT, to name just a few examples.

State and semipublic institutions are not exempt. Senior managers know that state and semipublic institutions are just as vulnerable as private enterprise in the New Normal. Under intensifying social media pressure, politicians and citizens alike are demanding more transparency, lower costs, better service and greater effectiveness. Many public and semipublic organizations are not ready to step up their game. The demand for transparency is particularly tough to meet. Just consider the scandals that shook the Dutch government in recent years. The Ministry of Defense was forced to compensate employees who were exposed to highly toxic hexavalent chromium for years; housing corporation Vestia nearly collapsed when several senior-level managers committed fraud; and the Central Works Council of the National Dutch Police was found to have engaged in corrupt practices.

In healthcare, the meteoric rise of e-health reveals how the government, organizations and citizens are unable to keep pace with the introduction of new technology. Watson, IBM’s supercomputer, has already earned a PhD and will soon be able to carry out the work done by a medical resident.

The New Normal is here to stay. By 2033, businesses will have an average lifespan of only five years, according to VINT, a Netherlands-based new technology institute run by IT firm Sogeti.⁷ The life expectancy of Fortune 500 companies was 75 years in 1950, but in 2001 it was projected to plummet to less than 15 by 2012, as we can see in the Shift Index from Richard Foster and Sarah Kaplan’s Creative Destruction (2001).⁸ Other indicators tell a similar story. Standard & Poor’s figures show the average lifespan of a business to be 61 years in 1958, 25 in 1980, and 18 in 2011.⁹ We can extrapolate from these numbers that 75% of those listed on the S&P 500 in 2014 will have disappeared by 2027.¹⁰ The topple rate, or the rapidity with which the market leaders in each industry are replaced, has more than doubled since 2010. Loyalty is a thing of the past, because customers now continuously reassess who best meets their needs. Competitiveness has increased by 100% and market positions can no longer be taken for granted. In short, the New Normal is here to stay. It is a reality, backed up with hard facts.

Figure 1 summarizes the facts that show why the New Normal is so different. The trend is obvious: continuity is no longer a given, and the most important reason for this is clearly digitalization.

Figure 1 — The New Normal is here to stay. Its effects are there for all to see. Innovation is a particularly tough game, but it’s full of opportunities for those who know how to spot them.

Sources:

1. In Creative Destruction (2001), McKinsey’s Richard Foster calculated that the lifespan of Fortune 500 companies, which was 75 years in 1950, would sink to less than 15 by 2012.

2. Standard & Poor confirms this trend.

3. Verkenningsinstituut Nieuwe Technologie, Sogeti IT-services.

4. Deloitte Shift Index Series

Organizations underwent more change in the first decade of the 21^st century than in the last five decades of the 20^th century. In recent years, they have seen everything from process optimization to radical innovation; from outsourcing to rightsourcing; from joint ventures to complete mergers and acquisitions; and a constant stream of change programs. One leader who I spoke to while researching for this book even went so far as to say, “The last five years have brought more change than the fifty years that preceded them.” And organizations see much more movement on the horizon. The digitalization of society and the pressure to keep up with disruptive innovations is bound to continue.

1.4Digitalization Drives Innovation

In the 20^th century, organizations rose to dominance by achieving economies of scale and gaining customer loyalty. At first, they succeeded at this through large-scale manufacturing (General Motors), and later by controlling supply chains (Walmart) and information (Amazon). But in the 21^st century, it’s the customers who call the shots. Customers read consumer reviews before every purchase and change their minds in seconds. The only way to win them over and to keep a competitive edge is to have a strategy that banks on knowing and engaging with the customer.

Companies that know how to play this new competitive game are what Forrester Research’s James McQuivey calls “disruptors”. The best disruptions do two things: they fulfill a basic need that end users understand, and they penetrate into the physical world of manufacturing plants and distribution networks, into the Internet of Things. The key issue is to focus on finding better ways to satisfying customers’ fundamental and latent needs.¹¹

Twenty years ago, disruption took years and required huge investments, as Harvard Business School Professor Clayton Christensen wrote in The Innovator’s Dilemma.¹² But the digital revolution has changed that. Today’s disruptors can radically transform every product and every service much faster and much more cheaply. They have a big influence on every aspect of business operations, from data management to pricing, to the management of labor and capital. It won’t be long before all industries feel this influence, even those that have not yet been digitalized.¹³ In James McQuivey’s estimate, today’s tools and platforms have multiplied tenfold the number of people who can bring innovative ideas to market. And that’s a conservative estimate. The average cost of developing and testing these ideas is just 10% of yesterday’s price tag. In short, our innovative power has multiplied by 100. But that also means every business now faces 100 times more competition.

Digital disruption speeds up competition and facilitates the advent of previously unimaginable numbers of ideas. The cumulative effect is devastating for any organization that operates ‘old-school’.

Digital innovation changes everything. Airbnb’s growth figures show that the classic whale curves of company life cycles are ancient history. They’ve been replaced by graphs that more closely resemble the Empire State Building. Let’s face it: the whale curve is dead! Everything is accelerating. New business models are appearing at breakneck speed, while older ones disappear equally fast. No one can predict what will happen, but we ...