Putting Stategy Into Action

Perspective Karim SabbaghRabih AbouchakraGhassan HasbaniBahjat El-Darwiche

Putting Strategy into ActionBuilding a Discipline for Better Performance

Booz & Company

Contact Information

Abu DhabiRabih [email protected]

BeirutGhassan [email protected]

Bahjat [email protected]

DubaiKarim [email protected]

Juergen Ziehfreund also contributed to this Perspective.

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EXECUTIVE SUMMARY

With the privatization of certain government-controlled enterprises, the steady expansion of family-owned conglomerates, and the strong growth of the commercial sector, the Middle East has one of the most vibrant and dynamic economies in the world.

In order to continue to thrive, Middle Eastern companies now need to quickly convert ambitious strategies into action in a highly dynamic and increasingly crowded marketplace. To be effective in this endeavor, senior management needs to create and institutionalize a formal approach to strategy execution. This approach facilitates top-down monitoring, creates cross-functional integration, enables proactive and coordinated decision making, and flags issues before they become problems.

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In our experience, most companies are adept at developing powerful, competitively differentiating strate-gies. Where they fail is in the execu-tion of those strategies. In the early days after launching a strategy, an organization is typically euphoric and engaged in the new direction, but without daily follow-through, that energy dissipates, and the company finds itself in a defensive posture. Market positions erode. Management and staff become frustrated as noth-ing seems to change, and there is gen-erally more talk than action. When key financial objectives are eventually missed, the problem becomes obvious.

Senior management often blames the deficiency on the strategy, when the real problem actually lies in the execution of the strategy. Instead of taking the simpler steps to address execution breakdowns, management then develops an entirely new strat-egy, thus starting the vicious circle all over again. The consistent leaders in every industry avoid this problem by rapidly turning strategy into action through a formal process. Most organizations do not execute well, by their own admission. Over the past four years, Booz & Company has collected and analyzed more than 170,000 organization profiles, completed online by individuals from more than 1,000 companies, govern-ment agencies, and nonprofits in more than 50 countries. The consensus is clear. Three of every five organiza-tions perceive themselves as weak when it comes to strategy execution. The inability to execute tops the list of CEO concerns, according to The Conference Board,1 a priority we have confirmed in conversations with our clients around the globe. Although nine of 10 companies have strategic and business planning processes in place,2 only five of 10 have estab-lished a formal execution process.3

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CREATIng And InSTITUTIng A FoRMAl APPRoACh To STRATEgY EXECUTIon

HIGHLIGHTS

• Most companies develop powerful strategies but have trouble imple-menting them.

• Successful strategy management moves from strategy development to business planning and resource allocation to execution management and finally to performance measure-ment.

• Four capabilities are central to strategy execution management: execution governance, progress monitoring, strategy communication, and accountability mechanisms.

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Companies typically understand the importance of strategy setting and invest significant resources and senior management time in it. As a result, most companies today have smart, sound strategies. They have utilized all of the tools and methodologies per-fected over the last four decades (e.g., SWOT analysis, portfolio analysis, scenario planning, dynamic strategic simulation) to assess and optimize their external environment and inter-nal organization—at least on paper.

Although senior management generally feels comfortable and competent devel-oping strategies, they are less interested in the mundane task of executing those strategies. Strategy development is viewed as a high-level, intellectual exercise that is part of the senior man-agement agenda. Strategy execution,

on the other hand, is often perceived as a hands-on, detail-oriented, day-to-day series of endless tasks. Strategy devel-opment occupies the minds of only the best and brightest for a concentrated period of time during the annual plan-ning cycle, whereas strategy execu-tion harnesses the energies of every employee at every level every day. Strategy setters chart a course miles ahead; executors push the organization along that course, inch by inch.

Yet strategy execution cannot be divorced from the strategy it is meant to enable. It must be well-integrated into an overall approach to strategy management that moves from strategy development through the business planning and resource allocation process to performance measurement (see Exhibit 1).

STRATEgY dEVEloPMEnT And STRATEgY EXECUTIon nEEd To BE InTEgRATEd

Exhibit 1 Integrated Strategy Management Aligns All Activities

Source: Booz & Company

PerformanceMeasurement

Ideal Strategy ManageMent approach

Performance Measurement

“How do we allocate financial and human resources to succeed?”

“How do weget things done efficiently?”

“How do we measure success?”“Have we been successful?” “What do we want to achieve?”

“How do we want to reach our targets in the long term?”

“How do we ensure strategic alignment across all units?”

“ What do we need to do and achieve in the short term?”

StrategyDevelopment

StrategyCascading

ResourceAllocation

ExecutionManagement

1-Year Business Planning

6

1

2

3

4

5

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Executing on a strategy typically falters in one of two places: It either falls through the cracks between steps in the cycle, or it is never properly coordinated because Step 5 is skipped over; in other words, there is no dedicated and disciplined execution management approach in place.

Between each of the major steps in the strategy management process, there are a series of activities that need to occur to keep the cycle moving smoothly (see Exhibit 2). For example, between strategy development and strategy cascading, each corporate objective needs to be separated into its key components and then translated into strategic objectives for each business unit. Between business planning and resource allocation, companies need to determine the required manpower and budget for each initiative. Without these linkages, senior management’s strategic directives are never enacted. Strategy is interpreted

independently at every level, and execution is utterly random. It becomes almost impossible for an organization to deliver forecasted results.

By way of example, a Middle Eastern telecommunications company realized that it needed to align its business and functional unit managers with the overall corporate strategy. It achieved this by separating each corporate objective into its key components and translating those into business unit strategic objectives, followed by a workshop to align senior management, in which each executive presented his strategy, including requirements from other units. These strategies were then translated by the responsible unit heads into executable business plans with specific initiatives and time lines for the coming year. As a result, all initiatives could be linked to corporate strategy, demonstrating to middle management their contribution to corporate objectives.

InTEgRATEd STRATEgY MAnAgEMEnT

Exhibit 2 Linkages Ensure Consistent Strategy Execution and Measurement


Strategy developMent

Strategy caScadIng

BuSIneSS plannIng

reSource allocatIon

executIon ManageMent

perforMance MeaSureMent

Corporate strategic directions and priorities, typically for the next 3 to 5 years

Segregate each corporate objective into its key components and formulate as unit strategy

Translation of corporate strategy into strategies for all major units of the company (3 years)

Detail each unit strategy with key initiatives for the coming year

Business plan of a unit (1 year)

Determine required manpower and budgetary resources for each of the initiatives

Required manpower and budgetary resources for the business plan

Develop an execution plan with milestones for each of the initiatives and track regularly

Structured approach including governance, progress monitoring, strategy communication, and accountability mechanisms

Use execution and resource plan as a basis for performance management

Results measurement, variance analysis, and recommendation of remedial actions

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EnSURIng ThAT STRATEgY EXECUTIon doESn’T FAll ThRoUgh ThE CRACkS

In addition to minding the gaps in the strategy management cycle, companies need to pay attention to Step 5 and set forth a clear execution management approach.

Typically driven by a dedicated execution management office (EMO) at the corporate level, an effective execution management approach facilitates top-down monitoring and cross-functional integration. It flags and addresses emerging issues before they become problems. It enables proactive and coordinated decision making and ensures on-time delivery against strategic objectives.

For example, one of the largest renewable energy companies in the world implemented a comprehensive execution management approach when senior management realized that the company’s overall results were, to a large extent, disconnected from the strategic objectives. Cross-functional steering committees were created for each project and an execution management scorecard was developed to allow senior management to monitor key projects on a weekly basis and anticipate delays and misalignments.

An effective execution management approach flags and addresses emerging issues before they become problems.

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Exhibit 3 Relative Strength of Strategy Execution Levers (out of 100)


UnlEAShIng ThE PERFoRMAnCE gEnE

Based on our experience at Booz & Company helping many companies transform their organizations, we’ve identified four fundamental levers that organizations can pull to improve execution and align individual actions with corporate strategy. They are:

• decision rights—the underlying mechanics of how and by whom decisions are truly made

• information flow—the movement of knowledge and metrics used to measure performance, coordinate activities, transfer ideas, and make decisions

• motivators—the objectives, incentives, and career alternatives made available to employees

• structure—the formal organization model, including reporting lines

These are the primary “genes” in an organization’s DNA. They identify an organization and determine how well it executes.

By surveying an organization’s employees on its performance in aligning and exploiting each of these levers, it is possible to determine where and why execution break-downs are occurring (see www.orgdna.com to take the OrgDNA Profiler® survey). However, convert-ing the diagnosis into the right treat-ment plan is still daunting.

Most organizations default to treat-ing structure first. Moving lines and boxes on an organization chart and adjusting spans of control seems the most obvious course of action. It’s visible. It’s tangible. And it gener-ally releases trapped costs quickly. But it is rarely successful, as most restructurings fail to address the other three determinants of organizational effectiveness. Restructuring alone addresses only the symptoms of the organization’s dysfunction, not the root causes (e.g., unclear accountabil-ity, misdirected career paths).

In fact, of the four genes in organiza-tional DNA, decision rights and infor-mation are roughly twice as powerful as the other two (see Exhibit 3). Based on our continuing client work and research, we have identified these as the “dominant genes” in an orga-nization’s makeup (see “The Secrets to Successful Strategy Execution,” Harvard Business Review, June 2008). Structure and motivators, on the other hand, are recessive—less important, but still relevant and influential. Information Flows 54

50

26

25

Decision Rights

Motivators

Structure

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The beginning of any effective strat-egy execution program begins with a careful assessment of the level of alignment between and among these four organizational levers. A company might examine, for example, whether the flow of information supports the allocation of decision rights. Do those making decisions throughout the organization have access to the information they need?

A large utility company in the Gulf Cooperation Council (GCC) decided to implement a centralized purchas-ing structure in order to leverage economies of scale across its different regional units. A centralized purchas-ing department was created and given the rights to purchase the needed material for all the units. However, the department didn’t have access to the most recently updated informa-tion defining the user requirements as users in the different units were still accustomed to dealing with the local (decentralized) purchasing officer and sharing their requirements with him. This misalignment created frustration

for all parties and significant delays in the procurement process, impacting the quality of service delivered to the client.

Once companies identify gaps and conflicts, they can better direct limited resources to where they are most likely to unleash potential performance. If the major issue impeding performance is the fact that decision rights are closely held at corporate headquarters while the relevant information resides in the field, then a company can focus on improving the flow of information to senior management rather than wasting time and money on restructur-ing or overhauling incentives.

Even the most resilient, high-perform-ing companies stand to benefit from this exercise, as they understand, per-haps better than any, that the journey to enhanced execution is a never-ending one. The healthiest companies and those with the healthiest potential focus their attention and energy on driving continued progress rather than declaring victory.

how To BEgIn A STRATEgY EXECUTIon PRogRAM

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We’ve indicated that most companies fail not in the development of their strategy, but in its execution. Further, we’ve stated that execution typically falters because companies let it slip through the cracks in their strategy management cycle or do not develop a disciplined approach to execution management. Finally, we’ve intro-duced the four levers that companies can use to improve execution by aligning individual actions with cor-porate strategy.

How does this all come together to guide companies as they try to put in place a dedicated execution manage-ment approach? In our experience, companies typically develop an execu-tion management approach around four critical capabilities, each of which leverages one of the core drivers of organizational DNA (see Exhibit 4).

These four critical capabilities are execution governance (decision rights), progress monitoring (infor-mation), strategy communication

(information), and accountability mechanisms (motivators).

Execution Governance

• Are the roles and responsibilities of individual managers and decision bodies well-defined and understood?

• Are managers fulfilling their execution role effectively, even if it stretches beyond their immediate purview?

• Does the EMO proactively drive the process and support decision makers?

The execution governance structure should answer these questions by clearly identifying execution-specific roles and responsibilities and establishing supporting organizational entities, including the EMO itself.

The EMO should be part of the strategy-planning unit of a company and report to the senior executive in

dEVEloPIng A dISCIPlInEd APPRoACh To STRATEgY EXECUTIon

Exhibit 4 Execution Management Approach Should Leverage Key Organizational Drivers


ExecutionGovernance

Define clear roles and decision rights and establish an Execution Management Office with a cross-functional scope

ProgressMonitoring

Set up multi-level execution reporting systems and formal mechanisms to facilitate decision making and progress tracking

Strategy Communication

Leverage internal and external communications to ensure that management and employees focus and commit to strategy execution

Accountability Mechanisms

Link individual’s contribution to strategy execution to his or her performance appraisal and reward high performers

1 2

3 4

Decision Rights Information

Information Motivators

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charge of strategy development. Its principal roles are that of an analyst and advisor. As an analyst, the EMO provides explanations of reports generated for senior management and insight on the impact of various performance drivers. As an advisor, the EMO identifies risk-mitigation and business opportunities based on insights gained from these reports.

As Exhibit 5 indicates, in addition to the corporate EMO, there are often typically additional execu-tion management offices set up that support the implementation of cross-functional strategic themes and report to executive sponsors of these themes. As the strategy cascades down the organization, sponsors at various levels take on clearly defined responsibilities. For example, Level 1 senior managers will “own” various elements of the corporate strategy. Level 2 sponsors will roll out the

consequent sector strategies, and Level 3 sponsors will take on specific initiatives.

Regardless of the particular execution governance setup and reporting lines, it is important that strategy execution “owners” have the organizational clout to lead execution initiatives and coordinate with other initiative owners. Not only are they responsible for implementing the strategy as it cascades down the levels of the orga-nization, but they are accountable for raising issues and risks as soon as they come to light. They should also have the authority to demand progress information from different initiative owners, even if they belong to other units. The selected execu-tion governance structure should fully leverage line management and build on existing responsibilities, targets, incentives, and performance measures.

Progress Monitoring

• Does the executive team get all the information it needs to make good decisions?

• Do executives feel that progress status reports are based on objective criteria?

• Is the senior management meeting agenda too occupied with execution issues or not occupied enough?

• Are progress reviews well scheduled in terms of preparation, discussion, and follow-up time?

• Which parts of progress reporting could be (further) automated to increase efficiency?

Progress monitoring starts with a clear and unambiguous accounting of execution status and ends with a link

Exhibit 5 Sample EMO Chart


organIzatIonal Setup

CEO / Executive Committee

VP Initiative Project Manager Project Team

VP Initiative Project Manager Project Team

VP ... ... ...

VP ... ... ...

VP ... ... ...

Corporate Execution Management Office

Reports to Head Corporate Strategy

Reports to Execution Sponsor

Unit View

Str

ateg

y V

iew

Execution Sponsor 1

Execution Sponsor 2

Execution Sponsor 3

Execution Sponsor 4

Execution Sponsor 5

Strategy 4 Execution Management Office

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to performance measurement. The goal is to provide management with a comprehensive, accurate snapshot of execution effectiveness.

The main objectives of progress moni-toring are straightforward: to help management at all levels take account of progress, facilitate issue resolu-tion, and enable decision making. It keeps execution activities on track and maintains their momentum, while providing for a two-way information flow between strategy setters and those on the front lines executing that strategy.

To successfully monitor progress, execution status reports need to be a permanent fixture on monthly executive meeting agendas. Moreover, companies need to establish effec-tive execution-specific processes such as issue resolution and escalation mechanisms. Concise progress report templates should focus executive attention on key outstanding issues.

The EMO should be regularly polling line managers on the status of various strategic initiatives. Are they on track, at risk of delay, or delayed?

For example, a leading GCC finan-cial-services company adopted a three-tiered approach to progress monitoring. At the board level, a strategy-execution committee was established to review progress on a monthly basis. At the executive level, business unit heads met on a fortnightly basis to update the execu-tion management office on progress within their respective initiatives. At the department level, weekly meet-ings were held to drive the day-to-day strategy-execution steps. This was underpinned by the incorporation of strategy-execution performance metrics into the organization’s overall performance appraisal process. The overall structure proved particularly effective when problems arose, by ensuring timely visibility of the emerg-ing issues among the firm’s leadership.

Strategy Communication

• What level of understanding/buy-in/ownership have managers and employees reached?

• Which communication channels have proved to be most successful?

• Has employee input and feedback been incorporated and used to fine-tune strategy execution?

Strategy communication is an important complement to execution activities and should convey not only the substance of the strategy itself, but also important achievements in executing it. It should lay out the rationale for the strategy (e.g., market trends/changes, new company targets, emerging opportunities) and explain the strategy in straightforward terms, using a “storytelling” approach. Communications should be explicit in describing what will change and how it is likely to affect employees.

Strategy communication should convey not only the substance of the strategy itself, but also important achievements in executing it.

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The second thrust of strategy com-munication is to celebrate milestones passed and other execution “wins.” A continuous stream of positive news fosters buy-in and alignment with the strategy among employees. In announcing achievements, commu-nications should connect each one to the strategic objective(s) it furthers.

The EMO should drive strategy communication in close cooperation with the corporate communications department. The EMO’s role is to define communications requirements and craft key strategy-communication messages, then convey them to corpo-rate communications for elaboration and broad dissemination.

Accountability Mechanisms

• Has each strategic initiative been assigned a clear owner who drives execution?

• Has senior management sent clear signals by rewarding outperformers and disciplining underperformers?

• Has the human resources depart-ment effectively linked performance rewards to execution contribution?

• Do these rewards also reflect and reinforce cross-functional collaboration?

Accountability is more than just responsibility or even authority; it is an obligation to report and justify task or activity outcomes. Without accountability, there is no ownership. Compliance trumps results. Progress slows and agreements lapse. People shirk responsibility.

An effective alignment of account-abilities to strategic objectives should provide an end-to-end solution to these problems and be closely linked with the execution roles and decision rights established as part of the gover-nance structure.

From target setting through appraisal to reward management, personal objectives are inextricably linked to corporate and cascaded strategic goals. The appraisal process is consis-tent and transparent company-wide, and people earn rewards in terms of compensation, recognition, or career development that are commensurate with their contribution to execution.

For example, if strategy execution hinges on cross-functional coopera-tion, then that should be reflected in the target-setting, appraisal, and reward processes. If Manager A works with Manager B in a differ-ent unit to execute a given strategy, then Manager A should weigh in on Manager B’s appraisal and vice versa. Moreover, their rewards should reflect the success of their cross-functional partnership in moving execution forward.

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The big question confronting Middle Eastern executives today is not “Where do I take my company?” but “How do I get there?” Setting a clear strategic course is vital, but insuffi-cient. Companies also need to ensure execution.

Because each organization is different and faces a unique set of internal and external variables, there is no univer-sal solution to the execution challenge. Organizations need to start by engag-ing in a careful diagnostic that encom-passes all four major organizational levers—decision rights, information, motivators, and structure. Based on the intelligence gathered through that diagnostic, companies can chart a strategy-execution approach.

The companies that excel will be those that find a way to climb the strategy execution learning curve quickly and nimbly (see Exhibit 6).

A Middle Eastern services company followed a rigorous course in identify-ing gaps and improvement potentials in its initial execution approach. After interviewing key managers on differ-ent levels and assessing the outcome of progress reviews in the executive committee, it decided to change key elements of the approach, including a refocused executive committee session with a new format to get quickly to decision making on key execution issues.

Successful companies will be the ones that can readily make steady incre-mental improvements as well as achieve step-change gains as they execute their strategy. These winning companies will likely have four things in common: robust execution gover-nance, rigorous progress monitoring, continuous strategy communication, and well-aligned accountabilities.

ClIMBIng UP ThE STRATEgY EXECUTIon lEARnIng CURVE

Exhibit 6 Moving Up the Strategy Execution Learning Curve

Execution Management Effectiveness

Initial Execution Phase

Continuous incremental improvements

6–9 Months 3 Months 2 Months10 Months

Step-change improvements

Review & Improve

Review & Improve

Execution Phase 2 Execution Phase 3

Time

Illustrative

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About the Authors

Karim Sabbagh is a partner with Booz & Company based in Dubai and Riyadh. He leads the firm’s communications, media, and technology practice in the Middle East. He specializes in sector-level development strategies, institutional and regulatory reforms, large-scale privatization programs, and strategy-based transformations focused on strategic planning, partnerships and alliances, marketing, and business pro-cess redesign.

Rabih Abouchakra is a partner with Booz & Company based in Abu Dhabi. He focuses on public administration modernization, public policy, large-scale transformation, and organizational development and change management.

Ghassan Hasbani is a partner with Booz & Company based in Beirut and Riyadh. He special-izes in telecommunications markets assessment, invest-ments strategies, mergers and acquisitions, marketing, prod-uct and service development, organizational restructuring and governance, technology plans, channel strategy and manage-ment, customer care, business development, and CFO and CEO agendas.

Bahjat El-Darwiche is a principal with Booz & Company based in Beirut. He specializes in communications and tech-nology and has led engage-ments in the areas of telecom sector liberalization and growth strategy development, policymaking and regulatory management, business devel-opment and strategic invest-ments, corporate and business planning, and privatization and restructuring.

Endnotes

1 The Conference Board, “CEO Challenge Survey,” 2007

2 Booz & Company analysis

3 Balanced Scorecard Collaborative (now the Palladium Group) survey, 2006

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Putting Stategy Into Action