“Sun Tzu was right about executing strategy while most management gurus get it wrong”. That is the claim made by The Science of Sun Tzu, and I tend to agree.
Whilst many organizations focus on reducing bureaucratic bloat and moving decisions to the front line, they fail to address the ‘effectiveness’ of those decisions. Performance has two components – effectiveness and efficiency.
- Effectiveness is about doing the right things
- Efficiency is about doing things right
In a study of Organizational Execution, across 125,000 people representing more than 1,000 companies, government agencies, and not-for-profit organizations in over 50 countries, researchers found that three out of five organization rated their organizations as weak at strategic execution.
The Harvard Business Review responded to this research, concluding that:
“Execution is the result of thousands of decisions made every day by employees acting according to the information they have and their own self-interest.”
There is a lack of clarity around the purpose of key decisions and a lot of internal conflict when making decisions. Organizations that execute well understand the higher purpose of their decisions and when decisions need to be made. Only 32% of those in organizations weak on execution had the same understanding.
In many instances, decision makers look to the hierarchy for guidance. The differentiation comes down to how well information needed to support decisions is disseminated. In most cases, waiting for information to pass down a hierarchy is the primary cause of lack of information at the decision point. This is a fundamental weakness in the management ethos of moving decisions to the front line – the information needed to support those decisions is not. It is either ‘retained’ by higher management or exists in silos – the full context of the truth not visible to those who really need it.
The well-know equipment maker, Caterpillar, found that following a hierarchial approach to decision making doesn’t make sense. As one field executive expressed:
“It just took a long time to get decisions going up and down the functional silos, and they really weren’t good business decisions; they were more functional decisions.”
Caterpillar’s CEO, Jim Owens, commented that by the time information got to the top, it had been “whitewashed and varnished several times over along the way.”
The research found that the higher decisions were made in the hierarchy, the poorer the quality of the decision was.
For example, pricing issues are typically dealt with by decision makers on the front line – they are the ones with the insight into local market conditions. Such conditions change constantly – a change not reflected in a timely manner when pricing decisions are made further up in the hierarchy. This leads to pricing decisions being made on the basis of cost rather than market.
In a fast moving environment, such bureaucracy is too far behind the information curve.
During hurricane Katrina, centralised decision making was shown to not only be ineffective, it was making conditions worse – preventing rescue operations from being as effective as they could be. Once the decisions were moved out into various teams in a satellite model, things started moving more effectively and efficiently.
It seems ironic that the higher echelons of hierarchies operate more effectively when decisions are made further down the chain…but only when the information needed to support those decisions was reliable. Such delegation actually allows the organizations leaders to free themselves from operational decisions and focus on big picture strategy.
The research found that 61% of individuals in strong-execution organizations felt that field and line employees have the information they need to understand the bottom-line impact of their decisions. In weak-execution organizations, this stands at only 28%.
Key Capabilities
Key capabilities to ensure this model works include:
- The ability to disseminate information efficiently across the organization – moving the right information to the right key decision points.
- Confidence by those making the decisions that the information they have at hand is timely and accurate
- Confidence in those making decisions that they will not be ‘second guessed’ by higher management, who most often do not have access to the same information
In organizations that executed strategy poorly, 71% were worried about their decision being second guessed. This leads to covert decision making – with almost 80% of those surveyed verifying that information did not flow in these organizations. In contrast, in those organizations that were good at execution, 45% felt that information flowed freely between the various parts of the organization. Whilst, this still leaves a large opportunity for improvement, it does illustrate the impact of improving information flow.
Dashboards and reports are the language of decision making. They provide a common glossary of terms and framework for communicating competitive and strategic issues.
Understanding strategy, strategic performance and performance measurement is not just a leadership capability. Training those at the front-line making decisions pays dividends to those who invest in the education and tools associated with strategic performance improvement.
Resources
For more information on how to lead your organization using strategic performance improvement: