Rethink the Strategy-Execution Gap
The Strategy-Execution Gap promoted by Harvard Business School et al is hogwash and propaganda. It’s another marketing scheme to convince you that you need help to solve the mysterious “gap.” So what is this mysterious gap? It was originated by leading consulting firms, such as BCG, universities including London Business School and Harvard Business School, and Project Management Institute (PMI). Harvard actually aggregated 25 articles in their HBR signature publication, “The Gap between Strategy and Execution.” After suffering through this 107-page compendium, I came to one thought – there is no gap, just bad strategy and bad execution. No gap.
Companies focused on value growth enjoy over 2X growth rate performance compared to their operational focused peers because growth compounds. Mindset is one key difference for this performance gap. Automation is another difference. You wouldn’t dream of running your accounting department without automation, but you run your value growth, a much more difficult discipline, with substandard and/or disjointed tools.
Every company has three growth levers—Strategy, Execution, and Innovation (SEI). These levers, correctly working together, should transform a business from its current operating state to its future operating state. Assuming you develop great strategy, you have two levers remaining to execute the strategy and to innovate. Executing the strategy includes operating and transforming in balance.
Operating involves driving the business success with what you have, while transforming encompasses a set of objectives to achieve your desired strategic growth. These objectives are achieved through the execution of initiatives or projects. Certain companies refer to this transformation as strategy deployment. As needed, you invoke innovation to solve challenges impeding progress of your objectives.
While there are many reasons why management deprives a business of its growth potential, one of the major causes is that the people actually don’t execute important, prioritized growth initiatives relative to strategic intent. It’s not about the gap, it’s about the lack of execution. In many cases, this impedes growth rate by over 50%, measured over any five-year period. Robbing the business of its growth potential doesn’t have to be.
This article is focused on the connection between strategy and execution, and demonstrates there is no gap, just bad strategy and bad execution.
Companies often fail to separate external strategy from internal transformation. Other times, they hire a bad facilitator/consultant/coach who has executives complete a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis at the onset of their planning and prior to understanding the actual strategies the company is pursuing. Prior to formulating strategy, you need market insights and technology trends, not SWOT. When formulating strategy, here are a few considerations:
- Customer, product/service, channel alignment. Based on solid market and environmental insights, have you mapped your targeted financial growth within a customer segment-channel-product family framework? If not, you have no strategy.
- Business models. Enabled by technology, you can now, easier than ever, step into your customers’ shoes and wonder what they are actually desiring vs. what you are providing. This is the classic situation where you are supplying “drill bits” but the customer wants “holes.” Or, you have a void between your output and the customer’s desired outcome, which Airbnb and Uber clearly understood. Can you leverage a direct to customer model? Does your business have the wherewithal to create new business models?
- M&A, partner, or joint venture opportunities. How can you leverage inorganic growth in addition to organic growth? Does your business have its house in order to assimilate and integrate new acquisitions, or the capability to build successful partner relationships?
These are the types of questions that need to be answered prior to considering transformation objectives. Once your executive team decides on who will buy your growth targets and why, you are ready to develop your transformation objectives.
In one sense, the world’s our oyster and we can create a bazillion opportunities for change. However, business is a system that produces value, and energy concentration may be more important than loose, non-purposeful ideation. Leaders should be looking for system constraints in the macro subsystems that impede value relative to strategy and financial growth targets. Executing on your system constraints is how and where you find your highest return on strategic investment and the fastest cash flow from your growth initiatives.
From a cause-and-effect perspective, you can use compression thinking to explore deeply into the causes of your constraints along the lines of:
- Customer value. What is it that your customer actually values? There are many insight frameworks available to guide you in better understanding what your customer values. Think along the lines of utility, quality, and convenience.
- The value coming through your subsystems. In a typical company, the primary value-producing subsystems are:
o Marketing and Sales
o Customer fulfilment
o New product/service development
When you understand the constraint in each of these subsystems, then ask how you can alleviate the constraint to improve value from the customer perspective.
- The processes that are converting the value. Are they agile, responsive, and do they produce high value to cost?
- The inputs that are about to be converted. Can we change the form, function, or supplier quality?
- The energy feeding the system. In automated factories, we take energy for granted—just turn on the switch. Little do we think about the massive power generation, transmission, and distribution infrastructure behind the switch. In strategic transformation, this power is human energy with automation assist. The energy feeding your growth system is your people. Perhaps the biggest challenge in accelerating value growth is how you develop your people to balance their transforming responsibilities with their operating responsibilities, sometimes referred to as “working on your business vs. in your business.”
How you want to design transformation objectives will depend first on your market opportunity strategies. Second will be the current state capability and capacity of your underlying subsystems, including your people. Third, will be ensuring cohesion among your goals.
Although people provide the critical energy to grow a business, their individual development plans must come after you understand your strategic and transformation goals, because you must base each person’s development plan on their shortcomings relative to value growth alignment and achievement. This will ensure initiative success. Strategic people development is a major lever that is wasted by most companies.
Although you want and should have both great strategy and great execution, if you had to decide between them, wouldn’t you rather have mediocre strategy and great execution instead of the opposite? The reason is, the faster you execute value growth, the faster you learn and can adapt with agility.
Another ploy in the consulting spheres is building around volatility, uncertainty, complexity, and ambiguity, or VUCA. There are even so called “VUCA experts.” VUCA suggests business is getting more complicated, or there is an abundance of opportunity we are missing, or both. Regardless of the situation, you must:
- Tighten your feedback loops
- Spread the leadership and learning responsibility
- Upgrade your communications channels
When we refer to the feedback loops, we mean insight from customers, competitors, technology trends, and other important influences. We also mean linking the strategy and execution loops vertically and horizontally. We must have insights and knowledge in the weekly, monthly, quarterly, and annual time domains. We actually mean connecting the business transparently, in real time, with no reports needed. In other words, a value growth operating system, fully automated.
You need an automated real-time growth operating system if you want to crush the fear mongers transacting on the Strategy-Execution Gap, VUCA, and a host of other needlessly complex programs. In days past, we had to deal with the cliché of “it’s all about people, process, and technology” from a myriad of consulting firms, or “Reengineering the Corporation” by Hammer and Champy, causing companies to waste tremendous resources on endless “in search of” rabbit trails. All because leaders didn’t have a grip on their businesses.
Business growth is much simpler. It’s about the value your customer will pay for, and the quest must be to deliver better value and faster value flow. Just think, you can distill every conversation in business into one word, VALUE. The question is, how do you execute value growth faster and not worry about imaginary gaps or VUCA complexity?
Value growth is realized through the successful completion of growth initiatives (the what) that advance your strategy but are coordinated through transformation themes for a cohesive multiplier effect. This transformation responsibility is held by the function layer of the business, not siloed but cross-functionally coordinated. Thus, all a company needs to do is execute better value growth initiatives faster (the when). This is the heart of the matter and the means to faster growth. Those that complete growth initiatives faster grow enterprise value at twice the rate of their peers, because of the compounding effect. Why don’t more companies do this?
The main reason is that, except for massive undertakings where external consultants are involved, people have operating responsibilities that take precedence even though completing these initiatives will make their jobs easier. We have a saying, “today’s urgency will eclipse tomorrow’s importance every time.” What can executives do? A leader has no reason to expect that operational people will execute value growth initiatives within a reliable timeframe until they issue policy informing everyone that leadership requires teams to invest 10%-20% of their time working on growth initiatives, including people development. We emphasize teams here, not individuals, to point out that many coaching organizations and frameworks such as FranklinCovey’s 4 Disciplines of Execution (4DX) fail, because they promote assigning detailed accountability actions to the individual. Growth happens through the execution of Initiatives. It’s a team sport, and not a holding of individuals accountable for minutiae tasks that can’t be linked to value growth.
With strategic transformation policy in place, the next challenge is to teach prioritization, time-blocking, and problem-solving skills to all team members. Second, emphasize the rigor of rhythm or control meetings to track growth progress closely and readjust through a tighter learning-action loop. Growth discipline skills are different from operating function skills because they act to change the operating functions. Growth leaders know this and live it.
A goal is not a goal unless it is accompanied by one or more measures. When business unit leaders are focused on financial performance only, the business unit leader not only owns performance, but he or she robs the function/process leaders of owning their transformation performance, thus impeding the business growth and their individual growth.
Even worse is that financial measures and growth transformation measures are often at odds with each other. You must answer, do you want to run on cost performance or value flow performance? You don’t want to waffle because you will whipsaw your teams. You can’t have improvements in net working capital, inventory turns, and delivery-in-full-on-time (DIFOT) simultaneously. If you’re focused on value flow, you start with DIFOT and consider inventory as a strategic buffer instead of a cost to be contained. If your supply chain is designed properly, your inventory will be what it will be. These same principles hold for marketing & sales or new product development.
When thinking about measuring success, you will not succeed at growth until you translate your strategies into transformation objectives, which are owned by the function/process leaders. It is up to the function leaders to translate their transformation objectives into growth initiatives. This is where you control growth, at the initiative execution point.
Think along these lines:
- Strategy: Measures that allow leaders to monitor overall performance of an organization at a high level. Usually aligned with financials, leaders can review the general strategic health of their organization.
- Transformation: Measures that help leaders understand specific opportunities within their function/process. Usually aligned with functions/process outcomes, they measure local-level contributions to financial targets and help establish local ownership of goals.
- Growth Initiatives: Measures that are at the root of taking growth action. They help leaders monitor daily and weekly activities to improve process performance measures. When initiative goals are met, they lead to accelerated growth.
So, are there one, two, or three gaps? I contend there is bad strategy and bad execution, but zero gaps.
If you want to grow value faster but it’s not happening, it’s probably because you’re not executing on the initiatives that strategically transform the business to achieve a higher value future state. But why should you care?
Take for example, a $100M company growing at 10%. Five years out, its value will be $161M. When we change its growth rate to 12%, its value will increase from $161M to $176M, an increase of $15M, and this gap continues to increase because of the compounding effect of the growth mindset.
Assume a similar company is growing at 15% and we change its growth rate to 18%. When we change its growth rate, its value will increase by an additional $28M. These increases will compound into the future.
However, we found the opportunity loss in most companies is more like 50% over a five-year period. Growth leaders achieve a triple win over their operational focused counterparts:
- Customers enjoy the benefits of higher value products and services
- Employees are more engaged and empowered
- Shareholders want to invest more with you
This article has focused on the myth of the strategy-execution gap and offered considerations to improve your strategy and execution performance. But should we be only thinking of strategy and execution? Figure 1 depicts a shift from treating your growth disciplines of Strategy, Execution, and Innovation (SEI) as ad hoc, disjointed elements into an integrated and automated system that empowers you to grow strategic value faster for lower cost.
Inputs enter the business and are converted to outputs that customers want. This value production system holds whether you’re communicating value (marketing & sales), conveying value (customer fulfillment), creating value (new product development), or capturing value (finance). You are operating the business in the current state with what you have, and you have leadership, teams, tools, and automation to help you do it.
Growing and transforming your business is very different from operating it. If automation is good for operating the various functions/processes of your business, it is essential for strategically transforming it for accelerated growth.
Stay tuned as we explore more differences between operating and growing a business.
About Pivotal Innovation
Pivotal Innovation’s purpose is to empower leaders to grow value faster by automating the growth disciplines of Strategy, Execution, and Innovation with our Pivotal Innovator™ platform, combined with acceleration support services. Contact us for a Value Growth Discussion at https://calendly.com/kevin-fallon/15min.
We want to help you grow value faster for lower cost, guaranteed