Here is an excerpt from an article written by Michael C. Mankins and Richard Steele for Harvard Business Review and the HBR Blog Network. They explain how and why a strategy-to-performance gap fosters a culture of underperformance. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.
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In many companies, planning and execution breakdowns are reinforced—even magnified—by an insidious shift in culture. In our experience, this change occurs subtly but quickly, and once it has taken root it is very hard to reverse. First, unrealistic plans create the expectation throughout the organization that plans simply will not be fulfilled. Then, as the expectation becomes experience, it becomes the norm that performance commitments won’t be kept. So commitments cease to be binding promises with real consequences. Rather than stretching to ensure that commitments are kept, managers, expecting failure, seek to protect themselves from the eventual fallout. They spend time covering their tracks rather than identifying actions to enhance performance. The organization becomes less self-critical and less intellectually honest about its shortcomings. Consequently, it loses its capacity to perform.
Closing the Strategy-to-Performance Gap
As significant as the strategy-to-performance gap is at most companies, management can close it. A number of high-performing companies have found ways to realize more of their strategies’ potential. Rather than focus on improving their planning and execution processes separately to close the gap, these companies work both sides of the equation, raising standards for both planning and execution simultaneously and creating clear links between them.
Our research and experience in working with many of these companies suggests they follow seven rules that apply to planning and execution. Living by these rules enables them to objectively assess any performance shortfall and determine whether it stems from the strategy, the plan, the execution, or employees’ capabilities. And the same rules that allow them to spot problems early also help them prevent performance shortfalls in the first place. These rules may seem simple—even obvious—but when strictly and collectively observed, they can transform both the quality of a company’s strategy and its ability to deliver results.
[Here are the first of seven rules.]
Rule 1: Keep it simple, make it concrete.
At most companies, strategy is a highly abstract concept—often confused with vision or aspiration—and is not something that can be easily communicated or translated into action. But without a clear sense of where the company is headed and why, lower levels in the organization cannot put in place executable plans. In short, the link between strategy and performance can’t be drawn because the strategy itself is not sufficiently concrete.
To start off the planning and execution process on the right track, high-performing companies avoid long, drawn-out descriptions of lofty goals and instead stick to clear language describing their course of action. Bob Diamond, CEO of Barclays Capital, one of the fastest-growing and best-performing investment banking operations in Europe, puts it this way: “We’ve been very clear about what we will and will not do. We knew we weren’t going to go head-to-head with U.S. bulge bracket firms. We communicated that we wouldn’t compete in this way and that we wouldn’t play in unprofitable segments within the equity markets but instead would invest to position ourselves for the euro, the burgeoning need for fixed income, and the end of Glass-Steigel. By ensuring everyone knew the strategy and how it was different, we’ve been able to spend more time on tasks that are key to executing this strategy.”
By being clear about what the strategy is and isn’t, companies like Barclays keep everyone headed in the same direction. More important, they safeguard the performance their counterparts lose to ineffective communications; their resource and action planning becomes more effective; and accountabilities are easier to specify.
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The prize for closing the strategy-to-performance gap is huge: an increase in performance of anywhere from 60% to 100% for most companies.
But this almost certainly understates the true benefits. Companies that create tight links between their strategies, their plans, and, ultimately, their performance often experience a cultural multiplier effect. Over time, as they turn their strategies into great performance, leaders in these organizations become much more confident in their own capabilities and much more willing to make the stretch commitments that inspire and transform large companies. In turn, individual managers who keep their commitments are rewarded—with faster progression and fatter paychecks—reinforcing the behaviors needed to drive any company forward.
Eventually, a culture of overperformance emerges. Investors start giving management the benefit of the doubt when it comes to bold moves and performance delivery. The result is a performance premium on the company’s stock—one that further rewards stretch commitments and performance delivery. Before long, the company’s reputation among potential recruits rises, and a virtuous circle is created in which talent begets performance, performance begets rewards, and rewards beget even more talent. In short, closing the strategy-to-performance gap is not only a source of immediate performance improvement but also an important driver of cultural change with a large and lasting impact on the organization’s capabilities, strategies, and competitiveness.
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To read the complete article, please click here.
Michael C. Mankins (mmankins@marakon.com) is a managing partner in the San Francisco office of Marakon Associates, an international strategy-consulting firm. He is also a coauthor of Value Imperative: Managing for Superior Shareholder Returns (Free Press, 1994). Richard Steele (rsteele@marakon.com) is a partner in the firm’s New York office.