Neilson et al., a group of consultants from Booz & Company, a global management consulting firm, compiled and analyzed extraordinary amounts of data collected from more than 25,000 employees at 31 companies, and applied their own experiences in working with hundreds of other companies, to identify and rank the traits that made organizations effective at strategy execution. They noted that while the first move that companies typically make when seek to execute a new strategy is to restructure the business, in fact there were four “fundamental building blocks” and that two of them appeared to be much more important than the others and thus should be the initial and primary focus of the strategy execution process. The building blocks, in order of importance, were designing information flows, clarifying decision rights, aligning motivators, and making changes to the organizational structure. Neilson et al. brought the themes together by suggesting that “[e]xecution is the result of thousands of decisions made every day by employees acting according to the information they have and their own self-interest”.
Neilson et al. created a list of “the 17 fundamental traits of organizational effectiveness” with respect to implementation of strategy, each of which was ranked in order of their relative influence. Five of the top eight traits were related to “information” and included the following:
- Important information about the competitive environment gets to headquarters early.
- Information flows freely across organizational boundaries.
- Field and line employees usually have the information they need to understand the bottom-line impact of their day-to-day choices.
- Line managers have access to the metrics they need to measure the key drivers of their business.
- Conflicting messages are rarely sent to the market.
Neilson et al. stressed that headquarters will only be able to provide guidance about opportunities and trends in relevant business segments if it is able to obtain, analyze and disseminate information to managers and employees involved in operational activities that are closer to the company’s ultimate customers. They made it clear that information must flow horizontally across different parts of the company so that the company is not held back by individual units acting as isolated “silos”. Dissemination of information also allows the company to build a strong bench of managers with knowledge of all aspects of the company’s business activities. Sharing information goes beyond numbers and includes face-to-face discussions among different groups that build mutual understanding and trust and serve as a foundation for the collaboration that is necessary for the use of team to engage with customers and complete other relevant projects. Finally, information helps managers and other employees make the best decisions possible with an understanding of how their choices are likely to impact the bottom line and the company’s progress toward its strategic objectives.
Three of the top seven traits were related to “decision rights” and included the following:
- Everyone has a good idea of the decisions and actions for which he or she is responsible.
- Once made, decisions are rarely second guessed.
- Managers up the line get involved in operating decisions.
Neilson et al. pointed out that companies need to be aware that blurring of decision rights will inevitably occur as they mature and grow. During the early stages of business when the company is relatively small it is fairly easy for everyone to have an idea of what others are doing and seeking and obtaining a decision from a colleague is a quick and straightforward process. Problems arise when growth brings turnover among the management team and continuously changing expectations regarding consultations and approvals, generally reinforced by more formal rules. The byproduct of all this can be a lack of clarity among managers and employees as to where their accountability begins and ends and how much authority they have to act on their own in pursuit of what they perceive their specific role to be in the overall strategic plan. Another issue relating to problems with respect to decisions is that it can impair the company’s ability to move quickly to address problems and/or take advantage of opportunities.
The following traits were ranked ninth and tenth and were related to “alignment of motivators”: the individual performance-appraisal process differentiates among high, adequate and low performers; and the ability to deliver on performance commitments strongly influences career advancement and compensation. Managers and employees working in a system where motivators were aligned with performance could expect that they would be fairly rewarded in relation to their colleagues if they excelled at execution and consistently delivered on their individual performance goals. This was consistent with the other building blocks in that it pushed everyone in the organization to seek information to make sound decisions.
Finally, the following three traits related to “structure” were ranked thirteen through fifteenth on the list:
- Promotions can be lateral moves (from one position to another on the same level in the hierarchy).
- Fast-track employees here can expect promotions more frequently than every three years.
- On average, middle managers here have five or more direct reports.
Neilson et al. pointed out that structural changes are relatively easy to announce and come with high visibility that demonstrates that a change initiative is in the works; however, Neilson et al. argued that structural changes along produce little more than short-term gains in efficiency and will not be effective over the long run unless they are accompanied by better decision making rules supported by a free flow of information.
Neilson et al. argued that once companies knew and understand the issues and practices that were most important for effective strategy execution, they could implement targeted initiatives to improve their execution capabilities. Suggestions that were offered, and the “building blocks” they were intended to impact, included the following:
- Focus corporate staff on supporting business-unit decision making (decision rights)
- Clarify and streamline decision-making at each operating level (decision rights)
- Focus headquarters on important strategic questions (decision rights)
- Create centers of excellence by consolidating similar functions into a single organizational unit (decision rights, information flows)
- Assign process owners to coordinate activities that span organizational functions (decision rights, information flows and alignment of motivators)
- Establish individual performance measures (decision rights and alignment of motivators)
- Improve field-to-headquarters information flow (information flows)
- Define and distribute daily operating metrics to the field or line (information flows)
- Create cross-functional teams (information flows and aligning motivators)
- Introduce differentiating performance award (aligning motivators)
- Expand non-monetary rewards to recognize exceptional performers (aligning motivators)
- Increase position tenure (information flows and structure)
- Institute lateral moves and rotations (information flows and structure)
- Broaden spans of control (structure)
- Decrease layers of management (structure)
Neilson et al. cautioned against trying to implement too many of the initiatives, which they referred to collectively as a “transformation program” at one time and recommended that companies turn first to implementing practices that will positively influence freer flow of information and clarification of decision rights throughout the organization. Once those areas have been improved, the executive team can turn to alignment of motivators and identifying and implementing the structural changes that will help institutionalize decision rights, information flow and collaboration among the right people. Neilson et al. summed up the sequence of transformation of strategy execution as follows: “… [ensure] that people truly understand what they are responsible for and who makes which decisions—and then [give] them the information they need to fulfill their responsibilities. With these two building blocks in place, structural and motivational elements will follow.”
Sources: G. Neilson, K. Martin and E. Powers, “The Secrets to Successful Strategy Execution”, Harvard Business Review (June 2008), 61; and G. Neilson and B. Pasternack, Results: Keep What’s Good, Fix What’s Wrong, and Unlock Great Performance (New York: Random House, 2005).