Strategy Isn't Enough. Here's How to Improve Your Company's Management Practices and Execution
If you want your company to grow profitably then you ought to be open to ideas that will allow you to create a brighter future for your employees and customers. Such ideas often fall into two broad categories:
Strategy: which customer groups you choose to serve and the products you provide that give those customers more value for the price than rivals do.
Execution: how you organize, staff and manage your company's daily work to gain market share while earning a profit.
As a strategy teacher, I am acutely aware of the emphasis placed on strategy as a source of superior performance and the short-shrift placed on execution.
My former boss, Harvard Business School professor Michael Porter's 1996 article, What is Strategy, argued that superior performance came from better strategy, rather than excellence in execution -- which he argued would be easy for competitors to replicate.
But I recently read a Harvard Business Review article that made me see how difficult it is for companies to achieve operational excellence and how much that can boost performance.
I concluded -- with a key complication -- that superior business performance flows from excellent strategy and execution. The complication is that over time, a company's fast-growth will slow as its industry matures, technology changes, and upstarts innovate in ways that brake the company's growth.
What's more, the excellent execution a company masters to make that initial strategy pay off could either help or hinder the company's efforts to jump start growth. If the company's operational skills can help the company gain share in a new market, it helps; otherwise the company must develop new capabilities that will help it compete in the new market (as Netflix did when it changed from DVD-by-mail to online streaming).
Why Operational Excellence Matters
This combination of excellence in strategy and operations leads to sustained superior performance. However, the insights in the HBR article from the 12,000 companies studied by experts from Harvard, Stanford, and MIT reveal that operational excellence -- in which 18 specific managerial practices were rated from five (excellent) to one (poor) -- can make a huge difference.
Those 18 practices fall into four broad categories:
Using lean management techniques -- working in teams to boost quality and productivity by identifying and fixing operational problems,
Setting the right performance targets -- how the CEO and the top management team agree on specific goals for the company, departments, and individual workers;
Monitoring Performance -- regularly setting performance targets, measuring actual results, analyzing the reasons for missing targets, and rewarding or punishing managers depending on these outcomes; and
Managing Talent -- creating a compelling work environment and culture that attracts, motivates, and rewards the best performing people and manages out those who do not fit.
Companies in the top tier of operational excellence grow faster, are more profitable, and are much more productive.
Boosting Your Company's Operational Skill
To achieve the benefits of operational excellence, start with a reality check. Does your way of looking at the world -- which I call strategic mindset -- fit with the challenges of getting your company into the top 10 percent?
Consider which of these three strategic mindsets best fit you:
Create the future. If you reinvent your company to stay ahead of customers' desire for near-constant delight, you will have no problem adopting these ideas.
Follow the leader. If you fear you're falling behind the leader and want to catch up, you will need to overcome internal resistance to reach the top 10 percent.
Head in the sand. If you are like many of the family-run businesses mentioned in the HBR article, you decided that the change needed to get to the top 10 percent is not worth the cost and effort.
If you have the first or possibly second mindset, you must lead a change process to excel in execution. As I described in Scaling Your Startup, three steps can help you change:
Renew Your Mission. Create a clear and shared sense of purpose and lead teams to collaborate (rather than competing);
Scale Your Culture. Articulate your values and use them to hire, motivate and reward a talented team; and
Hold People Accountable. Manage a process of setting goals. monitoring performance, and taking corrective action -- including promoting top performers and managing out others.
Do all these things -- while always trying to learn and improve -- and I think you have a greater chance of reaping the benefits of operational excellence.
BY PETER COHAN,
FOUNDER, PETER S. COHAN & ASSOCIATES