Performance Management & Strategy Execution Blog: The Glue

Why is Executing Strategy So Hard?

Please note: this is a special guest post by Brian Lassiter, President of the Minnesota Council for Quality, a state-level Baldrige program.

Given today’s economic challenges, strategy is critical.  But in various surveys by various experts, it is claimed that as many as 70-90% of business strategies fail.  According to a recent study, we may now know why…

I’ll define “strategy” as simply an organization’s approach (formal and informal) to preparing for the future.  Creating strategy is relatively easy: you gather some information, you conduct some sort of leadership retreat to sort through things, and then you set goals and maybe even create some action plans. But then you go back to the office (the plant, the shop, the bank, the school, the hospital, the whatever) and you work on more urgent things (notice I didn’t say more “important” things?). Why? Because executing strategy is hard, and there is always something more urgent that comes up in daily operations.

“Companies often manage strategy in fits and starts,” says Robert Kaplan, Harvard professor and co-author of several books on the Balanced Scorecard and strategy execution. “Though executives may formulate an excellent strategy, it easily fades from memory as the organization tackles day-to-day operations issues” – doing what Kaplan calls “fighting fires.”  I think we can relate: sometimes we all must react to issues within the business rather than managing the business itself.

Maybe it’s just how we’re wired as humans. Think about it: we set New Year’s resolutions, only to have 60% of them fail by late January (the average date of failure, interestingly enough is January 22 – tomorrow).  Or we get our annual physical and find that we need to exercise more, cut down on unhealthy foods, and quit smoking.  So we try for a few weeks (or months), but then eventually those entrenched habits start to creep back into our daily routes (the fast food, the shorter or skipped workouts, etc.).  So, in our Darwinian nature, maybe humans are just wired to react to problems rather than proactively set – and take – new direction. After all, we’re creatures of habit that settle into natural patterns, rather than true change agents that set, implement, and sustain new courses of action that may, in fact, be healthier, more productive, and just better for our overall outlooks.

So why should organizations (made up of humans) be any different?

A recent study by Minnesota-based Digineer (conducted by Pat Salaski, a management consultant and a 2009 Minnesota Quality Award Evaluator), set out to answer the fundamental question: Why is executing strategy so difficult – especially during today’s tough economic conditions, when strategy is really so paramount to long-term success?

They surveyed 65 leaders from various industries in the Twin Cities, representing a mix of industries and diversity of organizational levels (34% senior executives and other high level leaders, 30% middle level leaders, and 36% lower level managers). The findings were actually quite interesting (for a report on the findings, visit http://www.councilforquality.org/improve_documents.cfm and enter the word strategy in the search box).

Take, for example, the fundamental notion that 69% of these leaders are NOT confident in their organization’s ability to execute strategy. Wow – that is as disturbing as it probably is accurate: leaders at various levels in the organization fully recognize and are realistic about the challenges in implementing strategic actions within their organizations. The more interesting question, however, had to do with why…

When responding to the question of what was the number one barrier to effectively executing their strategy, what would you predict? The economy and constrained financial resources perhaps?  Increasing competition, which causes priorities to shift? Maybe rapidly changing market dynamics and customer needs? Game-changing regulations? No, no, no, and no.  In fact, most of the barriers reported by these leaders were INTERNAL issues, not external factors. In ascending order, they were:

•     Company reputation, mentioned by 4% of respondents
•     Customers, 10% (those darn customers)
•     Lack of confidence, 16%
•     Technology, 18%
•     Competitive Environment, 24%
•     Government Regulations, 26%
•     Employees, 30%
•     Way We Work Together, 34%
•     Budget, 40%
•     Economic Conditions, 44%
•     Middle Management, 46%
•     CEO/President, 50%
•     Senior Management, 52%
•     Company Culture, 64% -- and the number one reason strategies fail to be fully executed:
•     Past Habits, 66%

Wow – I never saw that coming. In fact, look at the top two vote-getters: company culture and past habits. There are those habits again – organizational inertia, inability to take action on new initiatives, slow or indecisive decision making, lack of accountability, short-term focus (“chasing rabbits” or finding the next big fad) – who knows the real reason(s), but interestingly enough: these leaders believe their strategies are not executed because of the organization’s tendencies itself. (Economic conditions, despite the depth and length of this recession, came in sixth. And, along with Government Regulations, were the ONLY TWO external factors listed in the top 10!)

I find it also fairly interesting that these conclusions were very similar to a University of Michigan study in 2005, which also found that internal barriers were more constraining in general than external (“Leaders Talk About Executing Strategy,” Michigan Ross School of Business, Theresa Welbourne, March 2005). So these tendencies seem to exist in good times and in bad (and maybe they have for decades or generations, which might explain why 70-90% of strategies are said to fail).

But why? The Digineer study found several possible contributing reasons as to why internal dynamics and past habits get in the way of strategy implementation. Of those nearly 70% who were not confident in their organization’s ability to execute strategy, here were the top reasons for that lack of confidence:

•     Unclear accountability for execution, 52%
•     Internal resistance to change, 48% (“we’ve always done it that way”)
•     Buy-in or agreement on critical execution steps or actions, 40% (perhaps because the right people were not involved in setting direction or action plans)
•     Employees’ lack of ownership, 38% (involvement, again)
•     Lack of a model to guide strategy execution, 27%
•     Organizational structure, 23%
•     Inappropriate incentives to support execution objectives, 21%
•     Poor or inadequate information sharing, 19% (which surprised me that it was this low, as poor communication, including action plan and results tracking, to me at least usually contributes to execution challenges).

This is quite similar to a list presented in an issue of Quality Digest last summer (“Enterprise Performance: The New Quality Goal,” David Boghossian, August 2009 – find it at http://www.councilforquality.org/improve_documents.cfm).  Boghossian recognizes the age-old challenge of implementing strategy: “Strategy into action.  It remains at the leading edge of management science.  Very few organizations do it well, and even those that do often get there more through art than through science.  Extremely rare are organizations that have a well defined, documented, trainable, continuously improvable process for executing strategy.”

He goes on to state that all contemporary methodologies for implementing strategy – Balanced Scorecard, Hoshin Planning, and others – really have five common elements, that wrap nicely into a process sequence (with my commentary in parenthesis):

1. Focus on a few critical strategic goals.  (My sense is you identify these critical goals through traditional environmental scans, SWOT analysis, and other data sources.)
2. Identify key prformance indicators that measure progress toward those goals.  (One of the themes that emanates from the Digineer study is the lack of data in strategy execution – measures to help leaders monitor progress of plans, communicate plans, reinforce accountability, serve as a basis for reward, and so forth.  Without measures, you simply cannot expect action to take place…or take hold.  And you certainly won’t know if you ever “got there.”)
3. Assess initiatives against a screen of strategic effect and cost benefit.  (This speaks to prioritization – of selecting the RIGHT strategic initiatives, given your desired direction and the expected return on investment of your actions.)
4. Execute programs that deliver the benefits.  (Simply put: do something.  Take action.  Eliminate other work if you need to create capacity, but organizations have to allow – and require – actions by various contributors in the organization – to move the enterprise closer to its desired destination.)
5. Review progress against Key Performance Indicator targets in real time and adjust course quickly when necessary.  (This part is hard, but critical. Use the data and measures you’ve selected to monitor progress and make mid-course corrections. If the actions are not moving the organization closer to the desire end-state, then either the measures and hypotheses were wrong, or the actions were wrong. Either way, make adjustments and measure the effectiveness in your new set of actions.  This is the classic closed-loop process of strategy – design, test, do, measure, adjust.  Sound familiar? It should: it’s the basis of PDSA (Plan-Do-Study-Act) and Six Sigma’s DMAIC (Design-Measure-Analyze-Implement-Control)).

In challenging times (and really in ALL times) a key role for leaders is to set and execute strategy – to set a vision for the future and align organizational resources to move (and adjust) toward that vision.  Strategy is critical to helping organizations address their environmental challenges; leverage their core competencies and strategic advantages; address their marketplace and stakeholder needs; recognize and respond to risks, competitive pressures, internal weaknesses, shifts in technology or regulations; and – in essence – prepare for the future and sustain the enterprise.

The Digneer study asked leaders their opinion on the consequences of poor strategy execution. The top responses included:

•    Decreased employee commitment, 67% (more on that in next month’s newsletter)
•    Lost Market Opportunities, 53%
•    Decreased Revenue, 53%
•    Increased Costs, 39%
•    Increased Cycle Times, 28%
•    Decreased Customer Loyalty, 28%
•    Lost Market Share, 28%.

Sounds like a case for action to me.

“These findings represent both good news and bad news,” says Pat Salaksi of Digneer and author of the study.  “The good news is that these internal factors should be able to be addressed by senior leaders. The bad news is that they are the same internal factors that have been identified in multiple other studies on this topic for years.”

In other words: we haven’t learned how to break through the strategy execution barrier, in good times or in bad. But maybe we’ll have better results this time, as companies get serious in taking action to emerge from this economic downtown. We can only hope.

Yours in Improvement,

Brian S. Lassiter

President, Minnesota Council for Quality
www.councilforquality.org

ActiveStrategy Enterprise -- an Aspirin for Organizational Performance?

Some things are good for you in so many ways, you feel like a fool if you don’t use them. Aspirin, for instance, is good for your headache, can save you during a heart attack, may reduce the risk of certain cancers, and may even help prevent cataracts. Exercise is another great example. It helps your health, your looks, your disposition, and gives you a hobby. Now here's one you probably didn't know about: ActiveStrategy Enterprise (ASE) performance management software. Really!!

O.K., I know. It sounds like a stretch, but bear with me while I explain.

I recently assisted an organization with their application for a state-level Baldrige-based award. The organization has well deployed scorecards in ASE and they conduct regular Business Reviews within the software, drilling into the scorecards to discuss performance and root causes of problems. They will get Baldrige points in the “Leadership” category for establishing and maintaining a systematic approach to moving the organization toward their vision (see illustration depicting Baldrige categories below) . And they'll get big points in “Strategic Planning” for having a well defined approach to planning and plan deployment.

They use customer input to refine their metrics, and so will “score” in the “Customer Focus” category.  Don’t get me started on “Measurement and Knowledge Management.” ASE provides accessible data on everything that is critical to performance and is a one-stop-shop for finding and sharing success stories and methodologies that "all hands" should be aware of. 

As for the required use of comparison data and benchmarks, ASE keeps it in view and part of on-going analysis of operations. Even if you don’t use the “Personal Goals Management” feature of ASE (which enables employee-level scorecards), you still get a lot of the "Workforce Focus" that Baldrige requires by making it easy for everyone to see how projects affect the big picture.

“Back to the Future” of Quality with Deming & Baldrige

I recently read a report from the Conference Board Quality Council, A Leadership Prescription for the Future of Quality, that provoked a rant. So here it is.

It bugs me when TQM, Six Sigma, Lean, re-engineering, and Baldrige are treated as competing models rather than pieces of the same puzzle. The frame of the puzzle is the Baldrige Criteria, but all the other models fit nicely inside. It particularly irks me how, in the last few years, quality publications seem to be all about process improvement, leaving management off the hook for creating a strategic context and priorities for process improvement. I always took at this trend as “do as I say, not as I do.” Management can keep on being political and reactive, while telling the folks down in the trenches to change.

Well, that approach just doesn’t cut it. In the report from the Conference Board, the authors tell quality professionals they must “view themselves as more of a macro-leader, directly connecting their quality practices to business trends and top-line growth.” Better yet, the management team should lead quality; they can start by dusting off Deming’s Fourteen Points and the Baldrige Criteria.

Let’s get specific. The following are the “quality pitfalls" the authors identify, as well as my take on how they are avoided if quality is a management system within an organization (i.e. if an organization follows Deming's advice and applies Baldrige criteria).

Emphasizing process over results – It is no accident that the Baldrige Criteria assign 360 points out of 1,000 to one of the seven categories: Results. No matter how elegant your processes are, if they don’t produce strategic results, you have nothing.

Mis-aligning limited resources by working on lower-value items – A company could lose a lot of money doing less important things well. The Baldrige Criteria specifically ask “how do Senior Leaders create a focus on action to accomplish the organization's objectives?” The most common impediment to success is lack of focus. When management commits to too much, nothing gets done. In Deming’s words, management must create “constancy of purpose.”

Diluting key measures that drive action aligned to bottom-line results – Baldrige Category 4 can solve this problem. I could quote several requirements, but for starters, how about 4.1 a(3): “how do you keep your performance measurement system current with business needs and directions?” A corollary to my assertion that the most common cause of failure is taking on too much is that the most common flaw in performance measurement is measuring too much. When everyone is frantically collecting data, there is no time to use it. Measurement systems with a lot of stuff no one cares about soon perish, along with the important measures that are obscured by volume.

Implementing measures that drive conflicting or bad behavior – Let’s lateral the ball to Dr. Deming on this one. His tenth point of fourteen says: “eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships.” Not much commentary needed here, but I will add that the Baldrige Criteria require systematic review of measurements and their effects.

Delegating quality leadership to departments, leading to lack of responsibility – Deming’s Fourteen Points are not addressed to the people who are low on the “depth chart.” All fourteen are the responsibility of top management. Many, if not everyone in the organization, should be involved, but there is no delegation in the Fourteen Points. “Management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.”

Acting as if quality is a destination rather than a sustaining, cultural norm – Point five of fourteen does the job here: “improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.” Lest we neglect the Baldrige Criteria, there is an entire item dedicated to workforce engagement with Deming’s “new philosophy.”

Dismissing past knowledge versus evolving lessons learned into continuous improvement – Quoting Joan Rivers, “don’t get me started.” It used to be only Americans who wanted to know “what is the latest” rather than “what is the best.” Now the world has caught our affliction. The whole “flavor of the month” thing is a symptom of wanting to move on, rather than build on. TQM is almost a dirty acronym now, rather than an important movement that came and went not because of flawed concepts but because the concepts were not adopted at all levels.

Deploying quality without context and expectations – To this point, I say "I rest my case." It’s "back to the future" for organizations to thrive. Process quality outside of organizational quality can save some bucks in a thriving economy in which stockholders simply don’t care about horizons over one year. But to dig out of an economic hole or sustain success for stakeholders, a systems approach must be extended to the big picture and the model for doing that is right on the shelf; dust it off and “just do it.”

Want to see a real-world example of how the Baldrige model addresses these "quality pitfalls"? Read a Case Study about the City of Coral Springs, a 2007 Baldrige recipient (and my previous employer).

Miami-Dade Park and Recreation Receives Florida Sterling Award for Organizational Excellence

Rumor has it that deployment interviews conducted by the Sterling Examiner team at the Miami Metro Zoo were what locked in high scores for the Park and Recreation Department. J.J. the gorilla knew the department's vision of "a seamless, sustainable system of great parks, public spaces, natural areas, cultural areas, greenways, water trails and streets." And most of the parrots could recite the "top level" measures for the department with ease.

All attempts at humor aside, congratulations to Mayor Alvarez, County Manager George M. Burgess, and Department Director Jack Kardys on the Miami-Dade County Park and Recreation Department becoming the first such department in the state to receive the prestigious Sterling Award for organizational excellence.

A few of you out there may not know how the State Baldrige-based awards work. Here's a summary:

• The Governor’s Sterling Award process is comprehensive and rigorous, and is the highest award an organization can receive for performance excellence in Florida. 
• Organizations submit a 50-page application that is scored against the seven categories of the Sterling Criteria: Leadership; Strategic Planning; Customer and Market Focus; Measurement, Analysis, and Knowledge Management; Workforce Focus; Process Management; and Results. 
• The Sterling Criteria (like most of the state programs) are based on the Malcolm Baldrige Criteria, which are nationally recognized as the world-class standard for organizational excellence.
•  Expertly trained Sterling examiners independently review the application, and then conduct a substantial five to six day site-visit.
• The examiner team interviews employees at all levels of the organization and analyzes every aspect of the organization and its performance. 
• Next, the examiner team prepares a detailed feedback report highlighting key strengths and opportunities for improvement.
• The Sterling Panel of Judges then selects organizations that have successfully implemented the Sterling Criteria and should be considered role-model organizations.  

It's an impressive process and Miami-Dade residents are impressed, too. All 2.5 million of them have access to 258 properties maintained by the County Park and Recreation Department. The system includes the world famous Miami Metro Zoo (rated one of the top ten zoos), the 444 acre Deering Estate, and signature events such as the upcoming Annual Blue Water Classic fishing tournament.

Residents know their parks are special, but it was the Miami-Dade County Parks and Open Space System Master Plan that blew the Sterling examiners away. This Department not only has a vision, they have a plan, plus a well-developed process to execute it and a proven track record of doing so successfully.

The Miami Dade Parks and Recreation recognition by the Florida Sterling Council gave everyone here at ActiveStrategy quite a bit of satisfaction, too. We've been working with them for over five years and we knew they were great all along (and have the measures to prove it). 

You can read more about the 2009 Governor’s Sterling Award Recipients at www.floridasterling.com.

Performance Management Forum for State/Local Governments

For anyone in State/Local Government interested in Performance Management, there is a free breakfast forum taking place this Friday, August 8th in Philadelphia. This is also open to any non-profit organization wishing to learn about these topics.

The focus of the forum is "Sustaining Performance During the Good Times and the Bad" and will include an impressive line-up of panelists whom you'll be able to query about best practices and ideas for overcoming challenges, even as budgets are getting squeezed.

The panelists are:

• Jeff Friedman, Deputy Director of Performance Management, City of Philadelphia, PA
• Steve Marchand, Mayor, Portsmouth, NH
• Mark Freeman, Performance Management Coordinator, City of Columbus, OH
• Chris Heflin, formerly with the City of Coral Springs (2007 Baldrige Winner) and now heading up ActiveStrategy's Public Sector Consulting Practice

The event is taking place at the Sofitel Hotel in downtown Philly. It's just a few blocks from the 30th Street Train station. Breakfast is at 8:00 am and the forum will wrap up by 11:30.

See more about the event and the topics on the agenda at the Performance Institute website.

If you're within a short drive (or train ride) from Philadelphia and would like to attend, email ward@performanceweb.org to rsvp. Though the event is no charge for Government employees, you do need to rsvp.

Winning a State Baldrige Award - Six Keys That Helped One Organization Do It

Ever wonder what it takes to win a state-level Baldrige Award?

Here's a high-level overview of the key factors that helped Orange County Clerk of the Courts (OCCC) in Orlando win the Florida Governor's Sterling Award this year. The Sterling Award program is 15 years old, follows the same criteria, rules, and scoring as the National Baldrige Award, and is widely recognized as one of the best state programs.

There are six areas in which OCCC has dramatically improved in just a few years time and which, in my opinion, helped them win the Sterling Award. Those areas of strength are themes that cut across the seven Sterling categories of Leadership, Strategic Planning, Customer and Market Focus, Measurement, Analysis and Knowledge Management, Workforce Focus, Process Management, and Results.

Are Quality Awards Worth the Effort?

We've seen a recent rise in interest level among our clients in quality awards, both at the national level (Baldrige in the US and NQI in Canada), as well as at the state level.

Why would already busy companies pursue such demanding awards?

What do they really get out of winning?

To start with, studies have shown that organizations that use a quality award process perform consistently better over time. Here is a summary of one such study (from The Alliance for Performance Excellence website; data from Singhal and Hendricks Study):

Many organizations that use a quality award process as a basis for continuous improvement have achieved :            

• 59% Higher Stock Price
• 111% Higher Operating Income
• 116% Higher Sales
• 114% Higher Total Assets         

If that's not proof enough that these systematic processes are worth the effort, our award-winning clients, as well as those that have just begun their journeys toward performance excellence, all say the same thing: the journey is the prize. There are so many benefits that they derive along the way: