Counseling Corporations on Execution

'Vision without execution is hallucination' ' Thomas Edison

When things go wrong, is the problem in our vision or in our execution? I observed that boards of directors facing disappointing corporate performance frequently do one or more of four options: change the CEO, reorganize the structure of the company, change the strategy, or adopt new business initiatives. Recently, Edward Lampert at Sears announced all four of these changes at the same time. Senior executives realize that they do not know how to change the firm's ability to execute their business plan and at some point search for some way to devise a successful plan that the current organization can implement. It is often unrecognized that the source of the disappointing performance is the corporation's failure to execute its current strategy.

'The hard stuff is easy, it is the soft stuff that is hard' ' Fred Smith, CEO, FedEx

The higher the authority exercised by an individual, the more likely he or she is to focus on strategy, 'What are the right things for our organization to be doing?' and the less likely they are to focus on execution, 'What is the best way for our organization to do things right?' Obviously, both topics are important and both are essential for a corporation to become a high-performance organization. These are also not simple decisions and the process of becoming a high performance organization is not easily accomplished. In his seminal work, Good to Great, Jim Collins examined over 1100 public companies and found that only 11 were able to evolve from good performance to consistently great performance over 15 years. In a recent study, McKinsey examined 1077 large global public companies and found that only nine consistently outperformed their peers by important financial measures over an 11-year period.

Failure to Execute

In all of our professional experiences we have witnessed successful business initiatives ' but I am sure we have seen far more initiatives that have failed to achieve the promises made when they were announced. The 'Deal of the 20^th Century' was the label given to the AOL-Time/Warner merger in 2000. Within two years of the closing of this merger, the combined company reported a $99 billion annual loss and a $200 billion fall in its market capitalization. A lot of very highly paid advisers had supported this transaction. The parties sought and received advice from the very best investment bankers, strategic consultants, integration experts, lawyers, accountants, IT experts ' and paid hundreds of millions of dollars for this advice. If the strategy was correct, this merger represents a massive failure to execute.

In the last year, there have been numerous other examples of the failure to execute by corporations that have had dramatic consequences. The Sub-Prime mortgage meltdown is to a significant degree the result of the financial engineers at the world's leading investment banks failing to design financial instrument that perform as advertised. No one was (or should have been) surprised that borrowers with little credit worthiness defaulted on their home mortgages. If 20% of all sub-prime borrowers defaulted and if their homes (along with others) declined 20% in value, the defaults would mean that the total value of all outstanding sub-prime mortgages would decline by an additional 4% ' hardly a crisis in and of itself.

What is surprising is that the failure to accurately design the more than $1.5 trillion in financial instruments that have been created based upon lesser credit mortgages. The alleged ability to identify and control for risk has turned out to be false. Tranches of Collateralized Debt Obligations that were rated AAA and sold with correspondingly low coupon rates now are believed to contain defaulted mortgages to be far less credit worthy than AAA, and either don't sell at all or move at a large discount. These AAA-rated tranches were frequently bought by banks and other regulated financial institutions. With the decline in CDO market value, the value of assets have to be marked to market and these enormous losses now flow through the income statements and hit the balance sheets of many major financial institutions. Without additional capital to replace the amounts written down many financial institutions would have insufficient reserves to be allowed to operate in the US markets.

Once one begins to view corporations and their economic results in terms of effective execution, many events assume a new meaning. Just over a year ago, Valentine's Day 2007, there was the tale of two airlines. Jet Blue, the darling of Wall Street as well as of many travelers, left thousands of its passengers stranded due to a snowstorm. Some of its passengers sat in planes on runways for 12 hours without access to terminal facilities. Relief crews were not called, even though they stood by their phones awaiting the call. The operations unit of Jet Blue failed to implement its plans and the Jet Blue system essentially failed to operate. In contrast, the airline that was the model for Jet Blue's design and creation, Southwest Airlines, faced the same storm with even more planes and travelers en route, and successfully dealt with a wide variety of problems.

Within weeks after Jet Blue's failure to execute, its board met and replaced the founder and chairman as CEO. Shortly thereafter, the new CEO announced a strategic change: No longer would the company pursue the Southwest model. Now it would staff and operate like the traditional full service airlines (United, US Airways, Continental, Delta) ' all of which went bankrupt pursuing the same model.

Changing Policy Is Not Improving Execution

This is a very typical example in which executives identify a systemic failure to execute, and decide to change their policy rather than changing their execution. It is easier to change policy than to change execution. The board of any company can adopt a new policy in a few hours following a very thoughtful presentation and discussion. The implementation of any policy, however, cannot be achieved by the board or the CEO. Rather, all employees whose actions and behaviors are relevant to achieving the desired policy must be engaged in its implementation.

A more important and less visible example of the failure to execute a set of well-known policies is the approximately 200,000 individuals who needlessly die each year in the American medical system. Yes, several million individuals are successfully treated each year. However, any activity that even unintentionally kills 200,000 people annually needs to have its ability to execute examined. This fatality rate is greater than the death rates from all automobile accidents, other accidents, murders, HIV-AIDS, drugs, suicide, and all other causes of death related to controllable actions by individuals ' all combined and then doubled. About half of these 200,000 deaths occur because of medical errors and about half from infections and other diseases contracted while within the physical care of the medical system. In almost every case, the appropriate medical protocol is well-known, fully tested and thoroughly documented. The policy debate is over universal coverage for health insurance, or cost containment in health care, or rationalizing the cost of pharmaceutical R&D. While the real challenge is that the proved protocols are not implemented to the extent necessary, the consequence is that on average over 600 people die every day from these failures to execute.

The Retail Sector

A number of examples of the confusion of whether strategy or execution is the culprit for disappointing performance occur in the retail sector. Starbucks built its company on providing coffee at an affordable luxury price in a very congenial setting served by very friendly staff. As it grew to thousands of stores and developed hundreds of different combinations for coffee-related drinks, Starbucks has had difficulty maintaining the quality of the customer's experience, and therefore the loyalty and market share of these customers. Sensing this market weakness, McDonalds, Dunkin' Donuts and other fast-food chains have also started selling premium coffee drinks. Also sensing this market weakness, the founder of Starbucks, Howard Schultz, has fired his successor CEO and reclaimed the CEO position. He is testing a new strategy to offer a $1 cup of coffee to compete with the low-priced competitors. However, based on consumer comments, a far more profitable strategy would be to actually deliver on the promise of a luxury feeling in a congenial setting served by a friendly staff. Successful execution has a far higher return with less risk than developing a implementing a new strategy that is counter to all the values that has defined the success of the company for over 20 years.

Understanding Successful Execution

Strategy is chosen by a small number of individuals at the top of a company, but effective execution requires the engagement of individuals operating at the boundaries of the organization. Strategy is disseminated from the top down while execution must begin with the customer, the supplier and the strategic partner ' and permeate the corporation from bottom to top, from the boundary to the core. The components of strategy can be pulled together in any order as long as all relevant considerations are on the table before a final decision. All of the components of execution need to be known and understood by all of the individuals responsible for implementation ' at the same time. This need for simultaneity is one of the major barriers to successful implementation.

Executives typically seek to achieve the objectives of their corporation though a number of key business initiatives ' product development, new marketing programs, quality improvement, improved customer service and retention, cost reduction/labor productivity increases, etc. Each of these key initiatives requires individuals throughout the corporation to fulfill individual roles that are in addition to their jobs. Very few people have job descriptions that are 'to increase profitability,' 'to gain significant market share,' 'to increase customer loyalty,' etc. Individuals are hired into jobs, their performance is evaluated with respect to their job, and they are trained, rewarded and promoted according to their job. In most organizations, even if everyone does their job well, there is no evidence that the key initiatives of the CEO will be implemented.

People need to understand what is expected of them by their senior leaders and how they can fulfill the roles necessary to implement the key initiatives. After working with over 300 business units employing over 300,000 people, we have identified the five major components to successful execution that need to be incorporated in the same people at the same time. These components of successful execution are all the responsibility of senior leaders to ensure that:

• Each business initiative is communicated and explained so that it is well understood by the employee;
• Each employee is mentored so that he or she understands the role he or she is asked to fulfill to implement each initiative;
• The priorities of senior leaders are clear and consistent and the paramount priority for the chosen initiatives is visible to all employees;
• The resources, skills, information, and training are provided to each employee to enable him or her to excel in the role he or she has been asked to fulfill; and
• The recognition and rewards expected by all employees are consistent with the actions and behaviors needed to implement the chosen initiatives.

All of these components are the responsibility of senior leaders. No employee is responsible for any of these components. All of the components are essential for successful execution. The attainment of each component can be measured and monitored to accelerate their implementation.

Conclusion

The best advice in the world is of little value if it cannot be implemented. While we all know this fact, we often give far too little consideration of how the best ideas can be implemented. Many temper their advice with pragmatism or the 'art of the possible,' while the real challenge is to understand the fullest extent of what can be actually achieved through effective execution of a wise strategy. Not understanding how to lead successful execution leaves executives with the far less desirable choice of searching for a strategy that their organization can actually implement.

Dr. George Weathersby is CEO of Genesys Solutions (www.genesysllc.com).

'Vision without execution is hallucination' ' Thomas Edison

When things go wrong, is the problem in our vision or in our execution? I observed that boards of directors facing disappointing corporate performance frequently do one or more of four options: change the CEO, reorganize the structure of the company, change the strategy, or adopt new business initiatives. Recently, Edward Lampert at Sears announced all four of these changes at the same time. Senior executives realize that they do not know how to change the firm's ability to execute their business plan and at some point search for some way to devise a successful plan that the current organization can implement. It is often unrecognized that the source of the disappointing performance is the corporation's failure to execute its current strategy.

'The hard stuff is easy, it is the soft stuff that is hard' ' Fred Smith, CEO, FedEx

The higher the authority exercised by an individual, the more likely he or she is to focus on strategy, 'What are the right things for our organization to be doing?' and the less likely they are to focus on execution, 'What is the best way for our organization to do things right?' Obviously, both topics are important and both are essential for a corporation to become a high-performance organization. These are also not simple decisions and the process of becoming a high performance organization is not easily accomplished. In his seminal work, Good to Great, Jim Collins examined over 1100 public companies and found that only 11 were able to evolve from good performance to consistently great performance over 15 years. In a recent study, McKinsey examined 1077 large global public companies and found that only nine consistently outperformed their peers by important financial measures over an 11-year period.

Failure to Execute

In all of our professional experiences we have witnessed successful business initiatives ' but I am sure we have seen far more initiatives that have failed to achieve the promises made when they were announced. The 'Deal of the 20^th Century' was the label given to the AOL-Time/Warner merger in 2000. Within two years of the closing of this merger, the combined company reported a $99 billion annual loss and a $200 billion fall in its market capitalization. A lot of very highly paid advisers had supported this transaction. The parties sought and received advice from the very best investment bankers, strategic consultants, integration experts, lawyers, accountants, IT experts ' and paid hundreds of millions of dollars for this advice. If the strategy was correct, this merger represents a massive failure to execute.

In the last year, there have been numerous other examples of the failure to execute by corporations that have had dramatic consequences. The Sub-Prime mortgage meltdown is to a significant degree the result of the financial engineers at the world's leading investment banks failing to design financial instrument that perform as advertised. No one was (or should have been) surprised that borrowers with little credit worthiness defaulted on their home mortgages. If 20% of all sub-prime borrowers defaulted and if their homes (along with others) declined 20% in value, the defaults would mean that the total value of all outstanding sub-prime mortgages would decline by an additional 4% ' hardly a crisis in and of itself.

What is surprising is that the failure to accurately design the more than $1.5 trillion in financial instruments that have been created based upon lesser credit mortgages. The alleged ability to identify and control for risk has turned out to be false. Tranches of Collateralized Debt Obligations that were rated AAA and sold with correspondingly low coupon rates now are believed to contain defaulted mortgages to be far less credit worthy than AAA, and either don't sell at all or move at a large discount. These AAA-rated tranches were frequently bought by banks and other regulated financial institutions. With the decline in CDO market value, the value of assets have to be marked to market and these enormous losses now flow through the income statements and hit the balance sheets of many major financial institutions. Without additional capital to replace the amounts written down many financial institutions would have insufficient reserves to be allowed to operate in the US markets.

Once one begins to view corporations and their economic results in terms of effective execution, many events assume a new meaning. Just over a year ago, Valentine's Day 2007, there was the tale of two airlines. Jet Blue, the darling of Wall Street as well as of many travelers, left thousands of its passengers stranded due to a snowstorm. Some of its passengers sat in planes on runways for 12 hours without access to terminal facilities. Relief crews were not called, even though they stood by their phones awaiting the call. The operations unit of Jet Blue failed to implement its plans and the Jet Blue system essentially failed to operate. In contrast, the airline that was the model for Jet Blue's design and creation, Southwest Airlines, faced the same storm with even more planes and travelers en route, and successfully dealt with a wide variety of problems.

Within weeks after Jet Blue's failure to execute, its board met and replaced the founder and chairman as CEO. Shortly thereafter, the new CEO announced a strategic change: No longer would the company pursue the Southwest model. Now it would staff and operate like the traditional full service airlines (United, US Airways, Continental, Delta) ' all of which went bankrupt pursuing the same model.

Changing Policy Is Not Improving Execution

This is a very typical example in which executives identify a systemic failure to execute, and decide to change their policy rather than changing their execution. It is easier to change policy than to change execution. The board of any company can adopt a new policy in a few hours following a very thoughtful presentation and discussion. The implementation of any policy, however, cannot be achieved by the board or the CEO. Rather, all employees whose actions and behaviors are relevant to achieving the desired policy must be engaged in its implementation.

A more important and less visible example of the failure to execute a set of well-known policies is the approximately 200,000 individuals who needlessly die each year in the American medical system. Yes, several million individuals are successfully treated each year. However, any activity that even unintentionally kills 200,000 people annually needs to have its ability to execute examined. This fatality rate is greater than the death rates from all automobile accidents, other accidents, murders, HIV-AIDS, drugs, suicide, and all other causes of death related to controllable actions by individuals ' all combined and then doubled. About half of these 200,000 deaths occur because of medical errors and about half from infections and other diseases contracted while within the physical care of the medical system. In almost every case, the appropriate medical protocol is well-known, fully tested and thoroughly documented. The policy debate is over universal coverage for health insurance, or cost containment in health care, or rationalizing the cost of pharmaceutical R&D. While the real challenge is that the proved protocols are not implemented to the extent necessary, the consequence is that on average over 600 people die every day from these failures to execute.

The Retail Sector

A number of examples of the confusion of whether strategy or execution is the culprit for disappointing performance occur in the retail sector. Starbucks built its company on providing coffee at an affordable luxury price in a very congenial setting served by very friendly staff. As it grew to thousands of stores and developed hundreds of different combinations for coffee-related drinks, Starbucks has had difficulty maintaining the quality of the customer's experience, and therefore the loyalty and market share of these customers. Sensing this market weakness, McDonalds, Dunkin' Donuts and other fast-food chains have also started selling premium coffee drinks. Also sensing this market weakness, the founder of Starbucks, Howard Schultz, has fired his successor CEO and reclaimed the CEO position. He is testing a new strategy to offer a $1 cup of coffee to compete with the low-priced competitors. However, based on consumer comments, a far more profitable strategy would be to actually deliver on the promise of a luxury feeling in a congenial setting served by a friendly staff. Successful execution has a far higher return with less risk than developing a implementing a new strategy that is counter to all the values that has defined the success of the company for over 20 years.

Understanding Successful Execution

Strategy is chosen by a small number of individuals at the top of a company, but effective execution requires the engagement of individuals operating at the boundaries of the organization. Strategy is disseminated from the top down while execution must begin with the customer, the supplier and the strategic partner ' and permeate the corporation from bottom to top, from the boundary to the core. The components of strategy can be pulled together in any order as long as all relevant considerations are on the table before a final decision. All of the components of execution need to be known and understood by all of the individuals responsible for implementation ' at the same time. This need for simultaneity is one of the major barriers to successful implementation.

Executives typically seek to achieve the objectives of their corporation though a number of key business initiatives ' product development, new marketing programs, quality improvement, improved customer service and retention, cost reduction/labor productivity increases, etc. Each of these key initiatives requires individuals throughout the corporation to fulfill individual roles that are in addition to their jobs. Very few people have job descriptions that are 'to increase profitability,' 'to gain significant market share,' 'to increase customer loyalty,' etc. Individuals are hired into jobs, their performance is evaluated with respect to their job, and they are trained, rewarded and promoted according to their job. In most organizations, even if everyone does their job well, there is no evidence that the key initiatives of the CEO will be implemented.

People need to understand what is expected of them by their senior leaders and how they can fulfill the roles necessary to implement the key initiatives. After working with over 300 business units employing over 300,000 people, we have identified the five major components to successful execution that need to be incorporated in the same people at the same time. These components of successful execution are all the responsibility of senior leaders to ensure that:

• Each business initiative is communicated and explained so that it is well understood by the employee;
• Each employee is mentored so that he or she understands the role he or she is asked to fulfill to implement each initiative;
• The priorities of senior leaders are clear and consistent and the paramount priority for the chosen initiatives is visible to all employees;
• The resources, skills, information, and training are provided to each employee to enable him or her to excel in the role he or she has been asked to fulfill; and
• The recognition and rewards expected by all employees are consistent with the actions and behaviors needed to implement the chosen initiatives.

All of these components are the responsibility of senior leaders. No employee is responsible for any of these components. All of the components are essential for successful execution. The attainment of each component can be measured and monitored to accelerate their implementation.

Conclusion

The best advice in the world is of little value if it cannot be implemented. While we all know this fact, we often give far too little consideration of how the best ideas can be implemented. Many temper their advice with pragmatism or the 'art of the possible,' while the real challenge is to understand the fullest extent of what can be actually achieved through effective execution of a wise strategy. Not understanding how to lead successful execution leaves executives with the far less desirable choice of searching for a strategy that their organization can actually implement.

Dr. George Weathersby is CEO of Genesys Solutions (www.genesysllc.com).