When Strategies Shift
In 2008, at the start of the economic crisis, Microsoft COO Kevin Turner was stepping off an airplane in New York City. As he approached the car that would take him into the city, the porter carrying his luggage commented that the stock market’s decline had continued that morning.
It struck Kevin that if a porter, who had no obvious reason to follow the stock market, felt the decline was the most important news of the day, the crisis must be far more severe than people thought. If he was right, if the crisis was deeper and would last longer than many anticipated, Microsoft would need to shift its sales strategy, prioritizing value products rather than premium. Because he oversaw the company’s 30,000-person sales force, it would rest in his lap to do so.
Getting a 30,000-person organization to align to a new strategy is never easy. To do so mid-year rather than as part of the annual planning process and to do so in a couple of months, rather than the year or more most strategic-alignment efforts take, would make his challenge even tougher.
But Kevin succeeded. In a few weeks, Microsoft’s sales force was visiting IT leaders with a new message – we can save you money – and a new product focus. The organization’s ability to quickly align to a new strategy likely protected the company from losing billions of dollars in value.
Your ability to align your organization behind a new strategy, to match actions with plans, is the critical link between dreams and reality. This is true not just for businesses, but in any area of life. Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world, points to the challenge of aligning actions with strategy or goals as one of the fundamental reasons organizations, teams, and people fail:
For example, the first-order consequences of exercise (pain and time-sink) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa, etc. If your goal is to get physically fit and you don’t ignore the first-order consequences of exercise and good-tasting but unhealthy food and connect your decisions with their second- and third-order consequences, you will not reach your goal.
Quite often the first-order consequences are the temptations that cost us what we really want, and sometimes they are barriers that stand in our way of getting what we want. It’s almost as though the natural selection process sorts us by throwing us trick choices that have both types of consequences and penalizing the dummies who make their decisions just on the basis of the first-order consequences alone.
By contrast, people who choose what they really want, and avoid the temptations and get over the pains that drive them away from what they really want, are much more likely to have successful lives.
The challenge of strategic alignment is pervasive and costly. A 2006 McKinsey study of 800 senior executives revealed that “their number one concern with their current strategy-setting processes was their inability to achieve company alignment with the strategic plan.”
This is perhaps of little surprise considering that it is estimated that only 65% of companies have a strategy and that only 14% of employees know what their company’s strategy is. Even if we lower the bar and just ask managers to list one of their company’s top five priorities, a study shows that less than 55% can do so.
Even when managers understand the strategy, their companies often fail to track progress toward executing that strategy. Less than 15% of companies are estimated to actually track performance and compare it against plans.
If your organization has trouble aligning to and executing your strategy, know that you are not alone. Success is uncommon but attainable, if you can address the four areas that cause most organizations to fail:
- Knowing what you mean by strategy – we provide four options
- Knowing to what degree you are changing your strategy – we suggest four degrees
- Knowing what you must align – we outline eight areas to consider
- Accessing the right tools to achieve alignment – we provide seven key tools
Knowing what you mean by strategy
The first area where we see leadership teams start to fail in attempts to implement a strategy is agreeing on what they mean by strategy. Depending on who you speak to, strategy can generally mean four things:
- Your mission or core purpose
- The vision or goals you want to achieve
- The choices you make to win
- The actions your organization must take
Because strategy remains more art than science, strategists often disagree about the subject. Some describe the outcome or purpose that your organization exists to realize. Google, for example, famously is pursuing the mission of “organizing the world’s information.”
Others argue that strategy is a vision of the state of the world that your company is pursuing. Elon Musk’s Tesla Motors, for example, is pursuing a world in which the everyday driver has access to an electric vehicle.
Perhaps the most prevalent view on strategy is that it is composed of the choices you have decided to make: a collective set of things that you agree are important and things that you agree are not important. Or, in other words, what you will do and what you explicitly will not do. Some strategists call these strategy “themes” that communicate what is important and allow business units to begin adopting these themes and aligning to them.
Finally, some believe the strategy should be more prescriptive and should lay out specifically which actions their organization should pursue and which they should avoid. In slower-moving environments, in smaller companies, and in shorter time horizons, such prescriptive, action-defining strategies make sense. But in faster-moving, less predictable situations they often prove to be too rigid.
We do not believe that any one of these definitions is correct. We believe that these four are interrelated and that strategy is composed of all of them. The actions you take align to the choices you make, which leads to achieving your vision, which, in turn, defines a point in your history as you pursue your purpose. For example, eating vegetables (action) is consistent with choosing a healthier diet (choice) in order to achieve your target weight (vision) in order to fulfill your goal of good health (purpose).
Is the strategy that your organization is seeking to implement today a change in your purpose, vision, choices, or actions?
Knowing to what degree you are changing your strategy
Once you have clarified what you mean by strategy, the next challenge is to understand to what degree you are actually changing things. Are you fundamentally shifting the direction of your organization or are you making a minor adjustment?
The bigger the change, the greater the alignment challenge.
In general, there are four degrees to which you may be seeking to change your strategy:
- Understanding: You may be right now simply seeking to understand and diagnose why you are or are not achieving your business outcomes. Sometimes, it is enough for the organization simply to understand what is not working in order for it to start shifting toward a more productive strategy.
- Aligning targets: You may simply be finding that people are pursuing different sets of targets and so you are seeking to align people to one common set of targets. For example, you realize that you need to shift the product mix of what you’re selling – selling more lower-cost, value products and fewer expensive, premium products – but your sales force’s sales targets still incentivize them to push premium products.
- Rebalancing priorities: You may find that it is time to change your strategic priorities. GE, for example, rebalances priorities every four to five years. In 2013, it held its GE Capital business a top priority. Today, it is exiting from the business.
- Rethinking business models: Occasionally, and with increasing frequency, companies need to rethink their business model. QUALCOMM, for example, unleashed a decade of accelerated growth by transforming itself from a hardware manufacturer into an intellectual property licensor.
Each of these degrees represents a deeper cut into your organization. You can achieve level 1 (“understanding”) with minimal disruption. Level 4 (“rethinking business models”) requires transformation.
One failure we have seen of many frameworks and approaches to communicating and aligning to a strategy is that frameworks try to work in all four cases. Yet, what you need for one may be radically different than what you need for another. You don’t need a bulldozer to change a light bulb in your house.
Knowing what you must align
Once you have assessed the degree to which your alignment effort must cut, take the time to dissect what specifically must change. The research into strategic alignment points to eight areas you should consider:
- Key performance indicators (KPIs): Look at the KPI you currently use to manage the business. There are many frameworks to turn to but we have had particular success with Robert Kaplan’s “Strategy Maps” framework, which suggests you should consider four sets of KPIs: people (e.g., how you recruit, develop, and deploy human capital); customers (e.g., how you interact with customers and satisfy their needs); financial (e.g., revenue, cost, profit, and balance sheet measures); process (e.g., efficiency, speed). For each of these you want to assess actions (what is being done), outcomes those actions produce (what Peter Drucker referred to when he spoke of “management by objectives”), and results (the business results that achieving outcomes should achieve). Many strategic alignment processes fail because they do not adequately appreciate how these metrics depend on each other and because they focus too heavily on results rather than actions. You cannot directly manage results, only actions. Organizations often find themselves frustrated like someone looking to get fit by weighing themselves every morning but not thinking about what they eat thereafter. To adjust your KPIs, you will likely walk through a “cascading” process in which top level objectives are cascaded down to business units and cascaded further down to lower levels. But organizations that are less centralized are better served by a bottom-up approach. What KPIs do you need to change?
- Resource allocation: Do you need to change resource allocation by adjusting budgets? Can you transfer money from one division to another? If your budgeting process is well-designed you can more quickly shift resources to support the strategy. What resources do you need to shift?
- Leadership: When the culture and collaborative approach of your leadership team are inconsistent with your strategy, your strategy will likely fail. We have more than once seen strategies that advocate empowerment and meritocracy met with skepticism by managers because the leadership team fails to embody such qualities. Does your leadership team’s style match your strategy and, if not, what must change?
- Structure or configuration: You may need to adjust your organizational structure to better align to the strategy. Should you become more centralized or decentralized? In the 1980s, many organizations adopted the matrix structure hoping to retain economies of scale while allowing for flexibility. In the 1990s, businesses began embracing “process reengineering,” introducing the concept of organizing around processes rather than functions. Today, see the emergence of” virtual” or “network” organizations. Zappos’ adoption of the “holacracy” approach is a more radical example of this. Does your organizational structure or configuration need to change?
- Policies and procedures: The rules and norms, both formal and informal, that determine what people know to do often emerge as being inconsistent with a strategy. For example, one manufacturer that wanted to create a more holistic experience for customers found that the way technical support staff entered data was different across business lines and geographies. Until they unified the process, they could not deliver the experience their strategy depended on. What policies and procedures are in conflict with your strategy?
- Staff and talent: It is important that you consider how you acquire, develop, retain, and reward people. Research shows that one key reason strategies fail is that the people responsible for executing them built their careers in industries that are no longer central to the strategy. When you have people who grew up in the manufacturing business attempting to lead the strategy that transforms the company into a technology business, the strategy is at risk of failure. How must your people practices change to align to strategy?
- Skills: Related to staff and talent is the skill base that your organization must have in place to execute your strategy. It’s hard enough for individuals to develop new skills. To try to build new skills within an organization requires considerable effort. The research shows that there are generally three stages an organization needs to pass through to execute a strategy. First, you build the ability to do something that you could not do before. Second, after this ability has become adopted as the norm, it becomes a competency or capability – something that becomes natural to your people. Third, if you continue to sharpen this skill it may become a distinctive competence that differentiates you from your competition. What new skills must your organization develop in order to execute the strategy?
- Culture: Perhaps the most difficult element to change is to adjust the values and behavioral norms that define your culture. Such efforts are likely to fail. But, if you choose a strategy that is inconsistent with your culture, the attempt will fail with certainty. What are the cultural norms and values of your organization and are they consistent with your new strategy?
Once you have diagnosed systematically which of these eight dimensions must change for you to execute your strategy, you begin to get clarity on the scope of your alignment project. You can now focus in on the tools you should deploy to address the dimensions that must change.
Accessing the right tools to achieve alignment
There are seven key tools that you should consider deploying to begin aligning your organization:
- Performance management: The system or dashboard you use to measure and manage your KPIs.
- Culture initiatives: Efforts that in an adjusting culture share certain traits. They explicitly and informally define what new attributes are needed, they define behaviors that exemplify these attributes, they put in place a system to frequently recognize people for displaying such behaviors, they introduce a shared mission throughout the organization for those who adopt the attributes, they ensure that leadership models desired cultural behavior, and they have in place a system to monitor and quickly address wherever inconsistent behaviors appear.
- Technology: Often, actions and behaviors are hindered simply because of technological limitations (e.g., systems do not communicate well with each other, they fail to produce the output that’s needed for your performance management system, they do not arm your customer-facing people with the tools they need to provide their desired customer experience, etc.). Investing in new technology can have a significant impact on the extent to which your company aligns to your strategy.
- Communication efforts: An entire industry has grown up around internal corporate communication. There are extensive sources of best practices to learn from. Companies are starting to understand the science behind adequately communicating a strategy throughout the organization. Some key lessons to consider are:
- Timing: If you communicate too early or too late, the effort may fail.
- Sequence: Top-down communication works if the leadership authentically believes in the changes needed and bottom-up may be perceived as more authentic but risks triggering skepticism.
- Narrative: Wrap the communication in a vivid story that layers of management can personalize.
- Name: Giving the strategy a short, memorable name helps the strategy propagate naturally.
- Urgency: Creating a “burning platform” helps convince people of the need for a new strategy.
- Snowballing: Building a core group of believers that attract and build a wider audience plays on the natural laws of social movements.
- Evidence: Showing visible indicators that the strategy is working early on builds momentum.
- Relevance: Showing why the new strategy matters to each employee builds commitment.
- Broadcasting channels: Using a variety of methods from alerts to dashboards to CEO videos to town hall meetings helps ensure everyone hears the message.
- Stakeholders: Strategizing which key internal stakeholders should receive which message increases your chances of success.
- Employee involvement: We believe the most powerful trick to communication is to involve your people broadly in the creating of the strategy from the beginning.
- Budgeting: Your budgeting process, if well orchestrated, can quickly force the tough decisions your organization needs to make to execute.
- Mergers and acquisitions: Acquiring rather than building capabilities can accelerate your alignment effort, though this does cause significant integration risk.
- Outsourcing: Similarly, outsourcing key activities to organizations with the capabilities and people you lack is an increasingly common path to more rapid alignment.
Most efforts to align to strategy fail. Not because we do not know how to align, but because most organizations do not stop to think about what alignment will require. If you simply
- clarify what you mean by strategy (we provided four options),
- understand to what degree you are changing your strategy (we suggested four degrees),
- identify what you must align (we outlined eight areas to consider), and
- pick the right tools (we provided seven key tools)
you can succeed.