FORTUNE magazine, well known for its business insights, printed an article in 1999 called “Why CEOs Fail”, highlighting an important fact: 70% of CEO failures were caused by poor execution against the business strategy.
As you may know, Forbes magazine printed an update to that article on March 22, 2012, reaffirming this unfortunate statistic is still true today. Forbes listed examples of expedited CEO departures from companies such as BP, Hewlett-Packard, Bank of New York Mellon and Yahoo. These companies had strong visions, business strategies and plans. So these failures were not the result of the poor business strategy. The primary challenge we face in today’s businesses continues to be in execution.
What causes organizations to miss the bar in execution, and how can current CEOs drive improvement in execution? To answer this question, let’s start with looking at strategy.
Business Strategy includes two key components:
- Value Proposition for the customer
- Value Chain of activities the company performs
Strategy Execution depends on the alignment of the Value Chain with the Value Proposition or the Fit. The Value Chain includes all of the various functional and individual activities, decisions, and tasks your people perform every day as they do their jobs. It includes work processes as well as your functional and organization practices; these reflect the company culture and values, an important factor that influences how work gets done.
The Value Proposition is the reason your customers buy from you vs. your competition. It’s the promise you make to your customers, and it’s what differentiates your product or service from the rest. There are three types of Value Propositions:
- Operational excellence leading to the lowest price for your products and services
- Product leadership by continuously updating products and services to keep them on the cutting edge
- Customer intimacy, customizing your products and services to meet each customer’s needs, building lasting relationships
When the various parts of the Value Chain aren’t effectively aligned with the Value Proposition, Fit is not optimized and this misalignment creates obstacles to getting work done. Organizational obstacles often coincide with conflicting objectives and they create frustration or conflict between people and groups as well as ineffective decision-making.
To get work done in these circumstances, people typically avert or add steps to standard procedures in order to get things done. Extra time and added activities can, insidiously, add extra cost to the business. Indicators such as interpersonal conflicts, workarounds and teamwork issues are generally visible when the alignment of your Value Chain needs improvement. Importantly, the organization under-performs.
So, let’s return to the question, how can current CEOs drive improvement in execution? Improving strategy execution as an organization requires the following actions:
- Identifying the Value Proposition and building a strong, clear, personal understanding of it throughout the organization.
- Mapping the value-added activities that comprise your Value Chain, and assessing the alignment of your organization’s Value Chain to the Value Proposition.
- Driving change to build alignment between the Value Chain and the Value Proposition.
Is your organization set up to execute to its full capacity?
What signs of misalignment do you observe?
What are the implications of misalignments to the business?
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