The current world situation is very complex: economies in recession, high debt levels, and high levels of unemployment. And how are organizations facing this difficult reality? Many companies are rapidly redefining their strategies.
CEOs of large multinational organizations are aware that the key to long-term success lies in emerging markets and are focusing on aggressively expanding their activities in these markets. According to a McKinsey study, in 2025, annual consumption in these markets will reach levels of $30 trillion. This is shaping to be the biggest growth opportunity in the history of capitalism.
However, the road ahead will not be easy. The same study revealed that over the past two years, only 20 percent of revenues from 100 of the world’s largest companies were generated in emerging markets. To get better results, companies must leverage their organization’s capabilities while understanding those of competitors to make better decisions, faster and more agile. Organizations must be prepared to take more risks in building on the right opportunities. Strategies that include attracting, retaining and developing talent will contribute to success in these markets.
While having the right strategy is mission critical, executives recognize that execution of the strategy is a big challenge. If we consider that approximately 30% of organizations' strategies are successful, execution represents a tremendous opportunity. As Harvard Business School professors, David Collis and Michael Rukstad noted, "72% of strategies fail, not because they are bad but because they were improperly executed."
Therefore, the true competitive differentiator in organizations comes from its ability to implement the strategy.
Let's step back and ask ourselves how we are working in our organizations to accelerate execution? What should execution look like? What are the elements necessary to achieve better strategy execution?
Clearly, to execute a strategy it is necessary to have adequate systems and processes in place. However, one of the most critical elements focuses on the human capital side-- people. That is, if people are willing and able to execute the strategy correctly.
Over the past three years, we have analyzed research and literature on strategy and consulted with number global 1000 clients to develop a framework that captures the inner architecture of strategy execution:
Execution = Alignment Mindset Capabilities
- Execution is closely linked to the alignment of employees: that is, do employees understand the strategy, how they will be successful and how they can contribute in their day-to-day to make it happen?
Strategies are most often defined in the upper levels of the organization, and in many cases, aren’t communicated properly down to the rest of the organization. The sentiment is often that the rest of the organization does not need to know anything about the strategy, they just need to follow orders. In other cases, the strategy is communicated through large meetings using standard presentations, videos or posters in hallways and meeting rooms. Most leaders are convinced that their teams are going to change their behavior only by hearing the new guidelines. But the reality is very different. According to Robert S. Kaplan and David P. Norton "Only 7% of employees today understand their company’s strategy and what is expected of them" and "only 40% of companies have the tools needed to allow their department to execute the strategy and achieve their goals." What impact can this have on employees? Do employees accept the strategy "mandate" from their superior or do they accept it because they really believe in it?
Employees at lower levels of the organization have a strong impact on strategy execution through their day-to-day tasks, especially employees directly in contact with the customer-base. Employees must understand the strategy and believe in it (as the best way to achieve professional growth and success), in order to direct their efforts to accelerate the organization’s growth.
Another key factor is to ensure the message remains the same in all communications, regardless of who issues them. How do we ensure that the strategy is understood in the same way, without relying on the free interpretation of the person transmitting the message or, indeed, of the recipient? What would the impact be if employees make decisions that do not contribute to the overall objectives?
- Execution is closely linked to mindset: Are employees excited and ready to contribute positively to success, believing it will bring benefits to the organization and to them directly?
An organization's success is often dependent on the level of commitment of employees to achieve the objectives and fulfill its tasks, working together with passion and enthusiasm. If organizations can maximize employee engagement, they will do a better job than they are required, in less time, and with high satisfaction in the process.
According to a recent study by Hewitt regarding commitment in organizations, "a 1% increase in employee engagement can more than double in benefits to the organization, such as customer satisfaction, productivity and shareholder return."
There are multiple studies demonstrating that levels of engagement in organizations are low and it is difficult to get people to commit to the company as if it were their own. "Best in Class" organizations define engagement as something more than a human resources initiative, it is a way of managing the business. In this sense, they ensure that the ratio of committed against non-committed is 9.6:1, but in most organizations this ratio is closer to 1.8:1.
- Execution is linked to capabilities: Do people have the skills or capabilities required to execute the strategy quickly and effectively?
Organizations have high budgets for training and development of its human capital but how much is spent effectively? What is the return on investment?
Companies are increasingly abandoning general skills training to give way to train people in specific capabilities that are linked to the strategy. The first step is to define what goals need to be met in order for people to contribute to results. Second, identify those behaviors that need to be developed in order to meet those goals and deliver results. Thus, any investment in training will be linked to business results and will have a measurable return.
In addition, it is increasingly common to hear managers talk about training "budget cuts". Here’s an opportunity to focus efforts on actions that are aligned to the strategy and have employees understand how they contribute to achieving their individual goals. For example, if the organization's strategy focuses on improving customer service, what is the return we get from training that includes English courses, effective meeting techniques, among others? How will the employee feel if they do not achieve their goals, having attended all the seminars planned for the year?
Building the right capabilities in people is critical to strategy execution, but to be truly successful, mindset and alignment must also be part of the equation. If we take the example of a car, the capabilities could be likened to the engine, a key element to achieve movement, the commitment could be the turbo that accelerates the movement, and the wheel alignment ensures that the movement is in the right direction.
If these three factors are all present, employees achieve better results, faster, and can even measure the ROI.
How can we accelerate the development of alignment, mindset and capabilities to effectively execute the strategy?
Best practices worldwide show that communicating the strategy to employees in an interactive way and giving them the opportunity to understand and reflect on it is most successful. For that purpose, it’s necessary to include the following tools:
- Working in small groups: produce more discussion and involvement, resulting in a greater understanding, enriches learning and ensures greater retention.
- Create communication tools that generate dialogues: the knowledge and experience of each person is valued, taking advantage of different perspectives, and achieving thorough dialogues and reflections that are more apt to move to long-term memory.
- Encourage self-discovery: Structure learning and experiences that enable people to reach their own conclusions about how to act and respond.
How do companies build capabilities that will have the greatest impact?
In recent conversations with leaders of top banks, pharmaceutical and consumer goods companies, all highlight a common challenge in managing the day-to-day: "We have just one chance to do things right because the consequences of getting it wrong can be significant. Sometimes we wish there was a button to "reset", to make different decisions that take us to the right results."
If you think of airline pilots, how do they learn from experience without having to bear the consequences of a bad decision? The answer seems to be simulations.
According to the study of Corporate Universities (Jeanne Meister):
- Experiential learning is 8 times more effective than traditional classroom training
- On average, people who participate in training sessions remember 5% of what they hear, 10% of what they read and 20% of what they see and hear in multimedia presentations. But, when using teaching methods based on experiences and/or immediately applying what they have learned, retention rates soar to 80%.
What kind of learning produces the greatest impact?
Where do simulations fit in this process? Business simulations allow us to experiment in a safe, risk-free environment so the learning or understanding of the strategy is not only revealing but it is relevant and realistic. The realistic and relevant experience will achieve a greater impact on business results.
- Employees will discover the “why” of the strategy, understanding key business levers to improve profitability and experience “how” they can contribute in their day-to-day (where and how).
- People will have the confidence and commitment to contribute positively to the picture of success to achieve their benefits as soon as possible.
- People experience and put into practice new skills and / or abilities to accelerate results.
More and more organizations are investing strategically in the preparation of their leaders through business simulations or experiential methodology. According to Gartner Inc., a leading research consultancy, in 2012 high-performance companies will allocate 50% of its development budget to experiential training to accelerate the effectiveness of their human capital.
We can see the glass half full or half empty; seize this market situation to identify opportunities where others see threats. The talent will be the key to our success. To do this, we must ensure we have the right people, and prepare them with high-impact methodology to ensure the success of tomorrow.
If we want to succeed today, before our competitors, we need to reflect on how we are executing in our organization: Are my employees aligned to the strategy? Are they committed to the way forward? Do they have the right capabilities to execute strategy? In emerging markets, execution will be critical to ensuring exceptional results and positioning organizations for future success.
About the Author: Ruth Valdes is Managing Director BTS México
This article was originally published in Spanish in Training & Development Digest