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The disconnect between strategy and execution

25-Nov-2010

There is a chronic disconnect in companies between strategy formulation and strategy execution.  The goals companies set for themselves often bear little resemblance to the results they actually achieve.  

Seven out of eight companies in a global sample of 1,854 large companies failed to achieve profitable growth, even though more than 90 percent claimed to have detailed strategic plans with numerical growth targets - according to an article published by the Harvard Business School.

Here is our summary of the findings in the article (our additional comments inserted in brackets):

The root cause of the disconnect between strategy and actual performance - is that most companies do not have a strategy execution process.

Most companies have some form of strategic plan, but they have no coherent approach to manage the execution of those plans.  (In our experience, many companies claim to have a strategy – but often all they have done is an exercise in financial goal setting. That is not strategy.)

Many key management processes remain disconnected from strategy, for example:

60% of companies do not link their strategic priorities to their budget.  If budgets are not aligned to strategy, this leads to a disconnect between what needs to be implemented, and the funding and resources required to do so.

2 out of 3 HR and IT departments develop plans that are not linked to the company’s overall strategy.       

70% of middle managers and more than 90% of front-line employees have compensation that is not linked to the strategy.

Most devastatingly, 95% of employees do not understand their company’s strategy.  (How are they supposed to execute a plan it if they don’t understand it?)

Many companies don't have a consistent way to describe their strategy, other than in a large strategic planning binder.  Instead, what companies need to do is find a clear and simple way to translate their strategy into operational actions that everyone in the company can understand.  (We recommend strategy be distilled into a 1 page document that everyone in the company can see and easily understand.)

In short, there a chronic disconnect in companies between strategy formulation and strategy execution.

Here are the key questions that must be answered:

• What is our strategy?
• How can we ensure that our people understand our strategy?
• How do we pull all of this together into a disciplined execution process?
• Are we allocating resources to support our strategy?
• How is our strategy execution being measured?
• Are we meeting regularly to discuss and monitor our strategy?

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