The panel was stellar, with names well known to board and strategy watchers: Thomas O’Neill, Krystyna Hoeg, Stephen Bear, and Ken Smith (bios in Post 1). Overall, I found it a great overview of the most obvious answers to the seven questions, peppered with relevant examples and a few deeply insightful remarks.
The bottom line for me? The board members totally “get” the need to be engaged in strategy formulation; however, there was not much conversation about execution. Granted, it was not specifically called out in the abstract but I had hoped it would get more mention. The jury is out for me on what to make of the fact that it didn’t.
Question 6: Is scenario planning more popular now?
Of course, Stephen Bear kicked off, sharing his deep experience from McKinsey. He noted that, when done well, this is an important strategy formulation tool and that it provides a way to manage the sometimes “schizophrenic tension” between short-term performance expectations and ensuring health over the long term. It is a tool to ensure that we are investing in both at all times.
I confess, I lost a little traction with the note-taking here. I am sure Ms. Hoeg and Mr. O’Neill commented, but I caught myself reflecting that this all still falls short of the high-level oversight on realization of results (that I read into “board oversight of growth strategy”) that I was hoping for. I realized that my own biases had shaped my expectations.
Question 7: What is the relationship between management and the board regarding strategy development? Do we expect management to resist and object? Do we expect them to say, “It’s my job. If you don’t like it, fire me”?
Ms. Hoeg referenced her experience at Shoppers Drug Mart and noted that it was not long ago that the board brought Domenic Pilla into the president and CEO role. They had done so, realizing that a strategic refresh was in order, and recognizing that he would need time to learn the organization and prepare that plan. She noted that management went shopping for a strategic advisor and prepared two or three plans. The board was engaged in these processes. A five-year plan was produced that looked at what the organization could do organically and, alternatively, through mergers/acquisitions. This really served to put the board in a “ready state.”
Thomas O’Neill noted that “down the hall” at Loblaw, where he is a board member, they were looking at their strategy. They recognized that the grocery industry had peaked a couple of years ago and was stabilizing around three companies (i.e., “it was time to do a deal”). Loblaw made a bid for Shoppers and the acquisition is underway.
Mr. Bear weighed in with the observation that sometimes board members end up asking a lot of questions, sometimes the wrong questions. He cautioned that this can waste precious time. He also noted that, at times, the role of the chairman and CEO is to work with the board members to focus.
Mr. Smith invited each panel member to have a “last word” before he opened the floor to questions:
All in all, this event was well worth the time. The opportunity to see how board members think was fascinating and to hear some of their “war stories” was intriguing. I will be attending more of these events.
Our interest in such matters tends to track along with the economy. Given that the recovery is in full swing, we are well into transformational growth strategies. Acquisition announcements, such as Sobeys’ purchase of Canada Safeway, Loblaw’s purchase of Shoppers Drug Mart, and many other dramatic shifts, are examples of growth strategies that have our attention.
As these proceed into execution, we will have an opportunity to shine the spotlight on the board’s role in this critical step.
Presently, I come at this from the perspective of an investor in institutional funds that buy into these corporate strategies. The very sharp point of my own motivation is to gain from these strategies—and when they fail (as they did wildly in the sub-prime mortgage crisis) I know I bear the risk. Chances are, you are in the same boat. I also bring 20+ years of strategy execution experience to the table. I know, viscerally, how difficult this is. What I wonder is, “do boards?”
I believe there are ways to provide boards with efficient and insightful means to track execution and to require the organization to build change agility. Here are some examples that would focus their diligence, bring their deep experience to bear, and deepen the organization’s—and the board’s—capabilities:
Over the next several months, the role of the board in Strategy Execution is a theme I will continue to pursue.
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“A rising tide lifts all boats”—John F. Kennedy
SOLD OUT! I signed up for this panel presentation, “Growth Strategy—the Board’s Role,” as soon as the fall season schedule from the Institute of Corporate Directors (ICD) came out. Good thing I did—many, it seems, are interested in “practical tips to help boards apply their time and expertise effectively on strategy issues.”
In this series, I will share highlights from the line-up of incredible panelists—representing current board engagements on twelve of the most significant organizations in Canada today, including such newsmakers as: BCE, Bell Canada, Scotiabank, Loblaw, Shoppers Drug Mart, Sun Life Financial, Canadian Pacific Railway, and Imperial Oil. My own observations and comments are indicated by italics.
For readers whose interest originates out of Change Management, allow me to connect the dots: If we accept that helping people transition through change is an essential part of implementing strategy (often under the logistics of Project Management), then Change Management nests within Strategy Execution. More on this in “Change Management Methodology (Strategy Execution Methodology Series, Post 4).”
Please note this discussion moved like whitewater rafting. I have quoted panelists wherever I could capture their words accurately and have paraphrased with as much integrity as possible. Any misinterpretations here are entirely my own.
Strategy and its Siamese twin, Strategy Execution
For some time, I have been bending the ear of several senior members of my network with the argument that, at a very high level, Strategy Execution must be under the purview of the board.
It’s a pretty simple two-part argument:
1. What’s the spend on Strategy Execution? What if it’s $5M or $55M? Given that failure rates on strategic initiatives range from 44-70% (see “Time to kill the 70% phantom failure rate”), there is $2.2M - $38.5M directly at risk.
2. Perhaps even more importantly, does realization of those strategies materially affect the future of the organization?
In combination, surely these are equivalent to any of the board’s other responsibilities.
To be crystal clear, I am not referring to strategy here (I had assumed that this was under the purview of the board), I am referring to the execution of the strategy (i.e., specifically to tracking high-level risks, progress, and benefits realization). Not as crazy as you might first think. Have a look at BMO’s Performance Committee’s mandate: “responsible for driving enterprise results and taking action on initiatives relating to BMO’s strategic priorities.”
No, no, and…maybe
I have had varying reactions:
· Some give me the standard aloof “brush-off”: “Boards are, of course, responsible for signing off on strategy. Execution, though, is what management is hired for. The board does not mix in with management responsibilities.” (as if this were a written law—it is not).
· Some will go further: “Boards have many issues on their agendas, such as performance (aka quarterly results), compensation, and risk management. It is all they can do to keep up with this pace. Not to mention the fact that many do not really know the business or business practice very well.” Much of this disturbs me, and I think it should disturb you too. And, I don’t really buy it.
· I had a wonderful conversation with a gentleman who serves on the boards of several mid-sized organizations and he was intrigued. He acknowledged the rebuttals above as standard thinking and their dismissive tone as common. However, he also acknowledged that he shared a level of concern regarding the ability of management teams to undertake transformational strategy and the board’s culpability in that.
With this context in mind, I was excited to hear what this panel might say.
So, what did they say?
This panel really focused more on the role of the board in determining strategy—and they had some interesting things to say about this. They touched down on Strategy Execution only lightly, but it was, I thought, promising.
Ken Smith did a solid job of constructing a set of seven questions that would draw out the expertise of the panel. Mr. Smith is an ICD.D and a veteran (25 years) strategy consultant. He was chairman of SECOR consulting and is the author of “Twenty Questions Directors Should Ask About Strategy,” published by the Canadian Institute of Chartered Accountants.
The rock stars of the morning were:
· Thomas C. O'Neill, F.ICD, chair of BCE and Bell Canada, Director of Scotia Bank, Loblaw, Adecco, and chair of St. Michael’s Hospital
· Krystyna Hoeg, Director at Shoppers Drug Mart, Sun Life Financial, Canadian Pacific Railway, Imperial Oil Ltd., and Samuel Son; vice chair of Toronto East General Hospital
· Stephen Bear, director emeritus of McKinsey and Company, former member of McKinsey’s Global Board, chair of Princess Margaret Cancer Foundation
Question 1: Why is growth important?
Thomas O’Neill hit the pressure point with, “if you can’t grow you will lose your growth multiple” and “once Canadian companies reach a certain size they must go outside” with the caveat that the risk increases exponentially. He referenced the recent acquisition of Canada Safeway by Sobeys and the related competitive acquisition of Shoppers Drug Mart by Loblaw as examples of organizations making a move in the rising current economic cycle to create some growth momentum.
Stephen Bear addressed the question by focusing on two important issues:
- “Quality of growth”: He recommended that organizations be selective in their growth and to focus on geographies or products or other dimensions that will optimize growth. He noted that, at McKinsey, they had to come to terms with the reality that they could not grow more than 10-11% annually due to investments required to inculcate values, mentor, and provide stretch experiences.
- Shrink to grow: He gave the example of a conventional oil and gas company that looked at the strategic horizon and the beginning of new technology to access shale gas. Company leaders realized that “they would be pushed to the outer edge of price” if they did not make a move. They made the difficult decision to shift technologies. This required them to shed conventional assets and to use that to buy shale land. This took considerable time and they had to be resilient to the pressures in the market for short-term results.
Krystyna Hoeg led into her comment with the caveat that all strategy must start with “understanding what shareholders want” and, more specifically, with “not all growth is good,” (i.e., discrimination is warranted). She noted that “organic growth is usually acceptable and encouraged” and that “the capacity of the organization within the whole picture of what it is being undertaken” is important.
This last point, in particular, resonated with me. As consultants, we often see strategy snowball in the execution cycle and see organizations hitting very real capacity issues.
In the next post, I will share the panel’s responses to the remaining six questions.
Thoughts? Reactions? Please share in the Comments section.
What are the real costs of "muscling through" change? The evolution of change management. Post 1 of 3
“If you do not change direction, you may end up where you are heading.”—Lao Tzu
There is a back-room mindset in times of change: “Change the people or change the people.” It means either convince (or coerce) the existing staff to adapt to the new way of working or fire them and hire someone else. This phrase has always irked me.
Looking for some objectivity and additional insight for this series, I partnered up with senior change practitioner, Jennifer Frahm. You may know Jennifer from her terrific blog“Conversations of Change.”
We applied ourselves to articulating why this mindset is a fallacy, to considering what leaders are doing instead, and then finally to whether advancements will actually make Change Management, as we know it, extinct.
“Change the people”
In this mode, organizations force change mechanically, like a bulldozer or a crow bar. The Program team designs/builds the new thing, implements, and then de-commissions old. The work is focused on driving implementation as quickly as possible.
The Program Team:
Sure, we are exaggerating some for effect, but not much.
This process basically assumes that people are homogenous, interchangeable and dispensable “resources.” Success assumes that when one changes out parts, that the machine will automatically function better. It is a hang-over from an industrial era when people were most often cogs in an assembly line.
There is a critical element that the “change the people” mode overlooks—people have discretion over their performance. We can ramp up to passionate commitment or ramp down to bare minimum compliance. This affects the speed of implementation and also quality of outputs. If for no other reason than this, Program Teams are waking up to deploying more effective change management.
Many of us have been on both sides of that industrial mindset, have felt that pain, and even exerted that pain. Further, we all know that this mode imposes irresponsible hard and soft costs on the organization, particularly in context of continuous change.
Without doubt, organizations do need to change constantly. We must be vigilant in the pursuit of relevance in a world dominated by rapid technological and social shifts. But is the answer really to “change the people” constantly?
Costs of “change the people”
Organizations seem numb (or oblivious?) to the reality that there are real costs to “muscling through” change and the more change the organization is experiencing, and the more transformational the change, the greater the costs.
So what costs are over and above the usual when organizations muscle through? Here are a few examples that come to mind for us:
1. Lost productivity: Let’s take it down to a personal level then back to organizational. We have all experienced it—the agitation of uncertainty and or ambiguity. When we don’t have a confidence or clarity in our future we:
From a neurological perspective, our amygdala (the part of the brain where emotions are housed) goes in to hyperdrive and this prevents the front brain (where our clear, logical thinking is housed) from operating well. We can’t possibly be productive when faced with the threat of uncertainty: We’re thinking fight, flight, or freeze. For a great reference on this see David Rock’s “SCARF: a brain-based model for collaborating with and influencing others”).
All of these distractions suck valuable mindshare, actual time, and momentum away from the transformation. Imagine:
Of course, this is an unscientific calculation with no justification. However, for argument’s sake, go with it for a minute. If we multiply by 50,000 employees, which many of our large global corporates have, we are talking about $83M. Of course, the counter-argument is that many of the business benefits of these large-scale transformations are predicated on a billion-dollar return being realized. $83M is chump change…but it’s not just about the short term.
The legacies of these kinds of forced transformations tarnish the future transformations. So the 2% of employees’ time becomes 4%. It’s a spiral of ever-decreasing benefits realization over the long term.
2. Resourcing churn: This kind of cost takes many forms, including:
3. Downgraded conditioning of the organization. Every time an organization muscles through change, it is painful and costly. Somehow, the organization carries on. It becomes normal. However, this suboptimal performance becomes part of the way we do things around here. This may be the most insidious of costs.
It reduces employee engagement and morale. It robs the organization of the discretionary effort that employees want to bring to a job that fulfills them. What if that represented a gap of 2% across the whole payroll? (If your resources truly earn their pay every day then this is not even a true reflection of the “cost” to the organization because the lost benefit is closer to 2% of gross profit.)
Sure, this is not a scientific approach; we don’t think we need one. Anyone can cast an eye over these examples and come up with more or better. Do your own cost analysis on specific cases if it lights up your brain.
“Free” is not free
The point here is that “changing the people” is not free to the organization. There are indirect costs that are substantial and long term.
Furthermore, there is a case to be made that one can only “muscle through” a certain degree of change. Incremental change (single silo, stepped change) can be forced through, in reasonable quantity. However, transformational change (requires Enterprise adaptation, incurs political and system adjustment, is long term and emergent) is more akin to wrestling a herd of greased pigs than it is to shearing sheep.
The larger questions that intrigue us, are: Are there better ways? Is it justified to “change the organization”?
More on this in the next post. Don’t want to miss it? You can subscribe top left.
Thoughts? Reactions? We invite you to comment.
“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” —Arthur Schopenhauer (1788-1860)
What is this all about? Is this an approach whose time has come? Are organizations actually approaching execution in a systematic way? Or are consultants just promoting the next fad?
Who is talking about Strategy Execution?
On November 11, 2013, a Google search yields ~30M responses (which compares to ~699M responses for Project Management and ~48M for Change Management). Granted, this is a very blunt instrument with which to measure activity but it is interesting. Thirty million responses suggests there is some chatter.
I happen to monitor Strategy Execution because I figured out about a decade ago, on reading “Execution: The discipline of getting things done” by Larry Bossidy and Ram Charan, that this is what I do. I realized then that I had deep insight and experience in only a few components of it and set out to get an understanding of the broader picture. Even last year when I put together the series on “Strategy Execution Methodologies” it was not such an easy or straight-forward piece of work. There are many who talk in terms of principles—motherhood, if you will—but very few who can translate this into operational process.
Back in 2002/03, references to strategy execution were lower case, as if it were a category like performance improvement or operational efficiency. Not too many people were talking about Strategy Execution. Don’t get me wrong, many consultants use the phrase “strategy execution,” typically as a generic reference to a set of competences or processes, but not as a standard discipline.
Years ago, when I started looking for thought leaders on Strategy Execution, outside of the usual consulting firms who promote their services but publicly provide little in the way of research or process, I found only Conner Partners. Granted, the firm’s inception out of ODR in 2004 gave it a very OD-related perspective; however, the innovative approach was also peppered with bottom-line concepts including strategic alignment, installation vs. realization, and the integration of change management and project management. The firm has continued innovating and you can catch the latest perspectives on “Successful Strategy Execution” in this 21st Century Business Television Series showing across various US cable networks in November 2013.
Other distinctive training and consulting offers have emerged. Here are some examples:
Of note, although a lesser-known name, Joe Evans at Method Frameworks is producing some very insightful and pragmatic tools, techniques, and approaches.
What’s that chatter all about? And why is it “hot” now?
There is a general recognition that the rate and degree of change that organizations are required to make to remain competitive is still increasing. Further, there is a level of anxiety around the low success rates that most organizations have with strategy execution (more on this in “Time to kill the phantom 70% failure rate?”).
As the complexity of strategy has increased and the pressure rises to implement faster, organizations are pressed to coordinate and deliver to higher standards. This is creating interest in the nascent discipline of Strategy Execution.
However, this is not your mother’s Project Management. Project Management emerged years ago and has continued to evolve. It has moved faster than leaders’ understanding of it. Program and Portfolio Management are still not widely appreciated. And yet, only just this August, PMI released a discussion paper on integrating change management (more on this in a subsequent post).
Agree and disagree
There is no standard definition of Strategy Execution so some approaches will agree on some components and disagree on others.
To my mind Strategy Execution is the C-Suite-to-front-line, beginning-to-end conception-to-execution of strategy—from approved Business Case to sustainable results. This means integrating three key components:
Where most thought leadership still falls short, though, is in how to operationalize these in a comprehensive and, yet flexible, approach.
Sure, there is a commercial angle here. Most of the sources noted are consultants and training providers, so if you want to know more about how to execute, you should, of course, retain them and/or take their training. Buyer beware though, in my opinion, most of these are still emergent. My own experience and networking suggests that many large organizations that have thoroughly reviewed some of these offers are still faced with cobbling multiple approaches together to create “ABC Company’s Delivery Approach.”
What is “bigger” than Strategy Execution?
As fast as we are running to help organizations become better, faster, and more effective at Strategy Execution, most organizations are also missing a bigger opportunity.
Surely it has become clear that the notion of stepped change (i.e., make a change, then milk that new competitive advantage, then later change again) is an anachronism. Organizations need to change constantly. This will continue to be a process, but it need not be an ordeal. Organizations need to develop competencies around change. They need to develop a culture of change, an appetite for change.
Many thought leaders have written about “change agility” and the “nimble organization,” but it seems that most organizations are focused on current needs rather than developing deeper capabilities.
Meanwhile, newer organizations in newer industries such as technology and communications seem to have been born into a more dynamic state. Organizations such as Apple, Amazon, and Google live to change.
Imagine the impact on our economy if all of our organizations were highly adaptable.
We are just scratching the surface of this topic. More to come.
So, who do you follow on the subject of Strategy Execution? Or on creating a nimble culture?
The “70% failure rate” has been exploited enough already. It’s time to stop beating this dead horse and give it a decent burial.
I get why it resonates with most of us. Strategy execution is hard. Some falls short of objectives and some fails outright. The more transformational the change the more likely that it will fail in some way. We all abhor failure. Any failure feels like too much. It feels like 70%.
And I get why it is used—fear is a standard sales technique (I am recovering from this nasty habit myself). You know the drill: convince the leaders there is a high risk of failure unless they follow a different prescription. This is used internally to expand execution budgets as well as externally to tout execution services and solutions. Notwithstanding the intentions of either internals or externals, the origin of this legend was never a real statistic. Yes, you read that right. Where did the “70%” come from then? More on this below.
Furthermore, there is better data. In August 2013, The Economist published the first third-party (can anyone say “objective”) survey, “Why good strategies fail: Lessons for the C-suite.” (http://www.pmi.org/~/media/PDF/Publications/WhyGoodStrategiesFail_Report_EIU_PMI.ashx) How about we all do a three-point turn? What are the right questions to ask or conversations to have around success/failure?
First, how did we get here?
As I said above, as far as I can tell, the legendary failure rate is not an actual statistic.
Since I last wrote about this topic I was referred to an excellent article that attempts to track the source of this so-called data. The abstract of “Do 70 Per Cent of All Organizational Change Initiatives Really Fail?” (http://www.tandfonline.com/doi/abs/10.1080/14697017.2011.630506#.UoE8F_lJOHc) (Journal of Change Management, Mark Hughes, 2011) hits it hard: “This article critically reviews five separate published instances identifying a 70 per cent organizational-change failure rate. In each instance, the review highlights the absence of valid and reliable empirical evidence in support of the espoused 70 per cent failure rate.”
Let’s review that: “the absence of valid and reliable empirical evidence.” Wow. That’s pretty amazing, don’t you think?
Hughes reviews each of the five instances—you will probably recognize some of them:
For each instance, Hughes provides the original reference verbatim and also provides some context. I highly recommend this article.
The bottom line is that we don’t know, from the sources cited, what the real failure rate was at that time. We only know what a handful of pretty smart and experienced consultants / academics estimated it was based on their limited exposure.
To be fair, many academics and consulting firms have run surveys. Some consulting firms even run them annually. Their data comes pretty close to 70%. The one that comes to mind is “Success Rates for Different Types of Organizational Change,” (http://onlinelibrary.wiley.com/doi/10.1002/pfi.4140410107/abstract) Martin E. Smith, Performance Improvement Journal, International Society for Performance Improvement, 2002.
This is a “meta survey.” In other words, Smith analyses 49 surveys and drives out median success rates (the median failure rate being, obviously, the rest). What is also useful about this survey is that it identifies by type of change (e.g., restructuring has a 54% failure rate, culture change has an 81% failure rate). With that, one can arrive at a median 70% failure rate. So, maybe one can argue that there is a real 70% failure rate, or there was sometime before 2002 (11 years ago).
In March 2013, The Economist’s Intelligence Unit, sponsored by The Project Management Institute, initiated a survey of 587 senior executives globally and then undertook a series of in-depth interviews with additional executives and academics.
The result was a current and objective (non-commercial) touch-point on what executives believe. As noted on the PMI website:
“Key findings include:
So there it is. These executives believe the failure rate on “strategic initiatives” is 44%.
So while that’s a fair distance from 70%, it is still a very high risk.
So let’s review: we have looked at five original references that turned out to be opinions of thought leaders, a meta survey of 49 sources, and a survey of 587+ executives.
It seems odd, in this light, to realize that this is actually not primary research (i.e., real-time tracking of actual change initiatives on their performance against stated objectives).
This would be the real test, wouldn’t it? One hopes that inside of organizations there might be an appreciation for tracking success/failure and for improving strategy execution over time. Project management protocol calls for a Post Implementation Review and Lessons Learned, but this is rarely converted into organizational learning or harvested into enterprise best practices.
Strategy execution is hard, damn hard. It often fails or falls short.
We may disagree on the degree of risk but no one can predict the probability of success or failure for a particular initiative/organization based on a general survey.
What if we all at least started this conversation from more relevant space? For example, “What is this organization’s experience with strategy execution? Let’s have a look at the data and see how we can help you improve your results.”
Maybe organizations would begin to think about establishing strategy execution as an organizational competency and managing it across the organization, and in working to improve their performance would drive better results to the bottom line. Now, that would be good for all of us.
Earlier this Fall, I facilitated a discussion entitled “What if it’s not true that “70% of change initiatives fail”?” in the Organizational Change Practitioners Group in LinkedIn and many experienced and insightful practitioners chimed in—some agreeing and some disagreeing. Around the same time Jennifer Frahm published an excellent post entitled “70% of change projects fail: Bollocks!” (http://conversationsofchange.com.au/2013/09/02/70-of-change-projects-fail-bollocks1/#!). Much of my thinking above has been informed by their contributions.