ONLY a fraction of properly formulated strategies are executed, which continues to bedevil companies both large and small, Robert S Kaplan and David P Norton — who developed the balanced scorecard in 2001 — have argued.
The problem lies not with the strategy — most corporates are adept at formulating and communicating strategy — but with how it is executed. I’ve long believed that the proximate cause of this “failure to execute” is that companies have lost sight of the fact that managers are supposed to be responsible for productivity.
In a recent article in McKinsey Quarterly John Dowdy, a director of McKinsey, and John van Reenen, an economics professor and director of the Centre for Economic Performance at the London School of Economics, argue that there is a clear link between management and productivity, market value and growth.
Their argument is based on years of research on about 140,000 organisations in more than 30 countries.
Here’s the rub: as their research shows, managers are woefully ignorant of how good they are at managing. There was virtually no correlation between the managers’ assessment of their companies’ management practices and the researchers’ objective assessment of those practices. In other words, people within companies charged with executing strategy are unable to assess how well they are fulfilling their primary role.
Not only have managers — executive management and line managers — lost sight of their role as drivers of productivity, they have also not been empowered with the critical skills needed to turn strategy into operational performance. That skill is the ability to manage the key resource of the company — its people — correctly.
Management consultant Peter Drucker put it well when he said that the key job of a manager is to convert the effort of a company’s people into performance.
Along with its close relative productivity, performance is determined by how well they are aligned to the corporate strategy.
The importance of people (or talent) in executing strategy can hardly be overemphasised.
In a knowledge economy the ability to execute is dependent on managers’ ability to ensure that the right people are in the right job in order to execute strategy effectively.
Managerial incapacity to do this has dire consequences: by the end of the first quarter, targets are missed and the company lapses into crisis management mode based on targets — and the strategy goes out of the window.
Mr Dowdy and Mr van Reenen suggest as a solution to that, as multinationals appear to be more productive, it would make sense to transplant “superior management practices between countries by rotating key managers, both inside companies and outside”.
This seems to be as effective as throwing diamonds into a load of gravel in the hope that enough of the gravel will acquire the quality of the diamonds.
What’s really wanted is a “new manager”, empowered by an easy-to-use methodology to determine what roles are necessary to deliver the strategy, and the specific outputs of each role.
Once this is determined, the manager needs to be equipped to convert these outputs into a specification of the talent required to produce it and to search for such a person.
• Walley is CEO of The Confidant Group.
This article was published in the Business Day on 25th February 2015.