By Chantal Walley, CEO of The CONFIDANT Group.
IN 2000, close to 20% of top CEOs in the US were fired or forced to resign owing to poor company performance, and the attrition rate of top executives remains high in that country. While no statistics exist for CEO departures in SA, growing shareholder activism is likely to drive a similar trend.
Yet these people were selected for their positions because they are smart and successful — and those who choose them weren’t fools either. What lies behind the failure?
Traditional explanations tend to blame faulty strategy, but the real reason is more nuanced. Most companies have become very good at developing strategies: where most fail is in their execution.
This is confirmed in research by LeadershipIQ.com, which shows that CEOs are either fired or forced to resign because their boards have lost confidence in their ability to generate sufficient future financial returns — in other words, their ability to execute their strategies.
This disconnect between strategy and execution can largely be attributed to the fact that many CEOs and their leadership teams tend to assume that strategy is their job, and that its execution is the province of the line managers alone.
Nothing could be more fatal. Strategy remains just a statement of intent until execution turns it into the reality of corporate performance and profit. If a company lacks execution capability, its strategy is bound to fail.
THIS failure will become evident when the regular monthly budget reviews take place. Such reviews should delve into the reasons for the failure — which is almost certain to be execution — and propose remedies.
In practice, though, the strategy is often abandoned in favour of setting monthly targets.
Taking this approach means that the diagnostic value of the strategy is lost: no remedial action is taken and the weaknesses remain unaddressed — all because the strategy was not properly executed.
For example, the failure of a major South African IT company’s bid to expand into Africa appears to have been largely due to a lack of execution capability on the ground. Analysts agree that the strategy itself was excellent, hence the initial surge in the company’s stock price.
It follows then that the CEO and his or her leadership team cannot create a strategy without taking into account the company’s ability to execute it.
Indeed, only those initiatives for which the operational and people capabilities exist should be included in the strategy; other initiatives should be postponed until the operational or people shortcomings have been addressed. CEOs, and the companies they run, are ultimately judged on the success of their strategies.
That will be evident only when the strategy is executed properly, and the results appear on the bottom line or in market share.
That means they need to “own” not only the process for creating the strategy, but also for executing it. And that’s the problem, isn’t it? Execution remains, in the words of experts Larry Bossidy and Ram Charan, “the great unaddressed issue in the business world today”. It’s largely ignored by business schools, and many of the solutions offered (such as the balanced scorecard) are too complex to be practical.
You need a strategy to execute a strategy.
This article was published in The Business Day on 25 March 2015. Click on this link to view the original: