7 Dysfunctions of High-Potential Companies
Your organization exists for one purpose — executing strategy.
Even with a compelling product, exciting mission and vision, and well-thought-out strategy, execution can still go badly. Often today, the difference between a company and its competition is the ability to execute. If your competitors are executing better than you are, the financial markets won't wait to see if your strategy plays out.
- When companies fail to deliver on their promises, the most frequent explanation is that the strategy was faulty — seventy percent of the time it's usually execution and not the strategy.
- By one estimate, 9 out of 10 companies fail to execute their strategic visions. (Strategy-Focused Organization, Harvard Business School Press)
The key measure of your organization's success is its ability to successfully execute your company's strategy. Can every unit, department, work-group, team, individual, and program and initiative manager measurably demonstrate their alignment and contribution to the achievement of your company's strategic goals? If not, your organization isn't the strategy.
A key barrier to effective execution is that companies often expect strategically aligned efforts from their employees but the organization they provide is strategically out of alignment. Pit highly talented people against a poorly aligned and poorly functioning organization and the organization wins every time.
In a previous posting to this blog, I pointed out how strategically chaotic many companies are. If a significant portion of a company's employees — including managers — don't understand the company's strategic direction well enough to align their work with it, how can anyone expect the enterprise to be strategically aligned?
- Shareholder value is only realized by focusing the whole organization on customer value creation (Innovation: The 5 Disciplines for Creating What Customers Want).
- Cross-functional alignment unearths the competitive value of each element of the corporation (Champions of Change: How CEOs and Their Companies are Mastering Radical Change)
Someone visiting a strategy-driven company, even though not familiar with the company, should be able to determine the company's strategic direction by observing the organization and how it functions.
Executives are feeling the pain.
This problem is causing some real pain. Research conducted by the Corporate Leadership Council finds that eight out of ten CEOs are planning on significant organizational changes to stay competitive.
The lack of alignment, and the over-complex jobs that result, cost the average employee two hours of time a day (Simplicity—The New Competitive Advantage). In other words, upwards of twenty-five percent of the payroll is wasted due to an out of alignment organization.
Executives were surveyed from 197 companies. On average, their company's strategy only realized sixty-three percent of the financial results promised. One third of the executives surveyed said that only fifty percent, or less, of the promised results were realized (Turning Great Strategy Into Great Performance, Harvard Business Review).
Recognizing the symptoms.
How can you tell when your organization is out of alignment? Here are a few of the key symptoms:
- Weak and/or uncommitted leadership; poor communication
- Unclear accountabilities for decision-making and execution
- Employees don't understand the company's strategic direction
- Weak alignment of units, departments, work-groups, teams, programs, and initiatives with strategic direction
- Enterprise-wide organization has the wrong structure or framework; not enough management attention is focused on the most critical sources of competitive advantage
- Hierarchical relationships have become so confused that the synergy needed to drive performance is hindered; too many layers
- Inadequate or unavailable resources essential to achieving goals
- Processes and actions needed for effective execution are not clearly defined; poor cross-function work-flow; suppliers and external partners not appropriately engaged in execution
- Inadequate skills, capabilities, and/or tools; not enough depth of "domain" knowledge and experience in critical job families
- Organizational effectiveness — the ability to execute — is viewed as an HR or a COO issue and not a strategic issue for which every C-level leader is accountable
How many of these symptoms have you experienced? It's absolutely no surprise that strategy is rarely effectively executed — it's actually a shock when it is!
Incredible talent and effort goes into developing a winning business plan. To be successful, at least as much talent and effort must go into developing an organization capable of executing that plan.
This is the fourth of the seven dysfunctions. The first three dysfunctions severely weaken a company's foundation and strategic direction. The next three, including this dysfunction, destroy a company's ability to execute its strategic direction — the reason the organization exists.
All seven dysfunctions create an incredible drag on a company's performance, with the first six dysfunctions contributing to the seventh which is the most destructive. See 'It's Time For A Reality Check' for an introduction to the seven dysfunctions.
The issues addressed in this blog, as well as the supporting examples, are targeted to the leadership of public companies on the way to a $Billion in revenue. These issues, though, are also critical to the strategic success of all profit and non-profit organizations from early stage to mature.
NOTE: Beginning with the next posting, postings to this blog will be made every other Monday with "critical issues in the news" addressed as they emerge.
David Seregow, Ed. D. is Founder and President of Attaine Performance Corporation, providing strategic guidance, collaboration, and coaching to high-potential companies. www.attaine.com Copyright 2010 David Seregow, Ed. D. All Rights Reserved. Permission granted to post, print, or email this entire posting if full attribution is included and the post is not edited.