At its core, the art of business leadership is establishing a financial strategy and executing it to meet your goals. But what if your team fails to meet its objectives?
In fact, oft-cited research by Michael Mankins and Richard Steele of Marakon Associates indicates that companies on average deliver only 63 percent of the financial performance their strategies promise. There are three possible reasons for this shortfall: the strategy itself was flawed, the projections were unrealistic, or the execution was not up to snuff.
Here’s a deeper look at the three stages of the strategic process—strategy development, forecasting, and execution—where they can fail, and how to make sure they succeed:
- Strategic planning: from storming to performing. In order to understand how an executive team creates a strategy that the entire group can get behind and bring to fruition, it’s helpful to look at how group dynamics can impact outcomes says Michael Nir, president of Israel-based Sapir Consulting and author of Six Secrets of Powerful Teams. Nir points to Bruce Tuckman’s classic model of group development, which includes four stages: forming, storming, norming, and performing.
“An important role of the team leader is to get through storming—which consists of mostly negative conflict—as quickly as possible,” Nir says. He facilitates early-stage meetings by creating a team charter that sets ground rules for behavior. “I believe that a lot of the fuzzy stuff—mutual respect, trust—can be measured by how they manifest in behavior,” he notes.
Thus, the group may agree on each person having a one- or two-minute speaking limit to make sure everyone is heard. “After a month or so, these mechanics fall to the wayside as they become habit,” he adds. Why is this important? So that teams can debate ideas openly and come to a consensus about the best way to proceed.
- Forecasting: challenge your assumptions. Forecasting is another potential pitfall in the process of strategic development. Often, Mankins and Steele explain, financial forecasts are a poor compromise between the financial and operational functions that lead to “hockey-stick” graphs, with cautious short-term projections based on previous financial performance that magically shoot upward in the long term based on overly optimistic expectations by planners. Instead of negotiating over numbers, you’re better off bringing all parties to the table and coming to an informed consensus on the assumptions used to create them. But what assumptions to use? The best ones stretch the organization’s efforts toward its strategic goals and encourage creative, innovative thinking.
Let’s say the head of production puts cost at $1 per unit, of which 70 cents comes from materials. The sourcing department, meanwhile, feels it can procure the materials for 50 cents. The resulting cross-functional debate avoids the all-too-common practice of low-balling estimates to meet performance expectations.
- Execution: Set the message and stick to it. One reason that many financial strategies fail is that they aren’t clearly communicated to those who are tasked with implementing it. Indeed, research by Timothy Devinney and colleagues at the University of Technology in Sydney found that just 29 percent of employees of 20 major Australian corporations could identify their employer’s strategy.
A similar study by consultant William Schiemann puts that figure at 14 percent. Stick to clear language describing a specific course of action, and make sure the link between strategy and performance is clear and concrete. By the same token, you should prioritize a few key steps necessary to meet planned performance, and track the success of these milestones. Translate each priority into action terms with clearly defined accountability, timetables, and metrics so that executives can measure progress and results and escalate performance shortfalls upward. Sound obvious? Then consider that in the Marakon study, less than 15 percent of companies make it a regular practice to go back and compare the business’s results with the financial performance forecast.
By creating strategy through open debate, establishing forecasts with well-reasoned assumptions, and setting clear benchmarks for performance, you’ll give your strategy the best possible chance for success. And if things aren’t progressing as planned, you’ll have a better understanding of where the problems lie and how to alter your course to succeed.
