Advanced Management Program
Strategic Execution

Execution is difficult. "Most companies have a pretty dismal track record on strategy execution," said visiting professor Rita Gunther McGrath during a session of the Wharton Advanced Management Program (AMP). Growing execution challenges have contributed to a high turnover rate among senior executives. While 72 percent of top executives in 1995 either died while in office or left under a planned retirement, by 2001, only 47 percent left under a normal transition. Failure to meet plans and keep commitments was cited as a key reason for dismissal.

In several sessions of the Wharton Advanced Management Program, McGrath and Wharton Professor Ian MacMillan offered insights on successful strategic execution, particularly as it relates to new ventures. Among the approaches highlighted in their classes:

  • Formulate it right: To be successfully executed, a strategy first has to be well formulated. "I often get called into companies by managers who say their problem is execution," McGrath said. "When I ask several randomly chosen people in the organization 'What is your strategy?', I frequently get back confused and conflicting responses."

  • Make the tough tradeoffs: McGrath continued that strategy is also about focus, about making tradeoffs and choices. "When people are not good at executing strategy, sometimes it starts long before that, because they have not made the difficult tradeoffs."

  • Create a "winning proposition": The strategy should contain a central integrated concept of how the company is to achieve its objectives, summarized in "a winning proposition." The winning proposition answers the question: What will we do differently or better than our competitors, that will make customers keen to support us? A medical-surgical supply company reexamined its customer proposition. The company partnered with a market research firm to understand the primary concerns of the dental offices it supplied. The key issue for professional offices was keeping the office running. If plastic gloves or tongue depressors were running low, that was not a major concern. But if a piece of equipment went out, the practice lost money, and customer satisfaction was eroded. Based on these insights, the supply company transformed itself from a supply company to a full-service practice management company. It provides equipment maintenance, advisory services, and integrated practice management software solutions to create a "winning proposition" that is valued by customers — professionals and patients alike.

  • Create early cash flows: Some strategies become too costly to sustain, and markets are too uncertain, so early cash flows and learning are important. Professor Ian MacMillan noted that Kyocera used a series of products to build experience and cash flows in developing its industrial ceramics business. It first applied its advanced ceramics capabilities to making industrial scissor blades that are lighter and more durable than metal. Based on the capabilities built through this experience with less challenging applications, it was eventually able to go for the big prize–making computer chip substrates. The company became the world leader in silicon wafer substrates. By creating early cash flows while learning about the technology, "you will find what the true market is even if you don't know exactly what it is in the beginning," he said.

  • Identify and test assumptions: Every plan is based on assumptions. To achieve successful execution, it is important to identify and document these assumptions and, as far as possible, test them ahead of investment. MacMillan and McGrath have developed a process called "Discovery-Driven Planning" (DDP) in which planners identify and test these assumptions at major milestones that unfold as execution progresses. "For uncertain, bold new strategic initiatives, even when you've come up with the best possible plan, you know the plan is wrong," MacMillan said. "We say, let's figure out where we can test the most important assumptions before we make major resource commitments. DDP is a process of converting assumptions into knowledge — to learn my way into what the true business is. Test critical assumptions as early as possible and at as low a cost as possible. That allows me to ruthlessly drive down the cost of failure. If I can't come up with a plan that does that, I'd rather go to another project."

  • Expose your assumptions to challenge: Making assumptions explicit also allows others in the organization to challenge them early in the process. MacMillan recalls the entrepreneur who wanted to create "spider farms" because he had read that black widow spider silk, used in cross hairs for telescopic sights, sold for $7,000 per pound. But the key challenge was: What was the global market for spider silk? It turned out that "you could make a lot of cross hairs from one pound of silk." Making assumptions visible early in the process can allow others to raise such challenges.

  • Understand what management is needed at the specific stage of the enterprise: People who are good at executing the concept and launch stages of a venture may not be the best ones to carry it into its growth and incorporation phases. MacMillan recalled an executive at a financial services company who launched a very successful new credit card, so successful in fact that the bank "nearly imploded." The manager was a genius at launching the business, but "people who are very good at launching could be very bad at managing growth." For implementing new ventures, one of the keys is to address three significant levels of challenge: the initiating challenge, the championing challenge, and the "heat-shielding" challenge.

  • Establish a "stopping champion": Managers often continue executing strategies and running ventures long after they should be cut. Just as companies have champions to initiate new ventures, they also need a "stopping champion" to recognize when to pull the plug, MacMillan said. Otherwise, "escalation of commitment" takes over. "Like chewing gum on a shoe, the company wants to see the project work, and important customers might want you to stick with it. If you truly believe in a project, you will behave in a way that you tend to deny evidence that this thing is failing." He said that companies need to avoid "living dead" investments. "There is a need to ruthlessly kill ventures that are not demonstrating that they can deliver. But, and this is important, you should also make sure that what you have learned from the disappointing project is captured."

  • Celebrate successful failures: Even with good execution, not every new initiative will be a success, particularly in launching new ventures. For example, one corporation lost $50 million on a venture to create a promising new technology. The technology worked better than expected, but the market wouldn't accept it. Instead of chastising the leaders of the project, the sponsor of the venture held a big dinner and publicly rewarded the managers with promotions. MacMillan said the message was: "This was a success, even though we were disappointed with the results. You need to make a distinction between bad decisions and bad luck. You can't afford to have your best people crippled in confidence by feeling they have failed."

Advanced Management Program

In August, as part of our special "summer reading" issue, we'll examine a new book by Professor Lawrence Hrebiniak on implementing strategy. Dr. Hrebiniak is academic director of Wharton's Implementing Strategy program.

 

    

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