4. Clarify Everyone’s Strategic Role
When the leaders of the General Authority of Civil Aviation (GACA) of Saudi Arabia decided to improve the way they ran the country’s 25 airports, they started with the hub in Riyadh, one of the largest airports in the country. They had already outsourced much of their activity, redesigning airport practices and enhancing operations. But not much had changed. Convening the directors and some department leaders, the head of the airport explained that some seemingly minor operational issues — long customs lines, slow boarding processes, and inadequate basic amenities — were not just problems in execution. They stood in the way of the country’s goal of becoming a commercial and logistics hub for Africa, Asia, and Europe. Individual airport employees, he added, could make a difference.
The head of the airport then conducted in-depth sessions with employees on breaking down silos and improving operations. In these sessions, he turned repeatedly to a common theme: Each minor operational improvement would affect the attractiveness of the country for commercial travel and logistics. A wake-up call for staff, the sessions marked a turning point for the airport’s operational success. Other airports in the Saudi system are now expected to follow suit.
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The people in your day-to-day operations — wherever they are, and on whatever level — are continually called upon to make decisions on behalf of the enterprise. If they are not motivated to deliver the strategy, the strategy won’t reach the customers. It is well established that financial rewards and other tangible incentives will go only so far in motivating people. Workers cannot make a greater personal commitment unless they understand why their jobs make a difference, and why the company’s advancement will help their own advancement.
Successful leaders spend a great deal of time and attention on the connection between strategy and personal commitment. One such leader has run the trade promotion effectiveness (TPE) capability at two global consumer products goods (CPG) companies over the past several years. CPG companies use this capability to build the momentum of key brands. It involves assembling assortments of products to promote, merchandising them to retailers, arranging in-store displays and online promotions, adjusting prices and discounts to test demand, and assessing the results. A great TPE capability consistently attracts customers and compels them to seek out the same products for months after the campaign ends. TPE and related activities often represent the second-largest item (after the cost of goods sold) on the P&L statement. This in itself indicates the capability’s strategic importance for CPG companies.
In both enterprises, this executive took the time to go up and down the organization, making a case for why the specific mechanics of trade promotion matter to the value proposition of the company and, ultimately, to its survival. He made it a point to talk numbers but didn’t limit the conversation to them. “We spend billions at this company on promotions,” he might say. “We have to get back $100 million in added revenue next year, and another $100 million on top of that the year after.” He then urged employees to develop better promotions that would attract more consumers and increase their synergies with retailers. This combination of numbers and mission made it clear how people’s individual efforts could affect the company’s prospects.
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5. Align Structures to Strategy
Set up all your organizational structures, including your hierarchical design, decision rights, incentives, and metrics, so they reinforce your company’s identity: your value proposition and critical capabilities. If the structures of your company don’t support your strategy, consider removing them or changing them wholesale. Otherwise, they will just get in your way.
Consider, for example, the metrics used to track the results delivered by call center employees. In many companies, these individuals must follow a script and check off that they’ve said everything on the list — even at the risk of irritating potential customers. Better instead to get employees to fully internalize the company’s strategy and grade them on their prowess at solving customer problems.
Danaher, a conglomerate of more than 25 companies specializing in environmental science, life sciences, dental technologies, and industrial manufacturing technologies, is intensely focused on creating value through operational excellence. Critical to this approach are metrics built into the Danaher Business System, the company’s intensive continuous improvement program. Only eight key metrics, called “core value drivers” to underline their strategic relevance, are tracked constantly in all Danaher enterprises. The financial metrics (core growth, operating margin expansion, working capital returns, and return on invested capital) are used not just by investors but also by managers to evaluate the value of their own activities. Danaher also tracks two customer-facing metrics (on-time delivery and quality as perceived by customers), and two metrics related to employees (retention rates and the percentage of managerial positions filled by internal candidates). Lengthy in-person operating reviews, conducted monthly, are very data driven, focusing on solving problems and improving current practices. The metrics are posted on the shop floor, where anyone can see the progress that’s being made — or not being made — toward clear targets. The meetings are constructive: People feel accountable and challenged, but also encouraged to rise to the challenges.
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Data analytics is evolving to the point where it can help revitalize metrics and incentives. A spreadsheet is no longer enough to capture and analyze this body of material; you can use large information management systems programmed to deliver carefully crafted performance data. No matter how complex the input, the final incentives and metrics need to be simple enough to drive clear, consistent behavior. More generally, every structure in your organization should make your capabilities stronger, and focus them on delivering your strategic goals.
6. Transcend Functional Barriers
Great capabilities always transcend functional barriers. Consider Starbucks’ understanding of how to create the right ambience, Haier’s ability to rapidly manufacture home appliances to order, and Amazon’s aptitude for launching products and services enabled by new technologies. These companies all bring people from different functions to work together informally and creatively. Most companies have some experience with this. For example, any effective TPE capability brings together marketing, sales, design, finance, and analytics professionals, all working closely together and learning from one another. The stronger the cross-functional interplay and the more it is supported by the company’s culture, the more effective the promotion.
Unfortunately, many companies unintentionally diminish their capabilities by allowing functions to operate independently. It’s often easier for the functional leaders to focus on specialized excellence, on “doing my job better” rather than on “what we can accomplish together.” Pressed for time, executives delegate execution to IT, HR, or operational specialists, who are attuned to their areas of expertise but not necessarily to the company’s overall direction. Collaborative efforts bring together people who don’t understand each other or, worse, who pursue competing objectives and agendas. When their narrow priorities conflict, the teams end up stuck in cycles of internal competition. The bigger a company gets, the harder it becomes to resolve these problems.
You can break this cycle by putting together cross-functional teams to blueprint, build, and roll out capabilities. Appoint a single executive for each capability team, accountable for fully developing the capability. Ensure this person has credibility at all levels of the organization. Tap high-quality people from each function for this team, and give the leader the authority to set incentives for performance.
There’s always the risk that these cross-functional teams will be seen as skunkworks, separate from the rest of the enterprise. To guard against this risk, you need a strong dotted line from each team member back to the original function. Sooner or later, the capabilities orientation will probably become habitual, affecting the way people (including functional leaders) see their roles: not as gatekeepers of their expertise, but as contributors to a larger whole.
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7. Become a Fully Digital Enterprise
The seventh principle should affect every technological investment you make — and with luck, it will prevent you from making some outdated ones. Embrace digital technology’s potential to transform your company: to create fundamentally new experiences and interactions for your customers, your employees, and every other constituent. Until you use technology this way, many of your IT investments will be wasted; you won’t realize their potential in forming powerful new capabilities.
Complete digitization will inevitably broaden your range of strategic options, enabling you to pursue products, services, and innovations that weren’t feasible before. For example, Under Armour began as a technologically enabled sports apparel company, specializing in microfiber-based synthetic fabrics that felt comfortable under all conditions. To keep its value proposition as an innovator, it aggressively expanded into fitness trackers and the development of smart apparel. The company is now developing clothing that will provide data that can both help athletes raise their game and point the way to design improvements.
Adopting digital technology may mean abandoning expensive legacy IT systems, perhaps more rapidly than you had planned. Customers and employees have come to expect the companies they deal with to be digitally sophisticated. They now take instant access, seamless interoperability, smartphone connectivity, and an intuitively obvious user experience for granted. To be sure, it is expensive and risky to shift digital systems wholesale, and therefore you need to be judicious; some companies are applying the Fit for Growth approach to IT, in which they reconsider every expense, investing more only in those that are directly linked to their most important capabilities. (See “Building Trust while Cutting Costs,” by Vinay Couto, Deniz Caglar, and John Plansky.)
Fortunately, cloud-based technologies provide many more options than were available before. To boost agility and reduce costs, you can outsource some tech activities, while keeping others that are distinctive to your business. You also can use embedded sensors and analytics to share data across your value chain and collaborate more productively (an approach known as “Industry 4.0” and the “Industrial Internet of Things”). The biggest constraint is no longer the cost and difficulty of implementation. It’s your ability to combine business strategy, user experience, and technological prowess in your own distinctive way.
8. Keep It Simple, Sometimes
Many company leaders wish for more simplicity: just a few products, a clear and simple value chain, and not too many projects on the schedule. Unfortunately, it rarely works out that way. In a large, mainstream company, execution is by nature complex. Capabilities are multifaceted. Different customers want different things. Internal groups design new products or processes without consulting one another. Mergers and acquisitions add entirely new ways of doing things. Although you might clean house every so often, incoherence and complexity creep back in, along with the associated costs and bureaucracy.
The answer is to constantly seek simplicity, but in a selective way. Don’t take a machete to your product lineup or org chart. Remember that not all complexity is alike. One advantage of aligning your strategy with your capabilities is that it helps you see your operations more clearly. You can distinguish the complexity that truly adds value (for example, a supply chain tailored to your most important customers) from the complexity that gets in your way (for example, a plethora of suppliers when only one or two are needed).
As Vinay Couto, Deniz Caglar, and John Plansky explain in Fit for Growth: A Guide to Strategic Cost Cutting, Restructuring, and Renewal (Wiley, 2017), effective cost management depends on the ability to ruthlessly cut the investments that don’t drive value. Customer-facing activities can be among the worst offenders. Some customers need more tailored offerings or elaborate processes, but many do not.
For example, Lenovo, a leading computer hardware company with twin headquarters in China and the U.S. (Lenovo’s ThinkPad computer business was acquired with its purchase of IBM’s personal computer business), has a strategy based on cross-pollination of innovation between two entirely different markets. The first is “relationship” customers (large enterprises, government agencies, and educational institutions), which purchase in large volume, need customized software, and are often legacy IBM customers. The second is “transactional” customers (individuals and smaller companies), typically buying one or two computers at a time, all seeking more or less the same few models; these customers, however, are sensitive to cost and good user experience.
Lenovo has a single well-developed hardware and software innovation capability aimed at meeting the needs of both types of customers. But its supply chain capability is bifurcated. The relationship supply chain is complex, designed to provide enterprise customers with greater responsiveness and flexibility. Lenovo’s computer manufacturing plant in Whitsett, N.C., which opened in 2013, was designed for fast shipping, large orders, and high levels of customization. Meanwhile, the company maintains a simpler supply chain with manufacturing sites in low-cost locations for its transactional customers.
The principle “keep it simple, sometimes” is itself more complex than it appears at first glance. It combines three concepts in one: First, be as simple as possible. Second, let your company’s strategy be your guide in adding the right amount of complexity. Third, build the capabilities needed to effectively manage the complexity inherent in serving your markets and customers.
Credit: Strategy& || Strategy Consulting Business of PwC
