Don Sull's blog

In the recent boom, many managers mistook macroeconomic tailwind for organizational horsepower. Now that the winds have shifted, they recognize that their organization is not as good at executing as they believed. The top imperative for many businesses right now is this–to rebuild their company’s execution engine, while sailing into strong headwinds.

This task is neither easy nor impossible. The economic crisis opens a window of opportunity to drive fundamental change through an organization. Over the past decade, I have studied how leaders transform organizations to execute effectively in volatile markets. Below are five of the ten obstacles that executives must overcome to build a powerful execution engine (obstacles 1-5 follow in my next post).

10) Rely on a technological savior. To improve execution, many companies have made massive investments in IT, including large enterprise software systems from SAP, Oracle, and others. Data that are real-time, granular, and credible can provide early warning of emerging opportunities and threats, and can help track execution throughout the organization. Good data is worth little if an organization lacks the right people to execute, a clear focus, incentives that reward performance, and an execution culture. Execution also demands leaders willing to make tough calls, maintain urgency, and hold people accountable for delivery. No IT system in the world can compensate for a weak organization, culture, or leadership team.

9) Build a tower of babel. During the boom, many companies grew by cobbling together diverse acquisitions without undertaking the hard work to integrate them properly. One large investment bank, for example, acquired several small competitors during the boom, leaving them free to run as semi-autonomous fiefdoms. Executives struggled to communicate with the group as a whole, because different units relied on distinct modes of communication, including email, Bloomberg, and voice mail. Favorable economic conditions hid the dysfunctions built into this system. Companies must integrate their units more closely to execute in tough market conditions.

8 ) Argue about the wrong compensation issues. The current debate over executive compensation focuses on how much CEOs should earn. Instead of discussing are we paying our CEO too much, boards and executives should address a more fundamental set of questions about performance management. Do we have clear objectives at the corporate level? Are we translating these into clear performance objectives throughout the organization? How can we combine strong rewards for hitting current objectives with a long-term orientation? How can incentives recognize individual contribution without undermining cooperation? How can the performance management system ensure employees focus on both the upside and downside risk of their actions? Do we have credible data to track performance? Is the process transparent to avoid the perception (or reality) of cronyism? Getting performance management right does not guarantee success, but getting it wrong increases the odds of failure.

7) Call in the consultants. When markets shift, some executives instinctively pick up the phone to call in the management consultants. For many organizations, the problem right now is not a flawed strategy, but feeble execution. A strategic restart will not build execution capability, but instead burn time, and distract the organization. Moreover, a major strategic review shifts the discussion towards “what is the perfect strategy?” and away from the more pressing question of “how can we execute aggressively on a good strategy?” Consultants can, of course, add value by helping an outside CEO rejigger a company’s portfolio, for example. Often a strategic overhaul is simply a distraction from the hard work of rebuilding the execution engine.

6) Concentrate decision making at the top. Some organizations ensure execution by vesting power in the corporate equivalent of a strong-man dictator, who single-handedly make all of the big calls (and most of the minor ones as well). Recent examples include Fred Goodwin at RBS and Dick Fuld at Lehman. The good news–decisions get made in these organizations. The bad news–insufficient checks and balances allow imprudent initiatives from the top to proceed unchecked. When decision making is concentrated at the top, leadership capability atrophies throughout the rest of the organization. Middle managers look upward for “the answer,” rather than making hard calls themselves. Such organizations struggle when the leader leaves. Larry Bossidy did a terrific job of ensuring execution at Allied-Signal and then Honeywell, but found the company’s ability to execute eroded significantly within two years of his retirement. Leaders do not ensure execution by making all the decisions themselves, but by ensuring a pipeline of talented managers, setting ambitious targets, defining a few key priorities, creating a culture that rewards execution, and building the organizational hydraulics (such as information systems, budgeting processes, and performance management) to translate strategic intent into effective action.