execution

Identifying opportunities early is necessary, but not sufficient, to seize them. A company must also be able to strike decisively when the time is right. Managers at Brazil’s Banco Itaú recognized that the privatization of state banks freed a new set of valuable resources – customer relationships and locations which had not been obtainable previously, and Itaú spotted the value in these banks before its peers. Equally important was top executives’ willingness to declare the acquisitions as the main effort and redeploy whatever human and financial resources were required to seize the moment. Below some key insights:

  • Mobilize best people for golden opportunity. As with experiments, it is critical to put the best people on the best opportunities. Itau’s CEO commissioned one of the most senior members of his team, a Senior Vice-President and Board Member, to spearhead the analysis of opportunities created by the privatization process. And this SVP, in turn, quickly appointed some of the bank’s most promising executives to form a fifty-person task force to evaluate the opportunity and create a post-acquisition plan in case Itaú decided to make an acquisition. Make no mistake, the managers appointed to lead this initiative were not corporate rejects whose careers were stagnated, rather they were among the most promising managers in the company, responsible for running its most profitable lines of business. Assigning them to this opportunity represented a real commitment on the part of Itaú executives.
  • Rapid approval processes. Sometimes, seizing a golden opportunity comes down to signing a deal

My last post discussed how managers can collect information to spot emerging opportunities in turbulent markets and illustrated these points with the case of Brazil’s Banco Itau’s acquisition of privatized banks in the 1990s.  Information are most likely to reveal new opportunities to the extent it is real-time, combines first-hand observation with statistical data, shared across silos in the organization, and drawing on multiple data sources within and outside the firm.

In addition to gathering data, managers can also design and run experiments to actively evaluate opportunities. Typical experiments include pilot projects, minor acquisitions, and prototypes of new product development.  Despite differences in form, successful experiments share a few common characteristics, which Banco Itaú’s experiment with the Argentine market illustrate.

After the September 11 terrorist attacks, the aviation industry witnessed a severe decline in air travel, which translated into cancelled contracts for airplanes and sharp reductions in purchases planned for the future. Aircraft producers like Embraer had already committed significant resources to building planes – aircraft that they could no longer sell. Between August 31st and December 31st, 2001, Embraer’s inventories grew from $600 million to $1.1 billion, absorbing $500 million in cash in four months.

CEO Mauricio Botelho later remarked: “If we did not have cash at hand and weren’t flexible, we would probably be dead right now”. But by building a cash cushion during the relative lull in the airline industry in the late 1990s, Embraer was able to survive 9/11. Embraer also shifted production to military aircraft to capitalize on rising demand from the defense sector after the terrorist attacks. Embraer’s operational improvements also conferred the flexibility to respond to the September 11 slowdown. Botelho described the situation:

We were increasing our production from 14 to 20 aircraft per month from January to December 2001. On August of that year, we had delivered 18 aircraft. Then, September 11th came and we immediately, by the end of September, announced our actions to face the new scenario. We visited all our customers, studied the impact on their operations, and then studied the impact on us. And we reacted very promptly, adjusting our man power, our course and everything to a new delivery scheme of 10 aircraft per month. We adjusted from 18 to 10 aircraft per month overnight. Flexibility is mandatory, and the downturn forced us to lay off 1,800 employees (14% of total) and reschedule our production line.

One might be tempted to attribute Embraer’s resilience to luck. After all, Embraer was at the right place to capitalize on the boom in demand for regional jets. However, a comparison with competitor Fairchild Dornier

As a state-owned enterprise, Embraer had long suffered under stifling bureaucratic processes. One long-time employee recalled, “Embraer was subject to many procedures, norms and government audits, which contributed to bureaucratizing the company, setting barriers to its efficient operations.”

Founder and long-time CEO Ozires Silva initially wanted to establish Embraer as a private firm, and resorted to government funding only after failing to persuade private investors to finance such a risky enterprise. Under Silva’s leadership, Embraer was not as bad as many other state-owned enterprises in Brazil: bloated infrastructure, over-politicized appointments and lack of long-term financing. But it still suffered from the bureaucracy that often plagues state-owned enterprises.

However, government influence prevented Embraer from promoting employees based on merit, responding quickly to changing market conditions, or developing sophisticated financial engineering strategies. Nevertheless, his successor dramatically increased the organization’s agility through a number of steps.

In September 1995, Mauricio Botelho joined Embraer as the CEO. Botelho was a 53-year-old mechanical engineer, a seasoned executive who served on the board of the lead investor in the syndicate that acquired Embraer. When Botelho arrived, along with his long-time colleague Antonio Manso, they did not like what they saw. The assembly line was empty, the mainstay Bandeirante and Brasilia models were outdated, and development had been cancelled on the CBA 123. Botelho later recalled:

When I arrived, we had $330 million in annual losses, a backlog of less than $200 million and 6,100 unmotivated employees. And yet Embraer had a history of products that were to some extent pioneers in the market. First on my agenda was to understand how Embraer got into this position.

Botelho quickly concluded that Embraer had focused too heavily on improving technology, lost sight of its customers and, as a result, lacked a product to serve the customers’ emerging needs. Studies conducted prior

How can managers survive and thrive in unpredictable markets? To shed light on this question, I and my co-author Martin Escobari, who is now a managing director of Advent International in Brazil, analyzed ten Brazilian companies that managed to survive and thrive amidst the turmoil of the Brazilian market during the 1990’s. In several cases these companies emerged as world-class competitors in global industries including aerospace, brewing and banking.

We published our findings in the book Success Against the Odds. My posts through the rest of the summer will draw on our research and this book to bring to light some of the impressive success stories and the broader principles they illustrate about thriving in turbulent markets.

These firms’ success is an impressive accomplishment, because Brazil is one of the most unpredictable markets in the world. Brazilian managers during the 1990’s faced volatile exchange rates, sporadic availability of capital, inconsistent industrial policy, unpredictable rates of inflation and interest, and sharply increased levels of foreign competition, in addition to the competitive threats, shifting consumer preferences, and potential technological disruptions common to every country.

An elite group of Brazilian companies not only survived this turmoil, but actually emerged stronger at the end of the last decade. They responded quickly and effectively to shocks that threatened their very survival and

The nature of work has shifted in the century since Henry Ford introduced the Model T. Today, activities adding the most value–entering new markets, for example, or shifting business models–cannot be reduced to standardized operating procedures. Economic activity has migrated beyond the boundaries of the firm and now takes place in an ecosystem of organizations that are interlinked but independent.

While work has changed, the tools to get things done have not. Executives invoke hierarchical power in a networked world, and try to standardize non-routine activities. Leaders rely on power and process not because they work, but because they are familiar.

An alternative approach frames an organization not as a hierarchy of power or bundle of processes, but as a set of overlapping networks of commitments that extend up and down the chain of command, across units within the organization, and beyond the boundary of the firm. Effective execution, in this view, occurs when people make the right commitments and fulfill them with vigor. Organizations can enhance the quality of execution by requiring public commitments, which confer five key benefits.

Execution is about getting things done. When driving execution in their organizations, hard-nosed managers dismiss talk and demand action. Phrases like “cheap talk,” “all talk, no action,” and “rhetoric versus reality” illustrate the common distinction drawn between talking.

This bias for action reveals a deep-seated belief that action changes the real world, while talking is mere commentary. Sports announcers (and fans in pubs) debate England’s disappointing performance against Algeria, but their conversations have no impact on the result. Action, in contrast, takes place when players like Wayne Rooney or Steven Gerrard step on the field and take charge of the game.

This apparently sensible distinction between talk and action ignores a crucial insight: In many situations, talking is doing. When people make a sincere promise to do something in the future, they are not merely commenting on the real world. Instead, their commitment can change the situation in a meaningful way, particularly if it induces other people to change their behavior based on the promise.

The head of engineering in a software company, for example, might make a promise to his counterpart in

Many executives, consultants, and academics focus their effort on crafting the perfect strategy. assuming formulation is the hard part, while implementation is straightforward. They maximize the brilliance of their strategy, while treating execution as a thresh-hold variable that must be met.

This approach is wrong-headed. Instead of maximizing strategic elegance and accepting satisfactory execution, executives should formulate a good-enough strategy and maximize their ability to execute. Many industries exhibit limited variation in strategy, while winners separate themselves from also-rans through execution.

Many managers equate execution with process discipline. Six sigma or ISO certification, in their minds, measures of an organization’s ability to execute. But as I have argued in previous posts, the standardization that allows continuous improvement in processes also impedes the execution on novel initiatives. Motorola pioneered six sigma quality program, but look where that company is today.

The most important corporate initiatives are often non-routine. These include projects to integrate company mergers, fill market gaps that fall between current business units, roll out large-scale IT systems and develop innovative solutions to new customer needs. Promises, or employees’ personal pledges to stakeholders within and outside an organization, offer an alternative way to execute on non-routine activities with vigor.

A firm, in this approach, is less a bundle of standardized processes than a network of interconnected commitments to get things done. These promises extend up and down the chain of command, across units, and beyond the boundaries of the firm. Along with my co-author Charles Spinosa, I have studied what makes for effective promises in dozens of organizations. We have found that the best promises share five characteristics; they are public, active, voluntary, explicit, and include a clear rationale for why they matter.

A few years ago, I was helping top executives at an American bank to identify opportunities to grow revenues. To solicit ideas, we staged a version of the Dragons’ Den. Teams of middle managers played the role of entrepreneurs, pitching their business plans to a group of senior executives. In their role as dragons, the executives assessed the opportunities, balanced upside against risk, and evaluated the feasibility of the plan to execute. The best teams received funding and management support to pursue their opportunity.

Many of the presentations were good, some were bad, and a few were downright ugly. What struck me most, however, was how the teams spoke about customers. Instead of describing real people–”Nancy” or “Jim”-the teams spoke about “The Customer” in abstract terms like a philosopher discussing “The Other.” Viewing customers as an abstraction paved the way for teams to make sweeping (and often unwarranted) generalizations about their concerns, preferences, and appetite for new products. Customers were forecast to embrace cross-selling, not because it solved a pressing problem for them, but because cross-selling helped the bank.

Listening to the presentations, I jotted down the verbs each team used to describe what they would do to (not for or with) “The Customer.” The list included “cross-sell,” “leverage,” “squeeze,” “exploit,” and “penetrate.” At

Leading in turbulent times

This blog is no longer active but it remains open as an archive.

Don Sull is professor of management practice in strategic and international management, and faculty director of executive education at London Business School. This blog is dedicated to helping entrepreneurs, managers, and outside directors to lead more effectively in a turbulent world.

Over the past decade, Prof Sull has studied volatile industries including telecommunications, airlines, fast fashion, and information technology, as well as turbulent countries including Brazil and China, and found specific behaviours that consistently differentiate more, and less, successful firms. His conclusion is that actions, not an individual’s traits, increase the odds of success in turbulent markets, and these actions can be learned.

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Managing in an Unpredictable World
A series of video lectures by Professor Don Sull

Part 1: Fog of the future
Part 2: Future reconnaissance
Part 3: The strategic agility loop
Part 4: Executing with commitments
Part 5: Leading into the fog

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