Organizations spend huge amounts of time developing strategies, and yet so many of them fail to yield positive results. The truth is, even the best strategies will not succeed if they are not fully adopted. For this to happen, employees must know exactly what personal behaviors align with the new strategy, how those behaviors fit into an overall business plan, and how they will be held accountable to execute the plan.

Corporate Success

A Fresh Focus on StrategyBy Albert A. Vermeulen

iUniverse, Inc.

Copyright © 2011 Albert A. Vermeulen
All right reserved.
ISBN: 978-1-4620-3874-9

Contents

Preface..............................................xiiiAcknowledgments......................................xvIntroduction.........................................xvii1. Strategy x Adoption = Results.....................12. Change-Enabling Milieu............................153. Psychological Connection..........................654. Structural Connection.............................855. Contractual Connection............................101Conclusion...........................................129About the Author.....................................137Glossary.............................................139Bibliography.........................................141Index................................................143

Chapter One

Strategy x Adoption = Results

Strategy

Organizations develop and implement strategies to solve a specific business problem. The problem can be one of many (e.g., losing market share, decreased revenue, or decreased profitability). Once a problem is identified, stakeholders fixate on the numbers—the business results. They ask fundamental questions, such as, "What is happening in the market?" "How are our competitors doing?" and "How can we stay ahead of the pack?" If the current results are not satisfactory, stakeholders start to think about ways for the organization to be more successful—to obtain better results. The dissatisfaction with the current state or the desire for a vision of a better future creates the impetus for change. Energy is unleashed, strategic momentum is built, and the organization starts to explore new ways of becoming successful.

Organizations design and implement strategies to take advantage of opportunities. An agile organization has the ability to identify and decisively seize opportunities in the market. Organizations may want to aggressively enter new markets, rapidly establish and scale up a new business, and perhaps bet heavily on new technology. This becomes the strategic intent of the organization—the ambitious and compelling dream that energizes the organization in pursuing success. The strategic intent provides the emotional and motivational fuel for the journey to the future. Strategies are designed, developed, and implemented to realize these dreams. It all comes down to business results—the current results and the desire for improved results.

In today's highly competitive environment, companies that become complacent are the losers. Global competition, technology, and fewer barriers to entering the market force organizations to constantly evolve, deploy new functionalities, acquire new capabilities, or migrate existing capabilities and compete in new markets, to name but a few demands. These potential changes have to translate into business strategies to make them executable—to make them real and able to achieve the desired results.

In slower times, organizations could develop their strategies, create barriers for others to enter their markets, and implement and allow their strategies to unfold and realize over time. For many companies, this is no longer feasible. Organizations and strategies have to yield results faster than ever before. The speed factor significantly raises the bar for strategy development and implementation. Now more than ever, organizations have to select the right strategy, develop it fully, implement it effectively, and obtain results expediently.

A change in strategy represents a change in direction or focus, and subsequently a change in behavior. In very small companies, this does not present a big problem—everybody knows what they are trying to accomplish and what they have to do to make it happen. As organizations grow and layers of complexity are added, it becomes harder to execute a change. In mature organizations with a high level of institutionalization, change becomes even more cumbersome. The challenge is to be as nimble and agile as a small organization while taking advantage of the organization's mature capabilities. Strategies are only successful if they yield results. Despite huge organizational investment in strategy management, only approximately 37 percent of strategies realize their intended results. The other 63 percent vary from partial success to outright failure (Mankins & Steele, HBR, January 2006). I have looked at strategies that did not yield the intended results and next describe the range of outcomes.

Some organizations develop and implement a new strategy. However, the strategy does not yield the expected results, although the strategy implementation went smoothly and the execution was done well. For example, an organization planned to increase revenue by $400M through mergers and acquisitions (M&A) but fell short on the delivery. This happens frequently due to a wide array of circumstances. In this situation, the combined revenue potential was overestimated and overlapping markets were not visible during the due diligence phase of the merger.

Organizations develop and implement a new strategy but fail to implement it fully. For example, a large health-care system on the West Coast suspended the implementation of electronic clinical medical records after completing a quarter of all their hospitals. This may happen when the designed strategy only gains partial traction, which may result in partial implementation. Partial implementations happen frequently, are costly, and never deliver the expected results.

A strategy can fade away when an organization develops and launches this new strategy with big fanfare but lets it "hang out to dry" over time. It often happens that once the strategy has been launched, it faces several challenges. Maintaining momentum, producing the expected results, and sustaining support by the leadership are just a few of the challenges. Rather than addressing these challenges, the leaders of the organization simply stop talking about it. They turn their attention to day-to-day operations and choke the strategy to death with their silence. This fading is visible when sponsorship for the strategy is tracked over time. Support for the strategy never gains traction at the lower levels and loses sponsorship at the top. When this happens, the new strategy just slowly fades away.

Some strategies are outright abandoned before realization. A strategy to increase revenue through an M&A failed due to a lack of trust. An M&A between a national accounting firm and a smaller regional accounting firm was stopped just before the final stage when new information related to liabilities surfaced. The national accounting firm was going to assume the liabilities of the smaller regional firm during the M&A. A lack of transparency with regard to the critical liabilities created a significant lack of trust, killing the M&A and the strategy to increase their revenue.

In another situation, a large regional health-care provider launched a strategy to centralize their accounting/billing functions. They abandoned the strategy midway when it became apparent that the individual hospitals would have to give up control over their billing functions, and they were not ready to agree to that. Their refusal brought the implementation to a halt, and the organization abandoned the strategy. Consequently, the large regional health- care provider lost hundreds of millions of dollars due to unused systems and associated development costs.

Often strategies are changed before the original design delivers any results. Walmart implemented a new strategy to reduce product variety during a sluggish economy. After the strategy was implemented, it became clear that their customers did not like the changes. The retailer adapted the strategy by increasing variety again, albeit not to previous levels.

Clearly the level of success of strategy implementation can range from full realization to outright failure. Fundamentally, the results of a strategy are a reflection of the milieu in which the implementation took place, leaving a history in its path that will also impact future implementations.

Successful strategy implementations have the following potential positive consequences: Analysts on Wall Street, shareholders, and/or partners celebrate when a new strategy delivers the intended results. A successful strategy elevates the organization in the marketplace. The organization encourages its achievements and will attract new clients and investors. In addition, it will attract high-quality talent. An organization that can develop and implement a strategy delivering results instills trust in stakeholders that will facilitate future initiatives.

A successful implementation demonstrates the leadership's ability to assess the marketplace, design a good quality strategy, implement it, and sustain the changes long enough to yield the intended results. A successful implementation leaves behind outdated structures and approaches and utilizes practices that can be leveraged in any future changes. Successful strategy implementations make the organization more agile and able to implement changes more effectively.

In contrast, failed strategy implementation may have the following negative consequences. A failed strategy creates a legacy of failure and erodes trust. It creates a ripple effect throughout the organization and client base. The failure may become part of the company's organizational history and make future changes harder to implement. In addition, a failed strategy undermines trust in the organization, and, more specifically, weakens trust in the leadership. These ripple effects will hamper the organization in executing normal day-to-day operations as well as future implementations.

A weakening of trust and a legacy of failure will not only hamper the introduction of a new strategy, its impact becomes more visible in the form of sluggishness. Individuals, reluctant to change because of previous failures, want more proof and engage in more detailed conversations that might slow down the change process, resulting in sluggishness. A failed strategy can cause an organization to lose traction in the market. The organization starts to fall behind competitors, especially those competitors that are successful in implementing new strategies.

Failed strategy implementations have a direct effect on investor confidence and contributions. There are plenty of examples of investors withdrawing their investments when it became clear that a strategy was not going to yield the intended results. In the face of a strategy implementation failure, business analysts may downgrade the investment potential, resulting in a withdrawal of investments or hesitation to invest. This may lead to a downward spiral of an organization's stock value.

Organizations with a legacy of failed strategy implementations are also hindered in their attempts to attract top talent, and existing talent may even leave the organization. This may lead to an overall reduction in competitiveness due to decreased internal talent. Strategy implementation failures are costly. In addition to the financial costs, there are costs in terms of resources allocation and time spent, which could have been used otherwise.

Strategy failure can result in a personal cost to leaders as it affects their reputation and impedes upward mobility. This situation can only be rectified when they can demonstrate their ability to successfully implement a strategy.

Strategies can realize their intended results if organizations focus on the fact that the results of a strategy are the product of the quality of the strategy and the adoption thereof.

Strategy x Adoption = Results

It is not only important to design and develop a meaningful, valid strategy, organizations should invest equally in the adoption of the strategy in order for it to yield the intended results. A relatively weak strategy, fully adopted, has the inherent potential to yield better results than a brilliant strategy that is not well adopted.

The success of a strategy thus hinges on the selection of a valid strategy as well as its adoption. Most organizations spend a significant amount of resources on strategy selection, and although there are examples of "wrong" strategies, they are few and far between and are not the focus of this book. More often, strategies do not yield the intended results because the behavior changes that the new strategy requires were not adopted to the extent that it could start to yield the intended results. The behavior changes were not adopted because organizations struggled to effectively implement the strategy. This begets the question of how organizations can implement a strategy more effectively and efficiently to create the environment in which the strategy will yield the intended results.

As professionals, we were interested in understanding why this is happening. We researched failed strategy implementations and started to pay attention to what was happening while working in organizations. My observations did not reveal a single source of failure but a conglomeration of events that occur regularly in many organizations. For example, the strategy was developed without engaging everybody; the strategy was delegated from operational leaders to staff for implementation; the strategy was never articulated into specific behaviors at all levels; and the strategy did not impose consequences for people who did not change their behavior to be aligned with the strategy. These events all fall within the domain of "strategy implementation and adoption," not "strategy selection and development."

As research and observations indicate, any one of these adoption issues will not necessarily condemn a strategy implementation—if enough of these events happen in an organization, the strategy will not live in the behaviors of its members or the organization and will fail. We call this "connection." Connection is the link between the strategy and the individuals in an organization and is the foundation of strategy adoption. The stronger this connection, the higher the level of adoption of the strategy, which ultimately enables it to yield the intended results. The gateway to adoption is through developing and ensuring connection within a change-enabling milieu and maintaining the connection until the strategy is yielding the intended results. Strategic failure occurs when the organization does not have the ability to make the connection, or when the connection has not been established. The connection will be weak and brittle and break under minimum strain or when the connection cannot be maintained through the life cycle of the strategy (it breaks before the strategy can realize the intent).

Organizations can create and maintain this connection through an integrated holistic approach of strategy development and implementation that connects and maintains a connection throughout the strategy life cycle. The connection consists of three different subconnections:

• a psychological connection to the individual (the organization's response to human need for information and structure during change)

• a structural connection to the whole organization (the business- planning process), and

• a contractual connection to the individual (job description, performance review, and incentives).

This integrated approach is deployed throughout the organization through sponsorship in a change-enabling milieu.

The first challenge is to connect the strategy psychologically to all the individuals in the organization. Fundamentally, the psychological connection unlocks individuals' willingness to abandon current misaligned behavior and adopt the newly required strategy-aligned behavior. An organization has to persuade individuals that they need to change their day-to-day activities and will help them through this process. We call this process the psychological connection, and it concerns the organization's response to individuals' need for information and structure during change.

If organizations fail at making the psychological connection, it becomes evident, such as in the following issue, where there is little or no trust in the solution. For example, in a national accounting firm, the new strategy called for the outsourcing of individual tax services. Partners in the firm and staff indicated a strong opposition to the idea. They didn't think outsourcing would solve the business problem or meet the needs of their clients, and they did not trust a third party with their clients' data. This kind of verbal resistance is always a clear indication that the strategy and the local leaders are not connected, and unless addressed, the strategy cannot be successful.

During the implementation of electronic clinical medical records at a local Phoenix hospital, some physicians clearly stated that they didn't see why they should enter any data into the electronic file of the patient since a paper chart is much easier to maintain and readily available. The physicians did not trust the solution, and therefore could not connect the strategy to themselves at a personal or individual level.

(Continues...)

Excerpted from Corporate Successby Albert A. Vermeulen Copyright © 2011 by Albert A. Vermeulen. Excerpted by permission of iUniverse, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.