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Editor's Note: This selection is excerpted from the book View from the Top: Leveraging Human and Organization Capital to Create Value (SHRM, 2016), written by some of today's leading chief human resource officers and other HR thought leaders, including Carrig, Snell and Onozuka-Evans. Through case studies, conceptual models and empirical research, these authors provide a roadmap to help HR leaders develop and implement HR strategies that will build their organization's human and organization capital as a source of competitive advantage.
A couple of years ago, during a strategic review process at SunTrust, our analysis of the banking financial services industry revealed something interesting: Strategy alone did not differentiate high- from low-performing firms. The true differentiator between winners and losers turned out to be how well the strategy was executed. In other words, across the industry, we found that a firm's business mix could emphasize commercial real estate, or mortgage, or consumer business, or the like, and it could still achieve upper-quartile performance in terms of revenue growth and margin (two key drivers of share price).
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The data on this were fairly compelling, and it turns out the trend extends beyond banking. A recent Conference Board CEO survey identified execution capability as the critical challenge facing today's business leaders. No one seems to disagree on the importance of execution, but a study by Bain & Company found that only about 15 percent of companies truly have what we might call "high-performance organizations" (62 percent are rated merely adequate, and a surprising 23 percent actually have organizations that hold them back). John Kotter, an expert on organizational transformation, reinforced this concern in a November 2012 article for the Harvard Business Review, noting that 70 percent of all strategic initiatives fail because of poor execution. Another Harvard Business Review article stated only 37 percent of companies report that they are very good when it comes to execution. Add it all up, and the conclusion seems to be glaringly obvious: (a) execution is important both strategically and operationally, (b) many of us, regardless of industry sector, need to be better at it, and (c) it is a leading cause for concern among CEOs.
Three Lessons about Execution
Over the past few years, we have been on a journey to focus on execution capability. And we have learned three principal lessons along the way. First, although most everyone seems to agree that execution is critical, there is far less agreement on what is required to achieve it. Former Honeywell CEO Larry Bossidy noted in his book Execution: The Discipline of Getting Things Done (Crown Business, 2002) that people believe they understand execution—"it's about getting things done"—but when asked how they get things done, "the dialogue goes rapidly downhill". Researchers at McKinsey who authored Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage (Wiley, 2011) found similar divergence; they asked senior executives, academics, and colleagues in the consulting world, finding no agreement about the keys to execution.
There are myriad things to consider, and seemingly just as many people with a point of view on the subject. But the approach remains elusive—there is no clear consensus on which factors matter most, or how they are connected to one another. In our experience, execution goes beyond simply implementing a plan; it has as much to do with ongoing alignment and functionality within the firm that result from the interplay of human capital (talent, leadership) and organizational capital (culture, architecture).
The second lesson we have learned is that moving from theory to practice can be just as challenging. One of our priorities for the project has been to identify a set of core metrics that allow us to assess a business unit's execution capability. To be candid, our goal has never been to zero in on every isolated element that affects performance. That approach has value, of course, but exhaustive measurement would likely lead to a cacophony of metrics that most CEOs would find unusable. Rather, we embrace the Pareto principle, which states that identifying a subset of key enablers with the maximum impact on business performance may be the best first step forward. We did this with an eye toward developing a rapid diagnostic—a predictive execution index (PEI)—that would presage breakthrough financial performance. Neither did we want to create a lengthy, labor-intensive process that would require an army of associates to gather qualitative assessments of organizational health. Our premise has always been that the primary indicators of execution capability are discernable from data currently available within the enterprise. The challenge has been assembling the data and using them productively.
Third, we have learned that most metrics are primarily descriptive, much like a racecar's dashboard—they provide useful information, but in and of themselves they may not prevent accidents, maneuver around obstacles, or propel the car forward. We have adopted the metaphor of a navigation/guidance system that helps us make the right decisions, that improves responsiveness, and that accelerates growth and profitability. Over the past few years, we have been able to frame more clearly what execution excellence entails, but more important, we are learning what it requires. Diagnosis leads to prescription, and we have focused on using our assessments to develop sequenced action plans to address execution gaps. Our goal has not been to devise a standardized list of best practices, but rather to provide guidance in prioritizing interventions to address the most critical issues facing a business.
To find out more about View from the Top, visit the SHRMStore.
Kenneth J. Carrig is corporate executive vice president and chief human resources officer for SunTrust Banks, Inc. Scott A. Snell is professor of business administration and senior associate dean for executive education at the University of Virginia's Darden Graduate School of Business. Aki Onozuka-Evans is principal of AOSIS Consulting, LLC.
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