Strategy Execution

Industry

Management

Technology

Risk

Blueprint for success

Rules of engagement

Power on

Switch to plan B

Why are some firms bucking the

Get your employees singing from the

Use your ICT systems to keep the

Unlike the chancellor, you must be

downturn? | Page 5

same hymn sheet | Page 8

business plans on course | Page 11

prepared to adjust your strategy | Page 13

business-reporter.co.uk

December 2011

Distributed within The Sunday Telegraph, produced and published by Lyonsdown which takes sole responsibility for the contents

One direction

Why do business strategies fail?

A report on how to get the organisation pulling together

Business Reporter · December 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Business execution – in this issue

Analyse, define and motivate It’s all very well coming up with ideas and promises for your company’s future – it’s how you put them into practice that counts

By John Pullin

Publisher Bradley Scheffer brad@lyonsdown.co.uk Managing Editor Lucie Carrington lucie@lyonsdown.co.uk Editor John Pullin Creative Director Martin Nolan studio@lyonsdown.co.uk Sub Editor Amy Dickson amy@lyonsdown.co.uk Journal Assistant Natalie Luketic natalie@lyonsdown.co.uk Project Manager Tom Turnbull tom@lyonsdown.co.uk

Annual reports are full of it. Companies big and small, faced with a glossy publication and the need to spread a few thousand words across several pages, pronounce their every move to be calculated and farsighted. In a word: strategic.

Strategy execution – delivering what the company leaders said they were going to do – is the difficult part and the business and finance pages of the heavyweight newspapers are filled with tales of corporate promises broken, unfulfilled aspirations and the consequences.

So are there basic rules that can be followed that will give company strategies a better chance of coming to fruition? Winston Kwon, lecturer in management strategy at Lancaster University Management School, says that successful strategic initiatives need “framing” in three distinct and different ways. “Framing is like taking a photo and seeing things at a certain angle to make things make sense,” he says.

The first frame in Kwon’s analysis is to take a diagnosis of the company’s situation to decide what strategy is realistic. A second frame focuses on specific actions that need to be done to change matters: this is the prognosis stage, which defines the direction. Finally, the third is what he calls the “motivational” frame, where a vision of the strategy and of what is going to happen is pushed out to other stakeholders, principally the managers and the staff, who have to make it happen.

“Steve Jobs at Apple was the master framer in that he

was able to put across a story and shape it,” Kwon says.

“The company was reported to be 90 days from bankruptcy and rival Michael Dell said he’d just have shut it down.” Jobs’s diagnosis was that the company had forgotten who it was and the prognosis too was straightforward – Apple needed to cut out all products that didn’t make money, or sense.

It was on the motivational framing that Jobs staged his real coup. “What he did was to draw up a commercial for Apple with the slogan ‘Think different!’,” Kwon says.

“And when he was asked why he spent money on an advertisement when the company was in such trouble, he said he did it for the employees as much as the customers.”

Other, similar strategic transformations are under way. At Fiat, for example, Sergio Marchionne is credited with turning an engineering-driven traditional group into an automotive powerhouse.

Marchionne’s triumph was to see the rigidity in the organisation and to cut through it, famously through a series of 15-minute interviews with staff. Middle managers, often the troublesome layer most resistant to change, were removed in droves. According to Kwon, this was an example of motivational framing going down to the rank and file, and giving them a reason why they should do it. “It’s about creating a social movement,” he says.

Making choices, building social movements, framing… you won’t find those in many company annual reports among all the strategic aspirations. But maybe that’s the way to get things done: to deliver on the strategy.

Cover: Tom Bonson For more information on any of our supplements please contact us: Telephone: 020 8349 4363 Email: info@lyonsdown.co.uk Online: www.lyonsdown.co.uk

business-reporter.co.uk

Contributors John Pullin is a writer and editor who specialises in industrial and business issues, including the application of technology in manufacturing. He was editor of Professional Engineering, Construction News and The Engineer, and now edits Environmental Engineering and runs his own company.

Marc Beishon is a technology and business journalist and editor covering IT and telecoms, sales and marketing, healthcare and general business for corporate audiences and consumers.

Marc has worked on IT and healthcare magazines and on New Scientist.

Tom Nash is a business writer and editor who specialises in boardroom issues. He is a former editor of Director magazine and publishing director of the Institute of Directors (IoD).

He currently edits titles for the IoD, the Forum of Private Business and the Institute of Sales & Marketing Management.

Chris Partridge writes about technology and business for the national and specialist press including The Times, The Sunday Times, The Daily Telegraph, Observer and Independent.

3

30 years Profitability record at AESSeal as a result of pursuing high performance strategy P5

6.19 days Average annual sick leave disengaged workers take; the engaged take 2.69 days P8

10m cars Recalled by Toyota in 2009 due to supply management failure P9

50%

Proportion of Turner & Townsend’s income that comes from overseas, up from 10% ten years ago P13

Supporters

Business Reporter · December 2011

4

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

All aboard the change train Embracing change and involving employees could be the key to businesses securing a strong future As Christmas approaches and many of us are planning for 2012, there is news of a lower than anticipated market growth, and further hard times ahead. Concern about a potential double-dip recession in Europe, along with the prospect of contraction in the Chinese market, has prompted speculation and fear of another global recession.

This lack of growth, combined with the fear of contagion from debt-heavy countries such as Italy, means another tough year ahead for business.

Today, in order to be high performing, a company has to continue growing and adapting to change in order to assure itself of a strong future.

We can all picture in our minds those companies that are successful. They have a strong, competitive position, with quality products and services. They repeatedly beat the competition in profitability and in innovation, have a strong brand, maintain the right strategy, and the pace of internal change is fast. In today’s environment, agility to change is key. Companies that are not growing and adapting to keep pace with an ever-changing market risk being overtaken by their competition.

So what differentiates these successful companies? Our recent research shows that, in these companies, there is something unique that permeates the culture – there is a shared vision, a vision that employees feel they can buy into and help work towards. The idea that employees have a critical role to play in business performance is not new, it makes intuitive sense

Full steam ahead: shared vision among employees can put a company on the right track

that if an organisation’s employees are working towards common goals, then it is more likely to be successful than if employees are pulling in different directions.

It is this alignment of employees with the vision that successful organisations do well. Ninety per cent of employees in these organisations believe the strategy is heading in the right direction and 85 per cent support the organisational changes made. As priorities and objectives shift, these

organisations are communicating their vision for improvement, and providing a strong strategic narrative for their employees. Not only are they providing a strong narrative, but listening to the employee voice.

Are employees joining you on the change journey? Many of our clients at Ipsos will undertake an annual staff survey. This allows them to segment the workforce, focusing on employee changereadiness to help direct future efforts. Given the

recent economic conditions, many companies have seen a period of continued change and a consequential need for more frequent feedback.

Some more forward-thinking companies among our clients are looking at new ways of tuning into the employee voice. Needing a more immediate view of employees’ perceptions and an ability to act more quickly, they are turning to new technologies. We have seen more clients turning to mobile phone surveys, employee apps and social networking as supplements to more traditional methods of sounding out employee opinion. These results are fed into continuing improvement and communication plans, while annual surveys are more typically used to help with longer-term, strategic planning initiatives.

These successful organisations have built strong communication channels between their managers and their employees, and have learned how to focus on what they are trying to achieve.

The senior teams devote time to effectively communicate the corporate vision throughout their workforce. Their employees receive clear objectives and guidance, and managers ensure that local objectives are aligned with the organisation’s overall strategy. But beyond this, they listen to the employee voice, and ensure that they bring every employee with them on the journey of continual change.

Denise Fairhurst is head of the employee research team at Ipsos MORI. Call +44 (0) 20 7347 300 www.ipsos-mori.com

commercial feature

Managing uncertainty in an uncertain world Two thirds of business leaders are making decisions without a complete understanding of their organisation – and this has dire consequences for their survival Uncertainty and insecurity have long been characteristics of the UK economy. But concerns around the ongoing consequences of the Arab Spring and new fears about the eurozone debt crisis, and China’s economy, are heightening the sense of fear and foreboding among UK’s business leaders.

In predictable times, in predictable markets, it is easy to figure out what tomorrow might look like based on today. But as today’s headlines will tell you, we do not live in a predictable world anymore and organisations are going to need to get the most out of all the data at their disposal in order to be truly innovative and agile.

Businesses today are generating more data in a single day than the entire internet was generating as recently as 2000. This explosion in volume, generated by a variety of sources including sensors, digital files, web-logs, and social media has been labelled ‘big data’.

Fresh opportunities have emerged for organisations to capture, analyse and uncover

Opportunity for firms to capture and analyse data

facts and patterns from this data that they were not able to recognise in the past. This rich new seam of intelligence, or insight, helps companies identify trends and react to immediate business conditions.

“Analysis of big data allows us to profile customers and understand the hidden patterns in their specific behaviours,” says Professor Mark Whitehorn, chair of analytics, University of Dundee.

Analytics used to be the exclusive domain of corporate giants but now it is going mainstream.

Companies such as Facebook, eBay and Yahoo that already view data and information as a strategic asset, are really leveraging this insight to the max to drive competitive advantage.

I n to day ’s vol at i le e c onomy, c o s t considerations are paramount. Cloud computing is being seen by many businesses, big and small, as a highly cost effective way to store and analyse the data that they are collecting. And it also provides an agile platform that not only supports innovation and experimentation, but

enables businesses to act swiftly in response to insights gleaned.

It is unsurprising that some business leaders remain sceptical about the ability of any hyped new technology to deliver on its claims. Many executives have seen more than their fair share of ‘the next big thing’, which ultimately failed to deliver on the promise of increased performance or improved competitive advantage.

So what can be learnt from past technology failures that might enable businesses to grab hold of the potential lifeline that new technologies such as big data and cloud computing can provide?

And what are the critical success factors for making any deployment deliver on its promise?

A good technology initiative should be about business change, with IT simply acting as the facilitator for that change. Take, for example, the cloud. Though the financial savings alone

make a compelling business case for the cloud, it is the opportunity that it offers for real business transformation that makes such a persuasive argument for business leaders.

Choosing the right technology that matches your business requirement is clearly important, as is the need for a trusted technology partner. But it is the information, not the technology that holds the key to success.

“Businesses that place information, not technology at the heart of their strategy will be best equipped to navigate a n u nce r t a i n e conom ic climate,” says Emma Taylor, founder of Business Leadership Exchange.

To learn more or become part of the UK’s first independent big data, cloud computing and business intelligence communities, please go to www.businessleadershipexchange.com

Business Reporter · December 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Business execution

5

The secret to a high-performing firm Successfully implementing a business strategy demands a long, hard look at your capabilities and a realistic assessment of where you really stand

By John Pullin

Renishaw: capability at the heart of strategy

AESSeal is not a household name, and perhaps never will be. But it’s a high performance business on virtually every measure.

The medium-sized company, based in Rotherham, makes complex mechanical sealing systems for diverse sectors (main image) such as oil and gas and pharmaceuticals. It has achieved consistent double-digit growth in a world market that’s barely growing at all, a 30-year record of profitability, and a lot of awards for customer focus, product innovation, people management and community involvement.

Just last month it became one of only a handful of companies – another is Rolls-Royce – to have won the top prize in the UK Manufacturing Excellence Awards twice. Turnover hit £100m for first time in 2010 and it is represented in more than 100 countries worldwide. So what’s its strategy?

According to managing director Chris Rea, it is “very simple, very clear and hasn’t changed for 30 years”. “Our top-line strategy,” he says, “is to engage in the mechanical seals business and to be number one in the world. Everything else feeds into that.” In fact, AESSeal isn’t number one in its chosen market yet, but Rea’s sure it’s on course to get there.

Of course, the strategy isn’t quite that simple, and nor should it be. There are organisations and structures that feed into delivering this vision “so everyone knows what the purpose of the business is, understands what their role is and how they contribute to the overall goals”.

But consciously or not, AESSeal is doing what Charles Baden-Fuller, professor of strategy at the Cass Business School in City University London, sees as the core of strategy: it makes choices. It has chosen, for example, to make only

small acquisitions of other companies, and then mainly in areas that bring in access to new customers. It’s chosen to rely primarily on organic growth, on its own capabilities: “By being faster and better than our competitors,” says Rea. “Capabilities” is a key word here. Baden-Fuller says that for any business strategy to work, it has to be based on realistic appraisal of the capabilities of the organisation.

“It’s spotting what you need to focus on, and what you can actually do,” he says.

“Too many people think about the individuals and the incentives, but they don’t represent the capacity to execute a strategy. People think teams and teamwork matter, but if you really want to do something, it’s not enough to have good teams. The whole organisation has to be capable.”

Baden-Fuller believes that most companies will be at one of three levels of performance, and depending where they are they need different capabilities to be able to execute a growth strategy successfully. “If you’re behind your competitors, you need to assess whether you have the capability to catch up and reach the average. If you’re competitive but not outstanding, then you can start to think about doing things differently to get yourself ahead. The third level is where you’re a leader and your customers already see you as differentiated,” he says.

But he warns: “It’s too much to expect that you can have a single strategy that will take you from the bottom of the class to the top in one leap.” Companies need to recognise they can’t make progress on every activity in a diverse portfolio.

“If you’re in the position of needing to catch up, you can only catch up on a limited front and you almost certainly need to retrench,” he says. In these circumstances, return on investment ceases to be a good measure. “Cash is important, but the portfolio that makes money may be the portfolio of the past: what you need is a mix of things that make money and things that take you to the next stage of growth.”

Other basic measures of company performance such as profits, turnover and share prices are also of limited application, Baden-Fuller believes. He likes measures such as “products developed in the past five years” – as used by AESSeal – because “it has forward intent about it”.

Forward intent may be slightly easier to develop at private companies. “We’re a business with a good culture, a clear strategy and fantastic people, but we don’t tend to make short-term decisions,” Rea says. “We get pretty good short-term results, but they’re a consequence of decisions made maybe five years ago, not five minutes ago.”

He cites a decision to invest heavily in the technology of

dry gas compressor seals. “It was probably folly at the time, but now it’s starting to be a real driver of our business.”

Like AESSeal, Renishaw is a UK manufacturing company that is a global technology leader. This company, though, is in multiple markets and technologies in the areas of metrology and scientific equipment, so the choices it has to make as part of its growth strategy include weighing up the competing demands of different product areas for investment and development.

Marc Saunders, director of UK sales and group marketing services, agrees with Baden-Fuller that capability is the basis for all strategic moves at Renishaw. “For example, our acquisition strategy is that we’re not interested in buying market share, but we are interested in acquiring technologies or capabilities that enable us to extend or enhance our range of products,” Saunders says.

There are other aspects to this alignment of strategy with capability. Renishaw organises its business into product divisions which are responsible for their own strategies and growth, but then augments these with cross-company divisions that reflect some of the capabilities needed by all the different products and technologies.

“In manufacturing, we have a corporate organisation that’s an attempt to provide some glue to hold the many divisions together and stop us becoming multiple separate companies,” Saunders says. Benefits include central control over matters such as training and capital expenditure.

What this structure adds, Saunders believes, is a degree of “central tension” between the innovators in the product divisions and the engineering and manufacturing functions: it exerts a kind of “deliberate constraint”. He says: “We’ve found that allows us to move our capability forward progressively, whereas if we had a more random approach to how we made things, we wouldn’t be able to push forward on such a broad front.”

A feature of both Renishaw and AESSeal, of course, is continuity – and that their strategies are not pored over by stock markets and analysts: Renishaw is publicly quoted, but two shareholders control more than 50 per cent. If they want to spend money, they do: Renishaw dipped into its coffers recently to buy a huge factory in Wales which will help it overcome what it perceives as a shortage of manufacturing capacity.

That self-confidence is something other companies could emulate, says Baden-Fuller. “The job is to know what you’re capable of and to have faith in yourself,” he said. “And don’t be too fussed about the share price.”

Business Reporter · December 2011

6

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Rally the troops to execute your strategy How can CEOs successfully realise their vision? Leading a three-tiered approach of communication, delegation and mobilisation could help “However beautiful the strategy, you should occasionally look at the results”.

No, this quote is not from some modern business guru but from Winston Churchill, proving yet again that his theories of conducting a campaign can teach us all lessons in how to conduct business.

Of course, the strictly hierarchical structures commonly used in military campaigns don’t sit comfortably in many modern boardrooms, but there are parallels to be drawn. CEOs are expected to lead, to come up with strategies and visions and to inspire success. Unfortunately, while gifted strategists and visionaries naturally rise to the top of many organisations, being able to translate those visions into reality is another matter entirely. Life just doesn’t imitate art, and Geraghty: threelayered approach

business leaders who rely on subordinates to intuitively translate vision into reality will soon fail.

When implementing vision and strategy, CEOs should deploy a three-layered approach encompassing communication, delegation and mobilisation says Jo Geraghty of Culture Consultancy. “It is a bit like the old game of Chinese whispers. Every step away from the CEO leads to the strategy being filtered through layers of time constraints, budgets and employee abilities until what emerges is at best a poor shadow of the original idea,” she said.

Geraghty has recently had first hand experience of this watering down of ideas with a well-known high street bank. The CEO’s strategy was to help relationship managers provide an improved service through a better understanding of their business customers’ issues, challenges and financial concerns. Following a lengthy proposal development phase, it transpired that the team overseeing this project had watered down the proposal into a quick “sheep dip” training course which Geraghty was initially being asked to design for free. This showed such a lack of understanding of the cultural change needed to embed customer service into daily routines alongside a failure to appreciate the financial and time constraints of SMEs that Geraghty and her team turned aside from the proposal, and are now working directly with the CEO to develop an embedded

Photos: www.2shooters.com

Right moves: vision must be fully implemented and understood to avoid being toppled

customer service culture.

Having a vision is not enough. Vision needs to be turned into strategy, then into operational plans, then into departmental goals and onwards into individual employee’s objectives. The first step in this process is the ability of CEOs to clearly articulate their vision with effective two-way dialogue and delegation to the top team. With that team now being accountable for delivering results the strategy can start to be translated and embedded into working practices.

One of the hardest tasks can be the mobilisation of middle management.

Taking employees on the Bishop: CEOs must be leaders

journey with you means engaging their hearts as well as their minds. This effectively requires a degree of “selling” the ideas to employees; making it clear what is required of them as well as what they will gain from adopting new practices and ideas. Success here will come through effective planning and personnel management alongside a degree of empathy. Changes inevitably require an initial investment in time and resources, and managers who acknowledge this and plan accordingly are more likely to carry staff with them.

“In essence, when translating vision into reality the CEO has to be a leader, rallying the troops, engaging hearts and mobilising resources,” says Culture Consultancy director, Derek Bishop.

Call 0845 003 5646 www.cultureconsultancy.com

Mind the gap Having a clear strategy that is understood company-wide could make companies leaner and quicker in responding to market opportunities There is a yawning gap in strategy execution. It opens up as new ambitions emerge and swallows new thinking before any traction is gained. The fault line is right through management. To bridge the gap, management teams must be engaged and aligned behind their strategy.

Take Unilever. With 20,000 managers in 150 countries, focus and speed used to be lost as strategy meandered through a complex matrix of countries and categories. Former CEO, Patrick Cescau, needed to apply the competitive power of global brands rapidly and decisively. He engaged each management level through a disciplined process of understanding and committing to this strategy. Initially resistant, the fragmented organisation gradually gelled together. For the first time, Unilever had one strategic plan and one cohesive way of implementing it. Unilever became leaner and more dynamic, responding quickly to market opportunities. The transformation accelerated under current CEO, Paul Polman, leading to Unilever’s recognition as the UK’s most admired company.

It’s not just global giants that need a disciplined approach to strategy execution – all organisations do. Nyrstar is a Zurich-based global metals and mining company. Its ambitious leadership team believes in bold decisions and has doubled the size of the company in the last year, en-route to their long-term ambition of five-fold earnings growth. In communicating the strategy to every

employee, the leadership team discovered a widening gap between their plans and those of the operating companies. They needed to build a strong connection to close this gap. Engaging each operating company’s management team through a structured programme of workshops called Strategy into Action, Nyrstar is connecting and uniting the interests and actions of every part of the company. Great communications build awareness, alignment and engagement channels that into united action.

Antony Jenkins had a similar need following his appointment as chief executive of Barclays Retail and Business Banking in November 2009.

Antony had a clear vision of what he wanted to achieve, yet needed a vehicle for converting this into co-ordinated action across a diverse group of businesses. Planning for Success started with the top leadership team converting the vision into a coherent set of strategic goals to deploy across the business. A thousand leaders were involved through facilitated workshops, each leadership team being tasked with working out its contribution to the overall strategy and vision.

Ultimately, all 65,000 employees were included through their personal objectives. This enabled Barclays Retail and Business Banking to drive specific goals right through the organisation in vital areas such as customer focus and citizenship.

These successful examples of strategy execution from different sectors have common elements. The

The basic building block of strategy execution

top team creates a one-page strategic plan with a prioritised set of goals they believe in and can explain. They then lead workshops with their own teams to create subsidiary versions. By sharing, challenging and committing to these plans, their organisation unites in disciplined execution.

Once learned, this process sticks, becoming a competitive competence in its own right. A story from 90s conglomerate Caradon illustrates this.

Having built Caradon through acquisition, group CEO, Peter Jansen needed a common execution process to drive further performance. Over several years, Peter implemented First in Service, uniting

a highly diverse group of companies ranging from cheque printing to plumbing. His reward came from an employee making radiators who delighted Peter on a plant visit by not mundanely explaining his tasks but enthusiastically describing his team goals, progress to date and how they linked to group goals. Caradon was split up after Peter’s untimely death but the culture and practice in the radiator factory still endures.

Steve Smith is chairman of Quest Worldwide Email: steves@quest-worldwide.com Call: 07796 338668

Business Reporter · December 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

7

Are you sitting comfortably?

Engage employees’ imagination and instil belief among a team by spreading strategy via the medium of storytelling More and more companies seeking to share their business strategies are returning to the power of storytelling to reinvigorate and engage their people.

“Let’s start at the beginning,” says Duncan Gardner, managing director of brand engagement agency, Avvio. “We’re wired to absorb stories. The written word is relatively new in human terms but story is ingrained in our DNA. Great stories have inspired changes in behaviour throughout the centuries. Don’t underestimate the power of an inspiring story, illustrated in the right way, can play in your future business success. You only have to watch the Christmas ad from John Lewis once to experience the power of storytelling.”

For centuries, storytelling has been used to provide moral direction, contribute to increasing life expectancy, provide entertainment and educate nations. Yet in this era of information overload and technology revolution, it’s a dying art left to a competent few.

Gardner believes it’s time to resurrect this art form and evolve it to unify the corporate tribe. “Storytelling provides a powerful unifying structure to our lives, and as leaders we need to recognise this fact. If we share our strategic vision in the form of a story that our people are inspired by and act upon, we can collectively reap the benefits. Our businesses depend on everyone understanding why we’re asking them to do what they do because then they’ll go and

do it even better.”

Creating a strong story is key to the creation of visual info-graphics or story maps.

“Companies we work with are returning to the power of their story to ensure employees understand and commit to the future vision,” says Gardner. “Take Nationwide for instance.

Using an info-graphic- based narrative we helped bring their transformation story to life. The feedback from employees across the board has been fantastic. They not only feel they have a clear understanding of the transformation journey, they also feel more confident articulating the benefits to their teams.”

Simon Robinson from Nationwide adds: “We didn’t want a quick fix. We wanted a lasting engagement solution that helped everyone align their priorities in the same direction. Sharing the same story across the business makes us stronger.

And the results were incredible; our leadership team across Nationwide now understand how our transformation journey connects to our corporate strategy and are confident to act as advocates for that transformation.”

But Gardner stresses it’s not enough to create a strong narrative and clear visual. Leaders need to recognise that line managers have to be competent enough to share the strategy with belief.

“It disappoints me to see wasted investment caused by poorly planned cascades and badly prepared managers,” says Gardner. “It’s not

enough to send them a ‘strategy in a box’ and expect them to deliver it at the next team meeting.

I advocate that businesses focus on storytelling as part of their employee training programmes so that everyone, no matter their role, can play a part in creating stories that celebrate success.”

A sound business strategy linked to the bottom line deserves to be communicated in the best

possible way. Using storytelling alongside other company communication channels portraying a consistent, aligned message keeps the momentum.

Duncan Gardner is managing director of Avvio, brand engagement experts Call: 01491 842270 www.avvio.co.uk

The key to unlocking strategy success It’s clear that organisations recognise the opportunities in strategy but admit they have problems exploiting them. How can firms improve strategy execution?

Successful strategy marks out the most successful companies. In today’s world of fast-changing markets, companies need robust strategies that can be implemented quickly.

“Companies that minimise the lag time between the flash of the strategy and the bang of its execution will win competitive advantage,” says Dan O’Regan, partner and chief operating officer of Ernst & Young’s UK and Ireland advisory business.

“Achieving this is key if a company is to be the first into a new market, grow market share, and improve margins at the greatest speed.”

Companies know this: improving execution of strategy was the number one opportunity identified by the Ernst & Young report, Turn risks and opportunities into results. However, organisations also know they are falling short – many respondents said that measures to respond to change were needed but not yet implemented.

“Companies must rethink strategy fast against a landscape of contrasts between the mature markets of north west Europe and the USA, and the developing markets such as Brazil, Russia, India and China.”

Despite this diversity, the report – based on interviews with 75 commentators in seven sectors and a survey of 700 companies in 15 countries – showed that the opportunity presented by

Top opportunity: improve execution of strategy

improving strategy execution was rated highly across all sectors.

“The healthcare and power and utilities sectors in particular see this as an opportunity that is growing,” says O’Regan. But less than half of

those power and utilities companies said their efforts to respond to the opportunity of strategy execution had been effective. In Sweden, almost 60 per cent of respondents agreed, as did around half in South Africa and 46 per cent in Australia.

It’s clear that organisations recognise the opportunity but admit they have problems in accessing it. So how can they improve the execution of strategy?

O’Regan recommends looking at what successful organisations do to get this right.

“The most frequently cited successful response focuses on regular communication of vision, goals and strategy in the organisation,” says O’Regan.

In the US, 60 per cent of respondents said that they adopted this approach.

The next two most important factors, as cited by respondents, were ensuring that the strategy planning process involved all business functions and aligning business unit actions with performance drivers.

So what does it take to achieve these goals?

“It requires a continuous focus on making the necessary changes,” says O’Regan, “but also the recognition that driving change in an organisation needs a different set of skills from those used on a day-to-day basis running a business.”

That means building a dedicated team to focus on change, or using strategic independent partners – always led by the organisation itself

– to provide external support.

In deciding their next move, companies should ask themselves three questions, says O’Regan: ‘How can we create the capability and skills required to execute this change?’ ‘Do we have the right focus and investment required to implement the change we need?’ and ‘How do we balance the challenge of running the company and managing this change simultaneously?’

Often, in the short term, external experts can be the answer. “They can bring the benefits of a global, geographical and sectoral overview that an individual organisation may not have,” says O’Regan.

“But long term, change is not going to stop.

Ultimately, organisations should be looking to build the optimum blend of in-house teams with appropriate external strategic skills that will ensure results are delivered.

“Those that achieve this will be best placed to reap the full benefits of the opportunities offered by improving execution of strategy,” says O’Regan. www.ey.com/opportunities

Dan O’Regan

Business Reporter · December 2011

8

an independent report from lyonsdown, distributed with the sunday telegraph

Business execution

We’re all in this together Once the company leadership has decided the strategy, how do you get all the employees on board? The key word here is engagement…

By Marc Beishon

Amid all the changes in policy since the coalition government came into power, one subject has seen continuity: employee engagement. In March the government, and Prime Minister David Cameron personally, gave their backing to an employee engagement taskforce led by David Macleod, who co-wrote a key report on the topic back in 2009.

Engaging for Success: Enhancing Performance Through Employee Engagement – with a foreword by Lord Mandelson – set out a compelling case. Not only was there a clear correlation between engagement and performance, it said, but as the current economic crisis began to take hold, UK plc stood to weather the storm much better with a happier and more productive workforce.

John Neill, chief executive of Unipart, is in no doubt about the business case. But he warns: “We still have a productivity gap of about £300 billion from where we should be in the UK, and depending on the survey, only between 14 and 20 per cent of people are actually engaged.

“We could make a massive increase in GDP and dampen down the financial crisis with the kind of programme we operate at Unipart. It should be a national strategic issue.”

The Unipart Way programme focuses on operational excellence, he says, and gives employees the tools and techniques to work collaboratively and solve the problems, big and small, that are part of everyday business.

“If employees don’t have the right tools they get frustrated and disengaged,” says Neill. Engagement initiatives so far include a programme where the Unipart Way is taught and related back to what happens on the shopfloor with the help of expert practitioners.

This is as far away from fluffy management-speak as one can get, and Neill says employee engagement is measurable: saving £3m to £5m a year through the circle meetings, and the employee programme has shown engagement improvement scores.

Other companies are known for focusing on employee involvement –Tesco, Rolls-Royce, John Lewis – but brand

and marketing agencies, and management consultants, say many firms face fundamental problems in aiming to increase engagement. Too often, it seems, organisations try to set strategic values and goals with communications or a vague vision statement.

“It’s about engagement, not communications,” says Sam Jordan, managing director of consultancy Calling Brands. “It’s about connecting people with change, helping them understand it and be a part of it.”

Richard Bland, creative director at Kiss Communications, agrees. “We recently found in a survey that 31 per cent of professionals believed their companies didn’t have a clear marketing message that everyone understood,” he says.

An occasional pep talk from an MD – often in high-flown board-speak – is not going to engage a wide spectrum of departments and employees, says Deborah Baker, director for people at Sky, the 17,000 strong TV company. CEO Jeremy Darroch does give talks about the strategic plan, but Baker says continual engagement is vital for weaving in “stories” about elements of the plan, including content and how recent developments are shaping up.

“We engage people with initiatives that bring our business objectives to life, such as running competitions on what programmes we could be showing,” Baker says. “It has to be regular, jargon-free and driven through people with team responsibility, and in HR we ensure business objectives are at the head of everyone’s appraisals.”

Phil Morgan, managing partner at consulting firm AT Kearney, echoes Baker’s point: “Stories are much more interesting and powerful than a set of business slides.” He used to work at Mars. “It has the most empowering set of values I’ve ever seen in a business,” he says.

At Unipart, Neill believes organisations can only really excel in one of the three main sources of competitive advantage – operations, which he says is Unipart’s forte, product innovation and customer service. Employee engagement must be honed to the core mission if it is be properly orchestrated.

Sarah Veale, head of equality and employment rights at the TUC, agrees that where organisations get this right, the results can be highly beneficial for employees. At bank group Santander, she cites a good engagement policy with attractions such as flexible working and a decent bonus scheme. There is no evidence that firms with “fat cat” salaries face any more unrest than companies with flatter structures, she adds, providing a positive engagement strategy is in place.

And what distinguishes the best organisations in engagement is true leadership not just sound management, says AT Kearney’s Morgan. He says: “Few companies measure their senior executives on engagement or link it to incentives.

“But it does have shareholder value and companies should look for it and put the case together.”

Facts and figures How the numbers fare on employee engagement A near 52 per cent gap exists in the performance improvement in annual operating income between companies with highly engaged employees compared with companies whose employees have low engagement scores (Towers Watson).

Engaged employees in the UK take an average of 2.69 sick days per year; the disengaged take 6.19 (Gallup).

Seventy per cent of engaged employees indicate they have a good understanding of how to meet customer needs; only 17 per cent of non-engaged employees say the same (CIPD).

Engaged employees are 87 per cent less likely to leave the organisation than the disengaged (Corporate Leadership Council).

Community service Encouraging employees to get involved in charity or volunteer projects can benefit all Activities that tie in with an organisation’s corporate social responsibility (CSR) strategy are vital to employee engagement, not least because they can also directly or indirectly aid the business.

John Neill, CEO of Unipart, says: “We strongly encourage employees to get involved in community activities – it’s in our

business interests because if we have devastated communities, who’s going to buy our products?”

Involvement with schools is particularly important, he adds – companies need people who are nurtured with a passion to develop and who are well qualified.

Such involvement – for example, as a school governor – also gives extra experience

On yer bike: Kelly Brook and Chris Hoy join in the Sky Ride campaign

that can be captured in-house.

“Most people in organisations are promoted up in their functional areas. Becoming involved in community projects gives people skills they may not get in their normal job,” he says.

Values – especially among the younger staff – are often firmly aligned with CSR and their own views on quality of life and

personal development. Deborah Baker, director for people at Sky says that 3,000 employees volunteered for CSR activities this year, such as the Sky Ride campaign to get more people cycling. Like Neill, she notes the win-win nature of this form of engagement, such as combining leadership training with Sky’s Rainforest Rescue project.

Business Reporter · December 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Business execution

9

Geared for collaboration The supply chain is all-important when it comes to executing a business’s strategy – whether it’s in-house or outsourced, it needs to be the perfect partnership

By Lynn Strongin Dodds

Deciding what the core business is, what activities to maintain in-house and what to outsource to specialists and suppliers – these are decisions at the heart of corporate strategies for many groups. And the current economic climate does not make them easier.

Supply chain management has always been difficult.

The difference today is that the prospect of a prolonged economic downturn has sharpened the collective corporate mind on costs and operations that are deemed core. Flexibility, scalability and optimisation of the supply chain have never been more important, as inventory levels fluctuate due to sluggish consumer demand. In addition, there is more attention paid to the fine print of a contract to ensure that expectations are being met on both sides.

But while the economy is a factor, the bread and butter of daily corporate life such as mergers, acquisitions,

Flexibility, scalability and optimisation of the supply chain have never been more important, as inventory levels fluctuate due to sluggish consumer demand

Millions of Toyota cars had to be recalled due to subcontractor failures

divestitures and management shake-outs continue to be driving forces behind outsourcing decisions.

And there are tried-and-tested building blocks to a successful venture.

“The first is looking at a company’s requirements, which I compare to buying a house. Instead of location, location, location, it is all about requirements, requirements, requirements,” says Martin Knott, head of trade, global treasury solutions EMEA, Bank of America Merrill Lynch.

“Companies need a strong foundation to build on, although you need to be fleet of foot and flexible.

Scope needs to be built in to adapt to any change. Of equal importance is that senior management buy into the project and that outsourcing is aligned with the company’s overall strategy. There also needs to be a strong corporate governance structure and the ability to continually monitor the process.”

This is especially true right now. Shamus Rae, partner and European head of outsourcing at KPMG, says: “During these economic pressure points, we are increasingly seeing companies reviewing all their outsourcing deals from a risk point of view. They want to ensure that their partners are robust, resilient and will not run out of cash or be taken over by a private equity firm.

A shared view on the overall direction is increasingly essential. “Our clients are looking at more than an ability to deliver against a contract and are focusing on the post-contract relationship to ensure the two organisations can align themselves behind a common strategy,” Rae says. “ T hat means

looking at the culture of the supplier organisation relative to the clients, the governance put in place to ensure innovation continues and is focused on the strategy, and the measurement and objectives of management in the supplier are appropriate to what the client is trying to achieve.

This leads to novel ways of working together. “We had a European client who was setting up a key outsourcing deal,” Rae says. “Every three months the supplier would need to present a selection of investment projects for innovation to a Dragons’ Den-type of ‘deal committee’.

“If the projects were accepted, funds would be provided, but if the supplier consistently failed to come up with innovation then it would allow a termination event to be triggered. This ensured that the supplier had both the carrot and the stick to deliver innovation back in to our client.”

Picking strategic suppliers carefully, says Mike Darby of Deloitte’s consulting practice, ensures alignment of the objectives, goals and cultures of both businesses at the outset. He says: “A later change of business strategy not in parallel with that of the suppliers will require a review of whether the relationship will continue.”

He cites the automotive industry, where ten-year contracts or longer are the norm. “If Toyota is successful, so are its suppliers and vice versa.”

According to Craig Sears-Black, managing director of supply chain systems provider Manhattan Associates, most businesses – whether manufacturers, assemblers, retailers, wholesalers, distributors or in logistics – typically have many suppliers that they rely on to help them be successful.

He says: “Often, though, they work with only a small number of suppliers that they consider strategic.

A strategic supplier might be, for example, a software business with such innovative technology and expert people that it becomes part of the extended enterprise.”

Strategic moves can create new supply chain demands.

The Co-operative called on existing and new providers after its £1.5 billion acquisition of rival Somerfield in 2008, which doubled the supermarket chain’s share of the UK sector. It was important that the flow of sales as well as shipment and payment information between firms was uninterrupted.

Co-op used GXS’ Trading Grid near-real-time data exchange for documents such as purchase orders, invoices and advanced ship notices with suppliers across the globe. And for the rationalisation of the distribution centres, it turned to Manhattan Associates.

“There were 34 distribution centres and each had its

The price of efficiency?

When it comes down to your supply chain, is it flexibility, control or cost that is the driving force?

Whether to outsource or keep a function in-house is rarely an easy decision.

Core competencies, internal resources, cost structures, benefits and risks are often discussed, but the bottom line for many is to look at the advantages, the risks and which party will improve the function most in the future.

Craig Sears-Black, managing director of supply chain systems provider Manhattan Associates, says: “Before deciding to outsource, companies need to ask, ‘what competencies do I have and what do I hope to achieve by outsourcing this particular function?’ They also need to focus on the advantages and the downside. For example, a company may gain a cost advantage and flexibility but lose some control.”

Neville Howard, a partner at Deloitte, believes that often cost is the main driver behind outsourcing deals.

“There are many arguments behind outsourcing parts of the supply chain and there is a lot of talk about agility, flexibility and focusing on core businesses.

“Companies will also see it as a way to expand their reach and introduce new products. However, at the end of the day it all boils down to cost.”

own supply chain infrastructure, operating approach and IT systems platform,” says Sears-Black.

“The challenge was to consolidate the distribution network, develop one operating model that could manage the new infrastructure with its associated contractors and third parties.”

Strategic supply chain relationships have their down sides as well as their upsides, and tighter attention to quality control is vital. Toyota’s experience in 2009 and 2010 when around 10m cars had to be recalled revealed that most failures were tied to subcontracted components.

If that argued for the need for better collaboration and communication between internal manufacturing and design department as well as with the outsourced suppliers, and a broader view over the whole production cycle, then Toyota’s 2011 experience – along with other carmakers – showed a different risk, when the Japanese earthquake and tsunami interrupted supplies – and prompted a lot more strategic reviewing of outsourcing arrangements.

Business Reporter · December 2011

10

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Tough times? Engage to win Embracing the power and possibilities of collaborative engagement in economic tough times can cut risks and improve company strategy “We are expecting 2012 to be very difficult and we will have to control costs tightly. I will have to be much more in command and control than I would normally be.”

So said one CEO to Ashridge Consulting recently. In tough and volatile times, is there any option but to sacrifice engaging the hearts, minds and energies of your people in favour of a tough and uncompromising style, together with a firm hand on the tiller?

Is it fanciful to think you can engage with a workforce in the face of job cuts, a pay freeze and a marketplace that is contracting, and with shareholders demanding profits and results?

Can you realistically expect creativity, resilience and energetic participation from people in these situations?

At Ashridge Consulting, we believe there is a way to lead rigorously in harsh circumstances without sacrificing engagement – in fact, our process actually builds engagement and realistic toughness at the same time. We call it collaborative engagement. Perhaps the most important benefit of collaborative engagement is that it increases the likelihood of an organisation being able to spot and respond to unexpected and unpredicted changes as the strategy is implemented. It is, quite simply, the most powerful and essential form of risk management.

A lot of writing on strategy still holds to the idea that if you plan it, it will happen. The more we understand about how strategies develop in practice, the more we see that they evolve – developing through a series of changes in circumstances and small decisions in ways that could not have been foreseen.

However skilfully you craft your plans, you need to be alert to how a complex, connected and changing world can mess them up in unexpected ways. The more you engage people throughout the process, the more they can be responsive and responsible – and willing to contribute their experience and brainpower.

The first benefit of large-scale collaborative engagement is that it usually generates more ideas – and better ones, too. When strategy is created, those involved are often left uneasy that they haven’t made the best use of the minds, imaginations or collective know-how of people inside and alongside the organisation.

But good collaborative working makes the most of the amassed wisdom and day-to-day knowledge of all those involved, including those closest to the customer and products, for example, in the sales team, the complaints department and the factory.

When strategy is dreamt up at the top of an organisation and then cascaded down, a gulf

Best laid plans: collaborative engagement is an essential form of risk management

of understanding and ownership opens up.

There may be a strategy with clear vision and direction from the top layer that people lower down then try to implement, but there is a gap between the two.

However, if more people are involved through a well-designed and facilitated collaborative process, a wider number will understand the overall objectives and logic of the strategy, and be motivated and able to adapt its implementation as conditions evolve.

The more people are primed to act as the nerve endings of the organisation, the more the organisation is able to react. It can still follow its

plan, but does so intelligently and flexibly in an uncertain world.

As another of our CEO clients said: “You can be both rigorous and engaging... so becoming alert and effective in seizing market opportunities, and in grasping creative ways of reducing cost and doing business better. All it requires is welldesigned engagement.”

Philippa Hardman and Chris Nichols are directors of Ashridge Consulting. philippa.hardman@ashridge.org.uk chris.nichols@ashridge.org.uk www.ashridge.org.uk

Playing by the rules If you’re looking to achieve operational excellence, following these six golden rules will help smooth your path to success In times of uncertainty and austerity, all forms of expenditure can come under even more scrutiny than usual. Keeping these six golden rules at the front of your mind, however, will ensure that you give yourself and your business the best possible chance of success with the least amount of effort.

Rule 1 – make sure you articulate and demonstrate the need for change clearly.

Provide clear reasons for the goal and present the case in unambiguous terms. This avoids confusion and precious time and effort being wasted. Establish a common understanding, too, of what needs to be achieved at the outset.

This is pivotal to the success of any undertaking, especially if the goal is large-scale and complex in nature.

Rule 2 – ensure you gain senior-level sponsorship. If you wish to achieve anything of real substance, you have to get sponsorship at a senior level. Senior leaders of an organisation need to play an active and sustained role in the process. Without senior-level support, it is unlikely that you will get the resources you require for success. Instead, improvement activity is likely to be superseded by things that are deemed more important by management, and even if the goal is achieved, it is unlikely to get the recognition and ongoing support that it deserves.

Rule 3 – get key opinion formers onside.

Time spent identifying the key opinionformers, who may be both internal and external stakeholders, is never wasted.

They exist at all levels in any organisation so if you get them involved and win them over, your path to success will be greatly enhanced. Winning over the organisation’s “public opinion” can prove more important than demonstrating empirical evidence. Effectively, success has been achieved because everyone says so.

Rule 4 – learn how to do ‘excellence’ properly. Learn how to apply excellence enablers such as lean (maximising customer value while minimising waste) effectively; it is an essential tool to achieving operational excellence. All levels of the organisation will need the appropriate training.

Training should be combined with support in the application of lean on live projects, but bear in mind the next rule.

Rule 5 – become self-sufficient in the tools of excellence. For example, develop or recruit your own lean experts as they are a vital component in establishing the continuous improvement culture that should be the ambition of every business. Broaden the understanding of lean principles with staff at all levels, too. Adapt the role of any external expertise from the

“I’ve always played by the rules... fortunately, they were my rules.” initial doing to coaching and supporting your internal capability in the later stages, and consciously plan how knowledge transfer will occur between external experts and internal staff (don’t assume this will happen naturally).

Rule 6 – use operational excellence as a staff engagement tool, not just for eliminating waste. Approaches such as lean help to increase the understanding of, and focus on, value

add throughout the organisation and can help harness the creativity and effort of the organisation. They can provide a mechanism for staff empowerment – especially for frontline staff – and ownership of performance.

Stuart Smith is chairman of Bourton Group. Email Stuart.smith@bourton.co.uk or call (0) 1926 633333 www.bourton.co.uk

Business Reporter · December 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Business execution

11

March to the same beat

Clever use of technology is vital to keeping business plans on track

By Chris Partridge The Guards at Trooping the Colour make it look so easy. On the command, 1,000 men stamp, turn and march off in the new direction. It is truly beautiful to watch.

Getting 1,000 employees to change direction is another matter. The CEO can’t just issue an order and expect it to be instantly obeyed. Even if he did, he can’t monitor them in the way the regimental sergeant major watches his men, ready with “gentle” advice and encouragement if they start off on the wrong foot.

For the management of a large company, information and communications technology is key to getting the message across to show everyone at the coal face that change is necessary. And in increasingly complex organisations, it’s the only way to ensure information comes back up the line as to the impact of change.

One problem is the scale of the communication dilemma, according to Dr Colin Pilbeam of Cranfield University. Pilbeam specialises in how organisations implement change in response to disasters such as the King’s Cross fire or the infection problems that are besetting Britain’s hospitals.

“Some of the more complex changes involve a

variety of factors that you need to hold in balance to try and understand what is going on. They are what have been dubbed ‘wicked problems’ with no obvious solution and where no individual holds the power to impose solutions. You cannot experiment with changes because every change brings new problems.

Happily, technology is enabling managers to see these types of problem from all angles.

“Visualisation techniques are useful. There are various tools you can use to understand the complexities of the circumstances in which the organisation finds itself and therefore what it might do to respond,” Pilbeam says. “These tools enable people to capture in detail on a single screen what it is they are wrestling with and the likely impact of one action on another.”

Pilbeam uses what he calls mess maps to get the whole picture. These mess maps show how an organisation operates from an individual level to the wider environment.

For change to be implemented successfully, it must be driven from the top and communicated right down the corporate command structure, says Professor Lawrence Hrebiniak of the Wharton School at the University of Pennsylvania.

Delivering strategic change in an organisation is always complex because it deals with so many

From good to great on a global stage When Mandarin Oriental decided on a worldwide expansion strategy, it needed to move from being a group of individuallymanaged hotels to one with common standards of excellence The board didn’t want to impose a uniform corporate culture but directors did want to establish consistent performance yardsticks that would enable the company to make the most of the available talent.

“We had about 12 different

critical areas of the business from structure to people to culture to customers, Hrebiniak says.

“Management is finally beginning to see that change isn’t simply handing the ball off to someone and letting them run with it.”

Information technologies including social networking and company-wide directory systems are very useful. For example, effective IT enables companies to share best practice among specialists who may be distributed round the world. It also allows the CEO to monitor the change process at all levels from day to day. And this sort of timely information is key.

“Softer tools are useful too such as a responsibility matrix whereby you plot people against jobs to ensure people are on the same page when it comes to responsibility and accountability: who is doing what and when,” Hrebiniak says.

“You increase the likelihood of success if the people involved in execution have somehow been involved in the planning stage and the strategy formulation. You can’t talk to thousands of people but you can use feedback up front as to what the changes might be, and even if you don’t accept their recommendations you can still explain what you are doing and let people know what is happening.”

Perhaps not surprisingly, the HR function is emerging as central to effecting business strategy.

Today’s HR function is a far remove from the paper pushing personnel departments of 20 years ago – at least in part thanks to the emergence of highly sophisticated software systems that enable firms to track and manage talent – the corporation’s most expensive resource.

The ability to connect people directly to the strategy through technology has been a major selling point for HR systems, admits Rasmus Aaen Madsen, senior director of product marketing of HR software vendor Success Factors.

Success Factors offers what it calls a goal management application. This enables the CEO to write down the top level goals and cascade them throughout the organisation, one level at a time.

“So you have total transparency throughout the organisation,” Madsen says. “Everyone knows what they have to do and how their goals link to their manager’s goals and the overall goals of the company.” Siemens uses this system worldwide to set goals for all its 400,000 employees, from the CEO to truck drivers.

The psychology is very simple: if employees know change is necessary and can see that everyone else has to change too, they will embrace change.

What the technology does is enable management to get the message out to the whole workforce effectively – and keep track of it.

Technology has played a major role in enabling Mandarin Oriental Hotels to pursue its expansion plans

appraisal systems in 22 hotels which didn’t make a lot of sense when we wanted to encourage staff to move across the organisation. We needed to centralise to make ourselves more efficient and allow people to transfer from one hotel to another,” says Jacqueline Moyse, head of organisational development.

Technology was the way forward to developing and delivering common people

systems effectively and the hotel chain brought in Success Factors.

However, it wasn’t just a matter of installing the software and pressing the power on button.

“A system is only as good as the leaders who use it, so we worked hard at defining the processes of performance, succession management and transfers, and did a lot of training both in the system and in good leadership, coaching, feedback and so on,” Moyse says. “The

technology cannot be effective if the softer skills are not there.”

There was some resistance from hotel managers who saw their independence shrinking. But frank, open discussion and more training helped them realise the benefits they could gain.

The outcome is a hugely improved talent management system that enables the firm to fill positions worldwide with people already in the organisation.

Building a career structure in this

way is vital for an organisation that wants to grow and in a sector that is still labour intensive.

The system is transparent for employees as well as managers, which Moyse sees as a major benefit. “One of the drivers for us was having a system that wasn’t manager-led. The onus is as much on colleagues to enter information about their experience, qualifications and career ambitions, as on managers.”

Smart careers

Business Reporter · December 2011

12

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Everyone has a part to play Good strategy execution relies on creating a shared understanding of where the business needs to go, and people’s role within it Most business leaders love nothing more than spending a couple of days away from the office, plotting strategy. Agenda items are enticing: breakthroughs into new markets or products, perhaps, or a step-change improvement in productivity. Experience shows, however, that devising grand plans on a leadership retreat is the easy part. The really tough part is the delivery.

Typically, a leadership team, once it has formed its strategic plan, will present it to the staff – often with long PowerPoint displays and jargon. They are then surprised and disappointed that people either don’t ‘get it’ or don’t implement it, or both.

Much time has to be spent handling the fall-out: repeating communications initiatives that have failed, and dealing with queries and complaints.

In extreme cases, a poorly executed strategy can lead to plummeting morale, loss of talent and a downward spiral for the organisation.

At Sheppard Moscow, we encourage the organisations we work with to adopt a radically different approach, one that includes staff at all levels of the business in discussions about strategic plans. This does not mean letting go of the leadership responsibility – the senior team still makes the decisions. But they do so by holding deep conversations with associates throughout the company, to understand the local reality, elicit new ideas, and ensure staff are kept informed of the strategic intent and their role within it.

It is not a softer option than ‘command and

Keep them informed: include staff in strategy discussions

control’; it requires rigorous discipline and holding people to account. But the discipline is maintained through shared values and understanding, not rules and regulations.

It is a highly efficient way of working: although a significant amount of time and investment has to be made initially to hold meaningful

Ready for take-off?

The UK’s stagnant economy is reliant on the growth of mid-size companies. But how can these firms successfully navigate the turbulent financial skies?

It may not feel like it, but the UK’s mid-size businesses are about to climb out of the country’s economic gloom.

Industry giants are still recalibrating their operations for a financially cautious world, while many small businesses are struggling to finance growth. Free of such baggage, mid-size companies have funds and liquidity. That gives them a ticket to explore the opportunities presented by an economic ill wind.

According to the recently released research from Calyx Managed Services, the leading independent managed service provider in the UK, just over half of the UK’s mid-size firms feel they have identified, or are already executing, their business re-engineering strategy. Called The Calyx Business Transformation Index, the findings can be viewed as a “snapshot” of the UK’s medium-sized businesses and where they are in the journey towards business transformation: Navigating such a turbulent world demands both control and agility. Medium-sized businesses need rigid, sleek and efficient operations combined with the ability to support additional growth without the need for heavy upfront investment. That mix delivers mid-size businesses the ability to transform themselves in these otherwise difficult times.

IT has been a key enabler of business transformation, creating new business models

and ways of working that have greatly rewarded those companies that embrace them. Indeed the Calyx research shows that 74 per cent of mid-size firms regard IT as central to business transformation.

However, for 42 per cent of firms, the biggest challenge is not making the IT work effectively, but changing corporate objectives. In other words, it is not the journey itself that is the challenge but the choice of destination. That is perfectly understandable. Operating in such a difficult climate, it is extremely hard to plot a course. Fundamental challenges, and golden opportunities, can present themselves at short notice.

It is perhaps no surprise then that the top three technology innovations for transforming daily operations are managed services and softwareas-a-service (72 per cent), virtualisation (60 per cent) and cloud computing (53 per cent). All three deliver flexibility, and are based on more of a rental or pay-as-you-go model than traditional IT. With shifting corporate objectives and fewer internal resources, managed services and software-as-a-service IT models become more attractive. They allow businesses to quickly transform and focus on developing the business operations that matter to them most, while still supplying a platform for innovation. Virtualisation breaks the link between software and hardware,

conversations and communicate fully, typically with this route communication only has to be done once rather than repeatedly.

Much of Sheppard Moscow’s work with organisations developing their strategy has been to engage as many people as possible in that strategy through a large-scale conference.

At such an event you can create an environment whereby people genuinely contribute on an equal basis with their peers, so that everyone can contribute to the core elements of strategy.

The process of involvement and engagement connects people to each other and to the task and builds relationships that open up channels of communication for the future. This results in a culture of trust, creativity and collaboration.

We believe it is also essential to tie the ‘people’ exercises to real business issues. Too many companies restrict strategic discussions to a tiny clique, and then indulge in teamworkbuilding exercises that are non work-related, such as games or outdoor pursuits. Sheppard Moscow’s teamwork involves discussing live commercial matters, such as emerging markets or product development, exploring specific roles and new approaches. There will still be space for socialising, but business and team development are seen as being part of the same initiative.

Many business strategies fail, but not all do. In our experience the difference lies in the execution; and the execution depends upon building a full and shared understanding of where the business needs to go, and people’s role within it.

Roger Vicarage is a partner at organisational development consultants, Sheppard Moscow Tel: +44 (0)20 7929 9650 www.sheppardmoscow.com

Number/ category

Category – organisations’ progress on ‘transformation journey’ Category 1: Held in departures: Organisation is a laggard in transforming its business

16%

Category 2: Stuck in airport security: Organisation is “behind the curve” in transforming

25%

Category 3: Ready for take off: Business re-engineering strategy has been identified

32%

Category 4: Successful take off: Strategy is being executed

21%

Category 5: In cruise control: Organisation is executing its plans; it’s now planning the next stage of transformation TOTAL offering considerable cost savings and again increasing the ways that IT can be configured to suit a fast-changing company. Cloud computing too allows IT functions to operate without the need to own and operate a traditional IT infrastructure.

Through these carefully managed services, fundamental issues such as data security (identified by 60 per cent of IT directors surveyed as a major concern) are handled by a professional third party whose core competency is business IT systems. That allows other companies, in turn, to focus on their core competencies. As a mid-size company, do you own a private jet or

6% 100%

use an airline to travel? Why should this be any different for your IT? The UK’s stagnant economy is reliant on the growth of its mid-size companies, its healthiest sector. Without doubt these companies have to fly in foggy conditions, but the agility with which they can operate, and the speed they can transform, is hugely improved through the use of modern technology.

For more information, Tel: 00 44 (0) 844 855 9173 www.calyxgroup.com

Business Reporter · December 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Business execution

Expect the unexpected When the winds of circumstance changes, businesses must bend with them. Whether it’s a terrorist attack or a dip in demand, firms need to show foresight and flexibility to make the most of whatever is thrown at them

Clancy: putting resources into well-performing sectors

Focus on flexibility Neville Bain sets out the key stages for boards in creating an adaptable business strategy The stages in a strategy process are not universal, but will usually encompass the following areas.

A strategy statement needs to set out briefly what the current strategy is. It will typically include the organisation’s vision, mission and values. But directors also need to consider if past strategy implementation has delivered the milestones agreed on.

In addition they need to review the broader environment (including the competitive), for changes that may affect the strategy or the pace of delivery of the objectives. Using this information the board should consider the key issues for their organisation.

Implementation plans need to look at alternatives should the strategy need to change along with a risk profile of these options. The formal strategy needs to have regard for these, too. It should also lay out the broad financials and the key milestones before being put to the board for approval.

Risk management starts with the strategy and is an integral part of this process. Wellmanaged firms will see risk assessment and management as a part of the ongoing business.

In the event of an unexpected and unpredicted risk (which would be unusual in a company with a robust risk management system), managers will need to propose changes.

In addition the board should automatically review the strategy.

In summary, strategy is a key process, not an annual event to be filed and forgotten. It

By Tom Nash When Harold Macmillan was asked what was most likely to blow his government off course, he replied: “Events, dear boy, events.” The same is true for businesses – carefully laid plans can lie in tatters when circumstances change.

And change they surely will. It could be through a sudden, unexpected crisis – fire, flood, terrorist attack or earthquake. Or it could be the result of an inexorable, longer-term trend – the ongoing financial crisis, perhaps, leading to a sustained fall in consumer demand, or the relentless march of technology that renders previously robust products and processes obsolete.

Leeds-based Turner & Townsend, now a global construction consultancy, didn’t wait for things to get tough before adjusting its strategy. Chief executive Vince Clancy says that ten years ago, the company’s revenues came largely from private sector contracts in the UK, “so we spent a long time developing a more flexible business model that would be resilient in good times and bad”.

The group achieved it by balancing private and public sector work in the UK, while also tackling new overseas markets. The recession in 2009 led to a sharp decline in business from debt-funded developers as they strove to conserve cash, but Turner & Townsend offset this with buoyant revenues from the public sector and regulated industries where investment was maintained.

It prioritised projects that were either long term (such as the 2012 Olympics), led by underlying demand (such as in the energy sector), or necessary to meet regulatory requirements (such as in the rail industry).

The group has since further reduced its exposure to the domestic market by accelerating overseas expansion with acquisitions. International operations now account for half its £236m turnover, up from 10 per cent ten years ago. “We’re in diverse markets and we’re channelling resources into the better-performing sectors where we can see a good return,” says Clancy. The company has had to be bold and agile for the strategy to succeed, swiftly moving people around the world to staff new offices.

Executive coach Jean Pousson, director of Board Evaluation, agrees that people are key to strategic flexibility. “Executives not only need to learn, they also need to unlearn tools, techniques and practices that may have served them well historically, but may no longer work,” he says.

And now customers have found a new voice, with levels of engagement that can force businesses to do U-turns.

“Remember Gap abandoning

13

Consequences: the 9/11 terrorist attacks had a huge impact on the aircraft industry

its plan to rebrand after a revolt on social network sites?” Pousson says.

“Never has success been so fragile. The process of strategy formulation needs to be 24/7 and no longer this once-a-year thing. The process needs to be democratised.”

According to Freek Vermeulen, associate professor of strategy at London Business School and author of a recent book, Business Exposed, many companies are not well-equipped to adapt to changes in circumstance.

“It is in the nature of organisations to be rigid.

Just about everything they do, from grouping people into departments to their communications processes, makes them inflexible.”

Vermeulen draws a key distinction between how companies react to sudden change or crisis, and longer- term trends that require a shift in strategic thinking. He argues that a short-term crisis, typically leading to a sharp but temporary fall in demand for products, or a hiatus in the supply chain demands an immediate operational response.

One example was 9/11, which led to a huge drop in passengers for airlines, while aircraft manufacturers were stuck with scores of planes on their inventory. Then there’s the aftermath of this year’s earthquake and tsunami in Japan, when global car-makers struggled to source components..

In such dire circumstances, plans must already be in place – it is a corporate governance requirement for every listed UK company to conduct a structured process of systematic risk analysis, with a formal report going to the board. This routine identifies and quantifies every risk, in terms of likelihood and consequence, names the key manager who owns each one, and sets out ways of mitigating it.

Vermeulen argues that with risk management

and business continuity plans in place, responding to a crisis is relatively easy from a strategic perspective.

“If survival is threatened, the typical response is to cut the cost base, although it can pay to be brave and look for new sources of revenue,” he says.

Of course, suddenly changing circumstances aren’t always for the worse. Unseasonably cold weather, for example, could mean a spike in demand for energy producers, while the latest toy might unexpectedly benefit makers and sellers.

Neville Bain, who has served on the boards of some of the UK’s best-known businesses including Royal Mail and Cadbury-Schweppes, and now chairs the Institute of Directors, suggests the immediate response to such short-term success should be to “reorganise production and supply to make the most of it, but then take a longer view as to whether this is a permanent change that should be risk-assessed, leading to a strategic overview” (see box).

Ajaz Ahmed, a retail veteran who founded internet service provider Freeserve in 1998, urges businesses to learn from the retail sector. “I preach to people all the time to go shopping, but don’t buy, just look at what retailers are doing, as you’ll learn so much about psychology, adaptability and speed of response,” he says.

“Supermarkets adjust staffing every day, always have the right level of stock and even employ meteorologists to predict the weather.”

While sudden changes in demand don’t necessarily require strategic flexibility, subtler, longer-term developments are more likely to.

LBS’s Vermeulen says that it’s vital for companies to try to anticipate: “Once you’re confronted with a problem, it’s a lot more difficult. Animals put on body fat in the summer, they don’t wait until the winter or they’ll starve.”

needs to be updated and reported on through the year, especially in conditions of significant change.

In addition, risk assessment and management is rooted in the strategy and high-level risks will be reviewed regularly by the board.

Finally, changes in the environment or the appearance of new, significant risks need to be dealt with speedily and the company must consider whether its processes will allow a sufficiently speedy reaction.

Neville Bain is chairman of the Institute of Directors and author of The Effective Board, published by the IoD and Kogan Page.

Bain: manage risk and strategy

Business Reporter · December 2011

14

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Turn your plans into reality One company offers a new approach to the tried-andtested management tool of the balanced scorecard It’s one thing to have plans, but executing those plans is just as crucial as coming up with the strategy in the first place. And that’s where the balanced scorecard comes in.

The balanced scorecard is a tool that has been honed by 20 years’ use in both the private and public sectors – and it’s so much more than a collection of metrics and targets.

2GC Active Management’s balanced scorecard methodology can help businesses to implement What is influenced by balanced scorecard in your organisation?

83%

Business Actions

58%

Behaviours

63%

Appraisals

Individual Rewards Team Rewards

33%

25% 2011 2010

their strategies and plans, align the organisation behind one plan, and communicate what is needed far and wide in the organisation.

So how does it work? Success is found through the application of sensible design processes reliant on a workshop approach – which will deliver consensus among managers on the content of the balanced scorecard – combined with disciplined review processes to ensure that managers are tracking the success of their plans on a regular basis.

To better align the organisation behind one plan, the same process can be used a number of times in different divisions, units, departments and functions. Control comes from using the same process – not from dictating the same objectives at all levels – allowing management teams to reflect their own roles and responsibilities in their balanced scorecard.

There have been crucial developments in the methodology and usage of the balanced scorecard in the years since its inception. These include the use of workshops involving the decision-makers to create a “destination statement” – a picture of success in the medium-term to allow goals and targets to be pinned down – and to form agreement on priorities.

This destination statement is designed to avoid a common problem of having a general agreement to plans, such as: “We will all travel to a tropical island…yes, we are all happy with

Tracking execution of strategy involves a variety of measures

that”, and finding that tickets are booked for Barbados by the marketing director, Koh Samui by the finance director and Mauritius by the CEO. Another development is the strategy map – a combination of outcomes expected and the activities needed to be successfully completed to improve those outcomes – which links your project management to your performance management reviews.

Who uses the balanced scorecard? A high number of organisations around the world, according to a regular survey of management tools and trends by Bain & Co, which found that it is the sixth most-used tool used (after essentials including strategic planning and budgeting).

An in-depth survey by 2GC Active Management

looked at how balanced scorecards are used, what organisations are doing with the process, and which elements are included. This year’s results found that in three out of four cases, balanced scorecards were judged to be valuable or extremely valuable.

It also found that 70 per cent have a strategy map and/or vision/destination statement linked to their balanced scorecards, and that they are linked to other key processes including planning (80 per cent), budgeting (70 per cent), and quality and risk management in half the respondents.

For more information, call William Barney on 01628 421506 or visit www.2gc.co.uk

commercial feature

Excellence in execution The pressures of the global financial crises have had an interesting impact on the implementation of business strategy. Leaders today are under tremendous pressure to deliver on their strategy promises to shareholders.

In the past when a company failed to deliver their strategy they have adopted a new strategy or lowered the expectations to the shareholders. And they did fail, more often than not.

Our 11 years in research across governments, multinational and indigenous companies in four continents, revealed that companies fail to

implement their strategy nine out of ten times. This is a horrific failure rate and the recession has brought it to the forefront.

Business leaders need the skills and abilities to not only craft the right strategy but also to implement it successfully. In the past they have habitually underestimated the whole implementation challenge, for example once they crafted the strategy they sat back and delegated the implementation.

It is much tougher and more complicated than they expect and a good st rateg y is not wor th the paper it’s written on if it can’t be implemented successfully.

T he r e i s a si mple implementation rule of thumb, which is 1x strategy, 2x implementation. Whatever effort, investment and time you have put into crafting the strategy, at least double it for the implementation. But this is only the start.

The current market situation is also becoming more challenging. Leaders must now implement strategy more frequently than ever before, as strategies are becoming shorter and shorter.

Twenty years ago strategies were crafted for five or even ten years. Today in many industries

they are for two or three years. This means that we must become better at executing them.

To be excellent in execution, leaders must recognise that implementation is a business differentiator and it requires taking the right actions in the right areas. When they return to their businesses after crafting the strategy they are left mostly on their own to figure out what to do. In crafting strategy there are many frameworks, models and consultants to support its development that implementation does not have.

Robin Speculand

When we were reviewing our research, we started to notice a pattern among the one in ten companies who excel in execution. We noticed that they did eight things well and simultaneously.

Executing strategy is just as tough as crafting the right strategy. When leaders recognise this they will naturally start to pay more attention to implementation.

Strategy is about making the right choices.

Implementation is about taking the right actions.

Robin Speculand, the founder and chief executive of Bridges Business Consultancy, a global pioneer in the field of strategy implementation.

Email: bridges@bridgesconsultancy.com www.bridgesconsultancy.com/index.html

The eight areas that leaders must address to be excellent in execution are: People Are you supporting the staff members who are supporting the strategy implementation?

Business case Do your staff members know why it is urgent to adopt the new strategy?

Communication Is everyone constantly communicated to about what’s working, what’s not and what’s going to happen next?

Measurement Are your measures tracking the old strategy or the new strategy?

Culture Is the implementation aligned to your culture?

Process Do staff members have an opportunity to change the daily processes to meet the requirements of the new strategy?

Reinforce Are the behaviours and actions required to implement the new strategy encouraged and reinforced?

Review Do you discuss the strategy implementation more or less than operational challenges?

Business Reporter · December 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

15

Realise your opportunities The combination of a financial, operational and strategic plan is only half the battle. Getting the entire organisation involved is the real mark of success As a consequence of the recent global economic crisis, companies have had to refine their strategies in order to remain competitive and survive these troubled times. According to a 2011 survey on the competitiveness of businesses, conducted by Roland Berger Strategy Consultants, 83 per cent of companies worldwide regard continuous strategy reviews and refinements as being crucial to their competitiveness. This includes rethinking core strategies and adjusting business models.

Yet despite the adoption of well-intentioned strategies, managers often struggle to execute them effectively as they often require the involvement of the company’s entire organisation. So, what does it take to successfully implement new strategies?

Roland Berger Strategy Consultants looks at the key success factors for strategy implementation.

Integration “Significantly better results (on average +136 per cent) are delivered when a rigorous and integrated financial, operational and strategic plan is developed,” says Klaus Kremers, partner of Roland Berger Strategy Consultants UK. This could include, among other factors, ensuring a strong, competitive positioning in the market and improving the business’s value creation structure while optimising processes, such as purchasing

and manufacturing, as well as determining quantifiable KPIs. “Integrating the activities and targets of all line managers and departments is vital to developing a comprehensive approach,” says Kremers.

Leadership In implementing the strategy, clear and determined leadership coupled with a structured and quantifiable plan is essential to ensure success. Kremers explains: “Responsibility for the plan needs to be allocated to a specific person or team who will be in charge of steering the implementation. Their tasks should include setting milestones, ambitious objectives and clear responsibilities, defining quantifiable targets and delineating the project’s actual organisation. A common mistake is to deploy employees who happen to be available at the time. To ensure success it is crucial to empower the best employees with the right skills.” Detailed action plans with timelines are essential.

“Experience shows that ‘quick wins’ at the beginning of the implementation phase send out a strong signal to the company,” says Kremers.

They demonstrate that the new vision defined by top management is a winning strategy and motivates the employees who are in charge of executing this vision.

Communication: navigate your employees in the right direction

Monitoring Kremers says: “Ongoing monitoring of success is essential if implementation is to succeed. What differentiates successful implementation is the set-up of an adequate controlling structure.” A common mistake is to ignore local specificities and needs due to excessive centralisation.

Management should acknowledge this and ensure a balanced control between headquarters and regional offices. The best way to design an effective controlling structure is to draw up a master plan illustrating the links between the individual projects and to apply monitoring measures rigorously. This way, the specific progress of initiatives and their impact on results can be verified and the effectiveness of

the strategy implementation can be assessed regularly. This provides swift feedback about the progress of execution to top management, who needs to be confident that the company is progressing rapidly in the right direction.

Based on Roland Berger’s extensive experience of designing and implementing strategy change, Kremers says: “A successful and competitive company is not defined by finding new opportunities. Rather, it is one that actually realises new opportunities. And such realisation can only be achieved through fully integrated, measurable and monitored implementation.”

Call +44 (0)20 3075 1102 or visit www.rolandberger.com

To comment on this report, visit

business-reporter.co.uk

business-reporter.co.uk