Strategy execution and performance

Managing strategy differs from managing operations. However, both are vital and need to be integrated and linked. Operational excellence may lower costs, improve quality and reduce process and lead times; however, without the vision and guidance of a strategy, a company is unlikely to enjoy sustainable success from its operational improvements alone (Kaplan and Norton, 2008: 1). Gaps often exist between strategic high-level plans and operational execution despite the use of many available tools, such as mission, vision, values, and external and internal operative analysis tools (e.g. SWOT, Porter’s five forces, resource-based views, Blue Ocean and disruptive strategy). This described execution gap is very much a reality in the studied service industry.

Kaplan and Norton (2008: 8) formulated a management system for integrating strategy planning and operational execution using six major stages (see Figure 17).

This system is a basic tool and framework for a strategy plan and includes execution processes, updates and adaptations. Their book presents practical ideas for implementing these six stages (Kaplan&Norton 2008: 9-18).

Figure 17. The management system: linking strategy to operations (Kaplan &

Norton 2008: 8)

The Blue Ocean strategy defines three Es, which depict mutually reinforcing elements and principles for a fair strategy process: (1) engagement – involving individuals in strategic decisions by asking for their inputs and refuting ideas and assumptions, (2) explanation – everyone involved understands the basics of the strategic decisions and (3) expectation clarity – after a strategy is set, managers state clearly the rules of the game. These three E principles and criteria collectively lead to a fair judgement of the process (Kim & Mauborgne 2005: 175-176).

Nilson, Martin and Powers (2011: 147-156) summarized five traits to effective strategy execution:

- Everyone has a good idea about the decisions and actions for which he or she is responsible.

- Important information about the competitive environment reaches headquarters quickly.

- Once made, decisions are rarely second-guessed; clarified decisions, rights and responsibilities.

- Information flows freely across organizational boundaries.

- Field and line employees usually have the information they need to understand the bottom-line impact of their day-to-day choices.

10 issues to tackle are introduced when improving performance, profit and accelerating growth to making the company a vibrant and joyful place to work (Connors, Smith and Hickman 2004: 199). These most threatening unresolved organizational issues are poor communication, people development, empowerment, misalignment, entitlement, work and personal life imbalance, poor performance, senior management development, cross-functional strife and

‘programitis’.

Sinek (2009: 6) claimed that great leaders are able to inspire people to act. Those who are able to inspire give people a sense of purpose or belonging that has little to do with any external incentive or benefit to be gained. The role of the leader is to create an environment in which great ideas happen and great companies give their people a purpose or challenge around which to develop ideas (Sinek 2009:

99-100). Passion comes from feeling that you are a part of something you believe in, something bigger than yourself. Vision is the public statement about why the company exists; it is the vision of a future that does not yet exist. The mission statement is a description of the route, the guiding principles of how the company intends to create that future. In the organization, why types are focused on the things most people cannot see, such as the future. How types are focused on things most people can see and they tend to be better at building structures and processes and getting things done. Those who know why need those who know how (Sinek 2009: 140). Why and how actions are followed by what, which has to align with them. What actions can be changed with time when needed, but never why (Sinek 2009: 155). When people know why you know what, they are willing to give you credit to execute targets (Sinek 2009: 201). Leadership requires two things: a vision of the world that does not yet exist and the ability to communicate it (Sinek 2009: 228).

The future of business is largely formed by the present management’s performance in four areas: appropriating capital, people decisions, innovations, and strategies versus performance (Drucker 1980: 68-71). Drucker (1992) summarized five simple measurements for business performance to control its execution: firstly, measure whether the market is going up or down and whether the improvement is in the right markets. Secondly, measurement of innovative performance, which

refers to whether the company’s achievement as a successful innovator in its markets is equal to its market standing. Thirdly, productivity measurement, which relates the input of all major factors of production – money, materials, people – to the added value they produce. Each factor has to be measured separately. Fourthly, measurement of liquidity and cash flow – a business can run without profits for many years provided it has adequate cash flow; however, the opposite is not true.

Finally, a business’s profitability, which shows the capacity of a company’s resources to produce profit, excluding profits and losses from non-recurring transactions and overhead-cost allocations (Drucker 1992: 264-266).

Several academics have explored quality and profitability, customer satisfaction and production reliability in service businesses and their relationships (Kostama&Toivonen 2011: 350). The financial limitations imposed on quality improvement have been measured (Kano et al. 1984). Porter (1985) argued that achieving cost leadership and product differentiation simultaneously is not possible since differentiation is normally costly.

The basic economics of service production comprise the concepts of productivity, profitability, efficiency and effectiveness (Djellal & Gallouj, 2008, Sundbo &

Toivonen 2011: 352). In service industries, the produced output may be difficult to measure in quantitative terms. Therefore, they suggested that profitability is the perspective best suited to the economic analysis of services and that applying a managerial accounting methodology would be effective. Kaplan and Cooper (1998, Sundbo & Toivonen 2011: 352) developed a sophisticated accounting procedure called the ‘Activity-Based Costing’ (ABC) model (Figure 18). This model is the sum of the costs of all traceable activities/business processes related to services, which include capital investment, variable costs, variable labour costs, overhead costs and revenue (including costs relating to new service innovations and development).

Figure 18. The Active-Based Costing (ABC) model (Sundbo & Toivonen 2011:

352).

Connors et al. (2008) discussed getting results through individual and organizational accountability. They introduced the 10 most threatening unresolved organizational issues: poor communication, people development, empowerment, misalignment, entitlement, work and personal life imbalance, poor performance, senior management development, cross-functional strife and

‘programitis’. They briefly explained the meaning of each issue and offered solutions. As an example, they advised confronting poor performance in a precise, constructive and supporting way and accepting constructive feedback daily.

Regarding ‘programitis’, they stated that there are too many managerial ‘isms’, which are proposed to solve ‘all’ problems easily without hard evidence and accountability (Connors et al. 2008: 197-198).

Kotter (1996:21) introduces an eight-stage process to carry out successful organizational transformation and implement a strategy and necessary changes:

(1) establish a sense of urgency, (2) create a guiding coalition, (3) develop a vision and strategy, (4) communicate the change vision, (5) empower broad-based action, (6) create short-term wins, (7) consolidate gains and produce more change and (8) anchor new approaches in the culture.