John Mullins and Randy Komisar. Getting to Plan B

 

The book Getting to Plan B: Breaking through to a better business model, written by John Mullins and Randy Komisar, contains several important lessons, primarily for start-up entrepreneurs, on developing successful business models. Though very repetitive around a few key ideas, the book is well worth reading especially for those who want to better understand how the business model is reflected in the different financial statements. with interesting examples from: Amazon, Apple, Celtel, Costco, Dow Jones & Company, eBay, GlobalGiving, GO airlines, Google, Oberoi Hotels, Pantaloon, Patagonia, Ryanair, Shanda, Silverglide, Skype, Southwest Airlines, Toyota, Walmart, Zara and ZoomSystems.

The book in three bullet points:

The business model concept is in the book defined as the pattern of economic activity comprising of five key elements that together determines the viability of any business. The five key elements being the revenue model, the gross margin model, the operating model, the working capital model and the investment model. Companies are successful when the five elements work together.

Getting to Plan B is about the process of discovering a business model that works, with the assumption that the initial plan is most often wrong. The discovering process can be made systematic by constantly formulating different hypothesis and measurements and continuously follow up and iterate the business model into a new Plan B.

The starting point for a new business model is to learn from successful examples worth mimicking in some way and examples to which you explicitly choose to do things differently, where the ultimate judge is the customers and the cash flow generated from your business model.

A brief summary of the different chapters:

1. Don't reinvent the wheel, make it better - the concepts of analogs (successful predecessors), antilogs (predecessors that you want to differ from), and Leaps of Faith (beliefs about answers with no evidence) is covered with the key take out to learn, mix and match to create your own business model, to experiment to test different hypothesis to prove or refute them.

2. Guiding your flight progress - the concept of dashboarding (a systematic way to guide experiments and track results) is presented with examples showing that measuring of specific parameters or results increases the focus of the company's activities, and that the dashboards, including parameters and goals, need to evolve over time based on the learnings they uncover.

3. Air, food and water - the chapter, focusing on revenue models, hits home two important points: the importance of resolving customer pain or providing customer delight, and the need for actual evidence of how customers are likely to respond. To develop a revenue model questions that need to be asked are: Who will buy? What will they buy? Why will they buy? How soon, how often, and how many will they buy? With what effort and cost on your part? At what price will they buy, and on what basis will they pay?

4. Avoiding rocks and hard places - the topic for the chapter is gross margin models; the spread between the price at which products and services are sold and the cost of selling those (COGS). The key messages with the chapter are that digital technology enables gross margin models in which COGS approaches zero, that a superior gross margin model creates leverage that can be applied differently depending on strategy, and finally the fact that pricing decisions should be value-based and not cost-based.

5. Trimming the fat - is a short chapter on operating costs; all the day-to-day costs that must be incurred in addition to COGS. Key ideas are that by doing things differently in relation to other actors in the industry, operating cost can be lowered or eliminated, and by starting the analysis at the most costly or scarcest resources in the industry areas for business model innovation might occur. Another key point is that adding costs might also enhance the customers' experiences and willingness to pay premium prices, so cost cutting is not always the answer to profitability.

6. Cash is king - is according to me one of the more important chapters in the book as the balance sheet, working capital and cash management is often forgotten in business model discussions. Different industries and business models requires different amount of working capital (the cash a company needs to keep the business running) and all elements in the business model have implications for the cash generated and the cash consumed. From page 139: "Failure to earn a profit won't put you out of business, as long as you still have cash. But if you run out of cash, even if you are profitable, you'll be gone in a heartbeat"

7. It takes money to make money - focus on the investment needed to get the business started and through the period until it can generate enough cash itself, and the general goal (there are exceptions) is to find a way to get to breakeven with as little investment as possible. The authors mention some of the many trade-offs involved with external funding from different sources, but primarily focus on venture capital. The conclusions are: Less investment means giving away less of the business, less credibility lost when leaving a business model for another, and fewer sleepless nights if you've mortgaged your house.

8. Can you balance a one-legged stool? - tries to summarize, at least on a conceptual level, the different elements of the authors' definition of a business model, and their implications on one another. The conclusion is that the revenue model, gross margin model and operating model directly affect the working capital model, and these four models directly affect the investment model.

9. Getting started on discovering your Plan B - ends the book where it started with a focus on the talented and visionary entrepreneur. In the beginning of the book there were statements such as "Intuitively, as is almost always the case for committed, passionate, entrepreneurs, they felt that the answers to all five questions were yes" (p29) and in the end "dreaming your entrepreneurial dream" (p214)...

A quick comparison with some other popular books on business models:

Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengersby Osterwalder and Pigneur, atempts to introduce a standard language and format for analyzing and innovating business models based on the business model canvas. Getting to Plan B define the business model concept in financial terms and is not overlapping with this book. See my review here

Seizing the White Space: Business Model Innovation for Growth and Renewalby Mark W. Johnson, explores the circumstances when a new business model might be needed from an incumbent perspective, with several classic examples. See my review here

Open Business Models: How to Thrive in the New Innovation Landscape by Henry Chesbrough has a heavier focus on technological innovation in the context of business models and also covers the important area of Intellectual Property in relation to open business models.

The Ultimate Competitive Advantage: Secrets of Continually Developing a More Profitable Business Model by Mitchel, Coles, Golisano and Knutson, has a heavier focus on marketing with some ideas and questions relating to one-sided business models, so if you are looking to "sell more" perhaps you like this book. See my review here

The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow's Profits by Slywotzky, Morrison and Andelman, has a heavier focus on profitability and the changing areas in which high profit is possible to keep, it is a quick read. See my review here

All in all, the book is somewhat repetitive and rather long for the ideas it delivers, but with many interesting examples and important chapters on gross margins, operating costs and cash flow, it is well worth reading and a good complement to other books on business models not going into the financial details.

https://bitly.ws/3gXYg

6 Reasons Why Teams Fail

 

Written By The EBW Global Team

Over the past couple of decades, a cult has grown up around teams.

There is a strong belief that working in teams makes us more creative and productive and it is so widespread that when faced with a challenging new task, leaders are quick to assume that teams are the best way to get the job done.

I bet as you are reading this you are thinking the same…

Yet research (Hackman et al etc.) has consistently shows that teams, especially disruptive teams (teams that are made up of strong personalities, expertise and experience) often fail to deliver on their potential.

Here are the 6 common failure points that stop teams reaching their potential:

No compelling vision (or goals)

It is not that teams don't start with a vision or even objectives, it is just that organisations change and teams often don't. The vision is often no longer compelling enough to focus and drive the behaviour of the team to meet its goals.

Absence of Identity

For many being part of a team is seen as an addition to their day job or their work passion. They don't feel the level of attachment or accountability to their team or its objectives to truly make it successful. Or they are part of multiple teams, so their loyality and resources are stretched. leaving them confused about which which team goals do they prioritise...

Lack of Commitment

Whilst team members often have a strong belief in their own abilities to succeed this does not necessarily translate into the conviction (and the extra discretionary effort) that everybody on the team has the right skills and commitment to help the team achieve its goals.

Levels of Distrust

When you ask team members if they trust their colleagues, they will often say “of course” but ask them if they think team members look out for their best interests or the teams or their own, then you get a true indication of the level of trust within the team. Teams can fail to reach their potential because of the uncertainty that people feel about their team members, especially their ability to focus on the team goals.

Inadequate Communication

It may seem obvious that if you are in a team you need to communicate and collaborate, but many teams do not deliver on their potential because the team focuses on priorities that close down discussion, which results in people not speaking out, listening and sharing their ideas.

A failure to work together (Working in silos)

Teams on paper that should produce outstanding results (they have successful people in them, with great experience and expertise) fail because when things are difficult they don’t pull together as a team.

So here the thing, do you recognise some or all of these failure points?

Are you interested in knowing how to build Emotional Intelligent teams that will not succumb to these issues?

https://www.ebwglobal.com/

Top 12 Reasons Startups Fail

 This is a great article by CBInsights that summarizes the reasons that were found by investigating over 1o0 startup post-mortems.  Here is a link to the article with great anecdotes:

https://cutt.ly/u3RpmIh

5 Factors Influencing the Sales Performance Gap

 

by Lisa Leitch, CSP2 

Only 53% of sales performers achieve their sales goals each year. This year, this number will drop below 49% and many of my sales colleagues and experts are forecasting it could be closer to 40%.  Some industries like home renovation & building materials, pet supply and janitorial/cleaning are seeing a major up-swing in the increase in sales…and even these sales performers are being impacted by these 5 factors.

In working closely with sales leaders and their sales teams, we have identified these top 5 factors that are influencing sales performance, and what you can do to combat them to close the gap…

1. Human Disconnection

Most sales professionals are outgoing social creatures who thrive on relationships, bringing people together to secure the deal and being road warriors.  Sales pros are feeling disconnected from their clients, fellow sales team members, and even from their sales leaders. Lack of F2F human interaction, collaboration and networking is disconnecting sales professionals, and in turn, they’re becoming less motivated and enthusiastic. Ways to combat this would be implementing 1:1 Coaching Calls, daily huddles, virtual coffee breaks, and ringing the bell when securing sales.  A simple way to eliminate disconnection is turn on your video during virtual calls and ask your customer to turn on their camera – it will build rapport, trust and can turn into business!

2. Commitment

Salespeople are feeling less committed to their roles, which can greatly impact their sales performance. The decreased motivation sent people into a ‘service’ vs ‘sell’ mindset to be more sensitive to their clients during these uncertain times of COVID, though it often results in pushing goals to the back burner. Low commitment can change by creating stronger goals that will get a sales professional excited to take their sales performance to the next level of sales success, and aligned to the company goals.  Choosing a personal goal to work on after work hours will increase productivity and commitment when working, especially when these goals are shared with managers to increase accountability. A new hobby or interest can ignite an internal spark.

3. Prospecting

Due to lack of tradeshows, events, and travelling, prospecting has taken a hard hit during COVID,  exposing a major gap in sales performance. The lack of tradeshows, live meetings, drop-ins, and conferences leaves salespeople dry for leads and forces harder prospecting. A way to combat this is by committing to a 90-day virtual prospecting blitz.  A simple strategy of 5 prospecting calls by 5pm, or even 10 calls by 10am – along with the double whammy approach will generate more leads.

4. Presenting solutions to solve a problem

In this virtual-selling reality, simply sending a quote or proposal via email and hoping it gets a “yes” is not going to cut it. Salespeople must demonstrate GRIT, by being more creative and proactive in their presentations now that they are virtual. Schedule a virtual call to present your solution to them, and make sure your proposal actually solves a problem! If you can demonstrate what problem your solution solves and how it would benefit the buyer, your chances of scoring a “yes” improve dramatically.

5. PURPOSE Consultative Conversations.

Too many salespeople are unsure how to conduct a great virtual call and are bumbling through the call frustrating themselves and even the buyer for not being purposeful.  Our PURPOSE Conversation is a proven framework that will build confidence in a simple step-by-step approach to demonstrate you are being consultative right from preparing for the meeting, all the way through executing next steps. Download our complimentary PURPOSE Conversation template from our Tools & Templates page here.

Closing these gaps is incredibly important, ignoring them will only make them widen and push sales goals further out of reach. Being aware of these performance gaps is the first step on the road to sales recovery.

https://bit.ly/339No0B

Innovating in Zeroes: Skype Co-Founder finds Lessons in Failure

“No one really thought it was going to work but, actually, it went okay.” That is how Jonas Kjellberg, entrepreneur and investor, described the sentiment around one of his most famous ventures — Skype.

Kjellberg has always been interested in disrupting traditional systems, and he recalled some of his business successes and failures at the 2017 European Investment Conference in Berlin, offering plenty of advice for budding and experienced entrepreneurs alike.

“The truth is, I lose more than I win,” he said. Among Kjellberg’s near-misses: a stint at a company that was failing fast. He could not figure out how to drive enough sales to keep it afloat. With his tail between his legs, he turned to his father, who put him in touch with a friend who was particularly successful in sales. The advice he received was so simple, he struggled to take it seriously: “Knock on 100 doors, get 10 responses, get one sale.”

“Sales is actually super simple — it’s math,” Kjellberg said. Today, when he looks for companies to invest in, he focuses on how they innovate in sales. All of the successful companies he’s worked with have built a compelling sales proposition.

“This is a science that most companies neglect,” he said. “The successful ones make it an art form.”

Innovating in Zeroes

Kjellberg introduced the audience to the concept of innovating in zeroes. What does it mean to innovate in zeros? Cut down your costs in ways that your competitors haven’t yet figured out.

For example, Airbnb has innovated in zeros by cutting out all hotel maintenance costs. How much does it cost Airbnb to clean one of its listed apartments? Nothing. How did Amazon innovate in zeros? It cut the costs associated with brick-and-mortar stores.

Skype is a prime example of this phenomenon as well. While traditional telecommunications companies invested in infrastructure, Skype piggybacked on the internet connections users already paid for to place calls.

Another way in which Skype cut down on costs: dropping customer service. Customer service can eat up a lot of a business’s capital and still leave customers unsatisfied. As Kjellberg noted, he was “often more angry after talking to customer service” than he was about the original problem. So he and his team made it impossible for users to call Skype.

While it’s a bold move to remove all customer-service options, many organizations havemigrated their customer-service models towards chatbots, another method that is cheaper than hiring rooms of human agents.

Extra Zeros

In some cases, innovation in cost cutting just isn’t possible. Kjellberg says the question you should ask yourself then is, “If I can’t innovate by zeros, what can I do to put an extra zero behind my price?”

But driving sales is not always enough to guarantee a successful long-term business. One of Kjellberg’s notable failures came before his time at Skype, and taught him the importance of understanding what users want — not just what boards want.

Kjellberg served as vice president of Bertelsmann for Lycos Europe, the second-largest search engine at the time. The same day he joined the organization, Google was founded. When the topic of buying Google came up, the company’s lawyers advised the board against it. Google was “totally overvalued, there is no business model,” they said.

“Google always talked about delighting the user,” Kjellberg said. “My motto had always been, ‘Always delight the shareholder.’ Users are something you bring through the door.”

Lycos tried a different model in an effort to fight off the challenge from the upstart search engine. “Do you think it was a success?” Kjellberg asked. “No. It was an epic failure. The company was listed on the Frankfurt Stock Exchange and now it’s gone.”

What did Google do differently? “They just made a better product,” he said. “And if you’re a simple sales guy, that’s not fair.”

The Friction-Free Story

There is another way to look at the success of companies like Google: through the message they send to potential customers. What is the friction-free story? If you don’t know what your message is and can’t explain it internally, there is no way your potential customers will understand it. If you’re at the head of the table and don’t know what your company is selling, how do you expect your employees to know? This concept parallels another partner of innovation, what Kjellberg calls “tomorrow’s delight.”

Tomorrow’s delight, Kjellberg says, is looking ahead to see how the market will change and getting in front of it, rather than sitting back complacently as other companies catch up and beat you at your own game.

He used the example of Volvo, “the pinnacle of Swedish engineering.” Volvo built its reputation and its friction-free story at a time when safety features constituted a unique selling point for an automobile. But Volvo didn’t change its messaging when safety became a commodity, and every car came equipped with the same features. After poor performance, Volvo was sold to Geely Holding Group, a Chinese automotive manufacturing company. Now, Kjellberg said, it’s “‘Scandinavian designed,’” and doing quite well.”

Business leaders should always be aware of what both established and upstart competitors are doing and how they may compete for the throne. More importantly, they should also understand why customers come to them in the first place.

In the end, success is relative. Its measures are as varied as the people setting them. Kjellberg defines it based on his own experiences: “Success is going from failure to failure with the same enthusiasm.”

By Candida DaFonseca

Top 10 startup mistakes

Why Strategy Execution Unravels—and What to Do About It

Donald Sull, 

Rebecca Homkes and 

Charles Sull

Since Michael Porter’s seminal work in the 1980s we have had a clear and widely accepted definition of what strategy is—but we know a lot less about translating a strategy into results. Books and articles on strategy outnumber those on execution by an order of magnitude. And what little has been written on execution tends to focus on tactics or generalize from a single case. So what do we know about strategy execution?

We know that it matters. A recent survey of more than 400 global CEOs found that executional excellence was the number one challenge facing corporate leaders in Asia, Europe, and the United States, heading a list of some 80 issues, including innovation, geopolitical instability, and top-line growth. We also know that execution is difficult. Studies have found that two-thirds to three-quarters of large organizations struggle to implement their strategies.

Nine years ago one of us (Don) began a large-scale project to understand how complex organizations can execute their strategies more effectively. The research includes more than 40 experiments in which we made changes in companies and measured the impact on execution, along with a survey administered to nearly 8,000 managers in more than 250 companies. The study is ongoing but has already produced valuable insights. The most important one is this: Several widely held beliefs about how to implement strategy are just plain wrong. In this article we debunk five of the most pernicious myths and replace them with a more accurate perspective that will help managers effectively execute strategy.

About the Research

Five years ago we developed an in-depth survey that we have administered to 7,600 managers in 262 companies across 30 industries to date. We used the following principles in its design.

Focus on complex organizations in volatile markets.

The companies in our sample are typically large (6,000 employees, on average, and median annual sales of $430 million) and compete in volatile sectors: Financial services, information technology, telecommunications, and oil and gas are among the most highly represented. One-third are based in emerging markets.

Target those in the know.

We ask companies to identify the leaders most critical to driving execution, and we send the survey to those named. On average, 30 managers per company respond. They represent multiple organizational layers, including top team members (13%), their direct reports (28%), other middle managers (25%), frontline supervisors and team leaders (20%), and technical and domain experts and others (14%).

Gather objective data.

Whenever possible, we structure questions to elicit objective information. For example, to assess how well executives communicate strategy, we ask respondents to list their companies’ strategic priorities for the next few years; we then code the responses and test their convergence with one another and their consistency with management’s stated objectives.

Engage the respondents.

To prevent respondents from “checking out,” we vary question formats and pose questions that managers view as important and have not been asked before. More than 95% of respondents finish the survey, spending an average of 40 minutes on it.

Link to credible research.

Although the research on execution as a whole is not very advanced, some components of execution, such as goal setting, team dynamics, and resource allocation, are well understood. Whenever possible, we draw on research findings to design our questions and interpret our results.

Myth 1: Execution Equals Alignment

Over the past few years we have asked managers from hundreds of companies, before they take our survey, to describe how strategy is executed in their firms. Their accounts paint a remarkably consistent picture. The steps typically consist of translating strategy into objectives, cascading those objectives down the hierarchy, measuring progress, and rewarding performance. When asked how they would improve execution, the executives cite tools, such as management by objectives and the balanced scorecard, that are designed to increase alignment between activities and strategy up and down the chain of command. In the managers’ minds, execution equals alignment, so a failure to execute implies a breakdown in the processes to link strategy to action at every level in the organization.

Despite such perceptions, it turns out that in the vast majority of companies we have studied, those processes are sound. Research on strategic alignment began in the 1950s with Peter Drucker’s work on management by objectives, and by now we know a lot about achieving alignment. Our research shows that best practices are well established in today’s companies. More than 80% of managers say that their goals are limited in number, specific, and measurable and that they have the funds needed to achieve them. If most companies are doing everything right in terms of alignment, why are they struggling to execute their strategies?

To find out, we ask survey respondents how frequently they can count on others to deliver on promises—a reliable measure of whether things in an organization get done (see “Promise-Based Management: The Essence of Execution,” by Donald N. Sull and Charles Spinosa, HBR, April 2007). Fully 84% of managers say they can rely on their boss and their direct reports all or most of the time—a finding that would make Drucker proud but sheds little light on why execution fails. When we ask about commitments across functions and business units, the answer becomes clear. Only 9% of managers say they can rely on colleagues in other functions and units all the time, and just half say they can rely on them most of the time. Commitments from these colleagues are typically not much more reliable than promises made by external partners, such as distributors and suppliers.

When managers cannot rely on colleagues in other functions and units, they compensate with a host of dysfunctional behaviors that undermine execution: They duplicate effort, let promises to customers slip, delay their deliverables, or pass up attractive opportunities. The failure to coordinate also leads to conflicts between functions and units, and these are handled badly two times out of three—resolved after a significant delay (38% of the time), resolved quickly but poorly (14%), or simply left to fester (12%).

Even though, as we’ve seen, managers typically equate execution with alignment, they do recognize the importance of coordination when questioned about it directly. When asked to identify the single greatest challenge to executing their company’s strategy, 30% cite failure to coordinate across units, making that a close second to failure to align (40%). Managers also say they are three times more likely to miss performance commitments because of insufficient support from other units than because of their own teams’ failure to deliver.

Whereas companies have effective processes for cascading goals downward in the organization, their systems for managing horizontal performance commitments lack teeth. More than 80% of the companies we have studied have at least one formal system for managing commitments across silos, including cross-functional committees, service-level agreements, and centralized project-management offices—but only 20% of managers believe that these systems work well all or most of the time. More than half want more structure in the processes to coordinate activities across units—twice the number who want more structure in the management-by-objectives system.

Myth 2: Execution Means Sticking to the Plan

When crafting strategy, many executives create detailed road maps that specify who should do what, by when, and with what resources. The strategic-planning process has received more than its share of criticism, but, along with the budgeting process, it remains the backbone of execution in many organizations. Bain & Company, which regularly surveys large corporations around the world about their use of management tools, finds that strategic planning consistently heads the list. After investing enormous amounts of time and energy formulating a plan and its associated budget, executives view deviations as a lack of discipline that undercuts execution.

Unfortunately, no Gantt chart survives contact with reality. No plan can anticipate every event that might help or hinder a company trying to achieve its strategic objectives. Managers and employees at every level need to adapt to facts on the ground, surmount unexpected obstacles, and take advantage of fleeting opportunities. Strategy execution, as we define the term, consists of seizing opportunities that support the strategy while coordinating with other parts of the organization on an ongoing basis. When managers come up with creative solutions to unforeseen problems or run with unexpected opportunities, they are not undermining systematic implementation; they are demonstrating execution at its best.

Such real-time adjustments require firms to be agile. Yet a lack of agility is a major obstacle to effective execution among the companies we have studied. When asked to name the greatest challenge their companies will face in executing strategy over the next few years, nearly one-third of managers cite difficulties adapting to changing market circumstances. It’s not that companies fail to adapt at all: Only one manager in 10 saw that as the problem. But most organizations either react so slowly that they can’t seize fleeting opportunities or mitigate emerging threats (29%), or react quickly but lose sight of company strategy (24%). Just as managers want more structure in the processes to support coordination, they crave more structure in the processes used to adapt to changing circumstances.

A seemingly easy solution would be to do a better job of resource allocation. Although resource allocation is unquestionably critical to execution, the term itself is misleading. In volatile markets, the allotment of funds, people, and managerial attention is not a onetime decision; it requires ongoing adjustment. According to a study by McKinsey, firms that actively reallocated capital expenditures across business units achieved an average shareholder return 30% higher than the average return of companies that were slow to shift funds.

Instead of focusing on resource allocation, with its connotation of one-off choices, managers should concentrate on the fluid reallocation of funds, people, and attention. We have noticed a pattern among the companies in our sample: Resources are often trapped in unproductive uses. Fewer than one-third of managers believe that their organizations reallocate funds to the right places quickly enough to be effective. The reallocation of people is even worse. Only 20% of managers say their organizations do a good job of shifting people across units to support strategic priorities. The rest report that their companies rarely shift people across units (47%) or else make shifts in ways that disrupt other units (33%).

Companies also struggle to disinvest. Eight in 10 managers say their companies fail to exit declining businesses or to kill unsuccessful initiatives quickly enough. Failure to exit undermines execution in an obvious way, by wasting resources that could be redeployed. Slow exits impede execution in more-insidious ways as well: Top executives devote a disproportionate amount of time and attention to businesses with limited upside and send in talented managers who often burn themselves out trying to save businesses that should have been shut down or sold years earlier. The longer top executives drag their feet, the more likely they are to lose the confidence of their middle managers, whose ongoing support is critical for execution.

A word of warning: Managers should not invoke agility as an excuse to chase every opportunity that crosses their path. Many companies in our sample lack strategic discipline when deciding which new opportunities to pursue. Half the middle managers we have surveyed believe that they could secure significant resources to pursue attractive opportunities that fall outside their strategic objectives. This may sound like good news for any individual manager, but it spells trouble for a company as a whole, leading to the pursuit of more initiatives than resources can support. Only 11% of the managers we have surveyed believe that all their company’s strategic priorities have the financial and human resources needed for success. That’s a shocking statistic: It means that nine managers in 10 expect some of their organizations’ major initiatives to fail for lack of resources. Unless managers screen opportunities against company strategy, they will waste time and effort on peripheral initiatives and deprive the most promising ones of the resources they need to win big. Agility is critical to execution, but it must fit within strategic boundaries. In other words, agility must be balanced with alignment.

VIDEO: Donald Sull explains why strategic objectives are poorly understood.

Myth 3: Communication Equals Understanding

Many executives believe that relentlessly communicating strategy is a key to success. The CEO of one London-based professional services firm met with her management team the first week of every month and began each meeting by reciting the firm’s strategy and its key priorities for the year. She was delighted when an employee engagement survey (not ours) revealed that 84% of all staff members agreed with the statement “I am clear on our organization’s top priorities.” Her efforts seemed to be paying off.

Then her management team took our survey, which asks members to describe the firm’s strategy in their own words and to list the top five strategic priorities. Fewer than one-third could name even two. The CEO was dismayed—after all, she discussed those objectives in every management meeting. Unfortunately, she is not alone. Only 55% of the middle managers we have surveyed can name even one of their company’s top five priorities. In other words, when the leaders charged with explaining strategy to the troops are given five chances to list their company’s strategic objectives, nearly half fail to get even one right.

Not only are strategic objectives poorly understood, but they often seem unrelated to one another and disconnected from the overall strategy. Just over half of all top team members say they have a clear sense of how major priorities and initiatives fit together. It’s pretty dire when half the C-suite cannot connect the dots between strategic priorities, but matters are even worse elsewhere. Fewer than one-third of senior executives’ direct reports clearly understand the connections between corporate priorities, and the share plummets to 16% for frontline supervisors and team leaders.

It’s pretty dire when half the C-suite cannot connect the dots between strategic priorities.

Senior executives are often shocked to see how poorly their company’s strategy is understood throughout the organization. In their view, they invest huge amounts of time communicating strategy, in an unending stream of e-mails, management meetings, and town hall discussions. But the amount of communication is not the issue: Nearly 90% of middle managers believe that top leaders communicate the strategy frequently enough. How can so much communication yield so little understanding?

Part of the problem is that executives measure communication in terms of inputs (the number of e-mails sent or town halls hosted) rather than by the only metric that actually counts—how well key leaders understand what’s communicated. A related problem occurs when executives dilute their core messages with peripheral considerations. The executives at one tech company, for example, went to great pains to present their company’s strategy and objectives at the annual executive off-site. But they also introduced 11 corporate priorities (which were different from the strategic objectives), a list of core competencies (including one with nine templates), a set of corporate values, and a dictionary of 21 new strategic terms to be mastered. Not surprisingly, the assembled managers were baffled about what mattered most. When asked about obstacles to understanding the strategy, middle managers are four times more likely to cite a large number of corporate priorities and strategic initiatives than to mention a lack of clarity in communication. Top executives add to the confusion when they change their messages frequently—a problem flagged by nearly one-quarter of middle managers.

Myth 4: A Performance Culture Drives Execution

When their companies fail to translate strategy into results, many executives point to a weak performance culture as the root cause. The data tells a different story. It’s true that in most companies, the official culture—the core values posted on the company website, say—does not support execution. However, a company’s true values reveal themselves when managers make hard choices—and here we have found that a focus on performance does shape behavior on a day-to-day basis.

Few choices are tougher than personnel decisions. When we ask about factors that influence who gets hired, praised, promoted, and fired, we see that most companies do a good job of recognizing and rewarding performance. Past performance is by far the most frequently named factor in promotion decisions, cited by two-thirds of all managers. Although harder to assess when bringing in new employees, it ranks among the top three influences on who gets hired. One-third of managers believe that performance is also recognized all or most of the time with nonfinancial rewards, such as private praise, public acknowledgment, and access to training opportunities. To be sure, there is room for improvement, particularly when it comes to dealing with underperformers: A majority of the companies we have studied delay action (33%), address underperformance inconsistently (34%), or tolerate poor performance (11%). Overall, though, the companies in our sample have robust performance cultures—and yet they struggle to execute strategy. Why?

Past performance is two or three times more likely than a track record of collaboration to be rewarded with a promotion.

The answer is that a culture that supports execution must recognize and reward other things as well, such as agility, teamwork, and ambition. Many companies fall short in this respect. When making hiring or promotion decisions, for example, they place much less value on a manager’s ability to adapt to changing circumstances—an indication of the agility needed to execute strategy—than on whether she has hit her numbers in the past. Agility requires a willingness to experiment, and many managers avoid experimentation because they fear the consequences of failure. Half the managers we have surveyed believe that their careers would suffer if they pursued but failed at novel opportunities or innovations. Trying new things inevitably entails setbacks, and honestly discussing the challenges involved increases the odds of long-term success. But corporate cultures rarely support the candid discussions necessary for agility. Fewer than one-third of managers say they can have open and honest discussions about the most difficult issues, while one-third say that many important issues are considered taboo.

An excessive emphasis on performance can impair execution in another subtle but important way. If managers believe that hitting their numbers trumps all else, they tend to make conservative performance commitments. When asked what advice they would give to a new colleague, two-thirds say they would recommend making commitments that the colleague could be sure to meet; fewer than one-third would recommend stretching for ambitious goals. This tendency to play it safe may lead managers to favor surefire cost reductions over risky growth, for instance, or to milk an existing business rather than experiment with a new business model.

The most pressing problem with many corporate cultures, however, is that they fail to foster the coordination that, as we’ve discussed, is essential to execution. Companies consistently get this wrong. When it comes to hires, promotions, and nonfinancial recognition, past performance is two or three times more likely than a track record of collaboration to be rewarded. Performance is critical, of course, but if it comes at the expense of coordination, it can undermine execution. We ask respondents what would happen to a manager in their organization who achieved his objectives but failed to collaborate with colleagues in other units. Only 20% believe the behavior would be addressed promptly; 60% believe it would be addressed inconsistently or after a delay, and 20% believe it would be tolerated.

Myth 5: Execution Should Be Driven from the Top

In his best-selling book Execution, Larry Bossidy describes how, as the CEO of AlliedSignal, he personally negotiated performance objectives with managers several levels below him and monitored their progress. Accounts like this reinforce the common image of a heroic CEO perched atop the org chart, driving execution. That approach can work—for a while. AlliedSignal’s stock outperformed the market under Bossidy’s leadership. However, as Bossidy writes, shortly after he retired “the discipline of execution…unraveled,” and the company gave up its gains relative to the S&P 500.

Top-down execution has drawbacks in addition to the risk of unraveling after the departure of a strong CEO. To understand why, it helps to remember that effective execution in large, complex organizations emerges from countless decisions and actions at all levels. Many of those involve hard trade-offs: For example, synching up with colleagues in another unit can slow down a team that’s trying to seize a fleeting opportunity, and screening customer requests against strategy often means turning away lucrative business. The leaders who are closest to the situation and can respond most quickly are best positioned to make the tough calls.

Concentrating power at the top may boost performance in the short term, but it degrades an organization’s capacity to execute over the long run. Frequent and direct intervention from on high encourages middle managers to escalate conflicts rather than resolve them, and over time they lose the ability to work things out with colleagues in other units. Moreover, if top executives insist on making the important calls themselves, they diminish middle managers’ decision-making skills, initiative, and ownership of results.

In large, complex organizations, execution lives and dies with a group we call “distributed leaders,” which includes not only middle managers who run critical businesses and functions but also technical and domain experts who occupy key spots in the informal networks that get things done. The vast majority of these leaders try to do the right thing. Eight out of 10 in our sample say they are committed to doing their best to execute the strategy, even when they would like more clarity on what the strategy is.

Distributed leaders, not senior executives, represent “management” to most employees, partners, and customers. Their day-to-day actions, particularly how they handle difficult decisions and what behaviors they tolerate, go a long way toward supporting or undermining the corporate culture. In this regard, most distributed leaders shine. As assessed by their direct reports, more than 90% of middle managers live up to the organization’s values all or most of the time. They do an especially good job of reinforcing performance, with nearly nine in 10 consistently holding team members accountable for results.

But although execution should be driven from the middle, it needs to be guided from the top. And our data suggests that many top executive teams could provide much more support. Distributed leaders are hamstrung in their efforts to translate overall company strategy into terms meaningful for their teams or units when top executives fail to ensure that they clearly understand that strategy. And as we’ve seen, such failure is not the exception but the rule.

Conflicts inevitably arise in any organization where different units pursue their own objectives. Distributed leaders are asked to shoulder much of the burden of working across silos, and many appear to be buckling under the load. A minority of middle managers consistently anticipate and avoid problems (15%) or resolve conflicts quickly and well (26%). Most resolve issues only after a significant delay (37%), try but fail to resolve them (10%), or don’t address them at all (12%). Top executives could help by adding structured processes to facilitate coordination. In many cases they could also do a better job of modeling teamwork. One-third of distributed leaders believe that factions exist within the C-suite and that executives there focus on their own agendas rather than on what is best for the company.

Many executives try to solve the problem of execution by reducing it to a single dimension. They focus on tightening alignment up and down the chain of command—by improving existing processes, such as strategic planning and performance management, or adopting new tools, such as the balanced scorecard. These are useful measures, to be sure, but relying on them as the sole means of driving execution ignores the need for coordination and agility in volatile markets. If managers focus too narrowly on improving alignment, they risk developing ever more refined answers to the wrong question.

If managers focus too narrowly on improving alignment, they risk developing ever more refined answers to the wrong question.

In the worst cases, companies slip into a dynamic we call the alignment trap. When execution stalls, managers respond by tightening the screws on alignment—tracking more performance metrics, for example, or demanding more-frequent meetings to monitor progress and recommend what to do. This kind of top-down scrutiny often deteriorates into micromanagement, which stifles the experimentation required for agility and the peer-to-peer interactions that drive coordination. Seeing execution suffer but not knowing why, managers turn once more to the tool they know best and further tighten alignment. The end result: Companies are trapped in a downward spiral in which more alignment leads to worse results.

If common beliefs about execution are incomplete at best and dangerous at worst, what should take their place? The starting point is a fundamental redefinition of execution as the ability to seize opportunities aligned with strategy while coordinating with other parts of the organization on an ongoing basis. Reframing execution in those terms can help managers pinpoint why it is stalling. Armed with a more comprehensive understanding, they can avoid pitfalls such as the alignment trap and focus on the factors that matter most for translating strategy into results.

The Main Reason Why Startups Fail

Gijs van Wulfen

We all know so well the success stories of Facebook, Airbnb, Twitter and Uber. But only a few startups are successful. In this post you can read the main reason why startups fail.

 Eric Ries, author of The Lean Startup, defines a startup as “a human institution designed to create a new product or service under conditions of extreme uncertainty.” And the facts reflect the extreme uncertainty mentioned.  

A US study among 2000 startups financed with venture capital between 2004 and 2010 reveals that more than 95% of the startups fail to see the projected return on investment. An estimated 30% to 40% of high potential US startups liquidate all assets, with investors losing all their money. Of all startups, about 60% of the companies survive to age three and roughly 35% survive to age ten, according to the US Bureau of Labor Statistics. Startups fail according to Ries because the old management methods of a good plan, a solid strategy and thorough market research don’t work for startups, as they operate with too much uncertainty. Also according to Ries, adopting the just-do-it mentality does not work either.

An analysis of 101 start-up post-mortems, by cb insights, shows us the top 20 reasons why startups fail. 

First of all there is to know that there is rarely only one reason why start-ups fail. As there're are so many reasons the charts far exceeds the 100%.  The main reason though why startups fail, is that the founders have a 'big idea' and come up with a so-called solution for something there is no market need. In 42% of all failures this was the case.

 “I realized, essentially, that we had no customers because no one was really interested in the model we were pitching. Doctors want more patients, not an efficient office.” [Patient Communicator].

“We were not solving a large enough problem that we could universally serve with a scalable solution. We had great technology, great data on shopping behavior, great reputation as a though leader, great expertise, great advisors, etc, but what we didn’t have was technology or business model that solved a pain point in a scalable way." [Treehouse Logic]

A successful start-up needs three ingredients: a relevant market need, a feasible simple solution and a viable business model. An important lesson to learn for innovators is to always look for a relevant market need (pain point) first, before you ideate a new simple solution.