How an Industrial Goods Company Overcame Its Weak Execution Culture
by Ilona Steffen, Niko Canner, and Gary Neilson
This Idea in Practice is based on "The Secrets to Successful Strategy Execution" from the June 2008 issue of HBR. This is a new format we're trying out; please take this survey and tell us what you think.
In this Idea in Practice, we show how any company can better execute its strategy without making costly, disruptive changes to its organizational structure. Using the story of a highly successful global company we'll call Canson Industrial Goods, we illustrate how you can uncover serious obstacles preventing your company from meeting its goals, how to change decision rights, and how to improve the flow of information to effectively implement your strategy.
The Business Challenge
Canson Industrial Goods needed to respond to serious changes in its industry dynamics. When the competition was dominated by Western companies, Canson was used to being a leading player in the industrial goods sector with a complex portfolio of offerings from commodity-type products to specialized customer solutions. Based in Europe, the company served customers in all major industries including automotive, construction, and consumer goods.
Historically, all of Canson's major revenue streams came from Europe. In recent years, Canson opened operations in Asia, and an increasing amount of revenue came from there. Still, the company's executive committee was comprised entirely of Europeans, and those leaders made all of the strategic decisions, regardless of what region they affected. This meant that the industrial goods giant was responding slowly in Asia. And over the past several years, more than a few Asian companies had grown quickly and were threatening Canson's market position.
Compounding the situation was the fact that the industry's products were changing rapidly. In the past, products evolved slowly. It was relatively easy to keep up with the changes. Now technology had accelerated the pace and products quickly became obsolete, as did the talent and skills companies needed to produce them. More and more companies were selling to end-customers instead of intermediaries. In this high-speed environment, Canson was at a big disadvantage. They had made huge investments in their production facilities, workforce, and footprint, all of which were becoming outdated. New entrants to the market were much more agile and didn't have the baggage of a 100-year tradition.
In response, Canson's leaders developed an ambitious strategy to defend its global leadership position. The strategy included three key elements:
Accelerate growth in emerging markets. Canson intended to make a major acquisition in Asia as well as buy up some of the smaller players.
Redefine the customer. Canson had always been a B2B company, but newer products with higher profit margins needed to be sold directly to consumers.
Achieve above-market growth worldwide. This was the most ambitious part of the strategy since many of Canson's competitors were growing rapidly. To meet this goal, the company needed to make major changes to how leaders made decisions and how departments interacted and shared information.
Canson's leaders, many of whom were new to the organization, were concerned that Canson would not be able to meet these goals because of its poor track record on execution. Just a couple of years before, the company had embarked on a large-scale effort to optimize its overhead. This included consolidating various functions into shared service centers and outsourcing some of its processes. However, the project dragged on for months and eventually petered out. Similarly, Canson had tried to reorganize several times in order to capture efficiencies or to better serve customer's needs, but changing the formal reporting lines never had the intended impact, because it hadn't sufficiently changed people's behavior. Leaders didn't want this new effort to meet the same fate.
Still, they felt they needed to change this time or the company would fail, perhaps even fold, in light of the new competition.
What to do First
Before you can make any changes, you should fully comprehend what is holding your company back. Data from employee surveys and interviews will paint a picture that leaders can use to get buy-in and spur change.
Canson set out first to understand why it was having such a hard time executing. The company's head of marketing and the head of strategy decided to use the "Organizational DNA Framework" to analyze what was going on. They asked representative samples of the most senior leaders, department leaders, and key frontline employees to complete a survey (see the sidebar "The Organizational Types: Which Describes You Best?" ). Canson's internal consulting team, in collaboration with an outside consultant, compiled the answers and compared the results against industry averages and benchmarks developed from "high execution" organizations. Then, the team conducted in-depth interviews with a dozen individuals to understand more about their answers. This qualitative data supplemented the quantitative data and enriched the consultants' insights on what was going on in the firm.
The internal consulting team then compiled all of the data into a final report, which it presented at a senior leadership off-site. The leadership team went into this process thinking that they would most likely need to redraw the lines and boxes on the org chart to be able to execute on the strategy. However, the data showed that their issues ran deeper than organizational structure. More than a third of employees felt that the company's culture was "passive-aggressive." It was easy to build apparent consensus for major changes, but it was nearly impossible to implement them. Everyone would agree that changes were necessary, but once initiatives were rolled out, entrenched resistance developed from field operations. This routinely defeated corporate initiatives as line employees assumed "this too shall pass" about anything new.
The results also showed major issues with how leaders made decisions and how information flowed through the organization:
Decision-to-action time lag. Only about a third of employees felt that important strategic and operational decisions were quickly translated into action (versus two-thirds of participants from the high-execution benchmark organizations). For example, regional sales teams often had to wait for long periods of time on approvals from headquarters, delaying and at times jeopardizing important transactions.
Second-guessing decisions. Canson's employees were twice as likely as those in benchmark organizations to feel that decisions were frequently second-guessed. For example, in over 90% of the cases where management had attempted to empower junior staff by delegating decision-making power, leaders reversed the decision within a year.
Information stalled. Only about half the employees felt that important information about Canson's market environment got to headquarters quickly, compared with nearly three-quarters in the benchmark group. For example, in Asia, new industry entrants often experimented with new product offerings and marketing channels. But because there was not a clear way for information to flow to and from headquarters, this important competitive information reached decision-makers slowly, or not at all.
While these results were unsettling, the Organizational DNA Framework and the survey results established a common language for Canson's leaders. For the first time, they saw eye-to-eye about the issues the company faced and were able to have a constructive dialogue about the specific decisions and behaviors that would best address them.
Organizational DNA Framework |
There are four pairs of elements that determine an organization's effectiveness. When making changes in your organization, you need to address all of these areas together to ensure success. |
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The Right People to Involve
To implement large changes, top management needs to spearhead the initiative. At Canson, the newly appointed head of sales and marketing, Peter Stewart (not his real name), led the change. This was a very influential position in the organization; historically, this person had been in charge of revenue generation for the entire firm. Stewart was one of several new leaders that brought a fresh perspective to the organization and the energy to face yet another struggle with organizational change. He knew the effort needed a leader from emerging markets, given their increased importance, but he also had the foresight to understand that the relationship between European and Asian leaders would be critical. He named two regional heads, one from Asia and one from Europe, to be the main sponsors of the initiative.
Stewart and the two sponsors created a team to carry out the project. They selected five middle-to upper-middle managers who represented key re gions. Three were part of an internal consulting team, one from marketing and the other from the line organization. When choosing people to serve on this team, Stewart looked for managers who would be willing to challenge the status quo. This team partnered with external consultants on critical aspects of the project, asking them to provide input, and lend expertise.
The Organizational Types: Which Describes You Best? | |
Recognizing your type can help you design a change program that works. Similar to familiar individual personality assessments, the Org DNA Profiler® (booz.com/orgdna) categorizes organizational character based on employees' responses to a short survey. Survey questions are geared toward both the formal elements of every organization (decisions, motivators, information, and structure) as well as the informal elements of organizations (norms, commitments, mind-sets, and networks). based on the response, the organization is assigned to one of seven prototypical profiles. The website is open to the general public, and visitors can anonymously complete a profile of their own organization. | |
The Passive-Aggressive Organization | "EVERYONE AGREES, BUT NOTHING CHANGES." Congenial and seemingly conflict-free, this organization builds consensus easily, but struggles to implement agreed-upon plans. |
The Overmanaged Organization | "WE'RE FROM CORPORATE, AND WE'RE HERE TO HELP." Multiple layers of management create "analysis paralysis" in a frequently bureaucratic and highly political environment. |
The Outgrown Organization | "THE GOOD OLD DAYS MEET A BRAVE NEW WORLD." Too large and complex to be effectively controlled by a small team, this orga- nization has yet to "democratize" decision-making authority. |
The Fits-and-Starts Organization | "LET 1,000 FLOWERS BLOOM." This organization has scores of smart, motivated, and talented people, but they rarely pull in the same direction at the same time. |
The Just-in-Time Organization | "SUCCEEDING BY THE SKIN OF OUR TEETH..." While inconsistently prepared for change, this organization can "turn on a dime" when necessary, without losing sight of the big picture. |
The Military Precision Organization | "FLYING IN FORMATION" Often driven by a small, involved senior team, it succeeds through superior execution and the efficiency of its operating model. |
The Resilient Organization | "AS GOOD AS IT GETS" Flexible enough to adapt quickly to external market shifts, yet steadfastly aligned behind a coherent business strategy. |
Steps to Take
Once your company's leaders have a thorough understanding of the issues plaguing your organization, they can turn to assigning a project team to define what they want the future state to look like. The team should lay out specific behaviors that leaders, managers, and frontline staff need to adopt, such as "reward and encourage collaboration across boundaries" or "delegate decision making down, where appropriate." The team can provide a chart that shows the kinds of behaviors they want to stop and the kind they want to encourage. Then they should create initiatives to address each of the behaviors. In most cases, very little structural changes need to happen. At Canson, there were some tweaks to lines and boxes, but the majority were changes to decision rights, information flows, mind-sets, and norms.
Here are three examples of those initiatives.
1. Eliminate meeting culture. The data analysis showed that one of the major issues Canson faced was a highly inefficient "meeting culture." People were used to spending the majority of their days in meetings (despite feeling stressed out and stretched for time to get work done). These were not productive meetings, but the kind that begin vaguely and end without a decision on what to do next. No one questioned the culture because meetings were an opportunity to interact, and people feared that without them there would be less collaboration. Perhaps a quarter of all meetings could be eliminated.
After analyzing the data, Canson's leaders identified the following specific issues:
Decision rights. The meetings were intended to be times when people could make decisions together. But more often than not, people didn't make any because it wasn't clear who had the authority to do so.
Norms. The company had no formal policy on meetings. Meeting leaders made up agendas on the spot, and many times people would gather and discover that they didn't have a reason to meet. The team estimated that at over 90% of meetings, leaders hadn't prepared and lacked an agenda. And meetings never ended on time.
Mind-sets. Because Canson had a culture of inclusivity, it seemed to make sense to include as many people in meetings as possible. Often, invite lists were too long and included people who did not need to be there.
Once these issues were laid out, Canson dramatically changed its meeting culture. Based on the recommendations from the project team, the executive committee introduced a disciplined process that included guidelines for sending agendas ahead of time, starting and ending on time, and whittling down invitations so that only the people whose attendance was necessary were expected to attend (see the sidebar "Meeting Culture"). While perhaps straightforward in other organizations, this was highly countercultural and challenged deeply ingrained norms and mind-sets. Leaders had to take strong measures at times. In situations where meetings were repeatedly running over, the leader ran it standing up, with no water, coffee, or drinks. The results of these tactics showed quickly: Within three months, 70% of all meetings started and ended on time.
Meeting Culture | ||
Sample Behaviors to Start and Keep | ||
Frontline Staff | Managers | Executives |
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Sample Behaviors to Stop | ||
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2. Make the matrix work. The profiler results showed that Canson had a misalignment between structure and motivators. The organization was structured as a matrix based on region (or country) and product. However, the incentive and appraisal system did not reflect this. Only solid-line managers were permitted to give input on employees' reviews. Dotted-line managers were not included in the process. As a result, collaboration across lines of business was rare. The project team suggested that Canson must change its appraisal process to include input from dotted-line managers. Managers resisted this. Traditionally, they had kept issues related to subordinates' performance close to the chest. They had to overcome this for the organization to execute efficiently and allow information to flow from one part of the organization to another.
3. Stop project mania. Canson employees were rewarded for participating in projects, rather than doing day-to-day operational work. The more projects you worked on, the more likely you were to be promoted or rewarded. As a result, people were constantly looking for new projects to work on and were often overextending themselves by signing up for too many. To make matters worse, managers only valued the conceptual phase of projects, so when it was time to implement the ideas hashed out in brainstorming sessions, people looked to roll off.
To stop the mania, Canson's project team created a project-management office responsible for managing the portfolio of projects. Then, the executive team named a member to sponsor each major project and report on its progress. Finally, the company changed the incentives so that it didn't matter how many projects an employee had worked on. Instead, managers evaluated people based on the impact that project had. As a result of these three changes, there were fewer projects, and more were seen through to execution.
How to Create Urgency and Convince Naysayers
Although employees may feel discontented with the state of the organization, very few people feel compelled to undertake a large change initiative. At Canson, the threat from Asia still felt distant to those deeper in the organization, so there was little immediate incentive.
But when senior managers developed the ambitious strategy to maintain industry leadership, executives began to see that there was an urgency. Without the ability to execute, they feared the company was at risk of losing its position in the market. They needed to figure out how to motivate the rest of the organization. The results from the profiler helped because they were concrete and based on data provided by employees. It also gave everyone a shared language with which to discuss the issues.
The employees who were asked to complete the survey were enthusiastic about it. At first, leaders worried that they would not want to fill out another survey. But participation was very high because the tool was easy to use, required little time, and presented questions that were intriguing to the employees. Employees used the survey as an outlet to express what they knew was going wrong.
How to Remove Obstacles
One of the biggest obstacles to change is getting leaders to "walk the talk." To convince the rest of the organization that the lax meeting culture and weak decision-making practices needed to stop, the internal consulting team asked leaders to model the changes first. Had leaders continued to run unnecessary meetings without agendas or outcomes, they would have been unable to change the culture. Stewart and his team held leaders accountable to the new behaviors by integrating them into their performance contracts.
Another obstacle was emotional commitment and engagement among employees. This was especially important at headquarters. The European business had long been the heart and soul of the company, but other regions, such as Asia, were beginning to eclipse it. Without this source of pride, staff struggled. Leadership tied the objectives of the overall change effort to what they felt the organization was most proud of: the company's legacy of market leadership. They explained to employees that the changes were necessary if they wanted to remain a top performer in the industry. The communications teams intentionally developed messages that appealed to both the rational and the emotional side of employees' psyches: They developed quite a few case studies and used the case studies to make the point. The case studies would typically include a rational element, such as "using BlackBerrys during meetings reduces productivity by X%" and emotional elements such as "division leader XYZ missed an important piece of information when distracted by his BlackBerry, which caused us to lose the client." People logically understood why they needed to change and, equally important, developed an emotional commitment to the change.
What to Watch out For
Looking back on their change initiative, Canson's leaders realized they could have avoided some hurdles if they had done some things differently. You have the advantage of learning from their experience:
Failing to fully address fears and barriers. The team undertook an extensive communication effort, but they should have focused more on what the change would be like for employees who were used to an inclusive environment. When people were not invited to meetings, they were concerned that something was wrong. When they were removed from projects or "uninvited" from teams, they worried about their future prospects with the company. These anxieties fueled rumors as people tried to make sense of what was happening, which caused a drag on productivity and put the change effort at risk.
By taking the time to help employees better understand what was happening and why, the team could have avoided this. Although some of this can be done with top-down communication, a more-effective method is to draw on "pride builders" in the middle and lower layers of the organization who can help senior leaders translate their bigger-picture ideas into terms that are truly meaningful for colleagues down the line.
A lack of explicit focus on how informal networks could support the change. Canson has a lot of networks of like-minded people that interact to informally exchange information and ideas. For example, there are informal "centers of excellence"— loose groupings of people who discuss specific technical topics, such as maintenance strategies or frugal engineering approaches. Since information is always more reliable when it comes from someone you trust, the company could have better understood who interacted with whom and used these networks to roll out changes through existing paths. The people in these networks could influence each other to further solidify changes. Changing your company's approach to execution is daunting and there is no perfect way to do it, but following these guidelines and knowing what to watch out for will give you a place to start.
Lessons Learned | |||
Find a common language. Use a framework that allows everyone to talk about your organization's issues in the same way. Gather data that shows exactly what is happening so that you can move from debating whether you have a problem to discussing what to do about the problem. | Walk the talk. Without the top of the organization sponsoring the changes, your efforts won't work. Pay particular attention to engaging senior managers so that they deliver consistent messages and model the desired behaviors. | Focus on both organizational and behavioral changes. both matter. In fact, making behavioral changes is often more effective in developing your organization's ability to execute. | Know your organization. It goes without saying that there is no "one size fits all" to improving an organization's ability to execute. Understand what type of organization it is (see the sidebar "The Organizational Types"), and tailor programs and messaging to reach subcultures that may exist within certain functions or regions. |
Get Started Now | ||
Companies that want to improve their ability to execute strategy don't need to redraw the lines on the organization chart. Other levers are just as effective. To figure out where to start, develop a better understand of what's standing in your organization's way. | ||
Here is how you begin changing your company's approach to execution: | ||
Assess your organization. Look at the four pairs of the Organizational DNA Framework and begin to think about where your organization fits. What are your organization's strengths? Where are the sticking points? | Diagnose organizational personality type. Use the Org DNA Profiler® survey to learn about your organization's "personality type." by answering a set of questions, a proprietary algorithm will determine what type of organization you're working for: Is it predominantly "passive-aggressive," "overmanaged," or "resilient"? The tool is free to use and requires no registration. (Go tobooz.com/orgdna.) | Experiment with change programs. Once you've identified the personality type of your organization, use an organization-effectiveness simulator (simulator-orgeffectiveness.com) to understand the best way to implement change initiatives. This simulator allows you to assemble and try out various five-step change programs and assess which would be the most effective and efficient in improving execution at your company. |
Ilona Steffen is a director in the Zurich office of Booz & Company, a management-consulting firm.Gary L. Neilson is a senior vice president in the firm's Chicago office. Niko Canner is a former senior vice president with the firm.
The authors would like to thank Marcus Morawietz, Matthias Baeumler and Caroline Thiedig for their contributions to this article.
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