Antonio Nieto-Rodriguez, author of The Focused Organization, explains his approach and the current state of strategy in an exclusive interview with SPS.
Why do you think there are so few books on strategy execution/implementation?
To better understand why strategy execution was such an unknown topic, I looked into different areas and came to the conclusion that this is a very complex topic – a combination of sciences – because it touches upon all the fundamental elements of business management (such as marketing, finance, operations, HR and so on) and art. Even if you have all the elements in the right place there needs to be something more to make it happen.
In an attempt to get to the deeper reasons for this gap, I sought answers to the following questions:
- Do the theories of the most highly regarded business management gurus – those who influence the way businesses are managed (e.g. Taylor, Drucker and Porter) – mention project management and/or the importance of its link with strategy execution?
- Have the top business schools, those that train most senior executives and future leaders, been teaching the value of project management and its link with strategy execution?
- Do the most prestigious strategic consulting firms advise chief executive officers (CEOs) and other senior executives on the advantages of linking strategy execution with project management?
Surprisingly, none of the most influential business management gurus referred to strategy implementation or the need for project management as a critical component for successful strategy execution.
When I looked at the top 100 business schools in the world, I was surprised to find that none of these schools teach a course in “strategy execution” or project management.
I also looked at the top strategic firms, such as McKinsey, BCG and Bain & Co, and found that none of them actually provide services on strategy execution as such.
When I looked into the number of articles published on the topic of strategy execution in Harvard Business Review (HBR), probably considered as the most prestigious and trendsetting management publication in the world, I made a very interesting and revealing finding. In their history HBR has published:
- 1,790 articles related to IT
- 1,527 articles related to strategy
- 946 on marketing
- 881 on leadership
- 862 on human resources
- 672 on operations
- 603 on innovation
- 569 on finance
- 325 on project management
- and only 87 on strategy execution!
I believe all the findings above are related, and are linked to the complexity of the topic of execution.
You suggest that companies are taking on too many projects, are managing them badly and rarely align them to an overall strategic framework. For these reasons they often fail. Could you explain the issues that need to be resolved?
Good question. During the past century, companies’ efforts to achieve their strategic initiatives have led to the relentless improvement, and thus constant reduction, of operational work (run-the-business activities) and to an unstoppable increase in projects (change-the-business activities). This slow but inevitable trend has had a significant impact on strategy execution. Unfortunately many companies remain ill-equipped to manage this shift.
In addition, if you look at any ranking or research on what are the most strategic decisions top management makes, you will see that most of the answers are along the lines of new market entry, new product development, acquisitions, business transformation, IPO, outsourcing and other similar responses. These are all initiatives that in the end, companies will need to execute via projects; there is no other way.
During my presentations, I often ask senior managers where they would use a suddenly-received one million euros – in operations or in projects. Ten out of ten say that they would invest the money in a project because the expected return value is always higher. Therefore, as the number of projects multiplied, the rate of strategic failures increased. My research shows that the traditional company’s poor project management skills – and the resulting difficulties in executing its strategy – can be linked to seven main obstacles:
- omission of uniform methods and standard processes
- misalignment of organisational structure with the company’s changing reality
- absence of appropriate governing structure to support strategy execution
- lack of project execution culture, skills and leadership attention
- complexity of tracking and forecasting project costs, financials and benefits
- inadequacy of systems and tools for monitoring strategy execution
- a lack of focus
But companies’ failure in project execution is not only related to the number of projects they launch. To be honest, I think that this is partially due to the human nature. Many people I know have multiple private projects, frequently starting new ones but hardly ever finishing them. This happens in companies too. If we accept that it is with projects, like a successful new product or a strategic acquisition, that a company can make the big leap, we often see top management launch more projects than they can actually execute. Also, launching a project is always exciting, while executing requires discipline and follow-up which is significantly less so.
You say that traditional company structures, based on functional departments, need to change, as do processes, tools, skills, governance and performance metrics. What implications does this have for business, and what challenges does it pose for business schools?
One of the things that surprised me most was the lack of adaptation of many companies over the past few decades. The world, the markets, the consumers and the technology have constantly changed, and while many large organisations have evolved, some of their fundamental aspects have not changed that much. Many are still organised like they were in 1980 and are struggling to adapt to the new world. It is what I call a very strong dominance of the ‘run-the-business’ dimension legacy. This has massive implications for businesses.
As regards the elements you mention in your question, for example company structures, you can see that many companies are still organised in an old way, with functional, top-down departments based on the traditional value chain as we learned from Michael Porter. Yet, today the world is different; companies need to be more agile and react faster to changes in the market if they want to survive. The most important projects a company runs, which are often crucial for their future, are transversal across the entire company, meaning that they require resources and skills from every single department. And that is where the issue starts: who leads the project? Are the resources allocated full time to the project? To whom they report? How are they compensated? All these questions must be applied to each project – just imagine the chaos that it is created when companies run hundreds of projects.
The same strong run-the-business dominance and misalignment happens when you look at the processes and the tools of the organisations – these are very suitable for running day-to-day operations but much less so to manage the projects. And this also happens with skills, the performance metrics and other elements of the organisation.
The impact of this shift on business schools also has dramatic consequences. Business schools’ structure is strongly oriented towards operations (run-the-business) and that too has not changed much in decades. I also see that lots of money is spent in new improvement projects but very few are finished successfully. The lack of focus on key initiatives and follow through is something I often see missing.
The second big impact is on the content of the programmes, both at MBA and at the executive level. In my research I found out that only two of the 100 top MBAs in the world offer project management as part of their core courses curriculum. I didn’t see any that would offer lectures on strategy execution. The same applies to executive education – there are very few programmes on strategy execution. But this could be easily solved: the bigger problem is that many of the current core courses, such as marketing or finance, should be revised to incorporate the shift and the complexity between the run-the-business and the change-the-business dimensions.
You talk of the shift as being away from operational work (run-the-business) towards project work (change-the-business), but surely business has to do both – isn’t the issue about striking the right balance?
That is correct. In my book I describe a new paradigm, a totally different way of looking at a company’s activities: run-the-business (operations) versus change-the-business (projects) – the link between strategy planning, strategy execution and project management.
One important finding of my research is the silent but persistent trend toward more projects that has affected probably every business in the last century.
Since the 1920s (or even earlier) companies have been improving their run-the-business/operations activities as a means of increasing productivity by becoming more efficient and reducing costs. At that time, most companies were mainly producing goods – the service industry was not yet strong – and one of their main objectives was to grow. Growth by acquisition was not as popular as it is today, so the growth was mainly organic – by increasing production capacity and by entering new markets. Once the industries became more mature, growth was achieved by increasing efficiencies and reducing costs. The impact of these growth techniques was that the number of projects increased over time.
The fact that almost all the management gurus and their management theories focused on improvements for the run-the-business dimension significantly influenced this trend. Taylor, Ford, Ansoff, Drucker, Porter and other key influencers’ recommendations were focused on improving the operations of the business. On the other hand, all of these operational improvements were carried out as projects. These were often one-off projects, but changing a business involves carrying out a project; there is no other way.
Several other movements have helped accelerate this trend:
• 1970s – the universalisation of the PC at work;
• 1980s – the business process reengineering wave;
• 1990s – enterprise resource planning (ERP) to automate most operations;
• 2000s – the outsourcing of core and supporting operations, together with consolidation of the internet as a new channel for doing business.
The result of all of these changes is that companies have made their operations (run-the-business) extremely efficient, reaching levels where finding additional efficiency improvements is no longer possible. The problem is that this increase in projects has gone almost unnoticed because the focus has always been on running-the-business activities.
Dealing with the trend away from operations work (run-the-business) and toward project work (change-the-business) is not easy – and often is a zero-sum process: what you add to one dimension you have to subtract from the other. This calculation has an immediate impact on the side from which something is subtracted, and probably affects the entire business.
The book is about being a focused organisation, and the benefit of focusing on a few key initiatives. Does the number not depend on the size of the business and their capability to manage initiatives properly?
Good question. My research showed that although very few companies succeed in implementing their strategies, there are a few whose strategy execution is successful. What differentiated these successful companies was that they had a great leaders and high maturity levels in the key elements of their organisation.
To my surprise, some of these successful organisations were not just reaching but were also exceeding their strategic objectives. While their formula included great leadership and maturity, what made all the difference in their ability to exceed their expectations was the fact that they were highly focused.
In today’s world, most companies and many employees are highly unfocused. As a result, top management has difficulty setting a clear strategy and communicating a ranked list of priorities; most staff members end up deciding on their own where to concentrate their efforts, most likely on easy and irrelevant tasks. This lack of focus results in much wasted money and resources, the inability to execute the strategy, project failures, and unhappy and uncommitted employees. Successful individuals are highly focused, and the same applies to organisations. In fact, every business is focused when it is just starting up but only those companies that manage to stay focused will likely succeed and remain in business.
The example of a focused organisation is Apple under the leadership of Steve Jobs when he returned in 1997 to turn the company around. He stopped more than 90% of the running projects; he chose four products; he kept only the best people; he installed a sense of urgency and clearly communicated his ambitious vision. Basically, Steve Jobs converted Apple from a highly unfocused company in the verge of bankruptcy into a highly focused and one of the world’s most valuable organisations.
The number of initiatives is not related to the size of the company. I would even take it a step further: the larger the company is, the more difficult and the stronger leadership it takes to become focused. If you are a large company and you have too many initiatives at the top of the organisation, there is a good chance that people at the bottom will not know what the priorities are. I recommend starting with a reduced number of projects. Once you master the approach and see discipline throughout the company, you can start expanding the number of initiatives, but slowly and always making sure that projects are followed through until the end.
What do these changes mean to strategy consultants? Are they driving the changes, adapting to them, or having to re-think their approaches?
This is a very interesting question. My understanding is that only until very recently, strategy-consulting companies were not present in the area of execution. Five or ten years ago, consulting companies such as McKinsey or BCG were advising companies on the strategic planning side but once the direction was set, they were not involved in the execution. This can be clearly seen if you look at the services they provide: very few offer services on strategy implementation or project management. I believe this is linked to the facts noted above: very little literature, lack of gurus and poor business school teaching.
On the other hand, the big four and other consulting firms were focusing mainly on operational matters and on the implementation of specific projects, but never on the full implementation of a strategy. This created a gap in the market place: none of the top consulting firms was really offering services around strategy execution.
This space became a clear opportunity, and for a few years now you have seen the big four consulting firms moving upstream, while strategy consulting firms are moving downstream to fill in the gap and make serious money.
For these reasons I don’t believe strategic consulting firms are driving the changes. It is something they have noticed but, as it is a risky space because results are more tangible, they have not yet fully stepped in. I believe that the future of consulting will be much more focused on advising companies on strategy execution, meaning that they will need to rethink their approach.