Its all gone wrong Why strategy implementation fails

Percy Barnevik, one of Europes most famous business leaders and one-time chair of AstraZeneca, said that strategy is 10% vision and 90% execution. Its thus ironic that so little is understood about how we implement strategy. Our new research at OUBS, Europes largest business school, aims to fill this gap. We need to understand implementation failure before we can fix it.

Two modes of failure

Lets start by defining strategy, implementation and failure. Strategy was best defined by Henry Mintzberg as a pattern in the stream of management decisions. It follows that implementation is simply the enactment of those decisions, and implementation failure is when a decision is not enacted. A recent Economist report found that 57% of strategic decisions are not implemented which, when one considers the time and effort put into making those decisions, is a horrendously costly failure rate.

Its important to understand, however, that there are two ways in which strategic decisions may not be enacted. The first is when a firm is aware that it has not implemented its strategy. This might be because something unexpected happened between planning and implementation, or because the resources allocated turned out to be inadequate to the job. In any case, the firm realises its plans have changed. This is costly and inefficient, but it is at least explicit and recognised. It is a result of poor strategic planning, and the reasons for that have been explored in our previous research (see References).

The second way is more insidious. It is when the implementers dont do what they are asked to do, but this happens without the consent and perhaps without the knowledge of the firms leaders. Such inadvertent implementation failure is extremely common, and is the area of our current research.

Breaking the silence

Researching implementation failure is very messy. Interviewees are loath to talk about it and very few people admit to being the cause of it, even in part. However, careful questioning of those who made the strategic decisions and those tasked with executing them can tease out the underlying pattern.

The same process is often described in different ways by different people. However, a forensic-style examination of interview transcripts reveals three main causes of inadvertent implementation failure:

I didnt understand. Failure to implement occurs because those who made the strategy didnt communicate it clearly to the executors.

I didnt agree. Implementation is deliberately sabotaged or diverted because the implementers think the plan is wrong.

It didnt suit me. Implementers see the plan as running counter to their own personal or team interests, and hinder implementation even if it is in the best interests of the company.

These three causes are not mutually exclusive. Implementation failure can be down to one cause, any two, or a mixture of all three but these three factors seem to explain almost all inadvertent implementation failure.

The underlying mechanisms

Identifying the causes of failure is a first step in preventing it. But to go further, we need to understand the mechanisms involved. Perhaps the easiest process to unravel is failure to understand. Communication researchers have long understood that messages go through stages of encoding, transmission and decoding, with problems like noise and limited channel capacity reducing the clarity of the message. Miscommunication of strategic decisions is a typical example. The messages are complex and may travel through imperfect channels. Anyone who has tried to cram their ideas into a 30-minute PowerPoint presentation, or had an e-mail disastrously misinterpreted, will know the problem.

Communicating multiple complex messages to multiple audiences in a short time, over the noise of a dozen other messages, is liable to go wrong.

Disagreement between colleagues is more complex, and is essentially a cultural problem. Researchers understand that company culture has three levels. First, there are visible but superficial artefacts such as structures and procedures. These are based on values: shared beliefs about what is important. These, in turn, are based on underlying assumptions about how the market works and what the key to success is. In a perfect world, everyone in the company would share the same values and assumptions; but in reality these differ between departments and divisions.

A strategic decision based on one view of how the market works may seem downright stupid to a colleague who holds different values. To test this idea, simply ask finance, marketing, sales and R&D to tell you, in a nutshell, what is the key to the companys success. Irrespective of who is right, the answers will vary widely. In an organisation full of knowledge workers, asking someone to implement a strategy they disagree with is inviting failure.

Self-interest is perhaps the most complex and most pervasive reason for strategy implementation failure. Researchers have discovered that when asked to do something, an implementer will consider three things.

First, their ability to pull it off successfully. Secondly, the probability that if they do their part, it will result in the intended company outcome. Finally, the value of that outcome to themselves, rather than the company. Taken together, these form an expectation of how much good their effort will do them as an individual.

They then compare that to the expected outcomes of other possible courses of action, such as subverting the strategy or paying lipservice to it while following the course of action that is in their own best interests. It is naïve to expect an intelligent person to do something that is not in their own best interests, at least in the long term.

Whether it is communication breakdown, cultural disagreement or self-interest, the mechanism of inadvertent failure can be understood quite well. The challenge, of course, is to fix it.

Curing implementation failure

As with a disease, the first step in treating implementation failure is diagnosis. Understanding the relative contributions of communication, culture and self-interest is critical to taking practical steps. Our research has developed a diagnostic tool called the tritheory audit that does just that. The outcome of the audit then drives management actions.

Where communication is the problem, improvement comes about by clarifying messages, shortening and widening channels of communication and reducing noise. Good examples include removing the managementspeak that clouds messages and using storytelling techniques to communicate the strategic vision of the leadership. Notably, the equivalent of shouting louder repeating the same message through the same channels doesnt work as well.

Where culture is the problem, the assumptions need to be changed. Playing about with cultural artefacts such as organisation charts or incentive payments produces only superficial results. To achieve lasting improvement, the key implementers must have their values aligned with those of the strategy makers. This takes a long time and must be led by the most senior management. Short-term cultural change programmes led by middle managers are an expensive waste of time.

Where self-interest is the problem, the interests of the firm and the implementers have to be aligned. This might mean changing their perceptions of their ability to do the job, the link between their role and the company objectives, and the link between company outcomes and their own rewards (financial or otherwise). Crucially, leaders must recognise that an implementer gets a lot more from a job than money, and must factor in all of the implementers needs.

Cases in which multiple mechanisms underlie non-implementation require multiple therapeutic approaches. Leaders should not make the mistake of expecting a complex, long-standing problem to yield to a quick fix solution.

Essential steps

What does this research imply for managers at the sharp end? There are five basic steps that managers concerned about implementation failure should take:

1. Assess the degree of explicit and inadvertent implementation failure.
2. If implementation failure is explicit, revisit your strategy-making process. Remember that effective strategy-making depends on using a process that fits the context of your company, rather than the case study described in the textbook.
3. If implementation failure is mostly inadvertent, carry out an audit to establish the underlying causes of the failure. Is it culture, communication, self-interest or a mixture?
4. Take steps to correct the dominant cause of your implementation failure, based on the outcomes of the audit.
5. Continue to monitor your strategy implementation improvement depends on persistence.

These five steps provide a framework for improving strategy implementation. However, like all frameworks, they work only as a guide for thoughtful action. The most important lesson to learn from those who implement well is that can be done but dont expect difficult problems to yield to easy answers.

SUMMARY Strategy implementation failure may take two forms: explicit (or recognised) and inadvertent (or hidden). The latter is more widespread and damaging. The three main causes of inadvertent implementation failure are misunderstanding, disagreement and conflict of interests. At the level of mechanisms, these problems can be addressed in terms of communication, company culture and employee self-interest. Managers need to address implementation failure through an audit of the specific causes, followed by persistent action to correct these causes.

References
1. Smith BD. Making Marketing Happen. Oxford: Elsevier; 2005.
2. McDonald MHB, Smith BD, Ward KR. Marketing Due Diligence: Reconnecting Strategy to Share Price. Oxford: Elsevier; 2005.

Brian Smith is a Visiting Research Fellow at the Open University Business School (OUBS) and runs PragMedic, a specialist industry consultancy. Over 100 of his papers and articles are freely available at www.pragmedic.com. He welcomes comments on this article at brian.smith@pragmedic.com.