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ex-e-cu-tion (ek si kyoo shun), n. 1. The missing link. 2. The main reason companies fall short of their promises. 3. The gap between what a company’s leaders want to achieve and the ability of their organizations to deliver it. 4. Not simply tactics, but a system of getting things done through questioning, analysis, and follow-through. A discipline for meshing strategy with reality, aligning people with goals, and achieving the results promised. 5. A central part of a company’s strategy and its goals and the major job of any leader in business. 6. A discipline requiring a comprehensive understanding of a business, its people, and its environment. 7. The way to link the three core processes of any business—the people process, the strategy, and the operating plan—together to get things done on time. 8. A method for success discovered and revealed in 2002 by Larry Bossidy and Ram Charan in Execution: The Discipline of Getting Things Done. Previous books by Ram Charan What the CEO Wants You to Know Boards That Work Every Business Is a Growth Business (coauthor) The Leadership Pipeline (coauthor) E-Board Strategies (coauthor) Strategic Management: A Casebook in Policy and Planning (coauthor) To the hundreds of people who touched our business lives and influenced the thoughts articulated in this book. A special recognition to Jack Welch, who in our time was the predominant practitioner of “getting things done.” Larry Bossidy Ram Charan CONTENTS Resetting Execution for a Time of Crisis Introduction PART I: WHY EXECUTION IS NEEDED 1: The Gap Nobody Knows 2: The Execution Difference PART II: THE BUILDING BLOCKS OF EXECUTION 3: Building Block One: The Leader’s Seven Essential Behaviors 4: Building Block Two: Creating the Framework for Cultural Change 5: Building Block Three: The Job No Leader Should Delegate—Having the Right People in the Right Place PART III: THE THREE CORE PROCESSES OF EXECUTION 6: The People Process: Making the Link with Strategy and Operations 7: The Strategy Process: Making the Link with People and Operations 8: How to Conduct a Strategy Review 9: The Operations Process: Making the Link with Strategy and People Conclusion: Letter to a New Leader RESETTING EXECUTION FOR A TIME OF CRISIS Execution, when first published in 2002, was based on our observation that the discipline of getting things done was what differentiated companies that succeeded from those that just muddled through or failed. Today we are mired in a deep global recession that is taking a tremendous toll on businesses, consumers, and governments. Everywhere there is a huge loss of confidence. Strategies and business models that once worked well no longer do so. Even when the recession ends the business and economic environment will not return to what we have come to regard as “normal.” The world is experiencing a tectonic shift—the global business environment is being “reset.” We now live in a world in which radical change can happen seemingly overnight, and in which many former “givens” will be in flux for a long time. That reality makes execution harder (not that it’s ever been easy), but also more important than ever before. Execution not only ensures efficient use of resources in a credit and cash-starved world, but also provides the feedback loop needed for the business to adjust to changes—big or small—in the external world. True, leaders must still conceive of a path forward, but execution is what drives the organization along that path and allows it to seize opportunities. And good execution not only will see a company through the tough times, but also significantly improve its chances for success as the environment continues to shift. No one can predict precisely what the future holds—we will all have to deal with whatever is ahead when it happens—but consider some of the more profound changes that are likely to be in store: Growth will be slower. The vast consumer market that is America may no longer be the principal global economic driver it has been, and countries intent on creating jobs for their people will be much slower to import our goods. During the early stages of recovery from the recession, credit will still be constrained, leverage restricted, and opportunities for profitable growth difficult to find. But the company that executes well will have the confidence, speed, and resources to move fast as new opportunities emerge. It will also have credibility as a partner, supplier, and investment of choice, compounding its advantage as it positions itself for growth. Competition will be fiercer. In a slower-growth global economy everyone will be fighting harder and smarter to win market share. Each company will be searching for a new advantage, in the form of products, technologies, management, locations, prices, among many other variables. The margins for error are thinner, and flexibility and speed in assigning and re-assigning resources will make a huge difference in performance. That’s a lot to contend with and faulty execution in these basic performance nuts and bolts can lead to a death sentence, but that’s not all. Stronger, faster companies can detect and pounce on opportunities, for instance, to take advantage of the downturn by snapping up assets at bargain prices and snatching market share out from under their competitors. Good execution reveals flaws in outmoded or wrong strategies sooner and allows time to change direction. Those who fail to see the errors in their strategies or who fail to execute the correct strategies quickly and effectively will face the fate that confronted GM, Chrysler, Bear Stearns, AIG, and Lehman Brothers as the economic and financial crises unfolded. Governments around the world will take new roles in their economies and business environments. There will be a new regulatory environment and each government will carry it out in different ways, some as partners to business, others as adversaries. But there is also a trend toward more global rather than national regulation and that could present formidable obstacles given the various cultures and political systems involved in such a widespread effort. Even regulation at the national level will be heavily influenced by who the regulators are and what credibility they have. And there will invariably be calls for protectionism to shelter jobs and markets that suffer from intensifying competitive pressures. Companies that execute well will be more attractive as partners and suppliers to government bodies and better prepared to adapt to changing regulations. Risk management—understanding and controlling risks at every level of the business, including political and global economic risk—will become a huge part of every leader’s job. As of this writing there is considerable debate about whether the global economy will slide into deflation or if stimulus policies will touch off a new burst of inflation. Being prepared for either result is a fundamental tenet of risk management. But inflation or deflation can be forecast to some extent. The real risks are those that lie hidden beneath the veneer of “business as usual.” A decade ago credit default obligations or collateralized mortgage obligations mattered little, yet those instruments, highly touted a few years ago as a means to reduce risk, have been at the root of the current crisis. The lesson of the past two years is clear: Your strategy must incorporate a plan to deal with not only company and industry- specific risks, but also unknown risks, such as those in the global financial system. Execution is what gives you an edge in detecting new realities in the external environment as well as risks that are being introduced, perhaps inadvertantly, to your own operations. Execution done well makes a huge difference in a company’s performance, as we have seen with the way in which Richard T. Clark has changed Merck & Co. since becoming chairman and CEO of the giant pharmaceutical firm in 2005. The board chose Clark because it was looking for someone well grounded in both medicine and operations. Clark had demonstrated an ability to execute first as head of Merck’s manufacturing operations, then as the leader of its Medco Health Solutions subsidiary. When Clark took over the top role, Merck was floundering. Its strategy was little more than an expanded vision statement containing broad general statements about how good Merck was. It was little more than platitudes, a strategy in name only. Without a real strategy against which to execute, Merck was not moving forward. Almost immediately Clark undertook an extensive review of Merck’s business, selecting the areas in which it would have the best chance of winning given its research abilities and history. Once he targeted the right areas, Clark put the company through a rigorous analysis of its existing manufacturing facilities and technology to choose the plants and technologies that would become the foundation for his strategy of innovation and excellence. He provided meaning to these otherwise vague terms by ensuring that Merck’s manufacturing arm could anticipate technological developments and seize a position at the cutting edge of innovation in the fields that Merck would pursue. The company’s history and performance argued strongly, for example, to maintain a commanding position in cardiology. With a real strategy in place Clark then made extensive changes in the top ranks of management to ensure that Merck’s leadership both knew what the strategy was and could execute it as a team. And when his internal organization was up and running the way he wanted it to, Clark took yet another major step and engineered the acquisition of Schering-Plough, a major coup. In short, Clark used each of the three core processes of execution and made sure that they were linked together so that the company’s priorities and allocation of resources were aligned with its reorganization and sharper focus.