UK: On Best Behaviour - Sound Advice On Executing Strategy
It’s In The Hands Of Your People

Sound advice

This is the first report in the ‘Sound advice’ series from the Consulting practice at Deloitte – the other two being:

• The cutting edge

• In their pockets

Nothing is more important to a business than excellent execution or that it execute its strategy excellently. But how many are convinced that they do so, and how often? Very few, seems to be the answer. Our recent survey of top executives in the UK found widespread agreement that, in the words of one interviewee, "there is very often a disjoint between strategy and execution". How can organisations best join these two things up?

When asked what will be most likely to impede their company’s growth over the next few years, more top executives said "poor execution of strategy" than anything else (see chart). Coming up with a new strategy is not difficult. Making it happen certainly is. Most companies will admit that they struggle to execute their strategies effectively. Yet they know this is something on which analysts and investors place great emphasis.

The main reasons for their poor execution are twofold. First, strategy is too often communicated in vague, abstract language which leaves people wondering what it means for them in their day-to-day decision-making. Typically, a firm might say that its strategy is to be "a global leader in the networked economy". But how many employees would know what to do the following Monday morning to make such a strategy happen?

Secondly, companies often assume that if their strategy changes, then everything else has to change with it. W. Chan Kim and Renee Mauborgne, two professors of business strategy at INSEAD, suggested in their book Blue Ocean Strategy¹, that firms should stop trying to outperform their rivals on every front all the time. Instead they should focus on the few things that differentiate them in the eyes of their customers. Likewise, to execute strategy effectively, firms should focus on the few things they need to change for that strategy to succeed, and on the few employees required to make those changes happen.

The two reasons for poor execution are not unconnected. Strategy is often expressed in woolly language because leaders feel that this is the only way to get it across to everyone in their organisation, and thereby to influence everyone’s behaviour. One executive from the survey commissioned by Deloitte said that his company’s strategy is articulated "very effectively for the audience that it is intended for – the financial investment community". Statements about strategy try to cover too much and are then applied inconsistently. They tend to confuse rather than clarify. It is as if a military commander were to send his troops off with no more precise instructions than that they should encircle and defeat the enemy.

We believe that firms should reconsider how they execute strategy. Indeed, employee behaviour has to change for a new strategy to be successful. But not the behaviour of every employee in the organisation in every respect. If companies first identify the key events that they need to execute effectively for the strategy to be successful – what we call ‘value events’ – and then observe how behaviour would have to change for those events to be improved, they can focus their efforts much more effectively.

In the absence of clear guidance as to what they must do to implement their company’s strategy, managers tend to fall back on tried and trusted methods that they have learnt within their organisation, much of which is contained in the implicit decisionmaking framework that they have in their heads. This is formed over time, largely by the company’s culture, the "way we do things round here".

Although people are often uncertain about what culture is – after all, you can’t kick it – many do appreciate that it is a powerful thing. Mark Fields, President of The Americas for Ford Motor Company, says "Culture eats strategy for breakfast". Without the right culture, even the best strategy is doomed.

Culture is a major influence on the behaviour of a corporation’s employees, and it is at its most powerful when those employees are faced with business decisions. It is also one of a company’s few sustainable sources of competitive advantage. This is particularly true of that growing band of businesses whose products and services are being commoditised by the erosion of their market freedom to differentiate on quality or price. It is also particularly true of businesses whose products or services are delivered via direct personal contact with the customer. However, while culture can be a more visible asset to Starbucks and the Virgin airline than it is to Unilever or General Motors, its is critical to understand for all organisations that are trying to execute a strategy.

Many companies have tried to change their culture, and their efforts have frequently been in vain. Corporate leaders, who regularly pay lip service to culture’s importance (by, for example, introducing a programme to change it), rarely believe, deep down, that culture matters. Soft issues are hard to address and easy to ignore. Many of the efforts that are made involve mere surface-level interventions. They don’t go to the depths necessary to affect and change an organisation’s way of doing things. Each culture is a unique asset which not only cannot be copied, but also cannot easily be altered.

Companies are failing in their attempts to change their culture because they are coming at it from the wrong end. Again, as with new strategy, the usual approach is to attempt to impose massive change from the top – all at once and everywhere within the organisation. And the change is usually couched in very general terms which are hard for the individual employee to translate into immediate action.

We have found, however, that when companies successfully identify a number of value events and then set out to change the behaviour of the people responsible for making those events happen, they have far greater success at changing behaviour (where it matters most) and over time they reach a tipping point. Rather than changing every aspect of the culture at once, the event focus builds momentum, after ten or so such occasions the organisation as a whole starts to embrace and adopt some of the changed behaviours. In this way, culture is changed from the bottom up through focused interventions, rather than from the top down through broad interventions. While it is perceived to be less impactful on the broad population, it can be more impactful on organisational performance

A big provider of networked IT services was persuaded that its profitability was way below what it might reasonably have expected. Since the company’s work mostly involved building big networks out of smaller components (some of which were used again and again over time), it decided that strategically it needed to increase the number of times that its components were reused.

So far, so good. The interesting part of the story, however, lies in the way it set out to execute that strategy. Advised by Deloitte, it started by focusing a laser-like light on the events and people that would have to change in order to make greater reuse of its components actually happen. This began with an examination of the sales ‘event’, where staff performance was measured not by the margin on each sale but by the size of the sale itself. After a thorough investigation it transpired that no one sales person knew of more than 50% of the components that were on offer. Hence they were building and selling networks from a far smaller palette than was actually available to them.

Then the company looked at the 50 or so people (out of a total workforce of over 30,000) who designed the networks it was selling, and it realised that they were working in an informal hierarchy that valued bespoke design and unique solutions. Reusing components and architectures from previous designs did not win them brownie points. Finally, the spotlight was turned on a third group, the engineers who put together the solutions that had been sold to customers. There it was found that, because of the selling and design processes, projects were often way behind on budgets and deadlines. That in turn forced the engineers to cut corners. The bottom line? Less profit and at times unhappy customers.

By focusing on (and changing) the behaviour of a mere 250 or so employees within this huge company it was possible to have a dramatic effect.

One senior executive in our survey said, "You have to be able to define what effective strategy execution will look like… how will we know if we have been successful?" This is central to any strategic planning. If a company cannot answer that question it should look for another strategy. For what sort of a strategy is it that allows no way of finding out if it is working?

In order to find out, we believe a company must first of all disaggregate its strategy. This means breaking it down into identifiable events that are critical to the success of the strategy – a matter of identifying what must actually happen if the company is to achieve its strategic goals. Mergers and acquisitions usually require such a process to take place. When Deloitte in the UK combined with Arthur Andersen, a key event for its strategy was the immediate integration of client-facing teams throughout the new organisation.

A company does not need to identify very many such events – typically six to eight. For there are always a few that will have a disproportionate positive impact on the execution of the strategy and ultimately on organisational performance. Deloitte’s work is proving that a small number of these so-called value events has a multiplier effect on the performance of the whole organisation.

This highly selective approach to strategy execution is a bit like keyhole surgery for the organisation. It is the antithesis of the traditional approach of business transformation.

The main drivers of value events are the people around them. In order to make events happen, firms have to look to these people and analyse what it is that they want them to do for the strategy to be executed successfully. They need to watch how things currently get done and how people relate to each other. Out of this they can draw up a detailed map of ‘real-life’ performance and contrast it with what would be considered the ideal.

Often they will find that there are critical patterns of behaviour that underpin the employees’ performance. These regularly become solidified around the cultural bedrock of the organisation; they have little to do with corporate strategy and everything to do with embedded habits that have worked in the past both to create individual success and maintain individual survival

We believe that employee behaviour is not just a leading indicator of organisational performance; it is the leading indicator. To improve future performance firms have to change current behaviour. They must regularly realign behaviour with strategy, and they should do so through focusing on the value events that will create differentiation.

A UK mobile phone company was embarking on a brand led strategy to differentiate itself in a highly competitive and saturated market. Following significant investment in the new brand positioning, the organisation recognised that true execution of the strategy would require a fundamental rethink of the customer experience. However, how could the interactions of 4,000 customer facing employees be influenced from head office?

The organisation chose to focus its efforts using the ‘value event’ approach. They set up an Action Team across its retail store and contact centre networks which comprised representative store managers, employees and customer service agents. Their task was to work with the Marketing department to understand the new brand positioning and identify a list of interactions, or events, where the organisation had the greatest opportunity to deliver the strategy through changing employee behaviour.

One event that was identified was defined as ‘Customer First Contact’. This event proposed that the first 30 seconds of any customer contact and specifically, the behaviour exhibited by employees in that contact, were highly significant in determining a customer’s perception and also the likelihood of resolving a query.

A small number of pilots were subsequently conducted that demonstrated not only the impact on the customer experience, but also on operational KPIs – for example, improving the resolution of customer queries in the first contact by around 20%.

The pilots proved unequivocally that behavioural change is not only the lead indicator of this organisation’s strategy, but also that behaviour can have a direct impact on business performance.

In reviewing the lessons learned from the pilots, the key success factor was also stated as engagement of frontline employees through the Action Team structure. For example, involving employees in the identification of the events and allowing them to shape the behaviours to deliver the strategy. This principle is now being applied across the business as the initial pilots are rolled out across the 4,000 front line employees. To the management team it has meant that they have more effectively than ever before translated strategy into event specific front line employee behaviours that are impacting positively the organisation’s performance.

To be successful, strategies cannot just live on paper. They must become part of an employee’s everyday actions and decisions. But how do you change the behaviour of people who are already deeply imbued with their company’s culture? We believe it takes four essential steps:

1) Create awareness. A lot of work is habitual. People repeat it again and again until it becomes almost instinctive. They rarely question what they are doing and why they are doing it, still less how they are doing it. So the first step is to observe behaviour, and then to share any observations with the employees themselves. Almost invariably this goes against their own perception of their behaviour. One firm that built its strategy round a number of strategic partnerships failed to see that it was not a very good partner. It was a bully and was always intent on one-upmanship. However, awareness hits very few of us so strongly that we proceed to change our behaviour without further prompting.

2) Establish role models. The next step is to establish some role models, early adopters of the desired behaviour. These individuals are identified and held up as exemplars of how a strategy can be achieved. Firms these days place great emphasis on teamwork. But, as with culture, everyone has their own idea of what it means to work well as a team. An example of what constitutes good teamwork can greatly assist employees’ understanding.

3) Develop relevant skills and knowledge. Too little emphasis is placed on corporate training. It is often seen as an extra day off or as a reward for a difficult task well done. But behaviour can sometimes only be changed by further training. To change their behaviour, for example, the sales force in the case on page 3 needed to be educated on the full range of components that they had at their disposal when making a sale.

4) Reinforce the desired behaviour. Finally, the desired behaviour needs to be reinforced. This can be done by adjusting the employees’ reward structure (of carrots and sticks), by changing the leadership (removing the wrong motivators as much as installing the right ones), or by changing the organisation’s processes. For example, the company which built its strategy around strategic partnerships would need to set up a system whereby it received feedback from its strategic partners as part of its regular management information ‘pack’.

Once these steps have been taken and behaviour has been consistently changed, it has to be monitored continually to check that it does not revert to something no longer aligned with the company’s strategy. Measuring behaviour (and monitoring changes in it) is not easy and few companies do it well. At Deloitte, we have special expertise in observation, measurement and accountability that influences our approach to the task.

How many consultants apply to themselves the medicine that they offer to others? Not many that we’ve heard of. But so convinced are we of the effectiveness of our behavioural approach to strategy execution that we have tried it on ourselves.

One of Deloitte’s big picture strategic goals is, as we put it, to ‘Deliver the Firm’. Typically, however, we coined the phrase and then left everyone to interpret it in their own way. Being a partnership, each partner could have thought that delivering the firm meant delivering more of their particular part of the firm.

When we looked into the strategy to find ways in which it might be better executed, we discovered one significant business critical event. And we decided to see if we could change the behaviour of the people most responsible for this event so that we could more genuinely ‘Deliver the Firm’.

Deloitte’s business is divided up into seven different service lines, and the event we discovered was that whenever the firm provided more than three of these to any one client the performance indicators all turned strongly positive: the cost of sales went steeply down whilst our reputation and the level of our clients’ trust rose sharply, as did the complexity and challenge of the work we were called upon to do.

We then looked at the behaviour that would have to change in order to bring this about, and we realised that the key people were a small bunch of some 50 very senior partners who are on the front line in acquiring new business. Their behaviour had a disproportionately powerful effect on the execution of the strategy. We decided that they had to be persuaded to change their initial attitude to customer inquiries. They had to stop asking themselves, "How can I best win this business?" and start asking, "Who is the best person in the organisation to serve this client and win this business?"

As in many organisations, a series of mergers and acquisitions has left many people in the firm unfamiliar with partners and skills elsewhere. So one way of improving our strategic execution is to reinforce the social networks that we have across our functional silos. You might say we are working to make our partners work more like partners.

It is easy to design strategy but hard to execute it. At Deloitte we believe that the key to executing strategy effectively lies in the behaviour of employees. Invariably it has to be changed for strategies to work. But not the behaviour of everybody all the time. The approach we have developed – and we believe in it so much we have used it on ourselves – is first to identify a small number of what we call ‘value events’. Ask yourself, "given our strategy what would we need to excel at to execute it effectively?" Maybe it is something to do with customer satisfaction or speed of innovation. In our case it is selling each client a broad range of services from across the firm.

When these events have been identified, then ask who in the organisation would be most influential in making them happen. A large telecoms company with over 30,000 employees identified just a few hundred people who had the ability to bring about some of the key value events in its strategy.

Having identified those people, their behaviour then has to be changed through a four-part process. First they need to be made aware of how they are behaving, why that is at odds with strategy and of how that needs to change. Then role models must be established so that others can see what the new behaviours should be. They may also need further training to acquire new skills and/or knowledge, and finally their new behaviour must be reinforced by aligning those things that hold behaviour in place – reward, performance management, structure and process.

Once ten or so of these events have been transformed within an organisation, we have found that a momentum is reached such that the behaviour of the few is adopted more widely throughout the firm that it can be said to have become part of the culture. This method of changing culture from the bottom up is invariably more effective and more lasting than the traditional top-down approach, which so rarely seems to work.

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