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Steve Sherretta

April 5, 2013

Performance Management:

Enhancing Execution Through a Culture of Dialogue

Peter is Chief Executive Officer for a medical supply multinational that recently

crafted a new strategy to counter competitive threats. The plan stressed the need

to cut cycle time, concentrate sales on higher-margin products and develop new

markets.

Four months after circulating the plan, Peter did a “walkaround” to see how things were going. He was appalled. Everywhere Peter turned people, departments—

whole business units—simply didn’t “get it.”

First surprise: Engineering. The group had cut product design time 30%, meeting its goal to increase speed-to-market. Good. Then Peter asked how manufacturing would be affected. It turned out the new design would take much more time to

make. Total cycle time actually increased. “Our strategic plan message is not

really getting through,” Peter thought.

Second surprise: Sales. The new strategy called for a shift—emphasize high

margin sales rather that pushing product down the pipeline as fast as possible.

But just about every salesperson Peter spoke to was making transactional sales to high-volume customers; hardly anyone was building relationships with the most

profitable prospects. Sales is doing just what it’s always done, Peter thought.

Worst surprise: Even his top team, the people who’d helped him craft the strategy, was not sticking to plan. Peter asked a team member: “Why are you spending all your time making sure the new machinery is working instead of developing new

markets?”

“Because my unit’s chief goal was to improve on-time delivery,” he answered.

“But what about company goals?” said Peter. “We came up with a good plan and communicated it very clearly. But nowhere it isn’t being carried out. Why?”

Many organizations create good strategies, but only the best execute them effectively. Fortune magazine estimates that when CEOs fail, 70% of the time it’s because of bad

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execution.1 Weak execution is pervasive in the business world, but the reasons for it are largely misunderstood. Why is it that no one in Peter’s organization was acting in sync with the strategy? Unless we understand the reasons, we can’t hope to solve the problem.

Imagine someone hitting a tennis ball. When the brain says “hit the ball,” it doesn’t automatically happen. The message travels through nerve pathways down the arm and crosses gaps between the nerve cells. These gaps, or “synapses,” are potential breaks in the connection. If neurotransmitters don’t carry the message across the gap, the message never gets through, or it gets distorted. When that happens, either the arm doesn’t move at all, or it moves the wrong way.

Creating a “culture of dialogue”

Just like a nervous system, organizations also have gaps that block and distort messages. The secret to effective strategy execution lies in crossing hierarchical and functional gaps with clear, consistent messages that relay the strategy throughout the organization. Sound simple? It’s not. The reason is that the “neurotransmitters” in organizations are human beings—executive team members, senior managers, middle managers and supervisors—whose job it is to make sure that people’s behavior is aligned with the overall strategy. Doing what it takes to achieve alignment is very difficult. It is what Ram Charan calls, the “heavy lifting” of management, and it’s the key to executing strategy.

As we’ll see later, there is an important difference between companies that successfully align behavior with strategy and those that do not. Companies that effectively execute strategy create a “culture of dialogue.” A culture of dialogue encourages pervasive two-way communications where inpiduals and groups 1) question, challenge, interpret and ultimately clarify strategic objectives; and 2) engage in regular performance dialogue to monitor behavior and ensure it is aligned with strategy.

Three keys to managing performance

A culture of dialogue doesn’t happen instantly, any more than a fluid tennis stroke does. It takes practice, persistence and hard work. So how exactly can leaders ensure that strategy messages go all the way down the line—that the tennis ball gets hit correctly? The three keys to managing performance effectively are:

1. Achieving radical clarity by decoding strategy at the top. Many organizations

think they send clear signals but don’t. In some cases, managers subordinate broad strategic goals to operational goals within their silos. That’s what happened with Peter’s top team. Elsewhere, top team members often have too many “top”

priorities—we’ve seen as many as 100 in one case—which results in mixed signals and blurred focus. Strategy decode requires winnowing priorities down to a

manageable number—as little as five. 1 “Why CEOs Fail,” by Ram Charan and Geoffrey Colvin, Fortune magazine, June 21, 1999.

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2. Setting up systems and processes to ensure clarity. Once strategy is clear,

organizations must create processes to ensure that the right strategy messages cascade down the organization. These include: strategy-centered budget and planning

sessions; staff and team meetings to discuss goals; performance management

meetings; and talent review sessions. Dialogue drives all these processes. Each

represents a “transmitter opportunity,” where strategic messages are conveyed and behavior is aligned with goals.

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