How to Deliver Results That Matter
Today’s senior managers grapple with a common problem: their organization is straying from its strategic intent. All too often, senior managers realize that their organizations’ departments are not synchronized, and in the worst cases, these out-of-sync departments actually conflict with each other.
Siemens, a $52 billion multinational corporation, struggled to establish their U.S. market position in the medical equipment business. The U.S. Siemens team was working hard to build their market. They knew 50 percent of the world’s demand for medical equipment was in the United States and their less than 10 percent market share was unacceptable. Corporate made the U.S. market a strategic priority. Most of the medical equipment was manufactured in Germany. Manufacturing processed the U.S. market demand the same as requests from Germany and operations from the rest of the world. Orders from Argentina, Nigeria, Portugal, and other countries were treated with the same priority. Further, Siemens had a tendency to delay the products for the U.S. due to some regulatory and special product requirements. The results were that products were delivered late and did not respond to the U.S. demand. Manufacturing did not share the importance and urgency of the U.S. market. Executives were frustrated with the lack of progress. They did not have strategic alignment.
Frustrated by their company’s inefficiency, managers frequently ask us to define the correct set of measures or to provide the best incentive system to motivate their people. But there is no secret or silver bullet. The past is littered with clever management innovations, maze-like operational frameworks, and faddish methodologies. If any of them had been the secret, we wouldn’t have had to write this article, and no one would need to read it.
Yet, smart managers understand that effective management often means adhering to the old adage, “You get what you measure.” Consequently, many managers seek a universal approach to implementing strategy; but in doing so they labor under the very common misconception that such a thing exists. Searching for the secret—the “holy grail” of management strategy—is both fruitless and misguided.
As a side-by-side comparison of Exhibits 1 and 2 suggests, there is no “one size fits all” management system. Every firm needs to employ a custom management system that motivates employees to behave in ways that advance specific goals. Different strategies call for different approaches to managing and measuring performance. For example, a firm pursuing a low-cost strategy in a mass market, such as Walmart, has different priorities than a firm selling high-quality products, such as Nordstrom, to a niche market. Highly desirable behavior in the niche market such as wide aisles and appealing displays may be considered wasteful in the Walmart low-cost firm. Conversely, cost-reduction methods that are viewed as top priorities in the mass market may be strategically destructive in the niche market. Walmart has one set of cashier queues and store personnel are focused on filling shelves. Nordstrom has department cashiers and store personnel who are knowledgeable and focus on customer service.
But suppose two companies do pursue the same strategy—should they therefore measure performance the same way? No, because a customized performance and measurement system works not only because it fits a particular business strategy, but also because it responds to the company’s culture and context. A strategy must be able to adapt to the particularities of a company; thus any single strategy, when followed by two firms, will require very different kinds of work. Consider the variables that affect strategy in two given firms: Do both firms face the same kind of competition? Are the prices and availabilities of required resources the same for both firms? Are the organizational capabilities the same? Do the firms face equivalent regulatory and compliance restrictions? Is the strategy a natural fit to the way people think in the organization or does it represent a break from past behavior? The answers to these questions will determine what matters in implementing the strategy and, therefore, which performance measures the company should choose.
GE (General Electric) and Philips compete in the Lighting Industry. Philips has very cutting-edge technology and is in need of more U.S. market penetration. GE has a dominant market share and strong distribution with an excellent sales and marketing team. GE needs to find better ways to commercialize technology and introduce more innovative products. Philips must build its customer relationship, distribution, and marketing. The factors of success in the same served market are different for each company.
But even once a company has thoroughly examined itself and its context to find “what matters,” it cannot preserve the results in a static set of procedures and performance measures. A good management system, like any other part of the organization’s infrastructure, needs constant attention, maintenance, and upgrading. Organizations are constantly changing—responding to the needs of the served market and the competitive environment. Thus, even an effective set of measures is only good for a limited time. Excellent management systems are dynamic and responsive.
Thus, concerned managers must learn to ask the right questions and to ask them often: not questions about finding a good performance measurement system product but about identifying a good process for measuring what matters. Designing and using custom performance measurement systems to implement organizational strategy takes careful thought and significant effort, and there are no shortcuts.
But the rewards can be great. In our academic, consulting, and professional careers, we have crafted, implemented, utilized, analyzed, critiqued, and repaired hundreds of management systems. Collectively, we have been working at this for more than 50 years. We have found that, although there are no “silver bullets,” there are productive ways of thinking about delivering strategic results. Thinking clearly about delivering results means looking for compatible, organizational structures, linked performance measures, and reliable processes.
To achieve strategic results, a management system must align the effort of all the members of the organization. Effective execution requires that everyone in the organization pull in the right direction at the right time.
We take a holistic systems approach to delivering results. A management system for delivering results must be in harmony with the strategy, the environment, and the organization. When we say “holistic” and “harmony,” we are not talking about New Age mysticism; instead, we are talking about a hard-headed and rational approach to strategy execution, one in which all the parts fit together and work toward a common goal with little wasted effort or energy. The primary active mechanism in the performance-measurement part of the management system is feedback. Using feedback, a manager may measure the magnitudes of strategically important performance improvements, assess causes and effects, learn how to make effective improvements, and motivate people to take actions that lead to those improvements. But only when all the parts of the management system line up can feedback be harnessed to encourage behavior that delivers strategic results. Harmonious design of the management system must take into account the nature of the business, the type of products or services it offers, and its strategic priorities. The organizational architecture must be compatible with the strategy. Furthermore, the organization’s culture, as well as its operational capabilities and strategic strengths and weaknesses, must be reflected in the system design.
Ultimately, promoting strategic behavior is the objective of system design. First and foremost, delivering results depends upon influencing employees’ behavior. The term “management system”—something that measures results and directs activities—sounds mechanistic, but nothing could be farther from the truth. Delivering results, from the organization’s perspective, is not merely measuring and reporting; instead, it is the amalgamation of all the decisions made and all the actions taken by the organization’s people.
Thus, a management system is more about human judgment than quantitative analysis. In assessing these judgments, a good manager must examine them from many angles: Are the employees’ decisions and actions in the best interest of the firm? Are they aligned with the strategy? Do they open new options for the organization? Do they represent best efforts? Do they expose the organization to undesirable risks? Do they develop strategic resources? Yet even when the behavior stays the same, the responses to these questions may differ depending upon the situation.
Our message of delivering results also is very applicable to not-for-profit organizations. They, more than for-profit firms, are challenged with aligning the efforts of the parts of their organization with the shared strategy. The common financial goals (ROI, profit, EVA, etc.) are not applicable as overall measures. They need a system that coordinates roles and motivates people to implement the strategy as designed.
The challenge of designing and implementing a management system for delivering results can be daunting for several reasons:
Different strategies call for different competencies.
Specific competitive environments may reorder the priorities of these competencies.
The professional model may determine how an organization operates.
Leadership styles influence behavior.
Variations in organizational structures can lead to dissimilar strategic opportunities or limits within an organization.
Information technology can enhance or limit the flow of necessary data.
Skills and knowledge change over time.
No two people are exactly the same.
Managers who can navigate these variables and chart a route for their own organization’s strategy will reach their goals faster and more efficiently than their competitors. Knowing how to create and direct management systems that deliver results is, in itself, a strategic resource.