1. Set clear and coherent goals
All businesses conduct some level of goal setting but more often than not, these goals are poorly understood and rest on weak assumptions about the external market reality and the company's internal capabilities.
The first step to closing the strategy-execution gap is to bring clarity and coherence to the business' goals. To do this, leaders should first clearly define their goals in terms that can be easily understood by the whole organisation. These goals can be financial like revenue and profitability or non-financial like customer experience.
The next step is to identify all of the underlying assumptions that the goals are built on and make them transparent. Once the assumptions are visible, they should be rigorously tested to check their robustness. A particularly effective way to do this is to benchmark externally with comparable companies. If similar organisations have realised such goals in an equivalent timeframe it is a good indication that they are achievable.
2. Break-down goals into KPIs across functions and levels
Once goals have been set, to become operational they need to be broken into key performance indicators (KPIs) across different business functions and different levels in the organisation. For example, a revenue related goal might be broken down into specific targets for the sales team for particular products and customer segments and then further broken down to sales targets at the level of territory managers and individual sales executives.
Here it's important to be aware that the achievement of business goals requires effective cross-functional collaboration. For example, an operational goal such as improved on-time-delivery will rely on simultaneous improvements by departments such as procurement, production planning, and logistics to name a few. Therefore it is critical that key performance indicators are set from a holistic and integrated viewpoint.
3. Bring firm-wide visibility
Even with the right goals and KPIs in place, many organisations fail to align behind their strategy because their objectives are only front and centre for senior management. Those organisations that successfully close the strategy-execution gap create a shared vision of the firm's goals from the boardroom to the factory floor and ensure the daily actions of every employee are focused on achieving them. This level of visibility requires constant communication from the top to the bottom of the organisation.
For example, one manufacturing company successfully reduced input costs by making its raw material costs visible in real-time to plant operators through an automated costing tool. These metrics were then integrated into the department's key performance indicators.
4. Establish a robust management review system
The final link in closing the strategy-execution gap is the management review process. Companies need to design their management review system to create a constant check and feedback on the achievement of their goals. Without a robust review system, daily actions will quickly diverge from the firm's strategic goals.
Based on extensive research into the performance management process at hundreds of companies, we have identified three key elements that create robust performance management systems. First, they effectively identify the key areas of focus for the review. Second, they are self-reflective, which means they quickly illuminate gaps and potential corrective measures. Third, they are highly efficient by standardising and automating as many aspects of the review as possible, reducing the time and effort required by the management team.