The 5 execution habits of great companies


Published on

After working with over 500 fast growth companies in the past two years we observed that great companies possess something other companies lack: a leadership team that gets the right things done with effective execution habits. Harvard Business School Press states that over 90% of strategies fail. The authors describe in their study that “the ability to execute strategy was more important than the strategy itself.” Failure to execute not only lowers performance, it also prevents a company from breaking through a perilous growth inflection point. We call that point No Man’s Land.

Why do almost all leadership teams struggle with strategy and execution? It starts with Blind Spots.

Published in: Business, Education
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

The 5 execution habits of great companies

  1. 1. FROM INC. NAVIGATORThe 5 Execution Habits ofGreat CompaniesFEBRUARY 2012  iBooks Author
  2. 2. After working with over 500 fast growth companies in the past two years we observedthat great companies possess something other companies lack: a leadership team thatgets the right things done with effective execution habits. Harvard Business SchoolPress states that over 90% of strategies fail. The authors describe in their study that“the ability to execute strategy was more important than the strategy itself.” Failure toexecute not only lowers performance, it also prevents a company from breakingthrough a perilous growth inflection point. We call that point No Man’s Land.Why do almost all leadership teams struggle with strategy and execution? It startswith Blind  iBooks Author
  3. 3. Blind Spots Almost all teams are out of sync on critical issues to some de- gree. Although most CEOs are surprised at the degree of mis-Most CEOs experience the same blind spots from incorrect as- alignment, most acknowledge the problem. They just don’tsumptions when it comes to strategy. Chief Executives often know how to tackle it.believe their leadership teams are accountable for perform-ance. We have observed a number of consistent CEO blindspots. For example: Teams out of sync waste time, energy and resources as the in- dividual members plow ahead without a united focus. We’ve seen that teams aligned on the top 3-5 priorities generate at least a 20% increase in performance. Whatare your top 3-5 company priorities? Do you assume your At some point, a growing company must transition from ateam agrees that these are most important things to focus on loyalty-based culture to a performance-based culture. Ac-now? Would they consider your priorities clear enough to countability to performance is uncommon. Team accountabil-guide action? Would they state that the team is doing the right ity, where members communicate routinely and know thethings to achieve the right results? other members’ degree of execution, is rare. Is your 2© Blind Spots,  iBooks Author
  4. 4. team loyalty-based or performance-driven? Would your teammembers agree that you track individual results? No Man’s Land According to David Thomson, author of Blueprint to a Billion, there are two inflection points where companies experience the greatest failure rate. Companies enter No Man’s Land as they grow past startup and enter “adolescence”. Figure 1 depicts the disturbing fact that over 90% fail to survive No Man’s Land and achieve scale. It’s a period of strategic confusion and inadequate resources, as Doug Tatum describes: No matter how good their core business concepts, the compa- nies I’ve seen have been pushed by growth into an uncomfort- able situation where the resources and approaches that had allowed the firm to grow in the first place suddenly becameWhat is your company’s unique competitive advantage? Team insufficient and even an obstacle to further growth. Custom-members’ responses most often vary when asked to describe ers went away dissatisfied, and the entrepreneur in questiontheir company’s value proposition. If the leadership team is felt disoriented, as if he or she were gradually and inexplica-confused on the reason to buy, how must their target market bly losing control.feel?These and other blind spots are symptoms of an inevitable, un-avoidable growth transition where over 90% of companies *No Man’s Land was recognized in the 2011 book, The 100 Best Books of All Time by Jack Covert and Tom CEOs rarely see it coming, and usually don’t know how tosurvive it. Inc. Navigator Chairman, Doug Tatum, describesthis inflection point as No Man’s Land*, the stage where com-panies become too big to be small and too small to be 3  iBooks Author
  5. 5. Figure 1 Figure 1 Source, David G. Thomson, Blueprint to a Million. Re- search pub- lished by Dr. David Birch iv iBooks Author
  6. 6. In No Man’s Land, growing companies experience difficul- Profitable Productsties in four distinct managerial categories: Customer PromisesMarket: Cost of Customer AcquisitionNo Man’s Land market issues center around the relationship Innovationbetween company and client. Companies often find it diffi-cult to identify their most profitable clients or the cost of ac- Question: does your company have a clear and compellingquiring a profitable customer. They also have a tendency to Value Proposition that it can fulfill?make promises to customers that they are only 70% able tokeep: Management:It is so important to decide carefully which promises to ex- It’s tough to make changes that involve replacing loyal staff;tend to which customers. The correct decisions will keep but CEOs must make strategic hires and fires when necessaryyou growing through No Man’s Land, while the wrong ones to put the right people in the right positions. These experi-will kill you. An entrepreneur might make some promises enced individuals will lead the company through No Man’sthat lead to stadiums full of new customers, whereas others Land:might lead to dead ends, tangling up the company with If someone tells entrepreneurs that they need to let a closepromises meaningful to only a few clients or customers. friend go, they typically react defensively, acting as if it wereThe key is for you as the leader to make the right decisions somehow their own fault that things have gotten as bad asthat lead to a growing and profitable customer base. (No they have. They lose confidence in their own decision-makingMan’s Land) process. Yet entrepreneurs must realize that the transition toMarket Issues: outside management is a normal progression; it has nothing to do with entrepreneurs or the particular people they’veCustomer Satisfaction brought with them on the journey thus far. As a business changes, it requires people with different skill sets. The entre-Gross Margin preneur needs to match the people in charge with the skillsProduct Commoditization the business needs; otherwise the business will fail... The Founder must hire at the top first, not the middle to navigateProfitable Clients through No Man’s Land. (No Man’s Land) 5  iBooks Author
  7. 7. To make it through No Man’s Land, firms must develop a new economic model that allows them to provide its valueManagement Issues: proposition at scale and earn a profit. In addition, the firmCEO Role must constantly analyze its performance in light of this model to assure that the company will achieve sustained prof-Execution itability. (No Man’s Land)Reports Model Issues:Priorities Key MetricsExperience New ProductsAgility Infrastructure for GrowthAlignment Profitability at ScaleAccountability SystemsTalent CompetitionQuestion: does your company have the right people in the Strategyright positions? ForecastingModel: Growth InitiativesOne memorable Superbowl commercial a few years agoshowed a young group of entrepreneurs throwing the virtual Question: Does your company’s financial model forecast deci-switch to open their online store. The first orders produced sions before you make them?hoo-ahs and high fives; but when the order counter startedspinning like a pinwheel in a hurricane, their smiles turned up-side down. Many companies in No Man’s Land can’t makemoney at higher 6  iBooks Author
  8. 8. Money: Exit StrategyMany rapid-growth companies roll in profits but have no cash Valueon hand; worse, they have more cash going out than coming Capital Allocationin. Private Equity firms are less interested in a company’s pro-formas than they are the company’s ability to reduce the risk ROI on Assets and Peopleon their investment. Question: Do you know how to reduce your company’s great-Most companies enter No Man’s Land without enough capi- est risk?tal to leave it. If and when they fail, “undercapitalization” isseen as the cause. Yet undercapitalization is not the cause but Teams out of sync on the No Man’s Land issues experiencerather a fatal symptom. The true cause is a company’s inabil- great difficulty getting the right things done. Great companiesity to raise capital because it is perceived as too risky. To have teams that maintain effective execution habits so theyraise money, firms must focus on reducing their real and per- can break through No Man’s Land.ceived risk by addressing the issues described in the previousthree chapters. Yet even with the appropriate measures inplace, transition through No Man’s Land is difficult because The 5 Execution Habits ofof institutional barriers that exist in the capital markets.Hang on—it’s going to be a wild ride. (No Man’s Land) Great CompaniesMoney Issues: Habit 1: Get radically objective about the businessCapital “Embrace the brutal facts,” as author, Jim Collins states. Great companies ask tough questions from the No Mans LandCompensation categories to get an accurate picture on the extent of team mis- alignment and the degree of urgency on each issue. ToughReducing Risk questions usually reveal tough decisions that must be made;Forecasting decisions that stir the pudding but can also throttle the com- pany through No Man’s Land.Speed 7  iBooks Author
  9. 9. Habit 2: Set a clear direction by focusing on a handful stances, outside information, and the evolving interaction of priorities with their environment. By using this process the team adapts and learns in order to choose their next move. In other More than 5 priorities result in no priorities. Strategy can be words, they remain “agile” at all times. The Wall Street Jour- simple. Teams can focus and when they are responsible for a nal described the need or a company to remain flexible: handful of priorities with actionable points and deadlines. Now, even though the economy is slowly picking up, those Habit 3: Align the team through routine communica- fresh habits aren’t fading. “This downturn has changed the tion way we will think about our business for many years to We have observed that over 98% of teams are out of sync on come,” says Steve Odland, Office Depot’s chairman and chief the No Man’s Land issues. On the other hand, companies expe- executive. rience at least a 20% increase in performance when teams are Walt Shill, head of the North American management consult- aligned and focused on the right priorities. Aligned teams can ing practice for Accenture Ltd., is even more blunt: “Strat- stay in sync with a routine review of priorities and key per- egy, as we knew it, is dead,” he contends. “Corporate clients formance indicators. decided that increased flexibility and accelerated decision Habit 4: Keep score to hold each other accountable making are much more important than simply predicting the future.” As stated previously, team accountability is rare; but it is at- tainable. A simple dashboard that includes priorities, as- From: Strategic Plans Lose Favor, Wall Street Journal, signed action points with deadlines, and metrics will provide 1.25.10 the catalyst for team interaction. Offering the team an oppor- Great companies have leadership teams that adapt and learn tunity to vote on the priorities and action points can also fuel from their decisions. They are able to keep their strategy sim- accountability. ple and remain focused on the top handful of priorities. Habit 5: Adapt and learn quickly They’ve developed the habits to execute. Inc. Navigator ( is an online set of tools that makes Our nation’s Special Forces utilize the same strategic decision team alignment and accountability a routine (see next page). Contact process on every battlefield around the world. The foundation us for a free overview on how your team can develop the right routine of their strategy is based on the team’s ability to make a deci- at or 407.448.9477. sion and then quickly learn from their unfolding circum-  iBooks Author
  10. 10. Inc. NavigatorMake team alignment and accountability your routine Scoreboard Compass One Page Strategy Dashboard Quarterly Strategic Diagnostic to simply communicate strategy and track its to ask strategic questions about the business and to performance regularly get radically  iBooks Author
  11. 11. What Entrepreneurs say about Inc. Navigator© 2012, Inc. Navigator x  iBooks Author