This chapter is from the book
This chapter is from the book
This chapter is from the book
The Execution Gap
There is a major gap between visionary strategies and financial analysis. At one extreme are the bold strategies of where we would like to be, and at the other extreme are finance-based analytical tools for evaluating investment opportunities that need to be made as an important step in reaching those strategic objectives. Unfortunately, neither the grand visionary strategies nor financial tools are enough on their own. There is a huge gap between strategy and financial analysis, what we call the execution gap. As shown in Figure 1.3, the execution gap is where managers create value for their companies by building a bridge between the financial analysis and corporate strategies. This step is the essential task and responsibility of management.
In one of his earliest meetings with security analysts after becoming IBM's CEO, Lou Gerstner, who recently retired from IBM, said that "the last thing IBM needs right now is a vision." Gerstner and his management team then committed their company to the business basics of execution. The company's subsequent success is well documented, and although Gerstner was obviously referring specifically to IBM when he made that statement more than 10 years ago, his words were prescient for all of us today.
Note the key word of execution as compared with the word vision. Gerstner clearly recognized the importance of getting the job done versus merely talking about it, and he focused the company's efforts accordingly. He was emphasizing the importance of moving away from management theories and talk to reality and results.
Gerstner's comments are not an isolated thought by an individual manager. The new CEO at General Electric, Jeff Immelt, was recently quoted in the Wall Street Journal. When discussing two major acquisitions by his company he said, "Most companies ultimately get judged on their ability to take a good strategy and execute it." Note again the key word execution.
In fact, the word execution is in the title of a recent best-selling business book, Execution: The Discipline of Getting Things Done.3 The authors of that book, Larry Bossidy, the former CEO of Allied Signal (now Honeywell), and Ram Charan, a consultant with McKinsey, write, "Execution is the great unaddressed issue in the business world today. Its absence is the single biggest obstacle to success and the cause of most of the disappointments that are mistakenly attributed to other causes."
The fact that Lou Gerstner, the CEO of IBM, Jeff Immelt, the CEO of General Electric, and Larry Bossidy, the CEO of Honey well, are focused on execution indicates its importance in the executive suite and for senior-level managers. Execution is just as important for midlevel managers, those charged with the day-to-day task of getting the job done. Many midlevel managers are often caught between the extremes of expectations of achievement of strategic visions and the constraints of financial tools. You want to get the job done well, but the execution gap holds you and your company back.
Although measurement and management systems like the Balanced Scorecard can provide an alternative to bridging the execution gap, most companies and most managers within them do not have the time or resources to devote to the development or implementation of broad-based management initiatives. These initiatives can often be very useful, but those managers on the firing line every day frequently find that what works in the corporate classroom is often just too complicated or difficult to remember or keep track of in the battlefield of day-to-day business. It is hard enough just to catch up with the work that piled up while you were away at a corporate seminar and training program, let alone put what you have learned into practice. Besides, you might have had the experience of being burned by your manager, who simply ignores you when you try to implement what you have learned, often with a comment along the lines of, "That's nice, but we have got to get the job done now."
You might be familiar with Good to Great by Jim Collins, which is one of the most successful business books of the past decade.4 Collins and his team studied companies in the Fortune 500 from 1965 through 1995 to determine which companies made, using their words, "the leap" from good to great. Their findings and suggestions for senior management are excellent, but, unfortunately, they are simply not enough in terms of the execution that is needed on a day-to-day basis by all levels of management to make the "leap." After reading books like Good to Great, you feel excited and enthusiastic about what should or could be done in your company, but ultimately you are left without a clear roadmap for implementing such fundamental changes.
This book provides you with a fabric that meshes the energy and the transformative capabilities of strategy together with the basic blocking and tackling of business basics, including basic and essential financial performance metrics. This approach does not require you or your company to go through extensive and expensive corporate transformation efforts. Read on, and you will see how you can build your existing methodologies and approaches to become significantly better and more effective at evaluating and executing the investments your company needs to gain efficiencies, grow your business, and increase your profits.
This approach enables you to move from theory and talk to reality and results, because it puts everyone in your company on the same page, allows them to see an investment through from the beginning to the end, helps to ensure that precious resources are not squandered, and provides opportunities to increase value for all stakeholders in your company. You will be able to leverage your existing knowledge and resources and get an immediate benefit in the work that you and your team are involved with every single day.
The key theme throughout the pages that follow is that success comes not from the choice of a specific investment, but from developing the competencies to assess and to manage the investments your company does choose with a clearly defined, disciplined approach, an approach called the Business Investment RoadmapTM. Fundamentally, the Business Investment Roadmap is built on the concept that successful investments require a mastery of the business basics. If you are used to analyzing opportunities primarily with financial metrics, you will see that the Business Investment Roadmap uses financial analysis as only one (albeit important) aspect of the investment process, and, therefore, it complements and enhances traditional finance-based analytics, rather than substitutes for them.
The Business Investment Roadmap connects strategies to financial analysis; it gives you the framework to bridge the execution gap. In fact, although ROI and other finance-driven analytical tools will certainly remain important in evaluating investment opportunities, the most crucial metrics are those that will enable you to achieve and deliver the promised returns to your company's shareholders. These are execution-driven metrics, and they directly relate to the who, what, when, where, why, and how of investments.