The 4 A’s of Strategic Execution: The Second 2 — Architecture and Agility

INSIGHTS FROM: Scott A. Snell; Kenneth J. Carrig

WRITTEN BY: Aine Doris

For an introduction to the 4A strategy model, please see Strategic Execution: Performance Excellence With 4 A’s, and for the first two A’s of strategic execution — alignment and ability — please see this article’s companion piece.

Legendary architect Frank Lloyd Wright once said: “We create our buildings and then they create us.”

The same is true of organizational architecture.

The Third A: Architecture

The design of your organization is one of the key determinants of organizational behavior — how your people engage one another and what they are able to accomplish together. Things like infrastructure design, processes, systems and controls directly shape behavior and performance. In the best of cases, that impact is extremely positive and the organization architecture aids efficiency, clarity and ease of operations. Poor form and function, however, can be negative, where bureaucracy, inefficient processes and cumbersome systems impede performance.

Think of airlines that frequently lose luggage, oversell flights or have chronic delays. Or medical centers with poor clinical procedures, lost patient data or repeated administrative and billing errors. We’ve all experienced them.

According to engineer W. Edwards Deming, 94 percent of performance problems are systems — not people — problems. “A bad system,” he said, “will beat a good person every time.”

The reality is that motivated and talented people can compensate for bad organization architecture in the short run, but not for long. Why? Because the architecture ultimately determines how the work gets done. The structures, processes, systems and controls are the tools we use to drive organizational performance.

So, what can you do to ensure your architecture is up to the job?

STEP 1: CLARIFY YOUR OPERATING MODEL

Take a look at Domino’s Pizza. When Tom Monaghan created the company, he had a clear strategic intent: Deliver pizzas in 30 minutes or they’d be free. But he also had clarity around his operating model. Instead of using chefs to hand-knead pizza dough, he borrowed assembly line processes to prepare pizzas at scale and speed. Instead of wood fired ovens, he deployed conveyer technology to reduce baking time to six minutes. Instead of building restaurants, he incentivized drivers to deliver pizzas to homes. Monaghan revolutionized the industry.

Think of your operating model as an architectural blueprint for strategy execution. Ask yourself the following questions:

• Is your operating model clear so that you know which core capabilities drive the most value to customers?
• For each capability, have you identified the underlying processes, systems, skills and structures that are critical to drive performance?
• Have you prioritized key areas for investment to enhance your capability system for the future?

STEP 2: STREAMLINE YOUR ARCHITECTURE

After clarifying your operating model, you have a workable blueprint for refining your architecture to bridge strategy and performance. But “structure follows strategy” doesn’t just happen automatically.

Over time, when companies go after emerging opportunities, their strategy morphs but they frequently don’t adjust their architecture in concert. Structures, processes, and systems are notoriously intractable and stay in place while the organization goes after new opportunities. So while the strategy has adapted, the architecture hasn’t.

Companies with performance problems often reorganize, addressing the symptoms of poor performance: modifying reporting relationships, altering decision authority, perhaps even adhering to generally good advice about best practices. But if the changes don’t address the underlying root cause of performance, the design choices may not be appropriate. And managers will continue to devise workarounds, duplicating effort, adding back layers, increasing complexity so that bureaucracy comes creeping back.

What’s the solution? Take time to think hard about these questions:

• Have you streamlined your organization structure to enable the key drivers of customer value?
• Are roles and responsibilities well defined with clear decision rights and authorities?
• Have you created lateral connections across your structures to improve collaboration and joint decision-making?

STEP 3: BUILD AN INTELLIGENT ARCHITECTURE

Data and processes are complementary assets and increasingly inseparable. Technology investment without process improvement is merely “paving cow paths,” reinforcing things that are perhaps circuitous and inefficient.

Change is coming rapidly, and we may have reached an inflection point. Consider the following questions for you own organization:

• What steps have you taken to streamline your core processes to improve workflow, increase productivity and eliminate waste?
• How well have you made information accessible and knowledge shared throughout the organization?
• Do information systems inform and enable decision making with timely data?

Bracing for change is also down to building organizational agility.

The Fourth A: Agility

Take Microsoft.

Back in the 1980s, the company enjoyed a near monopoly in desktop computing. Between 2000 and 2014, Microsoft’s profits grew from $9.42 billion to over $22 billion. But despite its financial success, the company was slow to shift from desktop computing to mobile devices and cloud-based services. It’s not that Microsoft didn’t see it coming. It did. But the company prioritized other initiatives and didn’t act as quickly as their competitors. A decade-long delay to properly address the market potential of cloud computing caused Microsoft to trail behind Amazon’s 71 percent market share.

In today’s business environment, long-term execution capability requires short-term agility, innovation and organizational learning. This places a premium on recognizing the landscape of change and being ready and able to respond in a way that enhances performance.

So how do you build agility?

STEP 1: DEVELOP SITUATIONAL AWARENESS

The military use the term “situational awareness” to convey the importance of staying alert to your surroundings for potential changes in the environment.

In complex and dynamic environments, we need to be aware of how elements and events are in play, interacting, reshaping context. And how our actions may be impacted as a result.

Ask yourself this: is your organization proactive, versatile, and responsive? Or is it reactive, scrambling, flailing — and failing — in crisis?

Carefully consider these questions:

• How thoroughly do you learn about your customers in order to foster deeper relationships?
• How many points of contact have you created with external stakeholders to ensure relevance and responsiveness?
• How do you recognize faint signals to stay ahead of emerging trends?

STEP 2: EMPOWER ORGANIZATIONAL LEARNING

Let’s look at Microsoft again.

When Satya Nadella took up the reins as CEO of Microsoft in 2014, he emphasized that agility begins with a growth mindset. Nadella placed this front and center in virtually all of his communication about Microsoft’s culture change. As CHRO Kathleen Hogan observed: “This notion of constantly being curious and learning and open to feedback, and you don’t have all the answers, breeds agility. If you have that fixed mindset, where you feel you need to be the smartest person in the room, you have to have it all figured out.”

A growth mindset embraces ambiguity and acknowledges mistakes as an investment in learning.

The well-documented turnaround in Microsoft’s fortune ties to a new, more agile process that is posited on hypothesis testing, embracing a growth mindset, learning from mistakes and constantly evolving the process system.

With this in mind, reflect on the following questions:

• How well do you empower members of your organization to own and solve problems, to distribute decision-making lower in the organization, and gain from their collective knowledge?
• In what ways have you established the capacity to manage reasonable risk by trying new things, prototyping, testing and learning?
• How well do you share what you’ve learned in one part of the organization with those in other parts?

STEP 3: BUILD DYNAMIC CAPABILITY

The third requirement for agility is building dynamic capability. Dynamic capability is your ability to reconfigure the organization’s resources — money, people, technology — to orchestrate rapid change.

Dynamic capability depends on situational awareness and organizational learning. Without good situational awareness and the capacity for organizational learning, it is impossible to effectively reshape the organization’s assets in ways that improve responsiveness. In this sense, the capacity to bring about change is itself a capability. And in agile environments, it is a core capability.

A recent McKinsey study found that dynamic resource reallocation — shifting money, talent, and management attention to where they will deliver the most value — was the strongest predictor of total returns to shareholders. This makes sense and is especially important for agile execution.

Getting the necessary resources in place, in a timely manner, can either make the organization nimble and productive or leave it lumbering and ineffectual. It is the essence of dynamic capability.

So where does your organization stand?

Add these last three questions to the others you have asked yourself previously:

• How change ready is your organization? Do you respond to change well?
• What are the key levers you use to mobilize change? What leads, lags and what drags?
• In what way do your core capabilities give you a foundation for responding quickly?

BRINGING IT ALL TOGETHER

Alignment, ability, architecture and agility are connected and mutually reinforcing. Each plays a unique role in supporting execution capability and they complement one another in building an overall system.

So how do you use that system?

We lay out a three-step approach for engaging others to improve execution capability.

Our goal is to help you see the process more clearly so you can approach it in a more explicit way. Remember, execution is a collective challenge, a form of organizational change, so don’t try to mastermind the design of the process by yourself in splendid isolation. Engage others and develop the approach together.

1. The first step is setting the business context, ensuring clarity about your strategy, financial objectives, competitive positioning and operating plan.
2. The second step is an organizational capability assessment and deeper analysis of underlying enablers to help you see where execution strengths and potential problems might lie.
3. And then finally, the third step is establishing a game plan for taking concrete actions to improve execution.

Many leadership teams want to jump directly to the action-planning phase. Don’t make that mistake. Investing time in each step provides the foundation you need to create a truly robust approach to execution.

The bottom line is that when companies focus on key priorities, engage their leadership and entire organization around that agenda, hone the systems and culture to support it, and invest ahead of change, they achieve a step change in performance. Executives who apply these principles and practices and are consistently vigilant in building better capability, move closer to the ideals of strategic execution.

You can do it, too.

By first framing the challenges of execution, embracing the underlying logic of the 4A framework and applying a set of actionable tools to address performance gaps, you and your team will gain more traction in your critical path forward.

And just as important: By building a discipline around this approach and embedding it in the way you work, you will sustain positive momentum over time.

To help assess your company’s execution capability, take the online Strategy Execution Survey, based on the 4A framework.

The preceding is drawn from Scott Snell and Ken Carrig’s forthcoming book, Strategic Execution: Driving Breakthrough Performance in Business, published by Stanford Business Books, an imprint of Stanford University Press. Nominated for the Financial Times and McKinsey Business Book of the Year Award, it’s available for purchase on sup.org (20 percent off with discount code SNELL20), Amazon.com or your favorite independent bookstore

About the University of Virginia Darden School of Business

The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D., MSBA and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.

 

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