Corporate America is great at creating strategies. For at least four decades, prestigious US consulting firms have brought strategic insight to C-Suites everywhere. Many former consultants have even taken top jobs inside corporate strategy departments, ensuring that strategy consulting IP is now embedded permanently across Fortune 100 companies. But there is still a significant gap between strategy and execution. In fact, nearly 70% of terminated CEOs have lost their jobs because of bad execution. [i]
I can sum up the reason behind this epidemic failure in strategy execution with a simple phrase: “1, 2…10.” Or more specifically, “Step 1, step 2…skip all the middle steps…and jump to step 10.” Steps 1 and 2 are crystal clear: They’re the explanation of the strategy covered in the comprehensive and data-dense strategy slides that you often see at senior leader off-sites. Step 10 is also usually quite clear: It is the description of the future state. But, what happened to the steps in between?
The steps in between are often ignored by strategy creators, at their own peril and, often, to the demise of their strategy. The steps in between are where strategy is made personal for everyone in the organization. The ‘missing steps’ involve the hard work of building new capabilities to support the strategy presented in the first two steps. The steps in between include the democratization of business & financial acumen so that employees at every level can make better business decisions to support the strategy.
Right now, most senior leaders still deliver top-down strategy objectives and hope it gets translated into the middle and front line. Unfortunately, most middle managers weren’t given a fair chance to develop the knowledge and skill to support the new strategy. Subsequently, the front-line is often ‘lost’ when it comes to what they should do every day to support the strategy.
I recently witnessed the CFO of a large, publicly traded technology company say the following to a group of analysts and an audience of the company’s employees: “We are now giving 3-year forward Free Cash Flow CAGR guidance, and driving cash flow is a top priority for our company and leadership team.” That’s an articulate, concise, and financially dense statement to analysts. The stock price moved up on this announcement. That’s a great example of steps 1 and 2. However, this articulate CFO might well be quite consternated by the fact that 70% of corporate America, from VP to first-line manager, can’t even define cash flow. [ii] Many Senior Directors in this very company, who were sitting in his audience, couldn’t tell me what “3-year forward Free Cash Flow CAGR” meant, and therefore, they didn’t know what to do to support this objective from their different function and roles. A shiver of doubt should run up the spines of CFOs everywhere when they realize this is true even in their organizations.
In “Business Acumen for the 21st Century”, I lay out the five pillars of business acumen.
The first pillar, “Lead Your Business,” (covered in this recent article) is about teaching people to take a broader perspective on enterprise value creation and to understand the inter-dependencies across functions and business units. The second step, which I am discussing in this article, is about everyday “Business Decision Making Capability.” This refers to the myriad business decisions and trade-offs being made every day by thousands of people across multiple functions in your organization. If your CFO wants to focus the organization on increasing cash flow to meet analyst guidance, does the organization really know what to do to support this objective on a daily basis? Probably not.
While this sounds like a complex problem, the solution simply involves teaching business and financial acumen to connect people with enterprise strategy and ‘make the strategy personal.’ These business acumen development experiences drive tangible outcomes, such as the example below, from the high tech company in the example above:
- Significant increases in knowledge of free cash flow. Scores for the question “I understand cash flow and know what to do to increase cash flow” jumped, on average, from a 4 to a 9, on a scale of 1 -10.
However, this company was interested in much more than just increasing understanding – they wanted action and results. They were interested in measuring actual cash flow increases to support the CFO’s vision. Here are a few examples of actions taken by leaders that have caused this company a 7X ROI on this business acumen leadership development solution so far:
- One field leader increased ‘conversion’ across ten retail stores and increased cash flow by $300K over one quarter.
- Another field leader focused on ‘accessory attach rate’ improvement in every customer transaction and increased cash flow by $250K in one quarter.
- An HR leader chose to use an internal recruitment resource instead of an outside recruitment firm, and saved $150K and got the same quality new hire.
The actions taken by these leaders are as varied as their functions and job descriptions. Examples like the above would be impossible to predict by even the smartest CFO. Nor could they have been mandated from above. However, extraordinary results like this are possible if people are given a chance to do the following:
- Interact with key metrics in powerful, relevant scenarios while using an interactive business simulation to understand both ‘the what and the why.’
- Experiment with decision-making cause & effect in a safe environment, including guest facilitation by senior leaders who explain business acumen in practical language.
- Experience the above as cross-functional teams so they can better understand how they all contribute to enterprise results and learn from each other.
In addition to dramatically improved business acumen, I see many leaders leave these programs with an enhanced sense of employee engagement. They are excited to learn ‘the why behind the what’ of many strategic statements and financial imperatives. Scaling strategy alignment and business acumen out to the front line means an organization can more quickly activate execution. If companies stop skipping the important steps between 1, 2 and 10, then companies will start seeing managers at all levels making better decisions in support of strategy execution.
[i] Fortune; “Why CEOs Fail.” http://archive.fortune.com/magazines/fortune/fortune_archive/1999/06/21/261696/index.htm
[ii] “Are your people financially literate?”. Karen Berman and Joe Knight. Harvard Business Review, October 2009