Monthly Archives: March 2014

Why strategy implementation fails?

It is difficult to create the WINNING strategy,

BUT it is twice more difficult to EXECUTE it

 Creating a winning strategy requires lots of effort, geniality, cross-functional knowledge and involvement of everyone in the top management. And… all mentioned above is plausible. The President/CEO/Country Manager brings together the best top management team that creates the best possible strategy. And:

  • all members of the top management understand it;
  • they have skill and knowledge required for strategy creation and execution;
  • they can explain it and transfer it into operational plans…

BUT, in a lot of cases (several studies point to 60% or more), here comes the million dollars question:

Why this strategy is not bringing the expected results, or even worse, not bringing any results at all?

Revision of the market data, analysis, hypothesis, strategy and plans shows that there is no flaw. And still people that have to execute it do not do it in the expected – “right” – way.

This usually can lead to a furious frustration, misunderstanding and lost of trust:

  1. Top management blames, punishes and even layoffs middle management, accusing it of incompetence, incapability and underperformance (We have spent so much money and time on creating the strategy, involving the top experts and consultants in the industry, and what, our middle management fails to execute the strategy with its incompetence);

and on the other side,

  1. Middle management blames top management of lost connections with the reality, incompetence and self-centeredness (They are sitting up there in the comfortable chairs creating utopist’s papers without trying to understand the reality and the situation in which our company operates).

To find the solution we should look in the prerequisites for creating a successful strategy and execute it with excellence. The questions WHY, WHAT and HOW, should be answered and understood by everyone in the organization:

  • Why do we do something?
  • What is required to be done?
  • How are we going to do it?

Our experience and studies show that even the companies have managers and employees with all required skills and knowledge, still, the strategy execution fails due to the fact that middle managers can not answer the question WHY for the strategy. Top management fails into the translation of the strategy, thus strategy is not understood by the next level managers which are kept accountable for its execution. What is actually happening is that middle managers and employees are only executing their duties and responsibilities to be compliant with the corporate policies and procedures. They are not even trying to critically approach the actions and try to do them in better way, since they do not understand WHY they need to do them.

Where can be the solution of the problem?

We can look around and see what other professions, where mistake or not understanding is critical for human lives, are doing. Good examples are airplane pilots and SWAT forces.

Before they go into the execution of their duties they pass through simulated realities. And for them it is required. It does not involve “real” resources, does not spends real money, and can be repeated and tried several times during one day. The simulation can make them understand by trial and error WHY things must be done in one way or another.

WHY not use their experience and improve the chance of the strategy execution excellence. Companies can use business simulation as instruments for strategy translation. In this case, the participants (middle management) are put in the top management’s role of the company and there are required to create and execute a strategy and win in a competitive environment. Participants will have to pass through all of the processes the top management passes through, and they will learn by doing, sometimes by winning and sometimes by loosing. As in the real life, in the business simulation the results are measured by financial bottom line, with one difference, no real money is spent in the failures.

Production value chain – Production management business simulation

The role of the production facility in a corporation is to convert materials and parts into a product. The product is previously priced and sales department has put an internal order for production. Materials and parts are also with defined prices and in most of cases production facility could not influence these prices.

Having “defined sales prices” and “determined costs of materials, parts, energy etc.”, the main question for the production facility is: How its management can create value?

To answer this question we should look at the variables that are in control of the management of the production facility, or what should they do to create value. The mantra is very simple: “Produce more with less!” It is easier said than done.

The production volume is function with constraints: production capacity of equipment, supply chain efficiency and effectiveness, employees’ capacity and skills, etc. Having all that said, the key aspect that the management of the production facility should focus on is the throughput, which on the other hand is a function of production planning, materials release, human resources management and training, risk forecast and management.

Not an easy task that usually requires years to learn, decades to understand and lifetime to master. Without wanting, we come to the conclusion: “At last they mastered it, but they will retire in a month.”

We have understood the previous conclusion as our challenge and we have created the Production value chain business simulation.

Participants manage all variables that production management is required to manage during their day to day job. Different challenges contest their decisions, and results are measured in financial, qualitative and quantitative KPIs. Production Value Chain business simulation simulates several years of business and can be used as an instrument for general business processes understanding, learning business acumen, understanding finance and value creation, as well as, laboratory for testing of different decisions.

The seminar is designed for all level of managers and experts in the production companies, corporate analysis and bankers.

Think Customer – On Customer Satisfaction, Customer Loyalty and Long-term Corporate Results

Today, like never in the past, we have the paradox of customer satisfaction being at all-time HI and, at the same time, customer loyalty being at all-time LOW.

There was a strong believe that there is a high positive correlation between the two. But the reality shows that even though customer loyalty is dependent on customer satisfaction there are other equally, if not more, important variables that determine customer loyalty.

Why companies are measuring customer satisfaction and not customer loyalty?

Talking to high executives I got very simple answer: “Customer satisfaction is easy to define and, since we can define it, we can measure it. On the contrary there is not a clear and simple definition of customer loyalty and measuring is not direct and easy.”

But why companies have derailed from “building customer loyalty” tracks?

First – “What is in the focus of the companies today?”

When we ask this question we get the answers: “Efficiency; Doing more with less; Better contribution margins – Better short-term results” from most of the executives. And these answers are modern mantras. By default these mantras eliminate all “expensive” activities and automate customer service. Employees are trained on corporate policy and efficiency, not personal development, since the later will cost the company and “will not improve” efficiency.

Second – “Who is the most important person in the world?”

If we ask the customer service employees, their managers or corporate executives this question, without doubt they will answer: “The customer”. But if we rephrase the question in a hypothetical situation that they have to choose between the customer and them one person who will have to die, who will they choose? “The customer” will be the answer in 100% of the cases. That drives us to the conclusion that the only right answer to the question “Who is the most important person in the world?” is the person that answers the question. In our case it is the employee, its manager or corporate executive. But the customer, same as the employee, manager and corporate executive, believes that he is the most important person in the world. So the customer should perceive that he is treated as such to vote us trust with his money each time he spends them.

Third – “Whom from the company the customers interacts with?”

Customer interacts with the employee from the front office, and by default these employees are the least qualified people in the company. Higher qualification is required and developed to the people in the back office, managers and executives. Front office is trained to execute, not think.

Forth – “Performance is measured by short-term benchmarks!”

When we analyze the appraisal systems in the companies, in most of the cases, we come to the conclusion that they focus on sort-term results. An employee is underperformer if he does not fulfill all his monthly targets, even if he over fulfilled some of them with a great extent. He will not get his monthly bonus/reward, or even worse he can be fired for underperformance.

Without any doubt we can say that all companies love customer loyalty, but are they working towards it? Yeahno…

Can an automated system make a customer feel, as he is the most important person in the world? Can and will an employee that is trained in execution and efficiency, is among the least qualified persons in his company, and his performance in measured by short-term focus results, create customer loyalty?

Back on customer loyalty tracks

If we all agree on the answers to the previous questions, what can a company do to move towards customer loyalty? A company that is squeezed to: be more efficient, spend less and improve contribution margin!

Probably the shortest answer is: Replace the focus from efficiency to effectiveness! And with financial terms replace focus on contribution margin with focus on total margin.

As a conclusion, if a company strives to move towards customer loyalty:

  1. There should be operational strategy to use every opportunity to interact with its customers using its employees, not systems;
  2. There should be widespread understanding among executives, manages and employees that customer loyalty is a function of customer care, employees competence, waiting line and long-term focus sales – endurance of the sales;
  3. Front office employees should be qualified to problem solve and help, since all the customer wants is help with his problem;
  4. Front office employees should be able to balance among quality, costs and service time, since all of them are constituent parts of the customer loyalty;
  5. The performance of the front office should be measured by value adding not short-term targets;
  6. Everyone in the company should feel as most important person in the world, since everyone is a customer.

Since benchmarking of the customers is done on relative (comparative) base, the first companies that will move towards customer loyalty will be the winners.

Think Customer is the newest edition to our business simulations portfolio. It is helping companies to move towards customer loyalty focusing on all 6 levers.