Mind the Gap –Executive Edition

As we discussed last week, in most organizations, the strategy doesn’t make it very far beneath the C-suite.  This isn’t obvious when you are part of the senior team that creates that strategy. From that vantage point, because you are perpetually thinking about, measuring, and discussing it, it’s easy to assume that everyone else in the organization shares that context. But we know from the data that, while direct reports of the most senior leaders may have some familiarity with it, anyone in middle management or below, likely has no clue of what the strategy is or how they can help to accelerate it.

In one large survey, 90% of the senior leaders said they believed that educating and empowering frontline employees to understand and make decisions based on the strategy was critical.  But only 10% of those same leaders had done so. Given this huge disparity, one might assume that either the leaders are disingenuous about caring, or that they simply haven’t tried to do it. But, neither is true.

Top Leaders Sense It’s Bad

In a survey of 300 top leaders at companies with revenues of $1billion or more, one third of the respondents did not believe their employees could articulate the company’s strategy.

At the same time, of 1000 surveyed American employees, 40% said they had no idea what the company’s strategy was and had never seen or heard of it. In that same survey, two thirds of them said they would be able to do their jobs better if they did understand the company’s direction.

Is Anyone Working on This?

In fact, many organizations try to share strategy through a “cascade” form of communication. The C-suite shares the strategy at a town hall or other large gathering. That establishes the credibility of the message. From there, the top leaders’ direct reports share it in greater detail with their own teams, and then each level of leader does the same. Ultimately, everyone will have heard about the strategy from their own manager, and voila! the strategy has been “cascaded”.

In practice, this doesn’t work. But it fails in a very particular way. One way to assess this is to ask employees at every level of the organization to simply list the top three strategic priorities. If everyone names the same 3 –and they are the ones that the strategy articulates –then the communication has been effective.

But the actual data are shocking. At the very top level, only 54% of C-suite executives list the same top 3 priorities. Among themselves!  That problem is one of alignment, not communication.

One of 2 things is missing in those organizations’ strategic planning: Either they are designing strategy without building sufficient clarity and consensus; or they are failing to keep the strategy alive through ongoing discussion, iteration, measurement, and assessment.

Either way, 54% agreement is as good as it gets. When researchers ask the same question of those who report to the C-suite-–typically, heads of departments or divisions—the ability to name the 3 top priorities plummets to 22%. That’s the biggest drop in the whole organizational puzzle. From there the cascade continues to drop incrementally. By the time you ask frontline workers, only about 13% know what the priorities are.

But that enormous drop at the first step of the cascade is likely the source of the mischief. How can anyone else be expected to share the strategy with clarity if the C-suite leaders can’t imbue it into their own direct reports?

Before we address that, maybe you are asking yourself whether any of this matters? After all, if divisions and departments are doing the stuff they are tasked with, who cares if they know the strategy?

There is a real cost to a lack of alignment. In the last article I shared all the negative effects on employee performance, engagement, cohesion, and retention when employees don’t know the strategy.

But it’s not just an employee issue. Lack of strategic alignment also has a significant impact on the strategy’s execution and the very results that C-suite leaders most value.

Indicator Info Mismatch

When leaders assess strategy they typically focus on the lagging indicators that investors and boards of directors care about. Those metrics say little about the strategy itself. They don’t even tell you whether the strategy is being executed. It’s entirely possible to generate sales, ARR, cashflow and so forth without ever implementing the strategy.

The only way to assess the execution and efficacy of strategy is to explore the causal links between the desired outcomes (lagging indicators like share price and revenue) and the inputs (like product development, new positioning or lead flow).

Plus, there is data languishing in the interactions between employees and customers or prospects. But most of that is not utilized in strategic planning. For example, Apple Store employees probably know more about the customer reaction to the new iPhone model than Apple executives. And they know it well before the revenue numbers reflect it.

You could say it this way:

Leaders use lagging indicators to assess execution and tweak the strategy. But lagging indicators always LAG.

Ergo, leaders are working on tomorrow’s strategy using last year’s data. The strategy may be obsolete before it’s even complete. [Click to tweet this thought]

Simultaneously, employees are performing actions and working on whatever is directed by managers. But managers don’t know the strategy, and so are simply working toward metrics they have been told to meet. Therefore, employee actions that affect tomorrow’s results come from last year’s strategy, which was itself based on outdated data.

Employees hear current information about the market from their customers, and must respond to that feedback appropriately. But they must do their jobs the way in which they have been directed. Those two can be in significant conflict.

How it Could Work

Employees have the leading indicators. They are in constant communication with the marketplace, both through their customer interactions and through the data they see and create. Whether it’s knowing if a new feature is popular or learning what customers want and are buying from competitors, the frontline knows more about that than the C-suite.

That information is critical to crafting, executing, and assessing the strategy.

What if the C-suite had that data and could use it as they iterate upon the strategy?

Then they need to give employees enough context to understand which data are important.  In other words, leaders benefit when employees understand the strategy –because then, employees can filter the most germane new information up to the leaders in time to affect the strategy.

Lack of strategic alignment distorts that critical feedback loop.

A Strategy Scaffold

It’s possible to harvest employee knowledge before crafting strategy, and some companies do. Zara uses employee insight to decide what clothing to produce, and Best Buy includes it in its buying plans. Those are great initiatives that make a difference at the margin. But they do not represent comprehensive strategic alignment.

If we think about a strategy differently, it helps. Instead of strategy being a plan that directs action downward throughout the organization, what if it were more like a scaffolding that supported all decision making? Viewed that way, the project of the off-site strategic planning must include the engineering of that scaffold.

Most off-sites end when the strategy is developed. But that is like planning a meal by writing a recipe. If you fail to then purchase and prepare the ingredients, and take every step in the recipe, you’ll be ordering a pizza at dinnertime.

As part of the process, the strategy team would craft a clear plan –like the plan for a building or a campaign. It might include:

  • Key initiatives to drive the strategy. What projects does the strategy depend on? With that list, you can begin to analyze which departments produce inputs into each initiative.
  • Departmental Owners. Every division or department needs an owner for its role in the strategy. That owner is both the project manager and its measurer.
  • Metrics for every initiative. For example, imagine Microsoft wants to expand its Teams™ product into the Metaverse, and plans to do so by establishing partnerships with VR headset manufacturers. The departments involved in that initiative likely include Engineering to own compatibility, Legal, who will own the licensing partnership agreements, Marketing who will own the messaging, and so forth. Every piece of that initiative needs measurements.
  • A communication strategy. That plan should include a template outlining the content, method of education and communication. For example, maybe the CEO will share the strategy at an all-hands. Then, the department heads will review the strategy, initiatives, and metrics with their teams. Senior leaders should try to attend as many sessions as possible. That assures the accuracy and clarity of the cascade.
  • An ongoing update and iteration process. Employees need to know how they’re doing in driving the strategy. Knowing their own results isn’t enough. Team and individuals thrive when they know their own contribution to the strategy. Plus, that data should also be accessible from a shared tracking platform.

It’s a lot. But the payoffs can be extraordinary. Strategic alignment raises retention, speeds execution, drives faster change and reinforces the strategy with new information.

It’s worth the effort to design your strategic scaffold. Make strategy integral to everyone’s job.

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