April 1, 1993, Lou Gerstner left RJR Nabisco and took over from John Akers as head of IBM. When Mr. Gerstner took over, IBM had just lost 8 billion dollars and was forced to cut 73,000 jobs.
Mr. Gerstner spoke about his time at IBM in an interview with Business Week (Nov. 02). He spoke eloquently about his first few months at IBM and how initially he thought that the problems at IBM could be solved with a good strategy. However, he quickly recognized that the strategy developed by his predecessor was sound. He states “That’s when I realized the problems weren’t strategy. They were: How do I execute the strategy?”*
IBM at the time was an organization of fiefdoms. Each fiefdom took care of itself with no apparent regard for the IBM business as a whole and resisted John Akers calls to change.
In any strategic plan there are three parts. Situational Analysis: answers “what’s going on right now?” Strategy Development: answers “how can we capitalize on the current market situation to build our business”? Strategy Implementation: answers “how are we going to execute the developed strategy most efficiently”?
Many brilliant strategic plans have gone in the toilet for lack of a clear implementation strategy. Typically, the implementation strategy is never developed and the status quo remains or the implementation strategy is so weak that no one knows their role and how to contribute. Mr. Gerstner has it right; of the three parts to developing a business strategy, the implementation phase is by far the toughest! He called this learning how to dance.
As you build your strategic plans, build in the implementation plan. Ask these questions
1. Is there a clear strategy and is it easy to communicate? Take the time to make it simple (this is very difficult to do). If a strategy can’t be clearly articulated in a few pages or in a 15 minute talk then it’s not complete.
2. Do your people have the skills to execute the strategy? Once a strategy is developed it becomes apparent what skills are needed to execute it. This now becomes the mission of the training group; to develop these skills in the most efficient manner. The famous GE Crotonville training facility was one of the corner stones to Jack Welsh’s strategy at GE for this reason.
3. Are the incentives aligned with the strategy? Lou Gerstner had to change the compensation packages of his country managers’ to rein in their independence and get them to co-operate. Poorly aligned incentives cause more strategies to fail than any other reason.
4. Can the structure support the strategy? How your company is organized is dependent upon the strategy. Never let company structure drive a strategy! The IBM structure of autonomous country business units could not support international corporations who needed world-wide solutions.
5. Systems must be developed to support the strategy. Systems sometimes get so ingrained that they drive the strategy resulting in disastrous consequences. A company’s insistence to attach a fixed cost % to equipment as it is used forces managers to abandon markets when margins get tight. A 20% fixed cost charge ensures the equipment sits idle every time margins fall below 20% (as the fixed cost charge is only applied when the equipment is used). Even the best strategy will never overcome a poor system!
6. Resources: One must find the people and money to execute the strategy either internally, externally or through partnerships. When a small Swedish drug company, Astra (now AstraZeneca) was rolling out a new anti-ulcer drug they formed partnerships with other drug companies in selected markets to sell their product. This allowed them to get to market faster – a key component to their strategic plan.
7. Execution Plan: Everyone needs to know their role and how they can contribute to the success of the business.
Once the roles are defined, each person (business team or business unit) must be able to answer these two questions
1. What do they need to do their job well? And
2. What do they need to do or produce so others can do their jobs well?
From the answers to these questions one will know if the strategy is understood and if managers and their teams fully comprehend their role and responsibility in executing the strategy.
Lou Gerstner’s book is called “Who Says Elephant’s Can’t Dance?” With the right execution plan he made IBM tango!
* Business Week “Lou Gerstner Takes off the Gloves” November 2002 P 64 – 70