The Challenges of Executing a Transformational Strategy
The 2018 MIT CIO Symposium will take place on May 23. This year’s Symposium will be focused on the challenges of executing a digital transformation strategy. It’s no longer enough to have formulated a digital strategy for the business. As a number of recent reports have indicated, leading edge companies are pulling ahead of everyone else by pushing the boundaries of digitization. And, having a strong digital foundation gives those companies a leg up in embracing data analytics, AI, blockchain, and other advanced technologies, further widening their advantage. “The time for merely thinking digital has passed; the future belongs to the doers,” notes the Symposium’s website.
Why do so many organizations struggle to implement their well formulated strategies, especially transformational strategies like the transition to digital, that encompass new technologies, business models and management practices? This is a question I’ve long been thinking about, having lived through IBM’s near-death experience in the early1990s.
Is it that in spite of all their efforts in strategy formulation, their management was unable to anticipate them and were caught by surprise? Or it is that, as if actors in a kind of Greek tragedy, they saw the changes coming and understood what had to be done, but were somehow unable to execute their strategies?
MIT’s Donald Sull has been exploring these questions for over 20 years. As this 2015 HBR article notes, we know a lot more about strategy than about translating strategy into results. “Books and articles on strategy outnumber those on execution by an order of magnitude… A recent survey of more than 400 global CEOs found that executional excellence was the number one challenge facing corporate leaders in Asia, Europe, and the United States, heading a list of some 80 issues, including innovation, geopolitical instability, and top-line growth. We also know that execution is difficult. Studies have found that two-thirds to three-quarters of large organizations struggle to implement their strategies.”
“Strategy is inherently complex,” said Turning Strategy into Results, a recent MIT Sloan Management Review article by Sull and collaborators. Formulating a strategy requires making choices in several interdependent business areas, including customer segments, key technologies, core competencies, product and service offerings, partnerships, and investment options. Not surprisingly, these various strategic choices are generally described in long and not-so-easy-to-read reports.
But while it’s hard to avoid the complexities inherent in strategy formulation, strategy execution requires simplicity. “To influence day-to-day activities, strategies need to be simple enough for leaders at every level of the organization to understand, communicate, and remember… A strategy for execution must provide concrete guidance while leaving managers with enough flexibility to seize novel opportunities, mitigate unexpected risks, and adapt to local conditions” If a strategy is too complicated, it will be hard to understand and implement across the organization; it’s execution will most likely unravel.
This is particularly the case when industries and companies are experiencing major changes, such as our ongoing digital and data-driven transformations. Actions and decisions that worked well in the past, when a company’s strategy was relatively stable over time may no longer apply in times of rapid change.
I totally agree with Sull based on what I’ve learned throughout my long career. Let me share in particular my personal experiences in the early days of IBM’s Internet initiative.
A lot was starting to happen around the Internet in the mid-90s, but it wasn't clear where things were heading, and in particular what the implications would be to the world of business. Startups were experimenting with many new applications and business models, - some of which turned out to be quite innovative, and some rather silly. Part of the buzz in the air was that in the Internet-based new economy, startups had an inherent advantage over existing businesses, because the legacy assets of older companies were like a noose around their neck. They couldn’t possible compete in the fast moving digital world and were therefore headed for extinction, - including companies like IBM and many of its clients.
A major part of our job was to figure out our overall strategy, including the business value around the Internet, what we should advise our clients to do, and what new products needed to get developed. Equally important, we needed to come up with an Internet business model for IBM that made sense and was financially sound. After working on it for several months, the strategy began to emerge.
The Internet was ushering a new model of computing. The universal reach and connectivity of the Internet were enabling access to information and transactions of all sorts for anyone with a browser and an Internet connection, making existing business processes more efficient, as well as enabling all kinds of new applications and business models.
We came up with what become known as e-business, a strategy which we succinctly defined as Web + IT, based on integrating the industrial-strength IT infrastructures being widely used in business and government with the new Internet capabilities. Any company that embraced the new open standards of the Internet would be able to seamlessly integrate into the fast growing Internet and Web infrastructures. It could now reach its customers, employees, suppliers and partners anytime, anywhere, by providing access to its existing databases and applications with a web front end.
The Internet wouldn't be a rip-and-replace revolution, but would rather take place as a series of incremental steps over time. Every business would benefit from embracing the Internet, not just the start-ups. The brand reputation, customer base and IT infrastructure that businesses had built over the years were even greater assets when properly combined with the universal reach and connectivity now offered by the Internet.
Effective marketing and communications was essential. Given how new all this was in the mid-1990s, we had to figure out how to best articulate, in the simplest way possible, why every company needed to leverage the Internet for business value and become an e-business. We had to explain what was unique and different about this new innovation to key constituencies, including clients, partners, analysts, reporters, and the IBM’s own employees.
We successfully established the e-business brand in the marketplace by consistently telling simple e-business stories over a variety of communication channels, including press interviews, conferences, IT and financial analyst meetings, Web articles, and lots of client engagements. A lot of our work in the early months of IBM’s Internet initiative involved conducting prominent market experiments with clients and partners across a variety of industries, which we then turned into real-world customer references and case studies that helped us explain what the Internet was all about and helped position IBM as a major Internet player.
“Executives rightly focus on how to craft a great strategy, but often pay less attention to how their strategy can be implemented throughout a complex organization,” concluded Sull et al in Turning Strategy into Results. “To steer activity in the right direction, a strategy should be translated into a handful of guardrails that provide a threshold level of guidance while leaving scope for adaptation as circumstances change… By following a few guidelines, executives can articulate a strategy that can be communicated, understood, and executed.”