An Essential Component of Execution
In considering innovation, what will become readily apparent is there is a very bold line separating the strategy of innovation and the execution of innovation.
Where we may spend significant time and effort understanding the space, finding areas of opportunity, and honing potential propositions, at a certain point, we must begin transforming those thoughts and ideas into beta offerings to test. Although we may have been unconsciously selecting and honing opportunities with an eye toward our organization's competencies, this Lesson addresses considerations in organizational context. In transforming our thoughts and strategies into a tangible offering, we could consider this Lesson as bridging from the "what" to the "how."
To consider, from a detached and insight-minded perspective, the organizational context and competencies in actually being able to execute the strategy is to consider the realities of the road ahead.
As we layer the organization into our innovation strategy, our goal will be to find strategies where our organization will provide even more of an advantage over other organizations that could execute on the strategy. We need to give our offering as much of a chance to succeed as possible, and leveraging competencies, capabilities, and resources already woven into the organizational DNA will increase our odds of success even more.
Eleven Organizational Competencies
In taking an independent eye toward organizations competencies, it can be helpful to not consider mission statements and corporate releases, but what the organization has actually and tangibly executed on recently. This is important as there is a tendency for organizations to define themselves by works from prior decades, as opposed to competencies it may have developed recently.
When considering organizational competencies, think not of what the organization brings to the market or how it behaves, but of those highest-level traits which enable the organization to do those things in the first place.
From David Ulrich and Norm Smallwood, "Capitalizing on Capabilities":
Organizational capabilities emerge when a company delivers on the combined competencies and abilities of its individuals. An employee may be technically literate or demonstrate leadership skill, but the company as a whole may or may not embody the same strengths. (If it does, employees who excel in these areas will likely be engaged; if not, they may be frustrated.) Additionally, organizational capabilities enable a company to turn its technical know-how into results. A core competence in marketing, for example, won't add value if the organization isn't able to spark change.
There is no magic list of capabilities appropriate to every organization. However, we've identified 11—listed below—that well-managed companies tend to have. (Such companies typically excel in as many as three of these areas while maintaining industry parity in the others.) When an organization falls below the norm in any of the 11 capabilities, dysfunction and competitive disadvantage will likely ensue.
We are good at attracting, motivating, and retaining competent and committed people. Competent employees have the skills for today's and tomorrow's business requirements; committed employees deploy those skills regularly and predictably. Competence comes as leaders buy (acquire new talent), build (develop existing talent), borrow (access thought leaders through alliances or partnerships), bounce (remove poor performers), and bind (keep the best talent). Leaders can earn commitment from employees by ensuring that the ones who contribute more receive more of what matters to them. Means of assessing this organizational capability include productivity measures, retention statistics (though it's a good sign when employees are targeted by search firms), employee surveys, and direct observation.
We are good at making important changes rapidly. Speed refers to the organization's ability to recognize opportunities and act quickly, whether to exploit new markets, create new products, establish new employee contracts, or implement new business processes. Speed may be tracked in a variety of ways: how long it takes to go from concept to commercialization, for example, or from the collection of customer data to changes in customer relations. Just as increases in inventory turns show that physical assets are well used, time savings demonstrate improvements in labor productivity as well as increased enthusiasm and responsiveness to opportunities. Leaders should consider creating a return-on-time-invested (ROTI) index, so they can monitor the time required for, and the value created by, various activities.
Shared Mind-Set and Coherent Brand Identity:
We are good at ensuring that employees and customers have positive and consistent images of and experiences with our organization. To gauge shared mind-set, ask each member of your team to answer the following question: What are the top three things we want to be known for in the future by our best customers? Measure the degree of consensus by calculating the percent of responses that match one of the three most commonly mentioned items. We have done this exercise hundreds of times, often to find a shared mind-set of 50% to 60%; leading companies score in the 80% to 90% range. The next step is to invite key customers to provide feedback on brand identity. The greater the degree of alignment between internal and external mind-sets, the greater the value of this capability.
We are good at obtaining high performance from employees. Performance accountability becomes an organizational capability when employees realize that failure to meet their goals would be unacceptable to the company. The way to track it is to examine the tools you use to manage performance. By looking at a performance appraisal form, can you derive the strategy of the business? What percent of employees receive an appraisal each year? How much does compensation vary based on employee performance? Some firms claim a pay-for-performance philosophy but give annual compensation increases that range from 3.5% to 4.5%. These companies aren't paying for performance. We would suggest that with an average increase of 4%, an ideal range for acknowledging both low and high performance would be 0% to 12%.
We are good at working across boundaries to ensure both efficiency and leverage. Collaboration occurs when an organization as a whole gains efficiencies of operation through the pooling of services or technologies, through economies of scale, or through the sharing of ideas and talent across boundaries. Sharing services, for example, has been found to produce a savings of 15% to 25% in administrative costs while maintaining acceptable levels of quality. Knowing that the average large company spends about $1,600 per employee per year on administration, you can calculate the probable cost savings of shared services. Collaboration may be tracked both throughout the organization and among teams. You can determine whether your organization is truly collaborative by calculating its breakup value. Estimate what each division of your company might be worth to a potential buyer, then add up these numbers and compare the total with your current market value. As a rule of thumb, if the breakup value is 25% more than the current market value of the assets, collaboration is not one of the company's strengths.
We are good at generating and generalizing ideas with impact. Organizations generate new ideas through benchmarking (that is, by looking at what other companies are doing), experimentation, competence acquisition (hiring or developing people with new skills and ideas), and continuous improvement. Such ideas are generalized when they move across a boundary of time (from one leader to the next), space (from one geographic location to another), or division (from one structural entity to another). For individuals, learning means letting go of old practices and adopting new ones.
We are good at embedding leaders throughout the organization. Companies that consistently produce effective leaders generally have a clear leadership brand—a common understanding of what leaders should know, be, and do. These companies' leaders are easily distinguished from their competitors'. Former McKinsey employees, for instance, consistently approach strategy from a unique consulting perspective; they take pride in the number of the firm's alumni who become CEOs of large companies. In October 2003, the Economist noted that 19 former GE stars immediately added an astonishing $24.5 billion (cumulatively) to the share prices of the companies that hired them. You can track your organization's leadership brand by monitoring the pool of future leaders. How many backups do you have for your top 100 employees? In one company, the substitute-to-star ratio dropped from about 3:1 to about 0.7:1 (less than one qualified backup for each of the top 100 employees) after a restructuring and the elimination of certain development assignments. Seeing the damage to the company's leadership bench, executives encouraged potential leaders to participate in temporary teams, cross-functional assignments, and action-based training activities, thus changing the organization's substitute-to-star ratio to about 1:1.
We are good at building enduring relationships of trust with targeted customers. Since it's frequently the case that 20% of customers account for 80% of profits, the ability to connect with targeted customers is a strength. Customer connectivity may come from dedicated account teams, databases that track preferences, or the involvement of customers in HR practices such as staffing, training, and compensation. When a large portion of the employee population has meaningful exposure to or interaction with customers, connectivity is enhanced. To monitor this capability, identify your key accounts and track the share of those important customers over time. Frequent customer-service surveys may also offer insight into how customers perceive your connectivity.
We are good at articulating and sharing a strategic point of view. Strategic unity is created at three levels: intellectual, behavioral, and procedural. To monitor such unity at the intellectual level, make sure employees from top to bottom know what the strategy is and why it is important. You can reinforce this sort of shared understanding by repeating simple messages; you can measure it by noting how consistently employees respond when asked about the company's strategy. To gauge strategic accord at the behavioral level, ask employees how much of their time is spent in support of the strategy and whether their suggestions for improvement are heard and acted on. When it comes to process, continually invest in procedures that are essential to your strategy. For example, Disney must pay constant attention to any practices relating to the customer-service experience; it must ensure that its amusement parks are always safe and clean and that guests can successfully get directions from any employee.
We are good at doing something new in both content and process. Innovation—whether in products, administrative processes, business strategies, channel strategies, geographic reach, brand identity, or customer service—focuses on the future rather than on past successes. It excites employees, delights customers, and builds confidence among investors. This capability may be tracked through a vitality index (for instance, one that records revenues or profits from products or services created in the last three years).
We are good at managing costs. While it's not possible to save your way to prosperity, leaders who fail to manage costs will not likely have the opportunity to grow the top line. Efficiency may be the easiest capability to track. Inventories, direct and indirect labor, capital employed, and costs of goods sold can all be viewed on balance sheets and income statements.
In considering these eleven competencies in your organization, consider forcing yourself to take a rigorous approach to detach your perspective a bit:
- What evidence do you have that your organization has this competency?
- What are three or so recent projects or initiatives completed that substantiate this belief?
- Choose three others in your organization and ask them to similarly identify and substantiate their position on competencies. Do they match?
- Ask a customer or partner the same question. Are they symmetrical with the other opinions?
As we move through our layering of organizational context and competencies onto our strategy, it will be essential that we are working from an unvarnished view of realities.