Structural changes are half as effective as those focused on decision-making and information
Nearly three in five employees give their organisations low marks on execution
London, 23 July 2008: Clear decision rights and effective information flows have the greatest impact on a company’s ability to successfully execute its strategy, concludes a new global research report produced jointly by global management consulting firm Booz & Company and its legacy partner, Booz Allen Hamilton. However, senior executives more often rely on restructuring an organisation when trying to fix lagging performance, even though decision rights and information flows are twice as important to successful performance.
The report, The Dominant Genes: Organisational Survival of the Fittest, builds on nearly five years of study up to December 2007 of more than 125,000 responses to an online assessment tool, the Org DNA Profiler® (www.orgdna.com), which diagnoses distinct organisational traits and behaviours by examining a company’s structure, decision rights, motivators, and information. The report features analysis of 44,000 observations from company-specific samples called the “Dominant Genes Strength Index,” to identify the specific organisational traits that correlate most strongly to effective execution.
"We have seen that when performance problems appear, leadership’s instincts are to first look to the organisation’s structure as either its source or solution,” said Richard Rawlinson, London-based partner of Booz & Company. “Just as often, executives change an organisation’s structure anticipating that other changes will follow. They seldom do.”
Eight of the top ten traits for top-executing organisations relate to either decision-making or information flow, and two to motivational practices. None of the top 10 traits relate to changes in the organisation chart. Indeed, traits relating to organisation structure rank no higher than 13th among the total of 17 traits identified.
“Sustainable success is a matter of execution. Performance is based on two fundamentals: execution—how quickly a company can convert intentions into actions, and agility—the degree to which a company deals successfully with discontinuous change in its environment,” said David Kletter, Vice President at Booz Allen.
The study revealed:
The most dominant trait in high-executing companies is “decision clarity.” More than seven in 10 executives (71 percent) who say their companies are strong in execution report that “everyone has a good idea of the decisions/actions for which he or she is responsible.” In weak execution organisations, that figure drops to 32 percent.
Another critical performance trait is “cross-organisation information flow.” In strong execution organisations, 55 percent of respondents believe that “information flows freely across organisation boundaries,” compared with only 21 percent in weak execution organisations.
Additional key findings of the study include:
Most organisations perceive themselves as “weak” in execution, and half are “low agility.” Nearly three in five (58 percent) respondents reported that their organisations have difficulty in quickly translating important strategic and operational decisions into action. Forty-seven percent dismiss their employers’ ability to respond quickly to change.
Strong execution and high agility companies report superior profitability and growth. Twice as many employees of “strong execution” and “high agility” companies report better-than-average profitability and faster-than-average growth in their industry, compared with employees of “weak execution” and “low agility” companies.
Senior management is more bullish about execution capability than other levels. When it comes to executing well and adapting to change, senior management is more optimistic than middle management and other staff levels. Fifty-three percent of senior managers believe their organisations execute well, while only 39 percent of middle management and 36 percent of corporate staff agree. When it comes to adapting to change, 61 percent of senior managers express confidence in their companies’ capability, compared to 51 percent for middle management and 49 percent for corporate staff.
North American organisations have an inferiority complex about execution ability. Only 37 percent of North American respondents believe that their organisations execute well, the lowest rating of all the geographic regions studied. In contrast, nearly half of respondents from Europe (46 percent), Asia/Australia/South Pacific (45 percent), and Latin America (44 percent) ranked their organisations as strong on execution.
Some industries are stronger at execution than others. No one sector held an overwhelming edge in its ability to turn critical decisions into action nor to adapt quickly to discontinuous change. Overall, the private sector received the highest marks for execution, compared to the public and non-profit sectors.The highest rankings for execution went to the hotel/restaurant/leisure sector and the pharmaceuticals sector, each at 49 percent, followed by healthcare, consumer packaged goods, and retail. The sectors weakest in execution were the public sector (30 percent), academic/association/research, and utilities (each at 33 percent).
Execution ability decreases with company size. Larger organisations ($10 billion in revenues or greater) are least likely to quickly translate strategic and operational decisions into action. Only 33 percent of larger organisations believe they are strong at execution compared to companies with $500 million or less in revenues (44 percent); $500 million to $1 billion in revenues (37 percent); and $1 billion to $10 billion in revenues (35 percent).
The Booz & Company/Booz Allen Org DNA research sample comprises more than 125,000 respondents from organisations of all sizes in the private and public sector, representing more than 1,000 companies, government agencies, and not-for-profits from more than 50 countries around the world. Represented are twenty-eight sectors and more than ten internal departments/functions (e.g., human resources, information technology, legal, etc.). Each respondent’s position or level within the company (e.g., top management, corporate staff, etc.) is included, as well as organisation size in terms of annual revenues. In addition to this dataset, authors collected and analysed company-specific samples. The Dominant Genes Strength Index, which was used to identify 17 organisational traits that correlate most strongly with effective execution, is based on a regression analysis of 31 datasets from specific companies which each include more than 150 responses and collectively represent 26,743 observations. All data were collected over a period of nearly five years ending in December 2007.