Structural changes are half as effective as those focused on decision-making and information; nearly three in five employees give their organizations low marks on execution
June 19, 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 reorganizing an organization’s structure when trying to fix lagging performance, even though decision rights and information flows are twice as important to successful performance.
The report, titled “The dominant genes: Organizational survival of the fittest,” builds on nearly five years of study through December 2007 of more than 125,000 responses to an online assessment tool, the Org DNA Profiler® (www.orgdna.com), which diagnoses distinct organizational traits and behaviors by examining a company’s structure, decision rights, motivators, and information. In addition to the general dataset, the report features analysis of 44,000 observations from company-specific samples called the “Dominant Genes Strength Index,” to identify the specific organizational 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 organization’s structure as either its source or solution,” said Gary Neilson, Senior Partner of Booz & Company. “Just as often, executives change an organization’s structure anticipating that other changes will follow. They seldom do.”
Eight of the top ten traits for top-executing organizations relate to either decision-making or information flow, and two to motivational practices. None of the top 10 traits relate to changes in the organization chart. Indeed, traits relating to organization 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 organizations, that figure drops to 32 percent.
- Another critical performance trait is “Cross-organization information flow.” In strong execution organizations, 55 percent of respondents believe that “information flows freely across organization boundaries,” compared with only 21 percent in weak execution organizations.
Additional key findings of the study include:
Most organizations perceive themselves as “weak” in execution, and half are “low agility.” Nearly three in five (58 percent) respondents reported that their organizations 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 organizations 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 organizations have an inferiority complex about execution ability. Only 37 percent of North American respondents believe that their organizations 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 organizations 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 organizations ($10 billion in revenues or greater) are least likely to quickly translate strategic and operational decisions into action:
- Only 33 percent of larger organizations 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 organizations 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 organization size in terms of annual revenues. In addition to this dataset, authors collected and analyzed company-specific samples.
The Dominant Genes Strength Index, which was used to identify 17 organizational 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 December 2007.
Learn about and download The dominant genes: Organizational survival of the fittest.