Three frogs are sitting on a log. One of them makes a decision to jump into the water. How many are left?
Most people answer “two”. But give it some thought; there are still three frogs sitting on the log. One has decided to jump, but he hasn’t actually jumped yet. Deciding to do something, and actually doing it, are two different things. Execution management is about closing the gap between deciding and doing; between talk and action. We’ll get into more of the mechanics later, but from a process perspective Execution Management integrates business planning with project management, reporting, and pay-for-performance. In a nutshell, it tightly integrates every aspect of the Plan-to-Perform cycle.
Most organizations today have an apparatus to geared almost exclusively to forecasting results, and modify those forecasts based on changing assumptions. They haven’t really built a Plan-to-Perform process, they’ve built a Forecast-to-Forecast system where they forecast results, compare to actual results, and forecast again.
While it’s helpful to have a view of what the future might bring, the best run companies believe the best way to predict the future is to make it. They know that success is built driving results rather than predicting them. They’ve built the systems, processes, and mechanisms to drive execution.
For many companies, even annual planning process resembles a forecast more than true business planning. It’s dominated by “what-if” questions and there is very little substantive discussion of “how-to”. In fact, the annual planning process is really an elaborate forecast. What a company has at the end of that process is a set of financial targets, usually very detailed. What they don’t have is a real plan to achieve them.
“Growing Revenue by 5%” is a target, it’s not a plan. Unfortunately, this is all that many companies have at the end of their annual planning process; and all they can do is track if that 5% target is achieved or not. Variance analysis is limited to “Revenue came in at 3% instead of planned 5% because sales were lower”. Not much insight there.
It’s fine to establish a plan target like “Grow Revenue by 5%” but it needs to be followed up with an execution plan that addresses questions like: What are the initiatives or programs that will be put in place to achieve it, what are the milestones, what are the resources required, who will lead the effort?
With a real plan in place, meaningful variance analysis can be conducted yielding business insight, not just numbers. For example, let’s say that the 5% growth target was driven by a new alliance with Amazon; and there was a documented execution plan in place with activities, tasks, and milestones.
Now let’s assume that actual results have come in less than expected. The key question is always “Why”? With a real execution plan in place, we can identify more precisely, and in business terms, what happened. In this example, the shortfall in revenue was because sales from the alliance with Amazon were delayed by two months. That tells us a lot more than “Revenue was down because we sold less than we expected to in the plan.” But let’s dig a little deeper. The alliance results were delayed because the inventory of co-branded product wasn’t shipped on time (a key milestone) because the sales projections were delayed in getting to production (a key activity) because the new forecasting model took longer than expected to develop (a key task). We can then have a sit down with the managers to go even deeper to understand what broke down in the supply chain, what the lessons learned are, and from a continuous improvement perspective, determine what changes can be put in place to avoid a similar delay in the future.
So what’s actually involved in designing an Execution Management system? Here are the major components:
- Goal setting
- Initiatives development
- Project Planning
- Progress & Performance Reporting
- Incentive structure
A major business benefit of execution management is it facilitates continuous improvement. We knew what we wanted to achieve; we documented an action plan to realize it; we tracked the results; and we evaluated what went as expected, what went differently, and what business lessons can be learned to improve execution and performance.
Another benefit is improved allocation of resources. Every company, no matter how large, has a limited number of resources. It’s how that time and money is spent that drives success. Execution Management forces a discipline of defining action plans to achieve desired results. Those plans can and should be quantified, documenting the time and dollars needed to execute. It’s simply a more precise and meaningful way to identify resource needs than blanket assumptions about percent increases or decreases in spending.
Another benefit, especially where investors are concerned, is increased earnings predictability. We don’t mean fudging the numbers or gaming the system. We mean developing the well-earned reputation as a management team that consistently delivers on its commitments. The future is much more likely to happen if you plan rather than just predict it.
Another benefit is building a shared understanding and coordination of effort. It’s one thing to share that revenue is forecasted to grow by 5%, it’s another thing to share that a new marketing alliance with Amazon, and the entry into a new market will drive that growth. And beyond that, to document the action plan, and the key roles and responsibilities to make it happen.
Finally, there is a benefit of transforming what’s perceived to be a time-draining “necessary evil” exercise into a value-added process to drive value. People are much more willing to engage in a process that will help the company achieve business results, and in fact help them achieve their goals.
All of these benefits stand in contrast to the shortcomings of the typical forecasting process, one that isn’t integrated into a broader without Execution Management system. It limits variance analysis. It undermines commitment — forecasts are built on assumptions, and assumptions are not commitments. The process feels like a waste of time, a pencil pushing exercise that doesn’t add value. People simply don’t want to engage in the process, and that lack of engagement further undermines its overall effectiveness. We add to this list, but it should be clear that forecasting alone is just one element of Execution Management.
Lawrence Serven is a Principal of The Buttonwood Group