A formula for better business execution

Imagine standing on stage at the annual shareholders’ meeting and sharing “We just realised that the biggest expense item on our profit and loss statement – our talent – has not been effectively managed.  Actually, we have little insight into what all these people do, but we are committed to doing it better.”
A shareholder in attendance might remind the executive team of Albert Einstein’s common definition of insanity “doing the same thing over and over again and expecting different results”. In all other areas of the business there is visibility, quality controls and supporting infrastructure, how can it be that the business has not made the same commitment to optimising its huge investment in its talent?
We are not the first to state that human capital is a key to bottom line return. Companies have been paying lip service to the idea that “people are our greatest asset” for years. In today’s business environment, companies need more than lip service to succeed. People drive not only value creation within an organisation, but also cost.  More and more of a company’s value is based on intangibles generated by talent.  From intellectual property to customer satisfaction, much of a company’s valuation is now intangible.  It is no longer possible to look at a balance sheet and tally up a company’s assets to estimate its value. Infrastructure, plant operations, cash and other capital assets no longer represent the comprehensive view of the health of a company.  In the 21st century’s knowledge-based service economy, the impact of human capital is ever more critical to success.

--The execution formula (and the levers that drive business Execution)
Organisations that will prosper need to turn strategies into returns.  The blind spot and active ingredient in executing your strategy is your talent.  With an estimated 70 per cent of operating expense invested in a typical corporate workforce, the effective alignment of talent will make a huge difference.  When talent can and will walk away from your business to work for a competitor, or just go and lie on the beach, there is much at risk.
Erik Berggren and his team have recently completed ground-breaking research on execution in practice, exploring how return on execution (RoX) is the ultimate business difference maker, and what leading organisations do better than anyone else to manage execution.  They carefully studied what really drives execution and introduce a way of measuring Return on Execution (RoX), as defined in its simplest form, it is much like any ROI calculation you’re familiar with: 
Alignment  x  Performance  =  Return on Execution (RoX)
The formula indicates that organisations can close the gap between strategy and execution by:
-Closely aligning goals and monitoring performance in real time, and
-Improving people performance. 
These two primary levers of RoX are about making sure that your strategy is understood and the priority for action exists at all levels of the business. This understanding needs to map to an increasing willingness and capacity to produce results no matter where one resides within the organisation.

--Talent alignment or doing the right things
A company needs to make sure it has its people, its talent, aligned around its strategy. It has been estimated that up to 95 per cent of people don’t know what their job is. Simply put, when people keep working hard on whatever they think is important the chances are it is not the work needed to get the desired outcomes. RoX is about removing the barriers that separate promised strategic value from its goal.
Alignment is more than town hall meetings, coffee talks, webinars or pep talks. It is about building an organisation that is accountable, transparent, agile and capable of rapid change in desired business direction. The basic pillars of alignment are designed to support the critical need to have the right talent working on the stuff that matters most. In simple terms, they are effective and rapid communication of strategy so there is clear line of sight up and down the organisation (execution transparency), so the entire organisation has the means to know and track who is executing what; how they are doing, and when they will be done. 

--Alignment around strategy should replace the traditional alignment around hierarchy
Managers should be focused on directing their team and aligning them around the overall goals that need to be achieved. Alignment around strategy should replace the traditional alignment around hierarchy. Fail to explain “the why”, and you’re doomed to manage activity with a non-engaged talent pool with limited interest in doing something for no clear purpose.
What we mean by alignment around strategy and not hierarchy is that the distribution of direction, guidance and collaboration is all focused on getting the right things done. If you’re dependent on strict hierarchical communication how do you really get simple functional departments to innovate and solve customer needs across silos?
Sure, there are structural means that are needed to make sure you achieve effective functional alignment across your organisation, but it is a manager’s daily responsibility to energise, motivate and excite their teams and, more importantly, each individual.   
Today’s ever more competitive and quickly changing business conditions can put strategy through unexpected hoops. The more management understands the current performance levels of its talent and their ability to address day to day business conditions, the greater the opportunity for effective execution. The manager who understands how to maximise return on execution depends on an awareness of the strengths of team’s talent in order to execute different “game plans” aligned with strategic goals. The greater the manager’s insight into the performance capability of the individuals and the team, the more likely there will be consistent and quality outcomes.
The practical implementation of alignment around a strategy is reflected in Japanese management’s concept of Kaizen deployed at Toyota. Kaizen was designed to stop production processes should any problem occur. The process was developed to empower the individual and the team to deal with issues before their costs escalated further down the line. This culture motivated each individual to feel that “quality strategy” was their responsibility, no matter their role in the execution of production, no matter the position in the hierarchy.
A truly aligned organisation is set up to execute. They know where they are running and why.

John DiDominic is executive director of Client Solutions at the APMGroup, a leading organisational and human resource consulting firm. Write to him at [email protected] This is the first of a two-part series. The second article in this series will explore the other key ingredient of the Return on Execution formula – people performance and productivity.