Essay Instructions: Published by Soundview Executive Book Summaries, P.O. Box 1053, Concordville, Pennsylvania 19331 USA
?2002 Soundview Executive Book Summaries ? All rights reserved. Reproduction in whole or part is prohibited.
The Discipline of Getting Things Done
EXECUTION
THE SUMMARY IN BRIEF
Organizations face many challenges in today?s shaky economy ? competitive
battles, increased costs, decreased margins, and a host of other
internal and external forces. In order to shore up their companies? responses
to these factors, today?s leaders must be able to take the goals they set
for their organizations and turn them into results. Unfortunately, too many
companies struggle to bridge the gap between goals and results ? they create
solid, logical, even bold plans, but are unable to execute properly.
Honeywell CEO Larry Bossidy and management advisor Ram Charan
contend that the reason for this gap is that businesspeople do not think
about execution as a discipline or a cornerstone of a business? culture ?
and they must. From middle management all the way up to CEO, a company?s
leaders must recognize execution as the most important collective set
of activities in which they can engage. No more is there room for leaders
who rely merely on their vision to get from goals to results; to survive, they
must get more involved in the details of execution. There is much work to be
done, and Execution shows you how to do it.
Concentrated Knowledge? for the Busy Executive ? www.summary.com Vol. 24, No. 12 (2 parts) Part 1, December 2002 ? Order # 24-29
CONTENTS
Why Execution Is Necessary
Page 2
Building Block 1: The
Leader?s Seven Essential
Behaviors
Page 3
Building Block 2: Create the
Framework for Cultural
Change
Pages 3, 4
Building Block 3: Have the
Right People in the Right
Place
Pages 4, 5
The People Process: Linking
Strategy and Operations
Pages 5, 6
The Strategy Process:
Making the Link with People
and Operations
Pages 6, 7
The Operations Process:
Making the Link with
Strategy and People
Pages 7, 8
By Larry Bossidy and
Ram Charan
FILE: LEADERSHIP
?
What You?ll Learn In This Summary
? Why Execution Is Necessary. Leaders simply are not taught the discipline
of execution; more time and scholarship are given to strategic thinking
and management techniques. Neither mean much to a company, however, if
its leader cannot take an idea and make it reality.
? Seven Essential Behaviors. From following through on commitments
to rewarding those employees who produce results, if you are serious about
execution and leadership, you must exhibit these key behaviors.
? Creating the Framework for Cultural Change. The culture of an organization
is the sum of its shared values, beliefs and norms of behavior. Leaders
who want to foster an execution-supporting culture must focus on changing
the beliefs within their company that influence specific behaviors, since
behaviors are what ultimately deliver results.
? The Three Core Processes of Execution. Many organizations treat their
people, strategy and operations processes as separate, independent entities,
when in fact they are interrelated ? and must be treated as such in order to
ingrain the discipline of execution into the corporation.
Why Execution Is Necessary
While there exists an enormous amount of scholarship
and research on management techniques and strategic
thinking, hardly anyone speaks of execution in the same
terms. To understand execution, you must keep three
things in mind:
1. Execution Is a Discipline. No worthwhile business
strategy can be planned without taking into account how
to execute it. Execution is a systematic process of rigorously
discussing hows and whats, questioning, tenaciously
following through, and ensuring accountability.
2. Execution Is the Major Job of a Business
Leader. Many business leaders like to think that the top
dog is exempt from the details of actually running
things, that setting strategy from the mountaintop is
enough. In reality, only a leader can make execution
happen, through deep personal involvement.
3. Execution Must Be a Core Element of a
Business Culture. Execution must be embedded in the
reward systems and in the norms of behavior that everyone
practices.
The Forgotten Skill
Every truly great leader has an instinct for execution,
but that instinct is not typically cultivated in the selection,
training and development of leaders. A high proportion
of those who actually rise to the top of an
organization make their mark as high-level thinkers,
uninterested and (as a result) uninvolved in the ?how?
of getting things done. Many do not realize what needs
to be done to convert a vision into specific tasks.
The crucial component of dialogue between leaders
and those subordinates who help them execute a strategy
is typically lacking. Leaders don?t know to involve
people from all affected areas of a strategic plan?s outcome
in the initial shaping of the plan. They don?t think to
ask those people about the hows of the plan?s execution.
As a result, leaders never set milestones for the progress
of the plan, nor do they put contingency plans into place
to deal with unexpected issues.
In other words, when leaders are allowed to remain
detached and rendered incapable of developing skills
and experience related to execution, efforts at creating
and running an execution strategy will fail, from the top
down. ?
EXECUTION
by Larry Bossidy and Ram Charan
? THE COMPLETE SUMMARY
The authors: Larry Bossidy is Chairman and former
CEO of Honeywell International. Ram Charan is an advisor
to CEOs and senior executives and author of What the
CEO Wants You to Know and other books.
From EXECUTION by Larry Bossidy and Ram
Charan, copyright? 2002 by Larry Bossidy and Ram
Charan. Summarized by permission of Crown Business, a
division of Random House, Inc. 278 pages. $27.50. 0-
609-61057-0.
For more information on the authors, go to:
http://my.summary.com
Published by Soundview Executive Book Summaries (ISSN 0747-2196), P.O. Box 1053, Concordville, PA 19331
USA, a division of Concentrated Knowledge Corporation. Published monthly. Subscriptions: $195 per year in U.S.,
Canada & Mexico, and $275 to all other countries. Periodicals postage paid at Concordville, PA and additional offices.
Postmaster: Send address changes to Soundview, P.O. Box 1053, Concordville, PA 19331. Copyright ? 2002 by
Soundview Executive Book Summaries.
Available formats: Summaries are available in print, audio and electronic formats. To subscribe, call us at 1-800-
521-1227 (1- outside U.S. & Canada), or order on the Internet at www.summary.com. Multiple-subscription
discounts and Corporate Site Licenses are also available.
Soundview
Executive Book Summaries?
ROBERT L. SMITH ? Senior Contributing Editor
CHRIS D. LAUER ? Managing Editor
DEBRA A. DEPRINZIO ? Art and Design
CHRISTOPHER G. MURRAY ? Editor-in-Chief
GEORGE Y. CLEMENT ? Publisher
2 Soundview Executive Book Summaries?
Compaq Vs. Dell ?
Execution Made the Difference
Former Compaq CEO Eckhard Pfeiffer had an ambitious
strategy ? before any of his competitors, he
saw that the so-called Wintel architecture (the combination
of the Windows operating system and Intel?s
constant innovation) would serve for everything from
handheld computers to linked networks of servers.
Pfeiffer broadened Compaq?s base through numerous
acquisitions in an attempt to serve all the computing
needs of enterprise customers. He moved at breakneck
speed on his bold strategic vision and, by 1998,
was poised to dominate the industry.
In the end, though, the strategy failed to achieve
such stellar results. Integrating the acquisitions and
delivery on promises required better execution than
Compaq was able to achieve. In addition, neither
Pfeiffer nor his successor pursued the kind of execution
necessary to make money as PCs became an
increasingly commodity business.
Michael Dell, on the other hand, understood that
kind of execution. His direct-sales and build-to-order
approach formed the core of his business strategy,
and stands as the chief reason Dell passed Compaq,
both in market value and as the biggest maker of PCs.
For a comparison of execution to Six Sigma, go to:
http://my.summary.com
Execution doesn?t just happen. Essential building
blocks must be in place in your organization. This section
of the summary looks at three of the most important
of those building blocks. ?
Building Block 1: The Leader?s
Seven Essential Behaviors
What exactly should you as a leader who is in charge
of execution do? How can you keep from being a
micromanager, caught up in the details of running the
business? The answer is to exhibit the seven essential
behaviors of successful execution management:
? Know your people and your business. Leaders
have to live their businesses. In companies that don?t
execute, the leaders are usually out of touch with dayto-
day realities. The bulk of information that reaches
them is filtered ? presented by direct reports with their
own perceptions and agendas.
? Insist on realism. Many organizations are full of
people who try to avoid or shake reality, because it is
uncomfortable, or too revealing of mistakes made. Yet,
realism is the heart of execution, and must be made a
priority in every organization.
? Set clear goals and priorities. Leaders who execute
focus on a very few clear priorities, for a number
of reasons: 1) focusing on fewer (three to four) priorities
will produce the best results from the resources at
hand; and 2) people in contemporary organizations need
a small number of clear priorities to execute well.
? Follow through. Clear, simple goals mean little if
nobody takes them seriously. The failure to follow
through is widespread in business and a major cause of
poor execution. Leaders must surface conflicts that
stand in the way of achieving results, and create followthrough
mechanisms, such as follow-up meetings, to
ensure everyone will do what they?re supposed to.
? Reward the doers. If you want people to produce
specific results, you must reward them accordingly.
Many corporations do such a poor job of linking
rewards to performance that there?s no correlation at all.
When companies don?t execute, chances are they don?t
measure, don?t reward, and don?t promote people who
know how to get things done.
? Expand people?s capabilities. One of the most important
parts of a leader?s job is passing on his or her experience
and wisdom to the next generation of leaders, thereby
expanding the capabilities of the entire organization.
? Know yourself. Everyone pays lip service to the idea
that leading an organization requires strength of character;
in execution, however, it is absolutely critical. Without
such emotional fortitude, you can?t be honest with yourself,
deal honestly with business and organizational realities,
or give people forthright assessments. This emotional
fortitude is comprised of four core qualities: authenticity,
self-awareness, self-mastery, and humility. ?
Building Block 2:
Create the Framework
For Cultural Change
When a business isn?t doing well, its leaders often
think about how to change the corporate culture. While
they are correct in their assertion that the beliefs and
behaviors of their people are at least as important as the
strategies they execute (or, in some cases, fail to exe-
3
Execution? SUMMARY
Soundview Executive Book Summaries?
(continued on page 4)
THE BUILDING BLOCKS OF EXECUTION
Jack Welch?s
Hands-On Management
In the mid-1990s, a friend told Jack Welch, General
Electric?s CEO, about a new methodology for making
a quantum increase in inventory turns in manufacturing
operations. It was thought that GE could generate
cash if it could increase its inventory turns across the
company. The leading practitioner of the methodology
was American Standard, whose plants had achieved
as high as 40 inventory turns per plant, compared to
the average of four at most companies.
Welch wasn?t content to just get the concept, or to
send some of his manufacturing people out to investigate
it. Instead, he paid American Standard CEO
Emmanuel Kampouris a visit, in order to understand
the workings personally. He also accepted an invitation
to speak at the company, and spent the better
part of one evening?s dinner querying two successful
American Standard plant managers about the details
of their respective operations ? the tools, the social
architecture, and how they overcame resistance to the
new methodology.
By involving himself deeply and personally with the
subject, Welch learned what it would take to execute
such an initiative at GE, and was able to get the necessary
changes rolling quickly throughout his huge
company. By the time of his retirement in 2001,
Welch saw GE?s inventory turns double.
For Larry Bossidy?s comments on confronting issues realistically,
go to: http://my.summary.com
cute), most efforts at cultural change fail, in part
because they are not linked to improving the company?s
outcomes. Cultural change gets real only when your aim
is execution.
A New Way of Thinking
There?s an adage that holds true in this discussion ?
we don?t think ourselves into a new way of acting; we
act ourselves into a new way of thinking.
This begins with demystifying the word culture.
Stripped to its essence, the culture of an organization is
the sum of its shared values, beliefs, and norms of
behavior.
Some who endeavor to change an organization?s culture
often start with the intention of changing its values ? its
fundamental principles and standards, such as integrity or
respect for the culture. What they should instead focus on
changing are the beliefs within a company that influence
specific behaviors,
things that are
conditioned by
training and experience.
Behaviors
are beliefs turned
to action, the
things that deliver
results. To deliver
better results, start
with examining whether your organization?s ingrained
beliefs are helping the business perfect its execution.
Change Behavior by Changing Rewards
A business? culture defines what gets appreciated,
respected, and, ultimately, rewarded; those rewards and
their linkage to performance are the foundation of
changing behavior. If a company rewards and promotes
people for execution, its culture will change. However
your organization determines rewards, the goal should
be the same ? your compensation and reward system
must have the right yields. You must reward not simply
on strong achievements on numbers, but also on the
desirable behaviors that people adopt. Over time, your
people will get stronger, as will your financial results.
The Importance of Dialogue
Another cultural factor to recognize is the importance
of robust dialogue. You cannot have an execution culture
without such a dialogue ? one that brings reality
to the surface through openness, candor, and informality.
Your people must enter into such a dialogue with
open minds, uncluttered by misconceptions or propaganda.
Everyone must be open to speaking candidly,
and to receiving the real opinions of others as well. ?
Building Block Three:
Have the Right People
In the Right Place
An organization?s workers are its most reliable
resource for generating excellent results year after year;
their judgments, experiences and capabilities make the
difference between success and failure.
Yet, the same leaders who exclaim that ?people are
our most important asset? usually do not think very hard
about choosing the right people for the right jobs.
Typically this is because they?re thinking too much
about how to make their companies bigger or better
positioned globally. Over time, however, it?s choosing
the right people that creates competitive advantage.
Why, then, are the right people not in the right jobs?
Here are some of the reasons ? and what you can do
about them:
? Lack of knowledge. Leaders often rely on sometimes
fuzzy or prejudiced staff appraisals when placing
people into positions. They should, instead, define the
job in terms of its three or four nonnegotiable criteria ?
things the person must be able to do to succeed.
? Lack of courage. There are innumerable cases of the
wrong person being kept in the wrong job, simply because
the person?s leader doesn?t have the emotional fortitude to
take decisive action, confront the person, and make a
change. Such failures do considerable damage to a business;
indeed, if the non-performer is high enough in the
organization, he or she can be particularly destructive.
? The psychological comfort factor. Many jobs are
filled with the wrong people because the leaders who
promote them are comfortable with them, and the
employees are loyal to those leaders. However, if that
loyalty is based on the wrong factors (social reasons,
rather than professional, etc.), it could be damaging.
Often, breaking free of this comfort factor is exactly
what a leader must do to bring about change.
When Reginald Jones ? a cerebral, well-spoken
person ? selected Jack Welch ? a blunt, irreverent,
from-the-gut leader ? to replace him as CEO of
General Electric, many questioned the move. Jones,
however, knew GE had to change, and that Welch possessed
the right kind of personality and professional
approach to get the job done. Jones broke free of the
comfort factor, to the benefit of the company and its
shareholders. ?
Execution? SUMMARY
4 Soundview Executive Book Summaries?
For Ram Charan?s comments on fuzzy staff appraisal,
go to: http://my.summary.com
Building Block 2: Create the Framework
For Cultural Change
(continued from page 3)
To deliver better results, start
with examining whether your
organization?s ingrained
beliefs are helping the business
perfect its execution.
The heart of execution lies in three core processes:
the people process, the strategy process, and the operations
process. Every business and company uses these
processes in one form or another; more often than not,
however, they stand apart from one another like silos,
and are performed by rote and as quickly as possible.
What many leaders miss is the fact that these processes
are where the things that matter about execution need to
be decided, and as such, they should be prosecuted with
rigor, intensity and depth.
The processes should be tightly linked with one another,
and the leader of the business and his or her leadership
team must be deeply engaged in all three. They are
the owners of the processes, not the strategic planners
or the human resources or finance staffs. ?
The People Process: Linking
Strategy and Operations
The people process is more important than either the
strategy or operations processes; if you don?t get the
people process right, you will never fulfill the potential
of your business. A robust people process does three
essential things:
? Evaluates individuals accurately and in depth.
? Provides a framework for identifying and developing
the leadership talent the organization will need
to execute its strategies in the future.
? Fills the leadership pipeline that is the basis of a
strong succession plan.
A robust people process provides
a powerful framework for
determining the organization?s
talent needs over time, and for
planning actions that will meet
those needs. It is based on four
building blocks: 1) linkage of
people to strategy and operations;
2) development of the
leadership pipeline; 3) dealing
with nonperformers; and 4) linking
human resources to business
results.
Linkage of People to Strategy
and Operations
The first building block of the
people process is its linkage to
the strategic milestones (see
example at right) over the near (0-
2 years), medium (2-5 years) and
long terms, as well as the operating plan targets. Business
leaders create this linkage by making sure they have the
right kinds and numbers of people to execute the strategy.
Be prepared to make tough decisions. The strategic
milestones you set might necessitate a reevaluation of
your leadership team, should you determine that the
skill sets required to meet your near-, medium- and
long-term goals will be beyond the reach of your current
staff. This is a difficult social process ? no one
wants to tell good people they aren?t capable of moving
to the next level ? but it must be done.
Development of the Leadership Pipeline
Meeting medium- and long-term milestones depends
largely on having a pipeline of promising and promotable
leaders. To determine the ability of current staff to take
on larger responsibilities, you must conduct an assessment
of their skills. This will reveal the adequacy of your
leadership pipeline in terms of quantity and quality.
Analyzing succession depth and retention risk analysis
is the essence of talent planning and building a leadership
pipeline of high-potential people. The retention
risk analysis looks at a person?s potential marketability,
as well as the risk a business faces if he or she leaves.
Succession depth analysis determines whether the company
has enough high-potential people to fill key positions.
It also looks at whether there are high-potential
people in the wrong jobs and whether key people will
be lost if a job is not unblocked for them.
Such analysis helps an organization avoid two dan-
Execution? SUMMARY
5
(continued on page 6)
Soundview Executive Book Summaries?
THE CORE PROCESSES OF EXECUTION
NEAR TERM
(0-2 YEARS)
MEDIUM TERM
(2-5 YEARS)
LONG TERM
(5+ YEARS)
? Expand beyond existing
product line toward selling
solutions
? Launch new initiative to
expand services to installed
base
? Secure new expertise in
technology
? Further expand penetration
in existing customer segments
? Develop intermediate
approaches to selling solutions
to new customer segments
? Evaluate and engage
alliance partners
? Become pioneers of
leapfrog technology
? Build more useful alliances
? Develop low-cost sourcing
ideas
Strategy Milestones
gers: organizational inertia (keeping people in the same
job too long) and moving people up too quickly.
Dealing with Nonperformers
Even the best people process doesn?t get the right
people in the right jobs 100 percent of the time; likewise,
it can?t make everybody into a good performer.
The final test of a people process is how well it distinguishes
between those who have been promoted beyond
their capabilities and need to be moved to other positions,
and those who simply must be moved out.
Linking Human Resources to Business Results
Human Resources has to be integrated into the business
process. It must be linked to strategy and operations,
and to the employee assessments, across the
enterprise. This is a different approach than many companies
have taken in the past. At one time, managers
might assign HR personnel to recruit or execute specific
elements of a strategic plan, such as negotiating with a
union if a plant would need to be shut down.
In today?s execution-minded companies, HR is different.
Personnel within the department are expected to
have a point of view about how one achieves a business
objective or strategic plan, just like any other participant
in the management process. HR people must not only
be well trained in how to develop and retain people ?
they must also possess the business acumen, critical
thinking skills, and ability to link strategy and execution.
In other words, they must have the same tactical
skills as any business leader. ?
The Strategy Process: Making the
Link with People and Operations
A good strategic planning process requires the utmost
attention to the hows of executing a strategy. A robust
strategy is not a compilation of numbers, nor is it a
?crystal ball? forecast of extrapolated numbers for the
next ten years. It must be an action plan that business
leaders can rely on to reach their business objectives.
You need to identify and define the critical issues
behind your strategy. You need to question the assumptions
on which your strategy is based, and determine
whether you have the organizational capability to execute
the plan. You also need to link your strategy to
your people process (to determine whether you have the
right people in place to execute the strategy) and to your
operating plan (to get your organization properly
aligned to move forward).
Key Questions
A strong strategic plan must address several key questions:
1. What Is the Assessment of the External
Environment? Every business operates within a shifting
political, social and economic context. Your strategic
plan must explicitly deal with those external forces and
the assumptions they generate.
Examine everything from economic and demographic
trends to new technologies and alliances between competitors,
in order to anticipate changes that can affect
your business.
2. How Well Do You Understand Existing
Customers and Markets? People tend to look at their
businesses from the inside out, choosing to focus so
strongly on making and selling products and services
that they lose awareness of the needs and buying behaviors
of their customers.
Who makes purchasing decisions for your customers?
It?s likely different from customer to customer. In large
companies, for example, purchasing agents might do the
buying, while at smaller companies, your buyer might
be the CFO. Each requires a different approach, which
you can only take if you have that intimate customer
knowledge in hand.
3. What Is the Best Way to Grow the Business
6
Execution? SUMMARY
Soundview Executive Book Summaries?
(continued on page 7)
For information on tools to gauge the quantity and quality of your
leadership pipeline, go to: http://my.summary.com
GE?s Talent Domino Effect
In the mid-1990s, when it had become clear that
GE was the world?s best producer of leadership talent,
its division presidents were all retention risks, targeted
by top headhunters to take their experience and
expertise to other companies. GE?s people process
provided a forum for how to retain these valuable
people by both garnering data and providing financial
rewards, such as stock grants that could not be
cashed until retirement.
When a key person does leave, however, the
process almost always provides a needed replacement
within 24 hours. For example, when Larry
Johnson, the president of GE?s appliance division,
announced in spring 2001 that he was leaving to
become CEO of another company, GE named his successor
on the same day. The organization was also
able to announce ? on that same day ? who would
fill all the positions created by the domino effect of
related promotions.
The People Process: Linking Strategy
And Operations
(continued from page 5)
Profitably? What are the obstacles to growth? Does
your business need to develop new products or does it
need to take existing ones into new channels and to new
customers? Does it need to acquire other businesses to
meet key customer needs?
Finding your best growth opportunities is key to
building on successes and staving off failure.
4. Who Is the Competition? Sometimes businesses
miss the emergence of new competitors who have more
attractive value propositions for their customers.
Most often, companies underestimate the responses of
competitors, or are so consumed by dealing with one set
of competitors, they fail to see new competition come
on the scene. Sometimes, however, they have the opposite
problem ? they overestimate the competition
because they haven?t asked the right questions, and they
miss valuable opportunities to gain advantage.
5. Can the Business Execute the Strategy? An astonishing
number of strategies fail because leaders do not
make a realistic assessment of whether their organization
can execute the plan. That won?t be a problem if you?re
intimately involved in your business? three core processes.
You should also be listening to your customers and
suppliers, and encouraging your leaders to do the same.
6. Are the Short Term and Long Term Balanced?
Strategy planning needs to be conducted in real time,
connected to shifts in the competitive environment and
the business? own changing strengths and weaknesses,
which means you must define your company?s mission
in the short to medium term, as well as the long term.
By breaking down the plan in this manner, you bring
reality to the plan and give your business an anchor for
continued growth.
7. What Are the Critical Issues Facing the
Business? Every business has a half dozen or so critical
issues ? the ones that can hurt it badly or prevent it
from capitalizing on new opportunities or reaching its
objectives.
8. How Will the Business Make Money on a
Sustainable Basis? Every strategy must lay out clearly
the specifics of the anatomy of a business ? how it will
make money now and in the future. This means understanding
several key pieces of information ? the drivers
of cash, margin, velocity, revenue growth, market share,
and competitive advantage. What pricing model will you
follow, and are customers willing to pay a premium for
your goods? How much cash do you require for working
capital? What will your competitors? reactions be? ?
The Operations Process:
Making the Link with Strategy
and People
The strategy process defines where a business wants
to go, and the people process defines who will get it
there. The operating plan provides the path for those
people, breaking long-term output into short-term targets.
An operating plan includes the programs (product
launches, marketing plan, sales plan, etc.) that your
business will complete within one year to reach the
desired levels of such objectives as earnings, sales, mar-
Execution? SUMMARY
Soundview Executive Book Summaries? 7
(continued on page 8)
The Strategy Process: Making the Link with
People and Operations
(continued from page 6)
Dell Addresses
The Future of the PC
In 2001, Dell Computer was beginning to face its
critical issue ? the dim long-term outlook for PCs. No
matter how much market share Dell stood to gain, the
market itself had no foreseeable heady growth. Initially,
the company formed an alliance with EMC to market
EMC?s storage equipment. An even stronger option
was to expand into the adjacent segment ? servers ?
where the growth potential dwarfs that of PCs.
But the question remains ? can Dell?s low-margin,
high-velocity model, which works so well for PCs, be
effective with more technologically sophisticated
servers? The jury, at this time, is still out.
Cross Pens and
Market Segmentation
One way to effectively find your best growth opportunities
is by mapping your market segments. To
illustrate, consider A.T. Cross? segmentation of the
luxury pen market. A simple map of Cross? market
segments identifies three different consumers:
? The individual who wants to buy such a pen for
him- or herself
? The person who buys a pen as a gift for another
individual
? The corporation that buys thousands of pens,
with its logo on them, for use as institutional gifts
For each market segment, the product is essentially
the same, but demand is different, as is the strategy.
Each requires Cross to deal with different competitors,
channels, economics and pricing.
For Ram Charan?s comments on overestimating the competition,
go to: http://my.summary.com
gins, and cash flow. The assumptions on which the
operating plan is based are linked to reality and are
debated among the finance people and the line leaders
who must execute. Indeed, while the leader must be
intimately familiar with each of the processes involved
in executing the strategy, he or she is not the only one
who must be present and involved in operations planning;
all of the people accountable for executing the
plan must help construct it.
The starting point in creating an operating budget is a
robust dialogue among all the relevant business leaders,
who sit down together to understand the whole corporate
picture, including all of the relationships among its
parts. All leaders and their direct reports have been
given the initial cut of the budget, as well as the
assumptions for the external environment, competitor
analyses, and targets for the year.
The plan is then built roughly as follows:
? Those present focus on the roughly 20 budget lines
that typically account for 80 percent of the impact on
business outcomes, such as product mix, operating margins,
manufacturing costs, and so forth. Each function
represented presents its action plans for meeting the
proposed budget.
? With each presentation, the leader questions the
assumptions to test their validity and asks how each
action plan will affect the other businesses.
? After every function has its say, the group breaks up
into subteams. Each subteam discusses alternatives and
the effects other plans will have on their operation.
? The groups reconvene and load all their information
into a common spreadsheet program. They can then see
a picture of the budget, what makes sense, and what
doesn?t, as well as how each component synchronizes
with all the others.
? The group repeats the process again, to reshape and
refine information and alternatives, until the basic budget
and operating plans are complete. Typically, it
requires four such cycles to come up with a winner.
As you go through the process above, keep in mind
two important issues:
? Synchronization. All the moving parts of the
organization must have a common understanding of the
external environment and other crucial factors ? in
other words, the left hand must know what the right
hand is doing. Synchronizing includes matching the
goals of the interdependent parts and linking their priorities
with other parts of the organization. That way,
when conditions change, synchronization realigns the
multiple priorities and reallocates resources.
? Assumptions. An operating plan addresses the critical
issues in execution by building the budget on realities.
How well your business leaders understand these
realities is a key factor in the success of your plan.
Debate on underlying assumptions is one of the most
critical parts of any operating review ? you cannot set
realistic goals until you have debated the assumptions
behind them.
Once you?ve built an operating plan, you must then
monitor its outcomes over the course of the year. One
outcome of the operations process is identifying targets
that clearly and specifically reflect not only what a business
wants to achieve, but what it is likely to achieve ?
because they are based on the most realistic assumptions
and on the hows of achieving them.
In addition to establishing clear targets, you can learn
a lot from building an operating plan. When you participate
in such a review, you debate the very guts of your
business. All involved parties get to see the company,
both as a whole and as a collection of independently
moving parts. They also learn how to allocate and reassign
resources when the environment changes. ?
8
Execution? SUMMARY
The Operations Process: Making the Link
with Strategy and People
(continued from page 7)
Soundview Executive Book Summaries?
GM?s Synchronized Response
To September 11
The events of September 11, 2001, created real
concern in Detroit that demand for vehicles would
significantly decrease. In response, Ron Zarella,
General Motors? vice president for North America,
conceived of zero percent financing, and implementing
it put demand into high gear. His timing was perfect
? in November, the Federal Reserve reduced
interest rates to a 40-year low of 1.75 percent.
Consumers were able to refinance and gain cash for
down payments, which sent demand skyrocketing.
The move required an operating plan to reprogram
and reallocate resources to synchronize GM?s various
moving parts, helping the company determine what
kinds of vehicles to build, in which plants, and where
to send them, how much advertising money the company
should spend, where they should spend it, and
on which products. Synchronizing production and
advertising was crucial ? with margins cut by the
zero percent financing, an imbalance between production
and advertising would both lose sales and raise
costs.
As it turned out, the program opened up a big
opportunity for GM. Though other automakers joined
the financing bandwagon, GM?s swift execution and
pinpoint synchronization gave the company an immediate
boost in market share.
