Imagine you are on the football field – What if 15% of your performance is dependent on the play you select, and 85% of your performance is dependent on your ability to make the play? Where would you invest most of your time, training your team to pass, catch, run, and block, or picking out the right play?
By and large, studies have found execution is the clear driver of company value and financial performance. How much? Well, about 15% of company’s performance is attributable to strategy – the remaining 85% is attributable to execution, as found by Becker and Huselid’s “ High performance Work Systems and Firm Performance.” Joyce, Nohria, Roberson found a similar ratio in “What really works.”
That’s right – Execution of the strategy is 6 times more important than the strategy itself!
How do you execute on a strategy? In a word: People. At the end of the day, it is the employee who makes things happen, who gets results – not machines, strategies, vendor relationships or what have you. People are your real differentiator and now typically make up 70% of a company’s cost (and growing). This is doubly true in today’s knowledge-focused economy. We see today that about 80% of a company’s valuation cannot be explained by the balance sheet, which shows the growing importance of intangibles and people performance to future cash flow. The value of a company is no longer in its factories, IT systems, or physical assets – it is created by the company’s people.
Your company is in fact already on the field, fighting for customers, revenues, and a competitive position. Instead of “picking out the best play”, focus on what will most help you move downfield toward your goals: people performance, 85% of your success depends on it. Goal alignment, individual accountability, and engagement equal strong execution. Build up these strengths and capabilities of your company to help ensure you can make the big plays. So yes, people performance does matter, because their ability to execute is the key factor in creating value and driving results for your company.
November 8th, 2007 at 9:33 am
To carry the analogy further, hire your team for the qualities you need to bring to the playing field (not just a cookie-cutter job title) and make sure your special team has what they need to make the goals. There’s a big difference between having been a quarterback somewhere else and having the ability to be a good quarterback on OUR team.
November 14th, 2007 at 4:07 am
I agree with your conclusion 100%. Strategies are great. They’re wonderful secret weapons. Still, even with the best strategy in the whole wide world, if the person or people to execute it is a bumbling idiot, then your brilliant strategy would only be put to waste. A well-devised play can only take a person so far. Everything else depends on the player.
November 20th, 2007 at 9:32 am
We did some research into the need for having the strategy transparent for all people that are part of executing on it. In some cases leakage of value comes from failures from employees to actually get it but in order to isolate it to that problem alone organizations should actively make sure they communicate the strategy and how individuals goals fit in that bigger picture. Numerous studies also point at that clarity of goals and sense of relevant contribution as being a key driver of employee engagement.
June 15th, 2008 at 12:27 pm
If the 85% execution actually drives the business, it would be interesting to see what % of managers actually receive training in goal setting, accountability and motivating the employee.
I believe it’s important to focus on ‘accountability’ as a key performance driver. Hire smart, capable individuals, provide them with the business knowledge they require to perform, give them the tools and offer a ‘respectful’ work environment so they can give their best.
Pat