Over the last 34 years, we have been helping HVACR, plumbing,electrical and building materials distributors with strategy creation and execution. We also wrote a National Association of Wholesaler-Distributors (NAW) best-seller titled “Strategic Planning for Distributors: Execution Isn't Everything – It's the Only Thing!”
Is the HVACR distribution channel an anomaly when it comes to flawed strategy execution? Consider the following statistics:
- Ninety percent of well formulated strategies fail due to poor execution according to the Harvard Business School Press.
- Seventy percent CEO failures come not as a result of poor execution, according to Fortune Magazine.
- Sixty-six percent of corporate strategy is never executed, according to Ernst & Young
These alarming statistics of business strategy and failure rates back up our real-world consulting experiences with HVACR, plumbing, electrical and building materials distributors.
Based upon our work with HVACR distributors the following are the Top 10 reasons why your current business strategy will fail or is failing:
Company leaders do it alone and do not select the right people to serve on their company's strategy team. Leaders who rigidly apply a top-down approach to business strategy will not achieve success. Leaders must assemble the right group of diverse individuals who will capture creative and innovative thinking.
Top-down leadership is the number one reason why strategic planning sessions fail. Top-down leaders are autocratic and rely on their own thinking rather than the thinking of others. They possess tunnel vision because they don't seek outside opinions and diversity. Autocratic leaders are not comfortable with collaborative decision making. Most top-down leaders believe strategic planning is a one-year operating plan treating the problems of the day, rather than a thoughtful three to five-year strategic analysis.
The right path to successful business strategy creation and execution is for the leader(s) to lead a strategy-creation and execution team process. The top leader becomes the strategy team's biggest cheerleader by actively participating on the strategy team and by enthusiastically communicating the company's vision, mission, goals and strategies through company meetings, informal talks and written communications.
Herb Kelleher, co-founder and former chairman and chief executive officer (CEO) of Southwest Airlines, actively participated, but did not lead Southwest's strategy team. When Kelleher believed that a strategic initiative was not in line with Southwest Airlines' vision and mission, he would often bring the team back to Southwest's vision, mission and strategic goals.
As the company's top leader, you don't need to become another Herb Kelleher. But you do need to ensure that everyone is plugged into your organization's strategy by doing the following:
- Communicating company vision, mission, goals and strategies to employees, strategic suppliers, customers and the community.
- Fostering teamwork and creating a work culture that values collaboration.
- Creating a cross-functional strategy team that is composed of marketing, sales, purchasing, branch operations, distribution, finance, human resources and IT talent.
Company's strategy does not ignite passion amongst all employees. There must be passion beyond a business strategy session to achieve strategy-execution success. Without a contagious passion amongst everyone in the organization regarding where the company is going and what critical part each of them play in it, the best business strategies will fail in execution.
The company's leader(s) must develop a compelling vision during their strategy session of where their HVACR channel organization is going five or more years into the future. At the heart of any company is a compelling vision continually articulated by the company leader(s). The vision should resonate with all members of the organization and help them feel proud, excited, inspired, motivated and part of something much bigger than themselves.
The best vision-driven HVACR distributor leaders continually instill a passion within every employee in achieving successful strategy execution.
Company's strategy team is not responsible for both strategy- creation and strategy-execution. When most HVACR distributors develop their business strategy, it is created by relatively few people. These strategy creators tend to be only the senior leaders of their organization. These senior leaders leave strategy execution to lower-level leaders and other team members. They typically review their organization's strategy execution process only periodically.
Best-practice HVACR distributors organize cross-functional strategy teams that take equal ownership for both strategy-creation and strategy-execution.
Company remains “internally focused” with their business strategy and does not gather “outside-in” critical market intelligence from their channel partners. Best-practice HVACR distributors balance “inside-out” thinking with “outside-in” thinking from channel partners to accurately measure employee perceptions versus strategic customers and suppliers perceptions of performance. “Outside-In” feedback is gathered through confidential, honest and candid feedback from both strategic customers and suppliers that produce innovative strategies that build and sustain distinct competitive advantages. This is always best accomplished from a third-party market research firm that can guarantee anonymity from research participants.
Company lacks the right strategy creation and strategy-execution structure and accountability. Many HVACR distributors, manufacturers and manufacturers' reps fail in their strategy-creation sessions because of a lack of structure and accountability. An effective strategy process contains a structure that encourages strategic thinking. It involves different analytical exercises through each cycle of the meeting. This stimulates participants to think strategically.
Typical Two-Day Strategy Session Day 1 Timeline
Strategy Session Overview
8 a.m. – 9 a.m. Outside-In Customer Market Research Review 9 a.m. – 11 a.m. Outside-In Manufacturer Market Research Review 11 a.m. – Noon Strategy Team SWOT Analysis Exercise 1 p.m. – 3 p.m. Critical Success Factors 3 p.m. – 5 p.m.
Timeline 3-Year Strategic Goals (2017–2019) Exercise 8 a.m. – 11 a.m. GAP Analysis & Top Strategic Initiatives Exercise 11 a.m. – Noon Strategy Execution Team Deployment 1 p.m. – 4 p.m. Strategy Team Charge 1 p.m. – 4 p.m.
Having a clear agenda with timelines is essential for a productive strategy session. A typical two-day strategy session agenda we employ with HVACR distributors is shown above.
Before ending the strategy session, the strategy team must make three decisions:
- How will the strategy session results be communicated to employees, strategic customers, strategic suppliers and other appropriate parties?
- How often will each strategy execution team meet to achieve its team mission, goals and action plans?
- Will each strategy team make formal progress update presentations at quarterly strategy team meetings?
Company attempts to execute too many strategies. When it comes to strategy execution, think in threes. We guide all our clients to reduce the top strategies they want to execute to no more than three. Thinking in threes forces our HVACR distributor clients to build focused, achievable strategies that can be successfully executed over the next three years. For each of these three top strategies, a strategy execution team is formed. Each strategy team is responsible for the following:
-Creating a team purpose and specific, measurable, stretch-achievable team goals that align with the company's three-year strategic goals.
- Developing and executing specific action plans to achieve the strategy team's goals.
Company does not continually measure strategy results and link them to a performance scorecard system with individual and team rewards for achieving your company's strategic plan. Most HVACR distributors do not continually measure their strategy execution results to a scorecard system with both individual and team rewards for achieving the company's strategic goals.
Building performance scorecards that support the strategy for your company will transform your strategy into positive, actionable results. Like an airplane's control panel or an automobile's dashboard, performance scorecards help HVACR distributors achieve their strategy by providing a comprehensive view of performance.
Balanced scorecards represent an approach to strategic management that first surfaced in the early 1990s. Robert Kaplan and David Norton authored three Harvard Business Review articles on the balanced scorecard. Based on their experiences, Kaplan and Norton developed a balanced scorecard around the idea that impressive financial returns are only one of several important factors in a business's success. They introduced four perspectives to include on the balanced scorecard: 1) financial measures 2) customer measures 3) internal business process measures, and 4) learning and growth measures.
Every HVACR distributor we have helped create and execute successful long-term business strategies uses the balanced scorecard to align their business activities to their vision, mission and strategic goals. Properly designed, a balanced scorecard provides an alignment framework for all employees. It holds each employee accountable for both individual and company goals.
Everyone in the organization understands what each person or group is working towards. The balanced scorecard requires a rigorous process and commitment, but it is a key element in effectively translating a company's strategy into actionable results.
Financial compensation is a powerful performance lever. Linking the company's balanced scorecard to an incentive compensation plan creates the push for achieving a successfully executed business strategy.
Company does not continually hold quarterly strategy execution team progress update meetings. Every HVACR distributor we have helped create a long-term business strategy has achieved remarkable strategy execution success when they hold quarterly strategy execution team progress update meetings. Every three months, year after year…
Conducting quarterly strategy team meetings is the key leadership tool to ensure steady, consistent execution progress. The five purposes of quarterly strategy execution team meetings are as follows:
1.Clearly understand the status of each strategy execution team's progress.
2. Keep each team's focus on strategic, rather than urgent, tactical issues.
3. Leverage all appropriate company resources while maintaining accountability for performance.
4. Facilitate communication and support throughout the strategy team.
5. Provide quarterly strategy team updates to all company personnel
Company does not hold quarterly employee meetings to update everyone in the organization regarding strategy execution progress. Communicating your strategy-creation and execution results throughout the organization to gain understanding and buy-in is essential to effective strategy execution. All employees should be given quarterly updates on strategy execution team progress. Other key stakeholders, i.e., strategic customers and suppliers, should be given semiannual updates of your company's strategy execution progress.
Company does not use an experienced HVACR channel outside facilitator to objectively manage the strategy-creation and strategy-execution process. Most HVACR distributors choose to facilitate their own strategy sessions. This is a mistake. Strategic planning sessions run by team members often become expanded staff meetings, rehashing old positions, inhibiting innovative strategic thinking and leaning toward the strongest members' views.
Resistance to employing an experienced HVACR channel outside facilitator whose job is to objectively manage the strategic information exchange between managers, employees, strategic suppliers and customers will impair your company's strategy creation and execution.
Outside HVACR channel knowledge is important both for collecting and analyzing market research and for understanding the inner workings of an HVACR distributor.
A skilled HVACR channel outside facilitator will do the following:
- Ensure that cross-functional strategy team members see themselves as equal stakeholder voices.
- Ensure that all team member ideas are valid.
- Guarantee that everyone provides candid and honest feedback.
- Make sure that everyone actively listens to each other.
- Make certain that the strategy team seeks common ground and actions based upon consensus and not influenced by the most powerful or strongest team member.
- Serve as a coach and mentor to the strategy team throughout the strategy execution process.
Tom O'Connor and TJ O'Connor work with HVACR, plumbing, electrical and building materials distributors. To ensure that your company's business strategy is successfully executed, you can contact them at Farmington Consulting Group (FCG) at 860/678-4402 or email Tom at [email protected] or TJ at [email protected].