The 13 Things Strong Companies Avoid
Facing an endless merry-go-round of new strategies and new performance objectives, managers can often get so caught up in a headlong chase for short-term performance that they make fundamental mistakes which can compromise their – and their colleagues’ – future.
Inspired by an incredibly popular “list of 13″ on Forbes, CEB identified 13 areas that managers either neglect or don’t even realize are important. With frightening predictability, all of these issues will cause larger problems down the road.
Each mistake on its own drags down performance; together they make-up the profile of a company likely to encounter a growth stall or experience significant business risk.
The List of 13
Hire leaders for yesterday’s work environment: CEB research shows that “network performance” is the key driver of good corporate performance.
In fact, almost 50% of an executive’s value to their organization is now made up of their ability to use and contribute to the network. This means if you hire a leader steeped in a command and control environment, it can reduce the performance of the networks around and below him/her over 50% (or more, depending upon the industry).
Network leadership is more about influence than control; it is also a more indirect form of leadership that requires leaders to create a work environment based on autonomy, empowerment, trust, sharing, and collaboration. To succeed in this environment, leaders must be adept at building, aligning, and enabling broad networks, both within and outside of the organization. And network leadership is tough to master for those weened on a command and control environment.
Prioritize incremental growth over transformational growth: 96% of executives cite growth acceleration as important, but driving transformational growth requires hard decision-making, resource commitment and corporate willpower that most companies don’t have.
The calculus is frightening: CEB surveys of midsized companies (those with annual revenues of up to $750 million) show that just 18% of companies effectively prioritize transformational growth projects over incremental growth projects. What’s worse is that when opportunities do present themselves, only 28% of companies believe they are able to swiftly make and act on growth decisions. And, further, if they do act swiftly, only 26% of companies are effective at providing the resources necessary for success.
What happens at most companies is that they become risk-averse as they mature, inadvertently stifling innovation and bold decision making, as employees become more concerned about the negative fallout of decisions than the potential to seek long-term value.
Complicate the customer experience: By focusing on the optimal customer experience, firms inadvertently drive customers away.
In fact 96% of customers who put forth high effort to resolve their issues are more disloyal, but only 9% of those with low effort interactions are more disloyal. Organizations that create a low-effort service experience by helping their customers solve problems quickly and easily, are most successful at building customer loyalty.
Pay lip-service to compliance and ethics: Great companies understand that a weak culture of integrity increases risk.
Employee fear of speaking up—about potential compliance issues, about potential legal and business risks, about potential bad news—is a major indicator of misconduct. Furthermore, unethical manager behaviors are contagious too, significantly raising the likelihood of widespread misconduct.
Great companies recognize that they must unlock these “information traps” in their organizations, and foster a culture of speaking up and increase employee trust in the company response to unethical conduct. They must continue to invest in ethical leadership development and fuse integrity with performance standards.
Let their customers dictate value: The average B2B buyer doesn’t engage Sales until they are more than halfway (57%) through their purchase decision process and often arrives at their own view of relative value long before they talk to reps.
Smart marketers take a step back and re-conceive how Marketing creates economic value in the first place, refocusing on how to produce what customers want, and then use content to teach customers something new about their own business, provide decision criteria, and ultimately dictate value in the market place.
Reward me-first cowboys: CEOs and heads of human resources now recognize the enormous performance drag that selfish employees inflict on those above, below and to the sides of them.
The result is that companies are devaluing such self-focused employees in favor of employees with a “high network IQ“. The best companies now reward and promote “enterprise contributors”, employees who are good individual performers, but who also drive and derive performance from those they work with.
Try to do too many things: Many companies chase far too many outcomes spreading resources too thin with organizational politics and short-term pressures leading to tradeoffs that leave the most important opportunities under-resourced.
The best companies encourage good performance by clarifying the key drivers of success, and create momentum and excitement for achieving a few clear goals through team and network engagement, accountability, and reporting.
Hire for immediate IT needs, instead of future IT needs: When CIOs make hiring decisions, they tend to either backfill current positions or focus only on immediate project needs.
They do not think holistically about the changes in the function and what new roles and the crucial IT skills that will soon drive corporate value. CEB research shows that CIOs will need six new types of role, including people more focused on technology integration, interacting with the business, and innovation.
Hold financially-focused business reviews: Research shows that 95% of midsized company data isn’t useful; however, many companies spend so much time overwhelmed by that data that they inadvertently obscure the ability to sense changes in the environment.
Even if they do notice them, they rarely have the decision-making ability needed to adjust and reallocate midstream. The best companies’ finance teams balance “governance and guidance” by doing things such as starting their reviews with the “narrative” about changes in the environment, strategic shifts, and adjustments, and use the financial data only to help understand the story and underscore key points.
Let under-performing bets drain resources: Traders know that “you let the winners run while you cut your losses.” However corporate executives believe that, on average, 13% of projects in their growth portfolio should be shut down and capital reallocated to other opportunities. The problem is that firms fail to shift resources adequately mid-stream.
This issue leads to a sunk cost mentality that steals resources from possible growth bets because executives fail to feel the long-term pain from missed opportunities. Leading firms allow for fast failures, and regularly report on the trade-offs between money spent on current growth initiatives and as yet unfunded growth initiatives to encourage rational decision making.
Treat risk management as a compliance activity: With increasing regulatory enforcement, penalties and fees, and media and public scrutiny over corporate behavior, boards and senior management worry about the effectiveness of their risk functions (compliance, legal, ERM and audit).
At most companies, responsibility for risk management is dispersed across functional silos and there are deep biases against openly discussing potential risks and the business’ risk tolerance. Great companies have embedded risk discipline into strategic and business planning processes, and encourage a strong awareness of basic risk discipline in the next generation of leaders.
Allow siloed sales and operations planning: Only 35% of executives believe their S&OP process is even somewhat effective and much of that failure comes from lack of communication and standardization.
Companies throw away efficiency in favor of sales flexibility, which increases the number of SKUs and the amount of inventory, and ultimately higher costs.
Smart companies clearly communicate the value of a standard, global planning approach and align stakeholder roles and responsibilities back to measurable planning activities.
Permit undisciplined spend management: With more information than ever and increasing pressure to reduce cost, many business leaders are tempted to make buying decisions on their own.
But leading organizations formalize their procurement teams to create a disciplined approach to spend management and minimize rogue buying decisions. These groups are able to manage cost, quality, and timing by defining the procurement policy, streamlining the purchasing process, building sourcing expertise, and better managing supplier relationships.