Strategy is about making tradeoffs. Without making tough choices, a team ends up making a millimeter of progress in a million directions. The only way to win is to generate tremendous momentum toward accomplishing a few things that are truly vital.
That means having shared priorities. Unfortunately, most management teams disagree on their companies’ objectives. A group of researchers at MIT asked management teams at 124 companies to list priorities. Only 27% of the companies studied had more than two-thirds of the top executives on the same page. In other words, 73% of the companies had top leaders who couldn’t agree.
This is why you see a lot of companies talk about the process of innovation in general, but avoid specifics.
When Strategy Fails to Get Results
I teach innovation and run executive training programs. Recently, I had a call with the chief financial officer (CFO) of a multinational based in North America. It’s an electronic device manufacturer with tens of billions of dollars of revenue a year. It has tens of thousands of employees worldwide. The company has placed sustainability and innovation at the core of its new strategy.
I asked the CFO what needed to change about the way the company measured managerial performance. Surely, a new strategy would yield new outcomes. Were there any changes in key performance indicators?
“Nothing. We have rolled out our measurement system over the last decade. I’ve taught it with my people,” he said.
“Sure, we need to do all that sustainability stuff, and maybe a bit of diversity too. But I’ve spoken with our largest shareholders. Seriously, don’t confuse our managers. Please.”
But his boss, the energetic CEO, is set to pursue the new strategy. The human resource department has been tasked with rolling out a massive training program (which is why I have a job) to teach their managers “agility,” “design thinking,” and “diversity management.” The aim is to unleash the potential for innovation among their employees.
Predictably, all the new initiatives will be measured against the existing financial system at some point. At that point, they will all get shut down because their profitability looks lackluster in comparison.
Most Executives Handle Difficult Conversations by Ignoring Them
There is a simple reason why shared commitment is rare in big companies. We all hate arguments, especially in the workplace. Unless it’s about personal compensation, it’s best to avoid a heated debate.
Smart managers know this, and pick their battles carefully. Today’s enemy can be tomorrow’s best friend. They don’t know who they will depend on down the road. So when discussing a company’s strategy, they prefer the status quo. They default to the incremental. They do this to avoid conflicts and build consensus.
And so, the head of sales, the financial controller, the director of operations, and the digital officer can each interpret the same corporate strategy vastly differently. Their departmental priorities don’t align.
But shared goals and a shared viewpoint are needed. They’re the only way to turn a company around. The story of Microsoft shows us so.
What A Committed Innovation Effort Looks Like, And Why You Need It
In 2014, Satya Nadella took over Microsoft. In an open letter to employees, he wrote, “I am 46. I’ve been married for 22 years and we have 3 kids. . . . I buy more books than I can finish. I sign up for more online courses than I can complete. I fundamentally believe that if you are not learning new things, you stop doing great and useful things.”
Under Nadella, Microsoft transitioned to a subscription model. It won big in cloud computing. It ramped up its augmented-reality offerings. It scaled Azure, Microsoft 365 and HoloLens.
You may think Microsoft under Nadella is open-minded, inquisitive, and creative. But in fact, the company is laser-focused. On the explore-exploit spectrum, Microsoft doesn’t aimlessly explore new space. It commits to exploiting its chosen arenas.
My research team at IMD took everything The Wall Street Journal, the standard-bearer of business journalism, has reported about Microsoft. We fed all of it to an algorithm. We wanted to see how Microsoft has talked about itself in interviews. We looked at how journalists have described it over the years.
Well, Microsoft has become far more focused under Nadella than ever before. From what the CEO has said in interviews to the way journalists have reported on what Microsoft did, it’s clear that the company has narrowed its focus to only a few areas. Its employees still conduct a lot of experiments. But they all fall under a few areas and are measured against the new yardstick.
General Electric, in contrast, has kept exploring. We saw GE couldn’t commit itself to a few areas of innovation, and still less to making tangible progress in those.
Figures are compiled by the authors with data from the Wall Street Journal
Doing the Hard Thing About Innovation
The hard part about innovation is scaling up. A company may keep exploring in the name of being open-minded when, in truth, it’s because leaders can’t agree and prioritize. They are avoiding difficult conversations.
But of course, leadership cannot “agree to disagree” forever. As we’ve argued here before, contrary to common belief, a company can, in fact, explore itself into oblivion.
PS. Have you ever initiated a difficult conversation with your own team in order to arrive at a shared viewpoint? What was it like? How did you manage it? Have you seen the top management team at your company do so too? What was the effect? Join the discussion below…