The 5 Execution Habits of Great Companies

1. FROM INC. NAVIGATOR
The 5 Execution Habits of
Great Companies
FEBRUARY 2012
 iBooks Author

2. After working with over 500 fast growth companies in the past two years we observed
that great companies possess something other companies lack: a leadership team that
gets the right things done with effective execution habits. Harvard Business School
Press states that over 90% of strategies fail. The authors describe in their study that
“the ability to execute strategy was more important than the strategy itself.” Failure to
execute not only lowers performance, it also prevents a company from breaking
through a perilous growth inflection point. We call that point No Man’s Land.
Why do almost all leadership teams struggle with strategy and execution? It starts
with Blind Spots.
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3. Blind Spots Almost all teams are out of sync on critical issues to some de-
gree. Although most CEOs are surprised at the degree of mis-
Most CEOs experience the same blind spots from incorrect as- alignment, most acknowledge the problem. They just don’t
sumptions when it comes to strategy. Chief Executives often know how to tackle it.
believe their leadership teams are accountable for perform-
ance. We have observed a number of consistent CEO blind
spots. For example:
Teams out of sync waste time, energy and resources as the in-
dividual members plow ahead without a united focus. We’ve
seen that teams aligned on the top 3-5 priorities generate at
least a 20% increase in performance.
What
are your top 3-5 company priorities? Do you assume your At some point, a growing company must transition from a
team agrees that these are most important things to focus on loyalty-based culture to a performance-based culture. Ac-
now? Would they consider your priorities clear enough to countability to performance is uncommon. Team accountabil-
guide action? Would they state that the team is doing the right ity, where members communicate routinely and know the
things to achieve the right results? other members’ degree of execution, is rare. Is your
2
© Blind Spots, incnav.com
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4. team loyalty-based or performance-driven? Would your team
members agree that you track individual results? No Man’s Land
According to David Thomson, author of Blueprint to a Billion,
there are two inflection points where companies experience
the greatest failure rate.
Companies enter No Man’s Land as they grow past startup
and enter “adolescence”. Figure 1 depicts the disturbing fact
that over 90% fail to survive No Man’s Land and achieve scale.
It’s a period of strategic confusion and inadequate resources,
as Doug Tatum describes:
No matter how good their core business concepts, the compa-
nies I’ve seen have been pushed by growth into an uncomfort-
able situation where the resources and approaches that had
allowed the firm to grow in the first place suddenly became
What is your company’s unique competitive advantage? Team
insufficient and even an obstacle to further growth. Custom-
members’ responses most often vary when asked to describe
ers went away dissatisfied, and the entrepreneur in question
their company’s value proposition. If the leadership team is
felt disoriented, as if he or she were gradually and inexplica-
confused on the reason to buy, how must their target market
bly losing control.
feel?
These and other blind spots are symptoms of an inevitable, un-
avoidable growth transition where over 90% of companies *No Man’s Land was recognized in the 2011 book, The 100 Best Books of All Time
by Jack Covert and Tom Sattersten.
fail. CEOs rarely see it coming, and usually don’t know how to
survive it. Inc. Navigator Chairman, Doug Tatum, describes
this inflection point as No Man’s Land*, the stage where com-
panies become too big to be small and too small to be big.
incnav.com 3
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5. Figure 1
Figure 1
Source, David
G. Thomson,
Blueprint to a
Million. Re-
search pub-
lished by Dr.
David Birch
iv
 iBooks Author

6. In No Man’s Land, growing companies experience difficul- Profitable Products
ties in four distinct managerial categories:
Customer Promises
Market:
Cost of Customer Acquisition
No Man’s Land market issues center around the relationship
Innovation
between company and client. Companies often find it diffi-
cult to identify their most profitable clients or the cost of ac- Question: does your company have a clear and compelling
quiring a profitable customer. They also have a tendency to Value Proposition that it can fulfill?
make promises to customers that they are only 70% able to
keep: Management:
It is so important to decide carefully which promises to ex- It’s tough to make changes that involve replacing loyal staff;
tend to which customers. The correct decisions will keep but CEOs must make strategic hires and fires when necessary
you growing through No Man’s Land, while the wrong ones to put the right people in the right positions. These experi-
will kill you. An entrepreneur might make some promises enced individuals will lead the company through No Man’s
that lead to stadiums full of new customers, whereas others Land:
might lead to dead ends, tangling up the company with
If someone tells entrepreneurs that they need to let a close
promises meaningful to only a few clients or customers.
friend go, they typically react defensively, acting as if it were
The key is for you as the leader to make the right decisions
somehow their own fault that things have gotten as bad as
that lead to a growing and profitable customer base. (No
they have. They lose confidence in their own decision-making
Man’s Land)
process. Yet entrepreneurs must realize that the transition to
Market Issues: outside management is a normal progression; it has nothing
to do with entrepreneurs or the particular people they’ve
Customer Satisfaction brought with them on the journey thus far. As a business
changes, it requires people with different skill sets. The entre-
Gross Margin
preneur needs to match the people in charge with the skills
Product Commoditization the business needs; otherwise the business will fail... The
Founder must hire at the top first, not the middle to navigate
Profitable Clients
through No Man’s Land. (No Man’s Land)
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7. To make it through No Man’s Land, firms must develop a
new economic model that allows them to provide its value
Management Issues:
proposition at scale and earn a profit. In addition, the firm
CEO Role must constantly analyze its performance in light of this
model to assure that the company will achieve sustained prof-
Execution itability. (No Man’s Land)
Reports Model Issues:
Priorities Key Metrics
Experience New Products
Agility Infrastructure for Growth
Alignment Profitability at Scale
Accountability Systems
Talent Competition
Question: does your company have the right people in the Strategy
right positions?
Forecasting
Model:
Growth Initiatives
One memorable Superbowl commercial a few years ago
showed a young group of entrepreneurs throwing the virtual Question: Does your company’s financial model forecast deci-
switch to open their online store. The first orders produced sions before you make them?
hoo-ahs and high fives; but when the order counter started
spinning like a pinwheel in a hurricane, their smiles turned up-
side down. Many companies in No Man’s Land can’t make
money at higher volumes:
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8. Money: Exit Strategy
Many rapid-growth companies roll in profits but have no cash Value
on hand; worse, they have more cash going out than coming
Capital Allocation
in. Private Equity firms are less interested in a company’s pro-
formas than they are the company’s ability to reduce the risk ROI on Assets and People
on their investment.
Question: Do you know how to reduce your company’s great-
Most companies enter No Man’s Land without enough capi- est risk?
tal to leave it. If and when they fail, “undercapitalization” is
seen as the cause. Yet undercapitalization is not the cause but Teams out of sync on the No Man’s Land issues experience
rather a fatal symptom. The true cause is a company’s inabil- great difficulty getting the right things done. Great companies
ity to raise capital because it is perceived as too risky. To have teams that maintain effective execution habits so they
raise money, firms must focus on reducing their real and per- can break through No Man’s Land.
ceived risk by addressing the issues described in the previous
three chapters. Yet even with the appropriate measures in
place, transition through No Man’s Land is difficult because
The 5 Execution Habits of
of institutional barriers that exist in the capital markets.
Hang on—it’s going to be a wild ride. (No Man’s Land)
Great Companies
Money Issues: Habit 1: Get radically objective about the business
Capital “Embrace the brutal facts,” as author, Jim Collins states.
Great companies ask tough questions from the No Mans Land
Compensation categories to get an accurate picture on the extent of team mis-
alignment and the degree of urgency on each issue. Tough
Reducing Risk
questions usually reveal tough decisions that must be made;
Forecasting decisions that stir the pudding but can also throttle the com-
pany through No Man’s Land.
Speed Limit
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9. Habit 2: Set a clear direction by focusing on a handful stances, outside information, and the evolving interaction
of priorities with their environment. By using this process the team
adapts and learns in order to choose their next move. In other
More than 5 priorities result in no priorities. Strategy can be
words, they remain “agile” at all times. The Wall Street Jour-
simple. Teams can focus and when they are responsible for a
nal described the need or a company to remain flexible:
handful of priorities with actionable points and deadlines.
Now, even though the economy is slowly picking up, those
Habit 3: Align the team through routine communica-
fresh habits aren’t fading. “This downturn has changed the
tion
way we will think about our business for many years to
We have observed that over 98% of teams are out of sync on come,” says Steve Odland, Office Depot’s chairman and chief
the No Man’s Land issues. On the other hand, companies expe- executive.
rience at least a 20% increase in performance when teams are
Walt Shill, head of the North American management consult-
aligned and focused on the right priorities. Aligned teams can
ing practice for Accenture Ltd., is even more blunt: “Strat-
stay in sync with a routine review of priorities and key per-
egy, as we knew it, is dead,” he contends. “Corporate clients
formance indicators.
decided that increased flexibility and accelerated decision
Habit 4: Keep score to hold each other accountable making are much more important than simply predicting the
future.”
As stated previously, team accountability is rare; but it is at-
tainable. A simple dashboard that includes priorities, as- From: Strategic Plans Lose Favor, Wall Street Journal,
signed action points with deadlines, and metrics will provide 1.25.10
the catalyst for team interaction. Offering the team an oppor-
Great companies have leadership teams that adapt and learn
tunity to vote on the priorities and action points can also fuel
from their decisions. They are able to keep their strategy sim-
accountability.
ple and remain focused on the top handful of priorities.
Habit 5: Adapt and learn quickly They’ve developed the habits to execute.
Inc. Navigator (www.incnav.com) is an online set of tools that makes
Our nation’s Special Forces utilize the same strategic decision
team alignment and accountability a routine (see next page). Contact
process on every battlefield around the world. The foundation us for a free overview on how your team can develop the right routine
of their strategy is based on the team’s ability to make a deci- at brent@incnav.com or 407.448.9477.
sion and then quickly learn from their unfolding circum-
8
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10. Inc. Navigator
Make team alignment and accountability your routine
Scoreboard Compass
One Page Strategy Dashboard Quarterly Strategic Diagnostic
to simply communicate strategy and track its to ask strategic questions about the business and to
performance regularly get radically objective
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