Decentralized and distributed, yet connected and continuous.
All seemingly incompatible elements of the third industrial revolution, also known as the digital revolution, when we moved our analog world first to computers and then to the cloud.
Decades in, we’re learning something new: You cannot overlay digital transformation atop traditional ways of doing business and expect traditional outcomes. Instead, there’s a ripple effect where those conventional ways of making decisions and managing people eventually lead to lackluster results.
As we now enter a fourth industrial revolution, which is even more complex than the last, we’re facing a set of new and unfamiliar challenges.
- Dynamic innovation. The fusion of technologies like artificial intelligence and machine learning, 5G and IoT connectivity, 3D/4D printing, cloud and edge computing, blockchain, and so on, present complex and unfamiliar changes.
- Global integration. The global economy is increasingly interconnected. Unlike just 200 years ago, we now share goods, services, people, and information with a growing list of trade partners. No region is self-sufficient anymore which means we are tied to our trade partners’ prosperity, as well as their scarcity.
- Macro and micro climate crises. Increased human activity, as well as unprecedented population growth (i.e. the 1 billion people we’ve added to the world population in the last 12 years) is disrupting our natural world. How do governments and corporations respond? How do companies create value through an environmental, social, and governance (ESG) proposition?
- Geopolitical unrest. Political polarization all over the world is shifting the political foundations that have been laid in some countries for hundreds of years. And as tensions rise, it’s not just supply chains that stall — so does corporate innovation — and the effects can be long-lasting.
The level of uncertainty regarding our future, not to mention the sheer amount of external and internal variables required to process and make sense of it all, is overwhelming.
Yet the ways we’re thinking about decision making, leading people, and delivering value are rooted in decades-old habits and mindsets. And they’re barely keeping pace. Indeed, as the things we work on evolve, so must the ways in which we work.
Businesses today need a framework that makes strategy fluid and decentralizes decision-making and action to continuously align key players in the organization. We need a Modern Operating Model that puts the focus on execution, ensuring the right data is accessible, at the right time, to the right people, so that those people are equipped to collaboratively create the best possible outcomes.
So where do we begin?
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The age-old challenge of strategy execution
Strategy execution is not a new challenge. But it’s a challenge today for new reasons. Historically, 67% of strategies failed due to poor execution and 83% failed due to faulty assumptions when the strategy was created.
So what is it that makes execution so hard? In a word — complexity.
As a leader, you’re tasked with distilling high level company aspirations down to a handful of priorities, then refining those priorities into clear, actionable steps with accompanying metrics of success. The translation itself is challenging, but you’ve only just begun.
Then there’s complexity in terms of scale and participation.
You’re taking an idea from a small executive group to a much larger population, all with a unique role to play. That demands precise and near-constant communication that elicits buy-in, creates alignment, and empowers people within their spheres of responsibility. When those outcomes aren’t met, you risk frustrating your employees, executing on the wrong things, and under-resourcing your workforce — all of which create both internal and external vulnerabilities.
And then there’s the challenge of logistics, where the “plan” goes from the theoretical realm into the real world. At this phase, you must allocate resources, determine roles and responsibilities, make a plan for responding to challenges, support employee morale, gather data and feedback, and coordinate communication between internal and external teams and partners.
You must also be ready to change course at a moment’s notice. Why? The list of reasons keeps growing. Change can come in the form of traditional people, processes, or resource issues to evolving issues like groundbreaking technology, customer expectations, expanding employee needs, regulatory changes, or political unrest.
“What if your company’s health insurance plan (or your hiring and training practices, or your policy on guns in the workplace) violates a new state law? And what if your efforts to comply with fast-changing laws and regulations are met with condemnations from employees, customers, and investors? These were not questions that business leaders were asking themselves even a few years ago. Now they must.” — MIT Sloan Management Review
Understanding the strategy execution gap
To solve the strategy execution gap in an ever-evolving context, we first must break down the problem into clearly identifiable parts. Historically, organizations had trouble executing strategy when there are roadblocks in six key areas:
The larger an organization is, the more challenging it is to get all key players on the same page and ‘rowing in the same direction’. Yet even the slightest misalignment can result in missed opportunities, wasted time, poor communication, and worst of all — executing the wrong tasks. All of which lead to lost revenue.
For instance, a strategic disagreement at BMW cost the company $10 billion. The stakes are that high. And at most companies, executives agree on only 50-70% of their strategy, leaving the door wide open for misalignment with a cost of up to 25% of revenue.
Alternatively, strategy alignment fuels action, agility, and trust. When a strategic plan is clearly communicated and people are equipped at every step, they are then free to set goals and pursue them knowing they’re working on the right things.
Organizations with prioritization problems often fail to cast a compelling vision. And with 74% of executives saying they ask employees to focus on too many priorities, and 21% admitting their organizations don’t have a set of strategic priorities, this is a huge problem when it comes to strategy execution.
If there’s a prioritization problem, culture starts to crumble and employees end up with too many competing projects and tasks. Their valuable time is spent on activities for which there is little to no return on investment.
Knowing what’s really going on in a business has always been a challenge. But as we’ve discussed, the moving parts today are more distributed than they’ve ever been, yet less tangible. It’s a complicated combination.
The 2022 Observability Forecast report found that technology professionals are eager to accelerate observability capabilities to preempt issues related to application security and ultimately customer experience.
Three in four of the professionals surveyed said their company executives are advocates of observability, with 78% reporting observability as a “key enabler for achieving core business goals,” which indicates that observability is quickly becoming non-negotiable in the C-Suite.
Why? In a knowledge economy, sharing knowledge must be easy and fast. We need something that pushes the right data to the right people at the right time, then reports when people have acted on that data.
We’ve known for a long time that those who adapt well to their changing environment have a better chance of survival. But today, the time we’re allowed to figure out how to adapt is compressed.
An organization’s ability to respond to change quickly and effectively is essential. No longer is there time to run every decision up and down the leadership chain. Flatter, better-aligned organizational structures are winning out over those that are deeply hierarchical.
Hierarchy is not working anymore — agility is.
As the ways in which we work evolve, so do the skills and resources we need. However many strategic plans fail because they were aiming at the wrong target, making assumptions about the market, or overestimating what was actually possible in the span of time.
It’s easy to believe there will be time to develop the skills and resources needed to compete in the marketplace, but that time is not always a given. Failing to plan for skills and competencies presents considerable risk.
Take the film photography company Kodak for instance. The company became a cautionary example of short-sightedness when, despite its position as a market leader, revenues plummeted and ended in bankruptcy.
What happened? Kodak and other companies in the film sector were aware the industry was heading in a digital direction, yet they continued focusing on what worked in the past. They failed to build the capabilities required to operate in a new world.
Defining and documenting the competencies and capabilities a company will need — and when it will need them — is critical.
Finally, company culture is too often an afterthought when it comes to strategy execution. Yet a strong culture reinforces each of the other strategy execution components. When a workforce is engaged they stay aligned, focus on priorities, advocate for observability, create an agile structure, and develop new capabilities.
Weak cultures result in higher labor costs, lower productivity rates, and trouble finding and keeping the best, most creative talent. On the contrary, organizations that work on strengthening company culture see a net profit increase of 85% in the first five years.
New trends impacting the strategy execution gap
It’s hard enough to execute a strategy in a world we’re familiar with where we can predict the results of our actions with some degree of confidence. But in the context of such rapid change, it’s even harder. So what exactly are these “new business challenges” impacting strategy execution?
- Business velocity
- Generational changes
- Decentralized work
- Elevated uncertainty
- Data overload
According to McKinsey, we’ll witness more technological advances in the next 10 years than the last 100. And seeing as autonomous vehicles are right around the corner, while a century ago we didn’t even have power steering — that’s saying a lot.
Meanwhile, market changes are also becoming more dynamic than ever before. The levers that stimulated or cooled an economy 20 years ago aren’t nearly as reliable as they once were. Using the financial tools we’re familiar with will not solve the business problems of the future.
Generational changes in the labor environment
Meanwhile, as Baby Boomers exit the workforce en masse, Gen X and Millennials are replacing them in leadership positions while Gen Z fills out the bottom ranks. And these generations’ coming of age experiences have been markedly different from those of previous generations.
Thanks to internet-based tools and platforms, it’s easier than ever to start your own business and be your own boss. As a result, many individuals who would have once sought to build high-performing careers in large corporations are now trading that idea for more autonomy and the same-sized paycheck.
And with the changes over the last few years, the average employee today seeks more flexibility, autonomy, personal meaning, and social impact in their work than their predecessors did. The idea of “community” is starkly different now than it was for their parents and grandparents when people lived, worked, and socialized with their neighbors. Today one’s community may be distributed all over the world, held together by common values, interests, or business endeavors.
Sending a workforce home with a laptop and an internet connection is not modern. For a distributed environment to actually work, the flow of information has to change, too.
In a knowledge economy, where data reigns supreme, the right information must travel to the right people at the right time. But that’s easier said than done in a world where colleagues work from various time zones, and when the sheer amount of information needed to make a single decision is overwhelming.
The digital revolution dumped an overwhelming amount of new information in our laps. Now we have to figure out how to use it. That’s why the global enterprise data management market will reach nearly $100 billion by the end of 2022.
Yet to date, too much data remains unleveraged. In many companies, the data people need may be present. But too often it’s not connected or useful. Data overload is negatively impacting job performance and increasing stress, which in turn negatively impacts strategy execution.
Covid was a watershed moment, of course. And now, the Russia-Ukraine war has further disrupted the equilibrium of supply and demand, sending shock waves through the world economy.
The compounding effects of these issues has significantly affected consumer demand, the cost of goods, and investment decisions, resulting in a period of inflation — and increasing the likelihood of a recession or stagflation.
And that’s on a global scale. For individual companies, in addition to day-to-day supply chain challenges and cost of goods challenges, it’s nearly impossible to plan for the future, at least beyond the six to nine month mark.
What is the Modern Operating Model
Adapting to these changes isn’t easy…which is a manifestation of the problem itself. We need a means to effectively execute strategic objectives in a fast and constantly changing world.
That’s where the Modern Operating Model comes in. Based on a few core beliefs, the Modern Operating Model instills the following mindset:
- Team priorities should be connected to top-line objectives
- Decision-making should be decentralized
- Organizations should be transparent and trustworthy
- Business should be outcome-focused
- Teams should be fast and agile
- Feedback loops should be compressed
Connecting priorities to top-line objectives
With clear lines of sight to the top, workers can spend less time working on anything misaligned with company objectives. Not only does alignment produce faster results, employees are also able to see the impact of their work. And more importantly, see why their work matters. While there is no shortage of work to be done in any organization, alignment ensures we’re working on the right work.
Data and insights are only valuable when you have access to them with enough time to change outcomes. If the data is delivered too late, you may as well not have it at all.
Yet the volume of decisions that need to be made on a daily basis in most organizations is much, much more than any one executive team can process and make sense of. That is why the top-down model of the past is not the way forward.
In the Modern Operating Model, as data is unlocked from silos and the right information is put in the hands of decision makers, two things happen: decision-making time goes down and decision-making quality goes up.
Creating transparent and trustworthy organizations
A culture built on integrity and transparency is the only way to empower employees to perform at their highest levels. With the focus on outcomes, as well as clear ownership and alignment, there’s a decrease in time spent finger pointing and deciding who’s to blame. In turn, people want to show up to work, to solve problems together, and communicate when things start to drift off course.
Building outcome-focused businesses
During the assembly line era, we learned to obsess over inputs. The outputs took care of themselves. But today, it doesn’t work that way. Outcomes are evidence. Activities — those day-to-day tasks being executed by individuals in your organization — do matter; but they will never, on their own, indicate how close you are to meeting your goals. Moving beyond opinions, egos, and activities to a focus on results is the only way for modern businesses to succeed.
Creating fast and agile teams
Excellence is never achieved without practice. And practice entails trying, failing, learning, then trying again. Today’s businesses need to establish an operating cadence that allows the organization to manage fast, then to quickly adjust as needed. Since most teams spend their time finding solutions to new problems, encouraging a "test and iterate" mindset empowers people to move faster without fear of failing.
Compressing feedback loops
We can’t make good decisions without good information. Today, knowledge drives everything. By collapsing feedback loops, and getting data into the hands of decision makers at the time they need it, we’re able to dramatically reduce the time it takes to pivot or persevere. And by removing unnecessary hurdles, we empower more people to make decisions when they have the right insights — instead of only informing a select few at the top.
The 5 core components of the Modern Operating Model
So how do you make the Modern Operating Model a reality in your organization? Success requires implementing five major components. Each depends on the others, and we’ll examine them in sequence.
- Define the destination
- Change the business
- Run the business
- Do the work
- Assess & adapt
Component 1: Define the destination
In order to be aligned, your team needs to know where they’re going, why it matters, what they need to accomplish, and how to get there. In short, they need a defined destination. It’s key for building trust, resiliency, and focus.
A well-defined destination is made up of a common mission and cultural values, a company vision, and an overarching strategy.
Mission and cultural values
Having a shared perspective or mission binds people together powerfully. It’s also a strong motivator of engagement. Gen Z’s and Millennials in particular seek out organizations that promote purpose and conscious culture.
Vision shapes priorities and refines strategic focus. It yields better decisions about relevant work, potential opportunities, and more. If you want your team to work as a unified whole, it’s important to give them a shared picture of the future.
Your strategy is the critical link between your defined destination and the active phases of carrying it out. It provides your organization with the practical aspects of the plan.
Component 2: Change the business
Next up: determining what needs to change (objectives) and how to get people moving together in that direction (alignment).
Set strategic objectives and OKRs
Without objectives, strategy is vague — your goal is to clarify it, quantify it, and fit it to a timeline. Break down the larger plan into tangible steps that can be concisely communicated. Establish OKRs (objectives and key results), which define the specific outcomes for each part of the organization.
Strategic objectives and OKRs impact strategy execution by:
- Supplying ambitious, achievable goals
- Building vertical alignment so each person works toward the strategic objectives
- Enabling horizontal alignment, increasing collaboration, and highlighting interdependencies
- Boosting efficiency, prioritization, engagement, and focus through individual involvement in goal-setting
- Creating an outcome-focused (rather than activity-focused) culture
Plan the execution
With strategic objectives and OKRs established, plan the governance and execution. Spheres to consider in this phase:
- Culture design (transparent, trusting, consistent)
- Modes of working (remote, hybrid, etc.)
- Processes and playbooks
- Policies and procedures
- Tools and technology
- Resource allocation
- Workflows and project management
- Communication plan (from rollout to final review)
Success is won or lost in the planning stage.
Component 3: Run the business
Once the plan is in motion, you need data and feedback — that means internal and external monitoring. Together, OKRs and KPIs can show you what’s going on and how it affects progress toward strategic goals.
Pull KPIs (for employee performance insight) from a connected technology stack to support business observability. Then set your KPIs to continuously update alongside your OKRs. OKRs provide quantitative data in the form of key results and confidence assessments toward meeting objectives. They also offer qualitative data through weekly OKR reviews and quarterly retrospectives.
External monitoring is critical too. Observe your business environment for threats, shifts, and opportunities. It might mean keeping an eye on unfolding megatrends or staying attuned to the latest startup.
Together, internal and external monitoring can shorten learning feedback loops and strengthen business observability. That means more accurate decisions when it comes to adapting your strategic execution.
Component 4: Do the work
Think about the basics: completing tasks, inputs, transformations, and outputs. Those agenda items remain, but under a Modern Operating Model, the atmosphere is different.
What should it look like?
- Fully engaged employees, expending discretionary effort
- Collaboration and communication between teams
- Continuous learning and feedback (with regular OKR reviews and KPI observability)
- Ownership and accountability through transparency
- Data-driven decisions
- Emphasis on outcomes, rather than tasks and activities
- Growth mindset that embraces failure and experimentation
- Merit and values based recognition and rewards
This ideal state of work won’t happen overnight, but the components of a Modern Operating Model are designed to optimize your strategy execution over time, getting you closer to the goal every day.
Component 5: Assess & adapt
Good business monitoring will set you up with the right data and information. From there, you’ll assess, gather insights, distill the narrative, and then adapt your strategic execution accordingly. The goal is to get knowledge for decision making.
At the macro level, you may be navigating tumultuous economic, political, and social conditions, adapting to innovation, and ESG (environment, social, and governance) concerns. The hope is that you’ll be able to make smart changes to your destination and how to get there mid-process.
At the micro level, routinely assess and adjust for:
- Efficiency and effectiveness: Optimize even en route
- OKR progress: Search the data for underperformance, determine the cause, and decide whether the current OKRs set are still achievable and critically relevant
- Insight and foresight (as opposed to hindsight): Look for warning signs through AI and KPI data for things like tech issues and business challenges to high churn rate among a customer group
- Internal opportunities: Look for trends that lead to new opportunities like customer support data that may reveal an unmet or emerging customer need
A new way of thinking for a new set of problems
Guiding your organization through digital transformation is like untying a knot on the end of a ball of yarn — doing so frees you, but it also starts to unravel everything else.
Likewise, organizational leaders focused on digital transformation have freed their companies to compete in the marketplace of the future. Without it, many will not survive.
But the hard truth is, you can’t solve 21st century problems using 20th century thinking. And you cannot overlay digital transformation on top of traditional ways of doing business. The entire operating model must change.
The Modern Operating Model is a set of principles and practical tools that guide enterprise executives to operational excellence using data and insights to make better and faster decisions. Adopting the Modern Operating Model involves a culture shift, new mindsets, and new habits.
And this model is not just possible — it’s critical to the future of work.
Quantive is your bridge between strategy and execution. Founded on the objectives and key results (OKR) methodology, our Strategy Execution Platform is where businesses plan successful strategy, focus and align teams to it, and stay on the leading edge of progress.
As your company looks to achieve the best possible results, you need a modern approach to run your business and change your business. The Modern Operating Model brings strategy, teams, and data together to help make decisions faster, optimize operations, and drive better business outcomes.
Whether you’re a large enterprise facing competitive disruption or a small business leading the innovative charge, Quantive helps gets you where you want to go.
Ready to achieve the best possible? Start using Quantive for free.