#197  from R&D Innovator Volume 5, Number 1          January 1996

To Be Competitive, You Must Keep Promises
by Dave Ulrich, Ph.D.

Dr. Ulrich is professor of business administration, University of Michigan, Ann Arbor.  He consults with companies and does research on how companies formulate competitive strategies, and how they integrate human resources into strategic goals.  Business Week listed him as the top educator in human resources. He is co-author of several books including Passport to the Future: Creating a Boundaryless Organization (1995, Jossey-Bass, San Francisco). 

What would happen if your best friend made promises, but never keep them?  How long would it take before cynicism, fatigue, and enmity come between you and your friend?

Strategy as Promises

Business strategies may be seen as corporate promises.  Strategic promises may be made to multiple stakeholders.  To employees, promises may be made about work opportunities, management actions, markets served, or value created.  To investors, promises may be made about profitability, performance, or shareholder value.

Too often, business strategies are more like former friends than best friends.  When strategic promises go unfulfilled, employees, customers, and investors become cynical.  When relationships break, new friends replace old ones.  When strategic promises aren’t implemented, stakeholders find new ways to accomplish their needs.  For employees, this means that when choices arise, good employees may go elsewhere.  For customers, when other suppliers are viable, they will use them.  For investors, those who meet strategic promises will have capital flow to them.

We cannot be best friends with everyone—great friendships are focused relationships where promises are made and kept.  Likewise, strategies focus resources and may make promises that go unfilled.  More is promised than delivered; more is said than done; more is pledged than completed; more is committed than accomplished.

Strategic failures, like broken promises, need not occur.  From strategies cleverly conceived and delivered, failure can be replaced with success; aspirations can be turned into accomplishments; and promises can be replaced with capabilities.

Turning Strategy into Results

In the last few years, a number of us who study competitiveness have begun to identify and learn the process by which executives turn strategies into results.  We’ve learned how to replace broken strategic promises with deliverable commitments through building competitive organizations.

Competitive organization starts with competitiveness—this becomes the ultimate goal of any organizational activity.  If what’s done inside the firm doesn’t add value to customers outside the firm, the wrong things are being done.  Competitiveness comes not just from strategies, which make promises about how resources will be allocated, but also from the organizational activities necessary to fulfill those promises.

Creating Capabilities

With strategy in place, competitive organizations focus on building capabilities that turn strategies into competitive results.  Through working with many firms, we’ve begun to point to a set of critical capabilities which managers must engender into their company if they’re to keep the promises made in the strategy.  These capabilities represent the bundle of individual competencies and organizational processes within the firm.  These capabilities are those organizational activities necessary to accomplish strategy.  If executives and their managers can build capabilities, they shift strategy from a formulation to implementation two-step process to a formulation-capability-implementation three-step process.  This additional step helps fulfill strategic promises.

We identified four critical capabilities that help keep strategic promises.

First, executives and managers must have a capacity for change; they must be able to adapt quickly and readily to new and often unforeseen conditions.  Building capacity for change requires that executives learn how to adapt quickly, to experiment, to innovate, and be willing to take risks.  Capacity for change also means going through a disciplined and explicit change process—rigorously and regularly.  Capacity for change exists when the organization changes occur as rapidly as the external environment changes, when systems and processes which seem embedded within the hierarchy of the firm are broken loose and adapted.

Second, executives and managers must have the ability to work across boundaries; to share ideas and insights from one unit to another with little friction or difficulty.  In our work on creating the boundaryless organization, we’ve identified four boundaries that must be crossed.  Vertical boundaries need to be removed between executives and operational employees so that every employee shares the vision and direction of the firm.  Horizontal boundaries need to be removed between functions, business units, or other groups to ensure a common firm-wide focus.  External boundaries need to be removed between a firm and the value chain in which it operates to have a free flow of information and ideas across a value chain.  Geographic boundaries need to be removed so globalization becomes more than a buzzword.

Third, executives and managers must have the ability to learn rapidly, which is the process of generating and generalizing ideas that impact quickly throughout an organization.  Rapid learning requires that environmental signals turn quickly into organizational initiatives which are leveraged through the organization culture and management practice and which add value to customers.  Rapid learning draws on past experiences to reduce the cycle time of innovation and change.

And finally, executives and managers must have the ability to engage in systems thinking, doing organizational diagnosis and fundamental culture change as part of their ongoing management process.  Systems thinking engages employees in placing their work in the context of a broader management system.

When executives and managers learn how to instill these capabilities, they’re able to turn strategic promises into business realities.  Which of these capabilities require strengthening in your organization.

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