If you were looking for teams to rig for success, a call center would be a good place to start. The skills required for call center work are easy to identify and hire for. The tasks involved are clear-cut and easy to monitor. Just about every aspect of team performance is easy to measure: number of issues resolved, customer satisfaction, average handling time (AHT, the golden standard of call center efficiency). And the list goes on.

Why, then, did the manager at a major bank’s call center have such trouble figuring out why some of his teams got excellent results, while other, seemingly similar, teams struggled? Indeed, none of the metrics that poured in hinted at the reason for the performance gaps. This mystery reinforced his assumption that team building was an art, not a science.

The truth is quite the opposite. At MIT’s Human Dynamics Laboratory, we have identified the elusive group dynamics that characterize high-performing teams—those blessed with the energy, creativity, and shared commitment to far surpass other teams. These dynamics are observable, quantifiable, and measurable. And, perhaps most important, teams can be taught how to strengthen them.

Looking for the “It Factor”
When we set out to document the behavior of teams that “click,” we noticed we could sense a buzz in a team even if we didn’t understand what the members were talking about. That suggested that the key to high performance lay not in the content of a team’s discussions but in the manner in which it was communicating. Yet little of the research on team building had focused on communication. Suspecting it might be crucial, we decided to examine it more deeply.

For our studies, we looked across a diverse set of industries to find workplaces that had similar teams with varying performance. Ultimately, our research included innovation teams, post-op wards in hospitals, customer-facing teams in banks, backroom operations teams, and call center teams, among others.

We equipped all the members of those teams with electronic badges that collected data on their individual communication behavior—tone of voice, body language, whom they talked to and how much, and more. With remarkable consistency, the data confirmed that communication indeed plays a critical role in building successful teams. In fact, we’ve found patterns of communication to be the most important predictor of a team’s success. Not only that, but they are as significant as all the other factors—individual intelligence, personality, skill, and the substance of discussions—combined.
Patterns of communication, for example, explained why performance varied so widely among the seemingly identical teams in that bank’s call center. Several teams there wore our badges for six weeks. When my fellow researchers (my colleagues at Sociometric Solutions—Taemie Kim, Daniel Olguin, and Ben Waber) and I analyzed the data collected, we found that the best predictors of productivity were a team’s energy and engagement outside formal meetings. Together those two factors explained one-third of the variations in dollar productivity among groups.

Drawing on that insight, we advised the center’s manager to revise the employees’ coffee break schedule so that everyone on a team took a break at the same time. That would allow people more time to socialize with their teammates, away from their workstations. Though the suggestion flew in the face of standard efficiency practices, the manager was baffled and desperate, so he tried it. And it worked: AHT fell by more than 20% among lower-performing teams and decreased by 8% overall at the call center. Now the manager is changing the break schedule at all 10 of the bank’s call centers (which employ a total of 25,000 people) and is forecasting $15 million a year in productivity increases. He has also seen employee satisfaction at call centers rise, sometimes by more than 10%.

Any company, no matter how large, has the potential to achieve this same kind of transformation. Firms now can obtain the tools and data they need to accurately dissect and engineer high performance. Building great teams has become a science. Here’s how it works.
Overcoming the Limits of Observation
When we sense esprit de corps, that perception doesn’t come out of the blue; it’s the result of our innate ability to process the hundreds of complex communication cues that we constantly send and receive.

But until recently we had never been able to objectively record such cues as data that we could then mine to understand why teams click. Mere observation simply couldn’t capture every nuance of human behavior across an entire team. What we had, then, was only a strong sense of the things—good leadership and followership, palpable shared commitment, a terrific brainstorming session—that made a team greater than the sum of its parts.

Recent advances in wireless and sensor technology, though, have helped us overcome those limitations, allowing us to measure that ineffable “It factor.” The badges developed at my lab at MIT are in their seventh version. They generate more than 100 data points a minute and work unobtrusively enough that we’re confident we’re capturing natural behavior. (We’ve documented a period of adjustment to the badges: Early on, people appear to be aware of them and act unnaturally, but the effect dissipates, usually within an hour.) We’ve deployed them in 21 organizations over the past seven years, measuring the communication patterns of about 2,500 people, sometimes for six weeks at a time.

With the data we’ve collected, we’ve mapped the communication behaviors of large numbers of people as they go about their lives, at an unprecedented level of detail. The badges produce “sociometrics,” or measures of how people interact—such as what tone of voice they use; whether they face one another; how much they gesture; how much they talk, listen, and interrupt; and even their levels of extroversion and empathy. By comparing data gathered from all the individuals on a team with performance data, we can identify the communication patterns that make for successful teamwork.

Those patterns vary little, regardless of the type of team and its goal—be it a call center team striving for efficiency, an innovation team at a pharmaceutical company looking for new product ideas, or a senior management team hoping to improve its leadership. Productive teams have certain data signatures, and they’re so consistent that we can predict a team’s success simply by looking at the data—without ever meeting its members.

We’ve been able to foretell, for example, which teams will win a business plan contest, solely on the basis of data collected from team members wearing badges at a cocktail reception. (See “Defend Your Research: We Can Measure the Power of Charisma,” HBR January–February 2010.) We’ve predicted the financial results that teams making investments would achieve, just on the basis of data collected during their negotiations. We can see in the data when team members will report that they’ve had a “productive” or “creative” day.

The data also reveal, at a higher level, that successful teams share several defining characteristics:

1. Everyone on the team talks and listens in roughly equal measure, keeping contributions short and sweet.

2. Members face one another, and their conversations and gestures are energetic.

3. Members connect directly with one another—not just with the team leader.

4. Members carry on back-channel or side conversations within the team.

5. Members periodically break, go exploring outside the team, and bring information back.

The data also establish another surprising fact: Individual reasoning and talent contribute far less to team success than one might expect. The best way to build a great team is not to select individuals for their smarts or accomplishments but to learn how they communicate and to shape and guide the team so that it follows successful communication patterns.
The Key Elements of Communication
In our research we identified three aspects of communication that affect team performance. The first is energy, which we measure by the number and the nature of exchanges among team members. A single exchange is defined as a comment and some acknowledgment—for example, a “yes” or a nod of the head. Normal conversations are often made up of many of these exchanges, and in a team setting more than one exchange may be going on at a time.

The most valuable form of communication is face-to-face. The next most valuable is by phone or videoconference, but with a caveat: Those technologies become less effective as more people participate in the call or conference. The least valuable forms of communication are e-mail and texting. (We collect data on those kinds of communication without using the badges. Still, the number of face-to-face exchanges alone provides a good rough measure of energy.) The number of exchanges engaged in, weighted for their value by type of communication, gives each team member an energy score, which is averaged with other members’ results to create a team score.

Energy levels within a team are not static. For instance, in my research group at MIT, we sometimes have meetings at which I update people on upcoming events, rule changes, and other administrative details. These meetings are invariably low energy. But when someone announces a new discovery in the same group, excitement and energy skyrocket as all the members start talking to one another at once.

The second important dimension of communication is engagement, which reflects the distribution of energy among team members. In a simple three-person team, engagement is a function of the average amount of energy between A and B, A and C, and B and C. If all members of a team have relatively equal and reasonably high energy with all other members, engagement is extremely strong. Teams that have clusters of members who engage in high-energy communication while other members do not participate don’t perform as well. When we observed teams making investment decisions, for instance, the partially engaged teams made worse (less profitable) decisions than the fully engaged teams. This effect was particularly common in far-flung teams that talked mostly by telephone.

The third critical dimension, exploration, involves communication that members engage in outside their team. Exploration essentially is the energy between a team and the other teams it interacts with. Higher-performing teams seek more outside connections, we’ve found. We’ve also seen that scoring well on exploration is most important for creative teams, such as those responsible for innovation, which need fresh perspectives.

To measure exploration, we have to deploy badges more widely in an organization. We’ve done so in many settings, including the MIT Media Lab and a multinational company’s marketing department, which comprised several teams dedicated to different functions.

Our data also show that exploration and engagement, while both good, don’t easily coexist, because they require that the energy of team members be put to two different uses. Energy is a finite resource. The more that people devote to their own team (engagement), the less they have to use outside their team (exploration), and vice versa.

But they must do both. Successful teams, especially successful creative teams, oscillate between exploration for discovery and engagement for integration of the ideas gathered from outside sources. At the MIT Media Lab, this pattern accounted for almost half of the differences in creative output of research groups. And in one industrial research lab we studied, it distinguished teams with high creativity from those with low creativity with almost 90% accuracy.

Beyond Conventional Wisdom
A skeptic would argue that the points about energy, engagement, and exploration are blindingly obvious. But the data from our research improve on conventional wisdom. They add an unprecedented level of precision to our observations, quantify the key dynamics, and make them measurable to an extraordinary degree.

For example, we now know that 35% of the variation in a team’s performance can be accounted for simply by the number of face-to-face exchanges among team members. We know as well that the “right” number of exchanges in a team is as many as dozens per working hour, but that going beyond that ideal number decreases performance. We can also state with certainty that in a typical high-performance team, members are listening or speaking to the whole group only about half the time, and when addressing the whole group, each team member speaks for only his or her fair share of time, using brief, to-the-point statements. The other half of the time members are engaging in one-on-one conversations, which are usually quite short. It may seem illogical that all those side exchanges contribute to better performance, rather than distract a team, but the data prove otherwise.

The data we’ve collected on the importance of socializing not only build on conventional wisdom but sometimes upend it. Social time turns out to be deeply critical to team performance, often accounting for more than 50% of positive changes in communication patterns, even in a setting as efficiency-focused as a call center.

Without the data there’s simply no way to understand which dynamics drive successful teams. The managers of one young software company, for instance, thought they could promote better communication among employees by hosting “beer meets” and other events. But the badge data showed that these events had little or no effect. In contrast, the data revealed that making the tables in the company’s lunchroom longer, so that strangers sat together, had a huge impact.

A similarly refined view of exploration has emerged in the data. Using fresh perspectives to improve performance is hardly a surprising idea; it’s practically management canon. But our research shows that most companies don’t do it the right way. Many organizations we’ve studied seek outside counsel repeatedly from the same sources and only at certain times (when building a business case, say, or doing a postmortem on a project). The best-performing and most creative teams in our study, however, sought fresh perspectives constantly, from all other groups in (and some outside) the organization.
How to Apply the Data
For management tasks that have long defied objective analysis, like team building, data can now provide a foundation on which to build better individual and team performance. This happens in three steps.

Step 1: Visualization. In raw form the data don’t mean much to the teams being measured. An energy score of 0.5 may be good for an individual, for example, but descriptions of team dynamics that rely on statistical output are not particularly user-friendly. However, using the formulas we developed to calculate energy, engagement, and exploration, we can create maps of how a team is doing on those dimensions, visualizations that clearly convey the data and are instantly accessible to anyone. The maps starkly highlight weaknesses that teams may not have recognized. They identify low-energy, unengaged team members who, even in the visualization, look as if they’re being ignored.

When we spot such people, we dig down into their individual badge data. Are they trying to contribute and being ignored or cut off? Do they cut others off and not listen, thereby discouraging colleagues from seeking their opinions? Do they communicate only with one other team member? Do they face other people in meetings or tend to hide from the group physically? Do they speak loudly enough? Perhaps the leader of a team is too dominant; it may be that she is doing most of the talking at meetings and needs to work on encouraging others to participate. Energy and engagement maps will make such problems clear. And once we know what they are, we can begin to fix them.

Exploration maps reveal patterns of communication across organizations. They can expose, for instance, whether a department’s management is failing to engage with all its teams. Time-lapse views of engagement and exploration will show whether teams are effectively oscillating between those two activities. It’s also possible to layer more detail into the visualizations. We can create maps that break out different types of communication among team members, to discover, for example, if teams are falling into counterproductive patterns such as shooting off e-mail when they need more face time.

Step 2: Training. With maps of the data in hand, we can help teams improve performance through iterative visual feedback.

Work we did with a multicultural design team composed of both Japanese and American members offers a good example. (Visual data are especially effective at helping far-flung and multilingual groups, which face special communication challenges.) The team’s maps (see the exhibit “Mapping Communication Improvement”) showed that its communication was far too uneven. They highlighted that the Japanese members were initially reluctant to speak up, leaving the team both low energy and unengaged.

Every day for a week, we provided team members a visualization of that day’s work, with some light interpretation of what we saw. (Keep in mind that we didn’t know the substance of their work, just how they were interacting.) We also told them that the ideal visualization would show members contributing equally and more overall contributions. By day seven, the maps showed, the team’s energy and engagement had improved vastly, especially for the two Japanese members, one of whom had become a driving force.
The notion that visual feedback helps people improve quickly shouldn’t be surprising to anyone who has ever had a golf swing analyzed on video or watched himself deliver a speech. Now we have the visual tools to likewise improve teamwork through objective analysis.

Step 3: Fine-tuning performance. We have seen that by using visualizations as a training tool, teams can quickly improve their patterns of communication. But does that translate to improved performance? Yes. The third and final step in using the badge data is to map energy and engagement against performance metrics. In the case of the Japanese-American team, for example, we mapped the improved communication patterns against the team’s self-reported daily productivity. The closer the patterns came to those of our high-performance ideal, the higher productivity rose.

We’ve duplicated this result several times over, running similar feedback loops with teams aiming to be more creative and with executive teams looking for more cohesiveness. In every case the self-reporting on effectiveness mapped to the improved patterns of communication.

Through such maps, we often make important discoveries. One of the best examples comes from the bank’s call center. For each team there, we mapped energy and engagement against average handling time (AHT), which we indicated with color. (See the exhibit “Mapping Communication Against Performance.”) That map clearly showed that the most efficient work was done by high-energy, high-engagement teams. But surprisingly, it also showed that low-energy, low-engagement teams could outperform teams that were unbalanced—teams that had high energy and low engagement, or low energy and high engagement. The maps revealed that the manager needed to keep energy and engagement in balance as he worked to strengthen them.
If a hard metric like AHT isn’t available, we can map patterns against subjective measures. We have asked teams to rate their days on a scale of “creativity” or “frustration,” for example, and then seen which patterns are associated with highly creative or frustrating days. Teams often describe this feedback as “a revelation.”

Successful tactics. The obvious question at this point is, Once I recognize I need to improve energy and engagement, how do I go about doing it? What are the best techniques for moving those measurements?

Simple approaches such as reorganizing office space and seating are effective. So is setting a personal example—when a manager himself actively encourages even participation and conducts more face-to-face communication. Policy changes can improve teams, too. Eschewing Robert’s Rules of Order, for example, is a great way to promote change. In some cases, switching out team members and bringing in new blood may be the best way to improve the energy and engagement of the team, though we’ve found that this is often unnecessary. Most people, given feedback, can learn to interrupt less, say, or to face other people, or to listen more actively. Leaders should use the data to force change within their teams.

The ideal team player. We can also measure individuals against an ideal. In both productivity-focused and creativity-focused teams, we have discovered the data signature of what we consider the best type of team member. Some might call these individuals “natural leaders.” We call them “charismatic connectors.” Badge data show that these people circulate actively, engaging people in short, high-energy conversations. They are democratic with their time—communicating with everyone equally and making sure all team members get a chance to contribute. They’re not necessarily extroverts, although they feel comfortable approaching other people. They listen as much as or more than they talk and are usually very engaged with whomever they’re listening to. We call it “energized but focused listening.”

The best team players also connect their teammates with one another and spread ideas around. And they are appropriately exploratory, seeking ideas from outside the group but not at the expense of group engagement. In a study of executives attending an intensive one-week executive education class at MIT, we found that the more of these charismatic connectors a team had, the more successful it was.
Team building is indeed a science, but it’s young and evolving. Now that we’ve established patterns of communication as the single most important thing to measure when gauging the effectiveness of a group, we can begin to refine the data and processes to create more-sophisticated measurements, dig deeper into the analysis, and develop new tools that sharpen our view of team member types and team types.
The sensors that enable this science are evolving as well. As they enter their seventh generation, they’re becoming as small and unobtrusive as traditional ID badges, while the amount and types of data they can collect are increasing. We’ve begun to experiment with apps that present teams and their leaders with real-time feedback on group communications. And the applications for the sensors are expanding beyond the team to include an ever-broader set of situations.

We imagine a company’s entire staff wearing badges over an extended period of time, creating “big data” in which we’d find the patterns for everything from team building to leadership to negotiations to performance reviews. We imagine changing the nature of the space we work in, and maybe even the tools we use to communicate, on the basis of the data. We believe we can vastly improve long-distance work and cross-cultural teams, which are so crucial in a global economy, by learning their patterns and adjusting them. We are beginning to create what I call the “God’s-eye view” of the organization. But spiritual as that may sound, this view is rooted in evidence and data. It is an amazing view, and it will change how organizations work. 

Source: Harward Business review, Alex Pentland, April 2012
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When a top team fails to function, it can paralyze a whole company. Here’s what CEOs need to watch out for.

Few teams function as well as they could. But the stakes get higher with senior-executive teams: dysfunctional ones can slow down, derail, or even paralyze a whole company. In our work with top teams at more than 100 leading multinational companies,1 including surveys with 600 senior executives at 30 of them, we’ve identified three crucial priorities for constructing and managing effective top teams. Getting these priorities right can help drive better business outcomes in areas ranging from customer satisfaction to worker productivity and many more as well.

1. Get the right people on the team . . . and the wrong ones off
Determining the membership of a top team is the CEO’s responsibility—and frequently the most powerful lever to shape a team’s performance. Many CEOs regret not employing this lever early enough or thoroughly enough. Still others neglect it entirely, assuming instead that factors such as titles, pay grades, or an executive’s position on the org chart are enough to warrant default membership. Little surprise, then, that more than one-third of the executives we surveyed said their top teams did not have the right people and capabilities.

The key to getting a top team’s composition right is deciding what contributions the team as a whole, and its members as individuals, must make to achieve an organization’s performance aspirations and then making the necessary changes in the team. This sounds straight-forward, but it typically requires conscious attention and courage from the CEO; otherwise, the top team can underdeliver for an extended period of time.

That was certainly the case at a technology services company that had a struggling top team: fewer than one in five of its members thought it was highly respected or shared a common vision for the future, and only one in three thought it made a valuable contribution to corporate performance. The company’s customers were very dissatisfied—they rated its cost, quality, and service delivery at only 2.3 on a 7-point scale—and the team couldn’t even agree on the root causes.

A new CEO reorganized the company, creating a new strategy group and moving from a geography-based structure to one based on two customer-focused business units—for wholesale and for retail. He adapted the composition of his top team, making the difficult decision to remove two influential regional executives who had strongly resisted cross-organizational collaboration and adding the executive leading the strategy group and the two executives leading the retail and the wholesale businesses, respectively. The CEO then used a series of workshops to build trust and a spirit of collaboration among the members of his new team and to eliminate the old regional silo mentality. The team also changed its own performance metrics, adding customer service and satisfaction performance indicators to the traditional short-term sales ones.

Customers rated the company’s service at 4.3 a year later and at 5.4 two years later. Meanwhile, the top team, buoyed by these results, was now confident that it was better prepared to improve the company’s performance. In the words of one team member, “I wouldn’t have believed we could have come this far in just one year.”

2. Make sure the top team does just the work only it can do
Many top teams struggle to find purpose and focus. Only 38 percent of the executives we surveyed said their teams focused on work that truly benefited from a top-team perspective. Only 35 percent said their top teams allocated the right amounts of time among the various topics they considered important, such as strategy and people.

What are they doing instead? Everything else. Too often, top teams fail to set or enforce priorities and instead try to cover the waterfront. In other cases, they fail to distinguish between topics they must act on collectively and those they should merely monitor. These shortcomings create jam-packed agendas that no top team can manage properly. Often, the result is energy-sapping meetings that drag on far too long and don’t engage the team, leaving members wondering when they can get back to “real work.” CEOs typically need to respond when such dysfunctions arise; it’s unlikely that the senior team’s members—who have their own business unit goals and personal career incentives—will be able to sort out a coherent set of collective top-team priorities without a concerted effort.

The CEO and the top team at a European consumer goods company rationalized their priorities by creating a long list of potential topics they could address. Then they asked which of these had a high value to the business, given where they wanted to take it, and would allow them, as a group, to add extraordinary value. While narrowing the list down to ten items, team members spent considerable time challenging each other about which topics individual team members could handle or delegate. They concluded, for example, that projects requiring no cross-functional or cross-regional work, such as addressing lagging performance in a single region, did not require the top team’s collective attention even when these projects were the responsibility of an individual team member. For delegated responsibilities, they created a transparent and consistent set of performance indicators to help them monitor progress.

This change gave the top team breathing room to do more valuable work. For the first time, it could focus enough effort on setting and dynamically adapting cross-category and cross-geography priorities and resource allocations and on deploying the top 50 leaders across regional and functional boundaries, thus building a more effective extended leadership group for the company. This, in turn, proved crucial as the team led a turnaround that took the company from a declining to a growing market share. The team’s tighter focus also helped boost morale and performance at the company’s lower levels, where employees now had more delegated responsibility. Employee satisfaction scores improved to 79 percent, from 54 percent, in just one year.

3. Address team dynamics and processes
A final area demanding unrelenting attention from CEOs is effective team dynamics, whose absence is a frequent problem: among the top teams we studied, members reported that only about 30 percent of their time was spent in “productive collaboration”—a figure that dropped even more when teams dealt with high-stakes topics where members had differing, entrenched interests. Here are three examples of how poor dynamics depress performance:

The top team at a large mining company formed two camps with opposing views on how to address an important strategic challenge. The discussions on this topic hijacked the team’s agenda for an extended period, yet no decisions were made.

The top team at a Latin American insurance company was completely demoralized when it began losing money after government reforms opened up the country to new competition. The team wandered, with little sense of direction or accountability, and blamed its situation on the government’s actions. As unproductive discussions prevented the top team from taking meaningful action, other employees became dissatisfied and costs got out of control.

The top team at a North American financial-services firm was not aligned effectively for a critical company-wide operational-improvement effort. As a result, different departments were taking counterproductive and sometimes contradictory actions. One group, for example, tried to increase cross-selling, while another refused to share relevant information about customers because it wanted to “own” relationships with them.

CEOs can take several steps to remedy problems with team dynamics. The first is to work with the team to develop a common, objective understanding of why its members aren’t collaborating effectively. There are several tools available for the purpose, including top-team surveys, interviews with team members, and 360-degree evaluations of individual leaders. The CEO of the Latin American insurance company used these methods to discover that the members of his top team needed to address building relationships and trust with one another and with the organization even before they agreed on a new corporate strategy and on the cultural changes necessary to meet its goals (for more on building trust, see “Dispatches from the front lines of management innovation”). One of the important cultural changes for this top team was that its members needed to take ownership of the changes in the company’s performance and culture and to hold one another accountable for living up to this commitment.

Correcting dysfunctional dynamics requires focused attention and interventions, preferably as soon as an ineffective pattern shows up. At the mining company, the CEO learned, during a board meeting focused on the team’s dynamics, that his approach—letting the unresolved discussion go on in hopes of gaining consensus and commitment from the team—wasn’t working and that his team expected him to step in. Once this became clear, the CEO brokered a decision and had the team jump-start its implementation.

Often more than a single intervention is needed. Once the CEO at the financial-services firm understood how poorly his team was aligned, for example, he held a series of top-team off-site meetings aimed specifically at generating greater agreement on strategy. One result: the team made aligning the organization part of its collective agenda, and its members committed themselves to communicating and checking in regularly with leaders at lower levels of the organization to ensure that they too were working consistently and collaboratively on the new strategy. One year later, the top team was much more unified around the aims of the operational-improvement initiative—the proportion of executives who said the team had clarity of direction doubled, to 70 percent, and the team was no longer working at cross-purposes. Meanwhile, operational improvements were gaining steam: costs came down by 20 percent over the same period, and the proportion of work completed on time rose by 8 percent, to 96.3 percent.

Finally, most teams need to change their support systems or processes to catalyze and embed change. At the insurer, for example, the CEO saw to it that each top-team member’s performance indicators in areas such as cost containment and employee satisfaction were aligned and pushed the team’s members to share their divisional performance data. The new approach allowed these executives to hold each other accountable for performance and made it impossible to continue avoiding tough conversations about lagging performance and cross-organizational issues. Within two years, the team’s dynamics had improved, along with the company’s financials—to a return on invested capital (ROIC) of 16.6 percent, from –8.8 percent, largely because the team collectively executed its roles more effectively and ensured that the company met its cost control and growth goals.

Each top team is unique, and every CEO will need to address a unique combination of challenges. As the earlier examples show, developing a highly effective top team typically requires good diagnostics, followed by a series of workshops and field work to address the dynamics of the team while it attends to hard business issues. When a CEO gets serious about making sure that her top team’s members are willing and able to help meet the company’s strategic goals, about ensuring that the team always focuses on the right topics, and about managing dynamics, she’s likely to get results. The best top teams will begin to take collective responsibility and to develop the ability to maintain and improve their own effectiveness, creating a lasting performance edge.

FEBRUARY 2011 •

Source: McKinsey Quaterly, Organization Practice, February 2011
Authors: Michiel Kruyt, Judy Malan, and Rachel Tuffield
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Bad strategy abounds, says UCLA management professor Richard Rumelt. Senior executives who can spot it stand a much better chance of creating good strategies.

Horatio Nelson had a problem. The British admiral’s fleet was outnumbered at Trafalgar by an armada of French and Spanish ships that Napoleon had ordered to disrupt Britain’s commerce and prepare for a cross-channel invasion. The prevailing tactics in 1805 were for the two opposing fleets to stay in line, firing broadsides at each other. But Nelson had a strategic insight into how to deal with being outnumbered. He broke the British fleet into two columns and drove them at the Franco-Spanish fleet, hitting its line perpendicularly. The lead British ships took a great risk, but Nelson judged that the less-trained Franco-Spanish gunners would not be able to compensate for the heavy swell that day and that the enemy fleet, with its coherence lost, would be no match for the more experienced British captains and gunners in the ensuing melee. He was proved right: the French and Spanish lost 22 ships, two-thirds of their fleet. The British lost none.1

Nelson’s victory is a classic example of good strategy, which almost always looks this simple and obvious in retrospect. It does not pop out of some strategic-management tool, matrix, triangle, or fill-in-the-blanks scheme. Instead, a talented leader has identified the one or two critical issues in a situation—the pivot points that can multiply the effectiveness of effort—and then focused and concentrated action and resources on them. A good strategy does more than urge us forward toward a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them.

Too many organizational leaders say they have a strategy when they do not. Instead, they espouse what I call “bad strategy.” Bad strategy ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Like a quarterback whose only advice to his teammates is “let’s win,” bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values. Each of these elements is, of course, an important part of human life. But, by themselves, they are not substitutes for the hard work of strategy.

In this article, I try to lay out the attributes of bad strategy and explain why it is so prevalent. Make no mistake: the creeping spread of bad strategy affects us all. Heavy with goals and slogans, governments have become less and less able to solve problems. Corporate boards sign off on strategic plans that are little more than wishful thinking. The US education system is rich with targets and standards but poor at comprehending and countering the sources of underperformance. The only remedy is for us to demand more from those who lead. More than charisma and vision, we must demand good strategy.

The hallmarks of bad strategy
I coined the term bad strategy in 2007 at a Washington, DC, seminar on national-security strategy. My role was to provide a business and corporate-strategy perspective. The participants expected, I think, that my remarks would detail the seriousness and growing competence with which business strategy was created. Using words and slides, I told the group that many businesses did have powerful, effective strategies. But in my personal experiences with corporate practice, I saw a growing profusion of bad strategy.

In the years since that seminar, I have had the opportunity to discuss the bad-strategy concept with a number of senior executives. In the process, I have condensed my list of its key hallmarks to four points: the failure to face the challenge, mistaking goals for strategy, bad strategic objectives, and fluff.

Failure to face the problem
A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And, if you cannot assess that, you cannot reject a bad strategy or improve a good one.

International Harvester learned about this element of bad strategy the hard way. In July 1979, the company’s strategic and financial planners produced a thick sheaf of paper titled “Corporate Strategic Plan: International Harvester.” It was an amalgam of five separate strategic plans, each created by one of the operating divisions.

The strategic plan did not lack for texture and detail. Looking, for example, within the agricultural-equipment group—International Harvester’s core, dating back to the McCormick reaper, which was a foundation of the company—there is information and discussion about each segment. The overall intent was to strengthen the dealer/distributor network and to reduce manufacturing costs. Market share in agricultural equipment was also projected to increase, from 16 percent to 20 percent.

That was typical of the overall strategy, which was to increase the company’s share in each market, cut costs in each business, and thereby ramp up revenue and profit. A summary graph, showing past and forecast profit, forms an almost perfect hockey stick, with an immediate recovery from decline followed by a steady rise.

The problem with all this was that the plan didn’t even mention Harvester’s grossly inefficient production facilities, especially in its agricultural-equipment business, or the fact that Harvester had the worst labor relations in US industry. As a result, the company’s profit margin had been about one-half of its competitors’ for a long time. As a corporation, International Harvester’s main problem was its inefficient work organization—a problem that would not be solved by investing in new equipment or pressing managers to increase market share.

By cutting administrative overhead, Harvester boosted reported profits for a year or two. But following a disastrous six-month strike, the company quickly began to collapse. It sold off various businesses—including its agricultural-equipment business, to Tenneco. The truck division, renamed Navistar, is today a leading maker of heavy trucks and engines.

To summarize: if you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have a stretch goal or a budget or a list of things you wish would happen.

Mistaking goals for strategy
A few years ago, a CEO I’ll call Chad Logan asked me to work with the management team of his graphic-arts company on “strategic thinking.” Logan explained that his overall goal was simple—he called it the “20/20 plan.” Revenues were to grow at 20 percent a year, and the profit margin was to be 20 percent or higher.

“This 20/20 plan is a very aggressive financial goal,” I said. “What has to happen for it to be realized?” Logan tapped the plan with a blunt forefinger. “The thing I learned as a football player is that winning requires strength and skill, but more than anything it requires the will to win—the drive to succeed. . . . Sure, 20/20 is a stretch, but the secret of success is setting your sights high. We are going to keep pushing until we get there.”

I tried again: “Chad, when a company makes the kind of jump in performance your plan envisions, there is usually a key strength you are building on or a change in the industry that opens up new opportunities. Can you clarify what the point of leverage might be here, in your company?”

Logan frowned and pressed his lips together, expressing frustration that I didn’t understand him. He pulled a sheet of paper out of his briefcase and ran a finger under the highlighted text. “This is what Jack Welch says,” he told me. The text read: “We have found that by reaching for what appears to be the impossible, we often actually do the impossible.” (Logan’s reading of Welch was, of course, highly selective. Yes, Welch believed in stretch goals. But he also said, “If you don’t have a competitive advantage, don’t compete.”)

The reference to “pushing until we get there” triggered in my mind an association with the great pushes of 1915–17 during World War I, which led to the deaths of a generation of European youths. Maybe that’s why motivational speakers are not the staple on the European management-lecture circuit that they are in the United States. For the slaughtered troops did not suffer from a lack of motivation. They suffered from a lack of competent strategic leadership. A leader may justly ask for “one last push,” but the leader’s job is more than that. The job of the leader—the strategist—is also to create the conditions that will make the push effective, to have a strategy worthy of the effort called upon.

Bad strategic objectives
Another sign of bad strategy is fuzzy strategic objectives. One form this problem can take is a scrambled mess of things to accomplish—a dog’s dinner of goals. A long list of things to do, often mislabeled as strategies or objectives, is not a strategy. It is just a list of things to do. Such lists usually grow out of planning meetings in which a wide variety of stakeholders suggest things they would like to see accomplished. Rather than focus on a few important items, the group sweeps the whole day’s collection into the strategic plan. Then, in recognition that it is a dog’s dinner, the label “long term” is added, implying that none of these things need be done today. As a vivid example, I recently had the chance to discuss strategy with the mayor of a small city in the Pacific Northwest. His planning committee’s strategic plan contained 47 strategies and 178 action items. Action item number 122 was “create a strategic plan.”

A second type of weak strategic objective is one that is “blue sky”—typically a simple restatement of the desired state of affairs or of the challenge. It skips over the annoying fact that no one has a clue as to how to get there. A leader may successfully identify the key challenge and propose an overall approach to dealing with the challenge. But if the consequent strategic objectives are just as difficult to meet as the original challenge, the strategy has added little value.

Good strategy, in contrast, works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes. It also builds a bridge between the critical challenge at the heart of the strategy and action—between desire and immediate objectives that lie within grasp. Thus, the objectives that a good strategy sets stand a good chance of being accomplished, given existing resources and competencies.

Fluff
A final hallmark of mediocrity and bad strategy is superficial abstraction—a flurry of fluff—designed to mask the absence of thought. Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise. Here is a quote from a major retail bank’s internal strategy memoranda: “Our fundamental strategy is one of customer-centric intermediation.” Intermediation means that the company accepts deposits and then lends out the money. In other words, it is a bank. The buzzphrase “customer centric” could mean that the bank competes by offering better terms and service, but an examination of its policies does not reveal any distinction in this regard. The phrase “customer-centric intermediation” is pure fluff. Remove the fluff and you learn that the bank’s fundamental strategy is being a bank.

Why so much bad strategy?
Bad strategy has many roots, but I’ll focus on two here: the inability to choose and template-style planning—filling in the blanks with “vision, mission, values, strategies.”

The inability to choose
Strategy involves focus and, therefore, choice. And choice means setting aside some goals in favor of others. When this hard work is not done, weak strategy is the result. In 1992, I sat in on a strategy discussion among senior executives at Digital Equipment Corporation (DEC). A leader of the minicomputer revolution of the 1960s and 1970s, DEC had been losing ground for several years to the newer 32-bit personal computers. There were serious doubts that the company could survive for long without dramatic changes.

To simplify matters, I will pretend that only three executives were present. “Alec” argued that DEC had always been a computer company and should continue integrating hardware and software into usable systems. “Beverly” felt that the only distinctive resource DEC had to build on was its customer relationships. Hence, she derided Alec’s “Boxes” strategy and argued in favor of a “Solutions” strategy that solved customer problems. “Craig” held that the heart of the computer industry was semiconductor technology and that the company should focus its resources on designing and building better “Chips.”

Choice was necessary: both the Chips and Solutions strategies represented dramatic transformations of the firm, and each would require wholly new skills and work practices. One wouldn’t choose either risky alternative unless the status quo Boxes strategy was likely to fail. And one wouldn’t choose to do both Chips and Solutions at the same time, because there was little common ground between them. It is not feasible to do two separate, deep transformations of a company’s core at once.

With equally powerful executives arguing for each of the three conflicting strategies, the meeting was intense. DEC’s chief executive, Ken Olsen, had made the mistake of asking the group to reach a consensus. It was unable to do that, because a majority preferred Solutions to Boxes, a majority preferred Boxes to Chips, and a majority also preferred Chips to Solutions. No matter which of the three paths was chosen, a majority preferred something else. This dilemma wasn’t unique to the stand-off at DEC. The French philosopher Nicolas de Condorcet achieved immortality by first pointing out the possibility of such a paradox arising, and economist Kenneth Arrow won a Nobel Prize for showing that “Condorcet’s paradox” cannot be resolved through cleverer voting schemes.

Not surprisingly, the group compromised on a statement: “DEC is committed to providing high-quality products and services and being a leader in data processing.” This fluffy, amorphous statement was, of course, not a strategy. It was a political outcome reached by individuals who, forced to reach a consensus, could not agree on which interests and concepts to forego.

Ken Olsen was replaced, in June 1992, by Robert Palmer, who had headed the company’s semiconductor engineering. Palmer made it clear that the strategy would be Chips. One point of view had finally won. But by then it was five years too late. Palmer stopped the losses for a while but could not stem the tide of ever more powerful personal computers that were overtaking the firm. In 1998, DEC was acquired by Compaq, which, in turn, was acquired by Hewlett-Packard three years later.

Template-style strategy
The Jack Welch quote about “reaching for what appears to be the impossible” is fairly standard motivational fare, available from literally hundreds of motivational speakers, books, calendars, memo pads, and Web sites. This fascination with positive thinking has helped inspire ideas about charismatic leadership and the power of a shared vision, reducing them to something of a formula. The general outline goes like this: the transformational leader (1) develops or has a vision, (2) inspires people to sacrifice (change) for the good of the organization, and (3) empowers people to accomplish the vision.

By the early 2000s, the juxtaposition of vision-led leadership and strategy work had produced a template-style system of strategic planning. (Type “vision mission strategy” into a search engine and you’ll find thousands of examples of this kind of template for sale and in use.) The template looks like this:

The Vision.
Fill in your vision of what the school/business/nation will be like in the future. Currently popular visions are to be the best or the leading or the best known.

The Mission.
Fill in a high-sounding, politically correct statement of the purpose of the school/business/nation. Innovation, human progress, and sustainable solutions are popular elements of a mission statement.

The Values.
Fill in a statement that describes the company’s values. Make sure they are noncontroversial. Key words include “integrity,” “respect,” and “excellence.”

The Strategies.
Fill in some aspirations/goals but call them strategies. For example, “to invest in a portfolio of performance businesses that create value for our shareholders and growth for our customers.”

This template-style planning has been enthusiastically adopted by corporations, school boards, university presidents, and government agencies. Scan through such documents and you will find pious statements of the obvious presented as if they were decisive insights. The enormous problem all this creates is that someone who actually wishes to conceive and implement an effective strategy is surrounded by empty rhetoric and bad examples.

The kernel of good strategy
By now, I hope you are fully awake to the dramatic differences between good and bad strategy. Let me close by trying to give you a leg up in crafting good strategies, which have a basic underlying structure:

1. A diagnosis: an explanation of the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as being the critical ones.

2. A guiding policy: an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

3. Coherent actions: steps that are coordinated with one another to support the accomplishment of the guiding policy.

I’ll illustrate by describing Nvidia’s journey from troubled start-up to market leader for 3-D graphics chips. Nvidia’s first product, a PC add-in board for video, audio, and 3-D graphics, was a commercial failure. In 1995, rival start-up 3Dfx Interactive took the lead in serving the burgeoning demand of gamers for fast 3-D graphics chips. Furthermore, there were rumors that industry giant Intel was thinking about introducing its own 3-D graphics chip. The diagnosis: “We are losing the performance race.”

Nvidia CEO Jen-Hsun Huang’s key insight was that given the rapid state of advance in 3-D graphics, releasing a new chip every 6 months— instead of at the industry-standard rate of every 18 months—would make a critical difference. The guiding policy, in short, was to “release a faster, better chip three times faster than the industry norm.”

To accomplish this fast-release cycle, the company emphasized several coherent actions: it formed three development teams, which worked on overlapping schedules; it invested in massive simulation and emulation facilities to avoid delays in the fabrication of chips and in the development of software drivers; and, over time, it regained control of driver development from the branded add-in board makers.

Over the next decade, the strategy worked brilliantly. Intel introduced its 3-D graphics chip in 1998 but did not keep up the pace, exiting the business of discrete 3-D graphics chips a year later. In 2000, creditors of 3Dfx initiated bankruptcy proceedings against the company, which was struggling to keep up with Nvidia. In 2007, Forbes named Nvidia “Company of the Year.”2

Despite the roar of voices equating strategy with ambition, leadership, vision, or planning, strategy is none of these. Rather, it is coherent action backed by an argument. And the core of the strategist’s work is always the same: discover the crucial factors in a situation and design a way to coordinate and focus actions to deal with them.

Source: McKinsey Quarterly, June 2011

In my efforts to support clients in ensuring a well-defined and competitive long-term business plan, we always begin with defining the vision of the company.
It is my experience that it is only with a well defined vision in place that you can go on to develop the very important “Mission statement”.
In my opinion, we find just far too many wrong definitions of both the “vision statement” as such as its real purpose. Here is an in my opinion pretty good definition:
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A vision is a picture of your organization’s desired future expressed in a way that resonates with all members of the organization. The vision is shared with employees, customers, shareholders, vendors, and candidates for employment and creates shared meaning about what your organization wants to become. Determining your vision is an early component in corporate or organizational strategic planning.

The vision of the future that your organization’s employees commit to creating should stretch your organization’s capabilities and expand its current image of itself. The articulated and shared vision provides a picture of the organization that you are trying to create in the future. The vision becomes the rallying cry for your desired future.

Normally, the vision ranges in length from a couple of words to several pages. A shorter vision is more memorable. When a vision stretches on for pages, and even paragraphs, it is usually because the organization is also expressing how it plans to reach or create the vision. This process is better left for later in strategic planning when the organization develops strategies, goals, and action plans.

The vision is translated into actionable plans via the development of a vision statement.

Source: About.com, October 2011

I mitt arbete med att stödja företag i att utarbeta sin långsiktiga affärsinriktning stöter jag ofta på en situation som den som beskrivs nedan i artikeln ur Svenska Dagbladet (24 oktober).
Just av detta skäl är det så viktigt att ledningen, på ett genuint och fullt ut engagerat sätt, arbetar igenom nyckelbegreppen “vision” och “affärsidé” innan man ger sig i kast med de strategiska nyckelfrågorna för framtiden.
I såväl visionen som affärsidén skall det tydligt framgå vad medarbetarna kan förvänta sig av företaget och “vilken resa man kommer att få vara med på” om man väljer att investera sin kompetens, sitt engagemang och sin tid hos just denna arbetsgivare.

Artikel ur SvD:
Trots att kompetensen är prioriterad säger sig bara 43 procent ha en strategi för sitt attraktivitetsarbete.
Endast 20 procent har formulerat sitt ”arbetstagarerbjudande” – vad man erbjuder medarbetare.
35 procent svarar att det ändå framgår tydligt vad de står för, men det analyserar PA Consulting group, luktar ostrukturerat arbete.

”Bakgrundsanalysen om komptensbehov är inte gjord och målen för arbetet med employer branding är inte satta.”
Slutsatsen är att många företag börjar i helt fel ända- man läser undersökningar om vad arbetskraften söker och formulerar ett erbjudande efter det, istället för att hitta företagets verkliga själ.
Många svarar också att man tack vare sitt starka konsumentvarumärke inte ser det som kritiskt att arbeta med arbetsgivarvarumärket. ”Få organisationer skulle stå utan en tydlig strategi för sitt produktvarumärke, men ett otydligt definierat arbetsgivarvarumärke lever en majoritet med, ” konstateras i rapporten.

Källa: Svd, 24 oktober 2011

Att vara en arbetsgivare dit folk vill komma – och sen stanna sägs vara prioriterat på företagen, trots de skakiga ekonomiska tiderna. Men de flesta har ingen tydlig plan.

En undersökning bland svenska företag gjord i september av PA Consulting group bekräftar bilden av internationella vd-undersökningar från tidigare i år:
Tre fjärdedelar tror att konkurrensen om arbetskraft kommer att öka de närmaste fem åren, trots det osäkra ekonomiska läget. När undersökningen gjordes 2009 uppgavs effektivisering vara det främsta målet för organisationerna, nu har det skiftat till kundfokus.
82 procent säger att de därför prioriterar arbetet med att bli en attraktiv arbetsgivare och 66 procent att arbetet prioriteras på ledningsnivå. ”Man inser att man inte kan effektivisera om och om igen, nu måste man parallellt med nyrekrytering jobba med de medarbetare man har. Och för att lyckas bli bättre än konkurrenterna och ha ett äkta kundfokus måste man också ha lojal och motiverad personal,” analyserar Yngve Ralph, en av de ansvariga för undersökningen.

Källa: Sara Lomberg i SvD, 24 oktober 2011