Measuring Strategic Performance vs Intuitively Increasing Costs

Where performance gets lost in strategy implementationThere is a huge performance prize right under the noses of most organizations. It can start anywhere between 60 percent and 100 percent, before a “cultural multiplier effect” kicks in.

The reason the improvements go untapped is because of the performance gap between strategy and implementation, according to Michael C. Mankins and Richard Steele in a 2005 Harvard Business Review article (PDF).

They argue that both should be inextricably linked. In addition to identifying areas where strategic performance falls down, Mankins and Steele lay out seven rules to stay on track (see sidebar).

The issue of performance monitoring caught my interest because I am also reading the Steve Jobs biography by Walter Isaacson. In their HBR article, Mankins and Steele say fewer than 15 percent of companies regularly track business results against forecasts.

This leads to a performance gap that can be closed by continuously monitoring performance. High performers monitor resource deployment against plans, often in real time, and use continuous feedback to improve performance.

This all implies a lot of measurement, and building a solid rationale for spending decisions.

Then there was the approach taken by Jobs

When designing the iMac in the late 1990s, the late Steve Jobs and his designer, Jony Ives, settled on a translucent computer cover. Each case cost over $60, more than three times that of a standard computer caseMankins and Steele's 7 rules for successful strategy implementation. As Isaacson wrote:

“Other companies would probably have demanded presentations and studies to show whether the translucent case would increase sales enough to justify the extra cost. Jobs asked for no such analysis.”

He did have to “fend off the objections of the manufacturing engineers … who tended to raise practical cost considerations,” Isaacson said.

But if Jobs wanted it, Jobs got it. Knowing your mind and infallibility, however, are not synonymous. Jobs was equally insistent that CD trays be removed in favor of a slot because it looked better.

But this happened just as CD burners were hitting the market and the subsequent explosion in people burning their music to CDs. As a result, Apple could not cater well to music lovers and it fell behind in that area.

It would be easy to argue that Jobs and/or Apple are special cases. They are in many respects, but they are also widely admired and emulated. So much so, that Isaacson wrote The Real Leadership Lessons of Steve Jobs for the April 2012 issue of the HBR.

One of the lessons outlined was to “put products before profits.” Recounting the early days of Macintosh development in the early 1980s, Isaacson said Jobs never worried about maximizing profit or cost trade-offs. It led to some very costly overruns, he said, but, “In the long run he got the balance right: Focus on making the product great and the profits will follow.”

As Jobs told Isaacson:

“My passion has been to build an enduring company where people were motivated to make great products. Everything else was secondary. Sure, it was great to make a profit, because that was what allowed you to make great products. But the products, not the profits, were the motivation.”

That was Apple’s strategy: it’s unique position and what differentiated it from its competitors. That has led to high profits. Once achieved, that advantage has to be maintained. But with continuing high profits and a 2012 cash reserve of $100 billion, the odds seem tilted in favor of the company on Infinite Loop.

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