“Unfortunately, we will miss our financial targets this year."
These words are among the most difficult words any executive will utter during his or her tenure. No executive wants to face the CEO or Board and admit missing the plan. I used to have a coffee mug on my desk with the famous quote from Apollo 13 Mission Control, “Failure is not an option” as a reminder to myself and anyone dropping by my office that missing plan was unacceptable.
Executing and achieving the “plan” is one of the core responsibilities of the senior executive team. Developing a robust long term strategy and creating the right culture may be more important but the truth is that executives are always focused on delivering the annual financial plan.
Many business critics think the obsession with achieving financial targets is related explicitly to bonus incentives. From my experience, it’s not the primary motivator. The truth is - executives want to win. They have built their careers on winning. It’s part of our DNA and as a result…
No one wants to admit failure.
It’s a rare executive who doesn’t try to rationalize a “plan” target miss to anyone who will listen. The list of reasons for not achieving plan is endless.…unrealistic targets, unexpected currency fluctuations, overly aggressive price discounting by competitors, failed internal system implementations, costly product recalls… some reasons are legitimate. It’s hard to plan for every unexpected gale force wind that might blow you off course during the year.
The issue is harder to justify the second or third year in a row, nor is it usually accepted by the Board. It’s also when panic becomes acute in the executive ranks.
In my opinion, it’s the main catalyst for the wave of reorganizations and corresponding people reductions that are so prevalent across the corporate landscape. When growth stalls, it doesn’t take long before someone suggests reorganizing to cut costs. In many instances, reorganizing is absolutely necessary - costs may be dragging down earnings due to unnecessary bloat.
More often, however, reorganizations are set in motion to connote action to the Board, without understanding how the restructure will ultimately deliver improved results for the long term. It’s a political decision rather than a reasoned strategic decision in spite of the power point decks utilized to justify the reorganization.
A recent McKinsey study found that more than two thirds of organizational transformations do not meet their objectives. This is consistent with other research that shows only 30% of companies are successful in their attempts to transform their companies. Why do so many reorganizations fail today?
There are many reasons for the poor track record of most business reorganizations. Some reasons include:
Executives haven’t correctly identified a true winning growth strategy for the long term.
Organizations fail to focus any attention on changing behaviors post-implementation. As a result, remaining employees walk the halls afterward wondering what’s changed now that the game of musical chairs is over.
The senior team hasn’t planned properly for the reorganization so key support planks are missing that would create the right structure for the growth strategy.
Lastly, reorganizations fail because of botched implementations. The planning was set properly but leaders decided to go “off script” and execute their own plan.
My experience is that the first two reasons are the primary causes of failed reorganization efforts. Leaders would be well advised to focus more time on developing a winning, long term growth strategy and addressing underlying organizational dynamics around decision rights, autonomy, and accountability.
Too many reorganizations treat the symptoms and not the cause. The unspoken truth is that many executives find cutting easier and less demanding than discovering new ways to grow and solving dysfunctional organizational dynamics.
If that’s the case, you may not want to admit it, but failure has become your only option.