Execution: Complete Summary of Bossidy and Charan’s Discipline for Getting Things Done

Introduction: What This Book Is About

“Execution: The Discipline of Getting Things Done,” authored by Larry Bossidy, former CEO of Honeywell International, and Ram Charan, a highly sought-after advisor to CEOs, challenges the conventional wisdom that strategic thinking is the sole domain of top leaders. This influential book, first published in 2002 and updated in 2009 for a time of crisis, argues that execution is not merely tactics but a fundamental discipline, a system, and a core component of strategy itself. It asserts that a leader’s primary job is to be deeply engaged in the “hows” of getting things done, ensuring that strategy aligns with reality, people align with goals, and promised results are consistently achieved. The authors reveal that the gap between aspirations and results is primarily due to a lack of execution, a problem that remains largely unaddressed in the business world.

This book provides a comprehensive framework for integrating execution into a company’s strategy, goals, and culture. It delves into the essential behaviors leaders must exhibit, the building blocks for cultural change, and the three core processes—people, strategy, and operations—that, when linked together effectively, drive superior performance. Readers will discover actionable insights and practical methodologies to bridge the gap between promises and outcomes, making execution a sustainable competitive advantage. This summary promises to deliver a complete overview of all key insights, enabling readers to immediately grasp and apply the book’s wisdom.

RESETTING EXECUTION FOR A TIME OF CRISIS

This section, added in the 2009 edition, emphasizes the heightened importance of execution during periods of global crisis and economic “reset.” The authors argue that in volatile environments, effective execution is not just about efficiency but also provides crucial feedback loops for businesses to adapt rapidly to external changes. It’s the engine that drives an organization forward, allowing it to seize opportunities even when conditions are challenging.

Execution as a Differentiator in Tough Times

In a credit and cash-starved world, execution ensures efficient resource utilization, which is critical for survival. It allows a company to remain agile and provides the necessary feedback to adjust to dynamic environments. Good execution helps a company not only endure tough times but also significantly improves its chances for success as the environment continues to shift. Leaders must conceive a path forward, but execution is what powers the organization along that path, enabling it to capitalize on new opportunities.

Profound Changes in the Global Business Environment

The authors identify four profound changes that make execution harder but more vital:

• Slower Growth: The global economy faces constrained credit and restricted leverage, making profitable growth difficult to find. Companies that execute well will have the confidence, speed, and resources to move fast when new opportunities emerge. They also gain credibility as preferred partners, suppliers, and investments.
• Fiercer Competition: In a slower-growth economy, every company will fight harder for market share. Margins for error are thinner, demanding flexibility and speed in resource allocation. Strong execution helps detect flaws in strategies sooner and allows for quick course correction, enabling companies to acquire assets at bargain prices and snatch market share.
• New Government Roles: Governments worldwide are taking on new roles, leading to new regulatory environments and potential calls for protectionism. Companies with strong execution are more attractive partners to government bodies and better prepared to adapt to changing regulations.
• Enhanced Risk Management: Understanding and controlling risks at every business level, including political and global economic risk, becomes a massive part of a leader’s job. Execution provides an edge in detecting new external realities and internal operational risks.

Merck & Co.’s Execution Turnaround

The example of Richard T. Clark at Merck & Co. illustrates the power of effective execution. When Clark became CEO in 2005, Merck was floundering with a vague strategy. Clark, grounded in both medicine and operations, undertook an extensive review, selecting areas where Merck could win given its research strengths. He then rigorously analyzed existing manufacturing and technology to support his strategy of innovation and excellence, ensuring Merck’s manufacturing arm anticipated technological developments. Clark made extensive changes in top management to align leaders with the strategy and execute it as a team. This methodical linking of people, strategy, and operations, culminating in the acquisition of Schering-Plough, transformed Merck’s culture and performance, proving that low-key leaders can achieve significant results through disciplined execution.

The Timeless Nature of Execution Principles

The core principles of execution, as laid out in the original 2002 book, remain timeless. While the methodologies for applying them must adapt to changing circumstances, the fundamental need for execution persists. The authors emphasize that leaders who possess a commanding knowledge of the world, never stop learning, are extremely flexible, and adapt quickly will differentiate themselves. Most importantly, they will lead in a positive and uplifting way, inspiring confidence in their followers during uncertain times.

INTRODUCTION

This section provides the personal perspectives of Larry Bossidy and Ram Charan on the critical importance of execution and how it drove their respective careers and observations.

Larry Bossidy’s Experience at AlliedSignal and Honeywell

Larry Bossidy recounts his shock upon becoming AlliedSignal’s CEO in 1991, discovering a company with hardworking, bright people but a profound lack of effectiveness and a premium on getting things done. Unlike his previous experience at General Electric, AlliedSignal’s core processes for people, strategy, and operations were “empty rituals” that failed to yield results. Business unit plans were data-rich but strategically void, operating plans were mere numbers exercises without action, and critical questions about product positioning, growth, and talent alignment were simply not asked. The three core processes were disconnected from reality and from each other.

Bossidy realized that the former CEO had not been deeply involved in these processes, viewing his job as solely buying and selling businesses. Bossidy’s new team introduced rigor and intensity to these processes, leading to a tripling of operating margins to nearly 15%, raising return on equity from 10% to 28%, and delivering an almost ninefold return for shareholders by 1999. This was achieved by creating a discipline of execution. After the GE merger fell through and Bossidy returned to Honeywell in 2001, he found that the discipline had unraveled, highlighting how easy it is to lose an execution culture. He promptly re-emphasized execution, making difficult decisions like closing down an incorrectly built turbogenerator project and rapidly revising the aerospace operating plan within ten days after 9/11.

Ram Charan’s Observations on Execution Failure

Ram Charan highlights that too many leaders fool themselves into thinking their companies are well-run. They fail to recognize that companies like GE and Emerson Electric are world-class in execution, making their own organizations appear average by comparison. Businesses previously “got away” with poor execution by pleading for patience, but today, success is measured quarterly, and analysts’ downgrades can wipe out billions in market capitalization. The difference between success and failure often lies in the ability to execute.

Charan points out that execution is the “great unaddressed issue” in the business world. Its absence is the single biggest obstacle to success. Leaders mistakenly view execution as mere tactics to be delegated, while they focus on “bigger” issues like high-level strategy. This is a fundamental error; execution is a discipline, a system, and integral to strategy itself. It must be built into a company’s strategy, goals, and culture, and the leader must be deeply engaged in its substance. Many leaders learn management techniques but fail to practice execution, effectively “building houses without foundations.”

Why Execution Is Neglected and Misunderstood

Execution has been neglected because it “doesn’t sound very sexy” compared to strategy, leadership development, or innovation. People often think of it as “attention to detail” rather than a comprehensive discipline. Charan emphasizes three key points to understanding execution:

• Execution as a Discipline and Integral to Strategy: Execution is a systematic process of rigorous discussion, questioning, tenacious follow-through, and ensuring accountability. It involves making assumptions about the business environment, assessing capabilities, linking strategy to operations and people, synchronizing disciplines, and linking rewards to outcomes. It’s about “exposing reality and acting on it.” The heart of execution lies in the three core processes: people, strategy, and operations. These processes must be robustly debated and linked, with the leader deeply engaged as their owner.
• Execution as the Major Job of the Business Leader: Leaders cannot be detached. Execution requires a comprehensive understanding of the business, its people, and its environment. Only the leader can achieve this understanding and make execution happen through personal involvement. The leader must run the three core processes with intensity and rigor, not micromanaging, but actively involving themselves to probe, ask tough questions, bring weaknesses to light, and rally people. They set the tone for candid, reality-based dialogue.
• Execution as a Core Element of an Organization’s Culture: Execution is not a temporary program but must be embedded in reward systems and behavioral norms. It is akin to Six Sigma, constantly seeking deviations from desired tolerances and correcting problems to raise the bar. It demands that all leaders at all levels understand and practice this discipline consistently.

The Intellectual Challenge of Execution

The common view that intellectual challenge only involves conceiving grand ideas is only half true. Shaping a broad picture into executable actions is an immense intellectual, emotional, and creative challenge. Execution involves getting to the heart of an issue through persistent, constructive probing. It means constantly asking “how” and “why,” drilling down to specifics, and ensuring clear accountability and follow-through. This involves knowing the business, making fine judgments about people, and conducting superb, candid dialogue. This work is as intellectually challenging as any other aspect of business.

PART I: WHY EXECUTION IS NEEDED

CHAPTER 1: The Gap Nobody Knows

This chapter opens with the archetypal story of “Joe,” a CEO who failed despite having a great strategy, a bright team, and a clear incentive system, ultimately leading to his firing. This common scenario illustrates the “gap nobody knows”—the chasm between what a company’s leaders want to achieve and the organization’s ability to deliver it. This gap is prevalent, leading to frequent shortfalls, demolished market value, and demoralized employees.

The Problem with Unexecuted Strategies

The common explanation for company failures is a “wrong strategy,” but the authors contend that strategies most often fail due to poor execution. Things meant to happen don’t, either because organizations lack the capability or leaders misjudge challenges. The example of Compaq’s ambitious Wintel strategy, aimed at dominating the computer industry through acquisitions, illustrates this. Despite a bold vision, Compaq failed to integrate acquisitions and execute the model necessary to make money as PCs became a commodity. This contrasts sharply with Dell’s success, which understood that building to order, meticulous execution, and a sharp focus on costs would provide an unbeatable advantage, leading to an incredible 355% return on invested capital in fiscal 2001 and high inventory turns (80 times a year vs. 10-20 for rivals).

Execution as the “Missing Link”

The authors argue that execution is the “missing link” between aspirations and results and the major job of any business leader. They note a growing awareness of its importance in the business world, with terms like “execution” appearing in headhunter requests and board evaluations. However, they lament that despite the talk, few truly understand what execution entails. It is often implicitly viewed as merely “doing things more effectively or carefully.”

Three Key Points to Understanding Execution

The chapter reinforces three fundamental points for understanding execution:

• Execution is a Discipline, Integral to Strategy: It’s not just tactics. It is a systematic process of rigorous discussion, questioning, tenacious follow-through, and ensuring accountability. It involves making assumptions, assessing capabilities, linking strategy to operations and people, synchronizing disciplines, and connecting rewards to outcomes. It is fundamentally a “systematic way of exposing reality and acting on it.” The core processes (people, strategy, operations) are where execution decisions are made, and they must be prosecuted with rigor, intensity, and depth, not as passive rituals.
• Execution is the Major Job of the Business Leader: The leader cannot delegate the substance of execution. They must be personally and deeply engaged in the business, gaining a comprehensive understanding of it, its people, and its environment. They must run the three core processes themselves, asking tough questions, managing debates, and making trade-offs. This active involvement is not micromanaging but about coaching and developing people by setting the tone for candid, reality-based dialogue.
• Execution Must Be a Core Element of an Organization’s Culture: Execution is not a “program” but must be embedded in the reward systems and behavioral norms of everyone. It’s a relentless pursuit of reality and constant improvement, akin to Six Sigma. It cascades from senior leaders downward, with results advancing careers and influencing others to adopt the discipline.

Why People Don’t Get It

The authors conclude that execution is neglected because it “doesn’t sound very sexy.” People mistakenly believe that intellectual challenge is only about grand ideas, overlooking the rigorous work of developing and proving those ideas. The intellectual challenge of execution lies in “getting to the heart of an issue through persistent and constructive probing.” This involves deep knowledge of the business and external environment, fine judgments about people, intense focus, incisive thinking, and superb skills in candid dialogue. Without the ability to execute, all other attributes of leadership become hollow.

CHAPTER 2: The Execution Difference

This chapter delves deeper into why many leaders fail to execute, often due to their focus on high-level thinking rather than the practical “hows” of getting things done. It highlights the traits of leaders who prioritize execution.

The Trouble with Joe: A Case of Unrealistic Goals

Joe, the CEO from Chapter 1, is presented as a typical non-executing leader. Despite a brilliant strategy and strong market relations, he failed due to unrealistic goals and a lack of engagement in the execution details.

• Disconnected Leadership: Joe believed in delegating implementation, not knowing his plant managers were 12 months behind schedule on process improvements. He focused solely on quarterly numbers, not the underlying causes of shortfalls.
• Poor People Selection: His executive vice president was a “ticket puncher,” and his production director, a “hi-po” from a consulting firm, lacked operational understanding and failed to earn respect from plant managers.
• Lack of Debate and Ownership: Joe’s “stretch goals” were unrealistic because the people who had to meet them were not involved in shaping the plan or debating its feasibility. There was no open dialogue about manufacturing obstacles.
• Absence of Milestones and Contingency: Joe failed to set specific milestones or contingency plans, leaving no mechanism to detect or correct problems early.
  An execution-savvy leader would have involved all key people in planning, focused on the “hows,” set clear milestones, and created contingency plans.

The Execution Gap at Xerox: Over-Ambition and Disconnection

Xerox’s failure under Richard C. Thoman illustrates how ambitious visions can be disconnected from reality. Thoman, a respected strategist, aimed to transform Xerox from a products/services company to a solutions provider.

• Overwhelming Initiatives: He launched two mission-critical initiatives simultaneously (consolidating 90+ administrative centers into four and reorganizing 30,000 salespeople), which caused chaos, lost invoices, unanswered service calls, and alienated customers.
• Cultural Resistance and Lack of Authority: Thoman was perceived as too aloof and lacked the authority to appoint his own leadership team, crucial for major changes. “Both of these building blocks were missing.” The company’s stock price plunged from $64 to $7, leading to Thoman’s dismissal.

Out of Touch at Lucent: Bureaucracy and Misjudgment

Lucent Technologies’ decline under Richard McGinn demonstrates how an inability to execute, coupled with being out of touch, can bring down a company even before market implosion.

• Unchanged Bureaucratic Culture: McGinn failed to change the slow, bureaucratic Western Electric culture, which led to a cumbersome structure and inadequate financial control systems. Executives lacked data on profit by customer or product line, making resource allocation impossible.
• Missed Milestones and Opportunities: Lucent consistently missed technical milestones for new product development and emerging market opportunities, like routers and optical equipment, due to Bell Labs’ slow development.
• Strategic Blunders from Poor Execution: The decision to develop routers in-house rather than acquire Juniper Networks was a strategic error rooted in not understanding Lucent’s own capability to bring products to market fast enough. Ignored pleas from engineers about fiber optics showed a failure to adapt to changing external environments, akin to the “innovator’s dilemma.”
• Reckless Growth and Financial Damage: The mad rush for revenue led to unprofitable product lines, unintegrated acquisitions, and wild cost overruns. Salespeople extended credit and recorded premature sales, resulting in a “ravaged balance sheet” and a huge debt load. McGinn remained in “total denial” about the looming crisis until his dismissal in 2000.

Executing at EDS: Rebuilding Accountability and Collaboration

Dick Brown’s transformation of EDS serves as a powerful counter-example of successful execution. EDS, once a leader in computer services, was flat-lining due to an indecisive, unaccountable culture.

• Intimate Involvement and Candid Communication: Brown spent three months traveling globally, meeting people at all levels, and sending weekly e-mails that candidly communicated goals and new leadership style. He increased information flow by reporting sales daily and giving top leaders access to vital company data.
• Driving Accountability and Collaboration: Brown instituted monthly “performance calls” with the top 150 leaders to review performance against commitments, forcing explanations for shortfalls. He cultivated “intense candor,” balancing optimism with realism, even challenging executives who expressed anxiety about change.
• Strategic People Selection and Development: Brown removed scores of underperforming executives. The HR department (renamed Leadership and Change Management) developed a compensation system linking rewards to performance, and robust evaluation tools. He ordered an analysis that led to replacing 20% of the sales force who had sold nothing in six months.
• Radical Organizational Overhaul: Brown completely restructured EDS, rolling 40+ SBUs into four Lines of Business (LOBs). This was designed to leverage intellectual capital and foster collaboration, with the design led by a cross-functional team of seven executives who worked seven days a week for ten weeks.
• Focus on Service Excellence: Brown made “service excellence” a mantra, linking it to performance rewards for client-facing executives. This focus improved client ratings, with 91% rating service “good” or “excellent.”
  Within two years, EDS achieved record revenues, solid market share gains, 11 consecutive quarters of double-digit growth in operating margins and EPS, and a 65% increase in stock price. Brown demonstrated that “the culture of a company is the behavior of its leaders.”

PART II: THE BUILDING BLOCKS OF EXECUTION

CHAPTER 3: Building Block One: The Leader’s Seven Essential Behaviors

This chapter outlines the seven essential behaviors that form the first building block of execution for any leader, emphasizing that these behaviors are crucial for effectiveness and must be practiced consistently.

Knowing Your People and Your Business

Leaders must live their businesses and connect personally. Disconnected leaders rely on filtered information, leading to unrealistic prognoses. Larry Bossidy describes how he approaches plant visits:

• Purposeful Visits: Visits are to confirm manager effectiveness, reinforce abilities, and identify areas for improvement.
• Deep Engagment: Bossidy spends the first 30 minutes with the manager discussing staff capabilities, then meets with the whole staff for an hour, sensing communication openness. He asks about productivity, plant numbers, and specific challenges, not just superficialities.
• Mutual Learning: Leaders learn from candid dialogue, and people learn about the company’s vision and their role. This dignifies plant leadership by allowing them to expound on their business.
• Consistent Follow-up: Bossidy makes notes during visits and follows up with managers, even sending personal handwritten notes to reinforce agreements and appreciation, which are highly valued by employees.
• Overcoming Resistance: A leader’s personal involvement and commitment are crucial to overcome passive resistance to new initiatives. Jack Welch’s deep personal involvement in understanding inventory turns by visiting American Standard and questioning plant managers enabled him to quickly roll out the initiative across GE, doubling inventory turns to 8.5.

Insisting on Realism

Realism is the heart of execution. Many organizations avoid or shade reality to avoid discomfort. Leaders must start by being realistic themselves and then ensure realism is the goal of all dialogues.

• External Benchmarking: Leaders should constantly compare their company with others globally, measuring progress externally, not just internally.
• Confronting Uncomfortable Truths: Larry Bossidy’s approach involves asking “What are we doing right and wrong?” in roundtables and management classes, creating an environment where realism matters and truth comes out. He cites the AlliedSignal example where the company claimed a 98% order-fill rate while customers experienced 60%, highlighting the need to address customer complaints rather than defend internal metrics.
• Learning from the Ground Up: Leaders gain insights from diverse perspectives, identifying issues like lack of collaboration between business units that prevent revenue generation. This two-way learning process means people “find out about the company as a whole.”

Setting Clear Goals and Priorities

Effective leaders focus on a few clear, graspable priorities. In contemporary organizations, clear priorities are essential to manage trade-offs and resource competition, especially in decentralized or matrix structures.

• Focus on Few Priorities: A leader with “ten priorities” doesn’t truly know what’s most important. Clear, realistic goals influence overall company performance.
• Clarity and Simplicity: Executing leaders speak simply and directly, making complex ideas common sense. This often requires a “new pair of eyes” to clarify priorities, as seen when a new retail CEO focused on improving existing stores by raising gross margins and comparable sales, translating these into 90-day action plans for his top 100 merchandising and store executives.
• Risk Understanding: Setting any goal requires understanding the inherent risks. This involves more than just mathematical models; it demands common sense and preparing for unforeseen outcomes. The financial crisis highlighted how complex models missed overall risks.

Following Through

Follow-through is a constant and sequential part of execution, ensuring clear accountability and closure. It makes sure commitments are met and problems are addressed swiftly.

• Ensuring Accountability: Leaders must establish firm conclusions about “who would do what and when.” Lack of follow-through leads to inaction and wasted effort.
• Surfacing Conflict: The CEO in the example who demanded 20 engineers be transferred to purchasing revealed and resolved a conflict that would have otherwise blocked progress. His action sent a clear signal about follow-through.
• Timely Adjustments: In uncertain times, milestones need to be closer together, and information flow faster. Action must follow analysis. The financial crisis highlighted the lack of courage to address issues like collateralized mortgage obligations (CMOs) despite apprehensions.
• Commitment and Credibility: Larry Bossidy emphasizes that a leader must be personally committed to an initiative and ensure it’s fully implemented. Failing to follow through erodes a leader’s credibility and makes future initiatives difficult to launch.

Rewarding the Doers

Linking rewards to performance is critical for achieving success. Many corporations fail to distinguish between performers and non-performers, demotivating their best talent.

• Differentiating Rewards: There must be sufficient differentiation in base pay, bonuses, and stock options between top performers and others. Leaders must have the courage to explain lower rewards to direct reports.
• Combating “Wimps”: Ram Charan notes that many leaders are “wimps” when it comes to giving honest feedback or withholding rewards. This leads to confusion and a lack of accountability.
• Performance Ranking Systems: Companies like EDS (under Dick Brown) and GE (with Jack Welch’s “vitality curve”) use quintile or A/B/C ranking systems to differentiate performance, rewarding “A-players” (top in both behavior and performance) more significantly.
• Behavioral Rewards: Rewards should also factor in desirable behaviors like collaboration. For example, at EDS, leaders who facilitated business for other units were noted in their evaluations.
• Correct Metrics: “Shareholder value” is an outcome, not a goal. Effective reward systems link compensation to concrete goals like growth in earnings per share, good cash flow, or improved market share. This ensures that people are rewarded for actions that directly drive overall company health.

Expanding People’s Capabilities Through Coaching

A leader’s job is to pass on their knowledge and experience to the next generation of leaders. Coaching is the single most important part of expanding others’ capabilities.

• Socratic Dialogue: Larry Bossidy’s approach to plant visits involves a Socratic dialogue, where tough questions make managers think more clearly and connect their business to the external environment, teaching them rigorous analysis.
• Specific Feedback: The most effective coaching involves observing a person in action and providing specific, useful feedback on behaviors and performance that need improvement or are excellent.
• Group Learning: Discussing business and organizational issues in a group setting, exploring pros, cons, and alternatives, increases collective capability and fosters honesty and trust. The CEO example who probed a division head’s European market strategy taught everyone about realistic planning.
• Addressing Behavioral Issues: Leaders must address “behavior problems” directly, like Charlie who worked his team seven days a week. Providing evidence and pathways for change, or ultimately removing them, is crucial for organizational health.
• Targeted Education: Education should be strategic and focused on specific organizational needs, not generic courses. 80% of learning happens outside the classroom, emphasizing the role of leaders as teachers.

Knowing Yourself

Emotional fortitude is critical for leaders to be honest with themselves and others, tolerate diverse viewpoints, and deal with conflict.

• Self-Awareness and Self-Mastery: Leaders must understand their strengths and weaknesses, especially in dealing with people. This enables them to keep their ego in check, take responsibility for their behavior, and adapt to change.
• Authenticity and Trust: Leaders must be real and consistent in their actions and words to build trust. Inauthenticity erodes faith and hinders execution.
• Humility and Learning: Humility allows leaders to admit mistakes, listen, and learn from anyone at any time. This fosters a decision-making process based on experience and prevents leaders from becoming complacent or arrogant. Jack Welch’s willingness to admit hiring mistakes and learn from them exemplifies this.
• Impact of Emotional Blockages: Lack of emotional fortitude can lead to avoiding unpleasant situations, procrastinating decisions, or delegating without follow-through. It can also cause leaders to surround themselves with loyalists rather than capable challengers, ultimately destroying the organization.
  These seven behaviors form the foundation of an execution culture, with each behavior linked to the others.

CHAPTER 4: Building Block Two: Creating the Framework for Cultural Change

This chapter introduces a reality-based framework for cultural change, arguing that such change becomes real only when linked directly to improving business outcomes and creating a discipline of execution.

Operationalizing Culture Through Behavior Change

The authors assert that cultural change begins by changing people’s behavior to produce results. This involves clearly stating desired results, discussing how to achieve them through coaching, and rewarding those who deliver.

• Demystifying Culture: Culture is the sum of shared values, beliefs, and norms of behavior. While values may need reinforcement, beliefs are more likely to need changing as new evidence emerges. Behaviors are beliefs put into action, representing the “rules of engagement” for how people work together.
• From What to What: A pivotal exercise involves identifying “from what to what” changes in behavior. An example from a newly merged chemical company highlights the shift “from nonperformance culture to performance culture” by focusing on accountability, starting with the leadership team holding each other accountable.
• Dick Brown at EDS: Dick Brown actively worked to change EDS’s culture by focusing on beliefs and behaviors. He identified “old EDS beliefs” (e.g., commodity business, “my peer is my competitor,” lack of accountability) and established “new EDS beliefs” (e.g., profitable growth, client commitment, collaboration, accountability, better listening). This agenda drove attitude and behavioral change across all leadership levels.

Linking Rewards to Performance: The Foundation of Behavior Change

Transparently linking rewards to performance is fundamental to changing behavior. A business’s culture defines what is appreciated, respected, and rewarded, thereby guiding people’s concentration.

• Courage to Differentiate: Leaders often lack the emotional fortitude to give honest feedback, withhold rewards, or penalize non-performers. This creates confusion and demotivates high achievers.
• Performance Ranking Systems: Dick Brown at EDS implemented a system similar to GE’s “vitality curve,” ranking executives by quintiles based on peer comparison and rewarding them accordingly. This, coupled with coaching, fostered a results-oriented culture.
• Rewarding Desired Behaviors: EDS’s compensation also factored in collaboration, incentivizing leaders to work together rather than protect turf. For example, a salesperson who passed a client to another unit for better service would be rewarded.
• Larry Bossidy’s Approach: Bossidy details his system at Honeywell: setting weighted financial and non-financial goals (e.g., revenue, income, productivity, Six Sigma infrastructure). He emphasizes differentiation in bonuses and stock options to build a performance culture, rewarding based on performance against competitors even in tough economic times.

The Social Software of Execution: Mechanisms for Change

Most cultural change efforts fail because they lack “social software”—the formal and informal interactions that drive beliefs and behaviors.

• Defining Social Software: Social software brings the “hardware” (structure, rewards) to life. It includes values, beliefs, and norms of behavior.
• Social Operating Mechanisms (SOMs): These are integrative meetings, presentations, or exchanges where dialogue takes place. They cut across organizational barriers, create new information flows, and foster new working relationships, leading to transparency and simultaneous action.
• GE’s Social Operating System: GE’s system, central to its success, includes:
  • Corporate Executive Council (CEC): Quarterly meetings for top 35 leaders to review businesses, identify opportunities, and share best practices.
  • Session C: Annual leadership and organizational reviews (8-10 hours) where the CEO, HR head, and business leaders assess talent, promotions, and development needs.
  • S-1 and S-2: Strategy and operating reviews, linking three-year strategy to annual operating plans.
  • Boca Meeting: Annual meeting for operating managers to plan initiatives.
  • Online Employee Surveys: Monthly feedback on initiative adoption.
  • Crotonville Learning Center Meetings: Review progress, plan for the next year, and participate in executive development.
    This system explicitly ties GE’s strategy to unit performance, talent development, and operating plans, ensuring honest, reality-based dialogue with active CEO participation.

The Importance of Robust Dialogue

An execution culture cannot exist without robust dialogue—open, candid, informal, and focused discussion that brings reality to the surface.

• Purpose of Dialogue: It fosters creativity, makes organizations effective in gathering and understanding information, and reshapes it into decisions. “Truth over harmony” is a key motto.
• Characteristics of Robust Dialogue:
  • Open Minds: Participants want to hear new information and choose the best alternatives.
  • Candor: Real opinions are expressed, not those designed to please. This avoids “silent lies” and “pocket vetoes.”
  • Informality: Encourages spontaneity, critical thinking, and risk-taking. It gets the truth out.
  • Closure: Ends with clear agreements on “what each person has to do and when,” ensuring accountability.
• Leader’s Role in Fostering Dialogue: The leader must practice robust dialogue themselves, modeling the behavior and coaching others. Larry Bossidy recalls how Jack Welch intensified dialogue at GE Capital, making it more penetrating and action-oriented. He also learned to involve more people in discussions, ensuring conversations were forthright but professional, without being damaging.

Leaders Get the Behavior They Exhibit and Tolerate

The behavior of a business’s leaders is, ultimately, the behavior of the organization. To build an execution organization, the leader must be present to create and reinforce desired behaviors and robust dialogue through social operating mechanisms.

• Modeling Behavior: Leaders like Dick Brown use regular conference calls to drive new candor and realism, modeling the behavior they expect.
• Cascading Information: The dialogue in these calls develops a total company picture, and information cascades through the company, leading to more informed decisions at all levels.
• Personal Commitment: Larry Bossidy emphasizes that leaders must “love the process” of driving these changes. His own experience at GE and AlliedSignal showed that intense personal involvement, even if initially seen as contentious, leads to better decisions and outcomes.

CHAPTER 5: Building Block Three: The Job No Leader Should Delegate—Having the Right People in the Right Place

This chapter asserts that people selection and development are the most critical jobs for any leader, yet they are frequently neglected. The quality of a company’s people, particularly its leaders, is the most reliable resource for excellent results and a sustainable competitive advantage.

Why the Right People Aren’t in the Right Jobs

Despite common sense, mismatches between people and jobs are frequent, stemming from:

• Lack of Knowledge: Leaders often rely on fuzzy staff appraisals or choose comfortable individuals rather than those with the best skills. They may not define “nonnegotiable criteria” for jobs. Ram Charan recounts a CEO who, despite singing a candidate’s praises, couldn’t specify how she met the job’s critical marketing criteria, revealing a fundamental lack of knowledge.
• Lack of Courage: Leaders often lack the emotional fortitude to confront underperformers, allowing them to remain in jobs where they cause damage. A classic example is a chemical company CEO who tolerated a non-performing North American operations head, leading to market share loss, cost overruns, and ultimately, the company’s takeover.
• Psychological Comfort Factor: Leaders often fill jobs with people they are “comfortable with,” who are loyal or think like them, rather than individuals who challenge them or possess superior skills. This can destroy an organization, as seen with a $25 billion global company CEO who replaced most of his senior team with loyalists, leading to missed deadlines and a two-level debt downgrade because they lacked critical capabilities.
• Lack of Personal Commitment: The root cause is leaders’ failure to commit 30-40% of their time and emotional energy to selecting, appraising, and developing people. This immense personal commitment is crucial for building a strong leadership pipeline and achieving sustainable competitive advantage.

What Kind of People Are You Looking For?

Leaders must prioritize hiring “doers”—individuals who are determined to succeed and find satisfaction in getting things done.

• Focus on Drive and Achievement: Larry Bossidy emphasizes that “a little less conceptual but absolutely determined to succeed” is better than high IQ and elite education alone. He seeks people with an “enormous drive for winning” and a life full of achievement.
• Spotting Doers: Doers energize people, are decisive, get things done through others, and follow through naturally. They are typically not highly intellectual staff people or consultants untested in mobilizing line personnel, though some, like Jeff Immelt and Louis Gerstner, successfully transitioned by proving their managerial skills.

They Energize People

Energizing leaders build and sustain momentum by focusing on short-term accomplishments that contribute to winning the overall game.

• Beyond Rhetoric: They don’t just give pep talks but personify engagement and summarize actions constantly. Bob Nardelli at GE Power Systems transformed a moribund business by enlarging its offerings, moving into new segments, and providing services, overcoming disbelief and resistance through his tireless involvement. He guided managers to develop new value propositions and turn meetings into forums for action and growth.
• Avoid Energy Drainers: Bossidy is wary of docile, reserved candidates who might pick similar people, leading to a stagnant, unenergetic environment. He wants people who arrive with a “smile on their faces” and “create energy.”

They’re Decisive on Tough Issues

Decisiveness is the ability to make difficult decisions swiftly and well, and act on them. Indecisive leaders waver, procrastinate, and avoid reality, damaging the business.

• Confronting Unpopular Decisions: Leaders must be willing to make tough calls, like outsourcing production even if it makes them unpopular with managers who prefer their own plants.
• Dealing with Non-Performers: The toughest issue is dealing with non-performing individuals. Larry Bossidy recounts a railroad executive (Jones) whose autocratic, vulgar behavior negatively impacted the corporation, yet the CEO tolerated him due to his past contributions. Ultimately, the CEO, with board buy-in, removed Jones, leading to a doubling of stock price in four years. This highlights that tolerating poor behavior drains energy and prevents development.

They Get Things Done Through Others

Getting things done through others is a fundamental leadership skill.

• Avoiding Micromanagement: Secure leaders trust others, calibrate and monitor performance, and empower their teams. Insecure leaders, or “micromanagers,” smother initiative, make all key decisions themselves, and block others’ growth.
• Avoiding Abandonment: Other leaders “abandon” their people, delegating without setting milestones or following through, leading to frustration when things don’t get done.
• Collaborative Leadership: Larry Bossidy admits a mistake in hiring “Jim,” an abrasive executive who couldn’t include others in decision-making, leading to a dysfunctional unit. He stresses that long hours worked are a “major weakness” if they mean a leader cannot delegate and work effectively through others. Leaders who can’t collaborate reduce organizational capacity.

They Follow Through

Follow-through is the cornerstone of execution. It ensures commitments are met, exposes lack of discipline, and forces specificity.

• Consistent Monitoring: Leaders must ensure people do what they committed to, on schedule. GE’s senior leaders conduct 45-minute teleconferences to follow up on projects after 90 days.
• Group Feedback: Follow-through can be one-on-one or in group settings. In groups, diverse viewpoints help people understand decision criteria, judgments, and trade-offs, leading to alignment and collective learning.
• Personal Commitment to Initiatives: Larry Bossidy emphasizes that leaders must be personally committed to any initiative they launch, reinforcing that it’s not an “experiment” but a mandatory implementation, ensuring credibility and effectiveness.

How to Get the Right People in the Right Jobs

Traditional interviews often fail to identify executing leaders because they focus on chronology rather than actual performance and the “hows.”

• Probing Deeply: Leaders must “dig into the person’s record” to understand how they set priorities, included others, and took credit. They must identify if successes were at the expense of people or long-term organizational health.
• Larry Bossidy’s Interview Approach: He looks for “energy and enthusiasm for execution,” assessing if a candidate is excited by “doing things” rather than just talking. He personally checks 2-3 references, asking specific questions about priorities, qualities, decision-making inclusion, work ethic, and energy levels. He learned from a mistake where a reference withheld negative information due to fear of liability.
• The Unvarnished Truth: Assessing internal candidates often suffers from bureaucratic, mechanical processes. Leaders must look beyond numbers to how commitments were met (e.g., did they strengthen the organization or burn out the team?). Candor is critical in appraisals.
• Honest Appraisals: Larry Bossidy insists on “everyday common language” in assessments, not HR lingo. He outlines a process where:
  • Assessments are specific about strengths and development needs (e.g., “indecisive, impetuous, doesn’t listen”).
  • Assessors discuss findings with the person being appraised.
  • The appraised person initials the document, acknowledging learning needs.
  • Bossidy personally reviews hundreds of assessments, identifying non-performers and following up with memos.
• Group Dynamics in Assessment: Ram Charan notes that a group can pinpoint critical issues with surprising accuracy. Five people pooling observations in robust dialogue transform subjective views into objective ones.
• Overcoming Resistance to Candor: Don Redlinger, former HR director at AlliedSignal, recalls the initial difficulty of candid appraisals but highlights how it taught managers to focus on talent quality as a competitive advantage. The goal is to move from debating individual quality to helping people overcome knowledge or experience gaps.

The three building blocks—leader behaviors, cultural framework, and people selection—form the foundation for effective operation of the three core processes of execution.

PART III: THE THREE CORE PROCESSES OF EXECUTION

CHAPTER 6: The People Process: Making the Link with Strategy and Operations

The people process is paramount because it’s the organization’s human beings who judge market changes, create strategies, and translate them into operational realities. Getting this process right is crucial for fulfilling a business’s potential.

Purpose of a Robust People Process

A robust people process achieves three key objectives:

• Accurate and In-depth Individual Evaluation: It moves beyond backward-looking appraisals to assess individuals’ potential for tomorrow’s jobs.
• Leadership Talent Identification and Development: It provides a framework for nurturing leaders at all levels to execute future strategies.
• Filling the Leadership Pipeline: It builds the foundation for strong succession planning, ensuring a continuous supply of capable leaders.

Consequences of People Process Failures

Failures in the people process can cost businesses billions. Ram Charan recounts a $250 million investment in an Indonesian chemical plant that failed because the Brazilian plant manager, though excellent technically, lacked the general management and business acumen skills to operate in a foreign country. This highlights the dangers of picking the wrong person to execute a key strategy due to a people process that doesn’t yield information about leadership qualities or business acumen.

Conversely, a U.S.-based company with a global database of talent successfully identified a leader from a developing country to head its challenging European operations. This leader, originally an “unlikely possibility,” succeeded and became a strong CEO candidate. This demonstrates the power of a comprehensive people process in identifying the right match for the job, even if it means replacing excellent performers with those better equipped for the next level. The authors stress that leaders who fail to rein in executives with negative behaviors, like “Jones” at a railroad company who verbally abused staff and defied the CEO, ultimately drain organizational energy and prevent development.

Building Block One: Linking People to Strategy and Operations

The first building block is linking the people process to strategic plans and operating targets across near (0-2 years), medium (2-5 years), and long terms. Leaders must ensure they have the right kinds and numbers of people to execute the strategy.

• Skill Mix for New Strategies: For example, an airplane component manufacturer shifting to “solutions” (products + post-sale services) needs to re-evaluate its sales talent for solution-selling, re-train engineers for design, and elevate aftermarket to a P&L center. This highlights how strategy changes demand changes in people’s skills and organizational structure.
• Difficult Social Process: Determining that some high performers aren’t capable of moving to the “next level” is a difficult social process, but a strong people process forces these questions onto the table.

Building Block Two: Developing the Leadership Pipeline

Meeting medium and long-term milestones depends on a pipeline of promising, promotable leaders.

• Leadership Assessment Summary (Figure 1): This tool compares performance and behavior, showing who has high potential and is promotable (upper-right quadrant). It highlights needs for individuals and the overall group.
• Continuous Improvement Summary (Figure 2): This is a performance appraisal that captures accomplishments, missed targets, and clear, specific development needs. It helps individuals improve and forms the foundation for succession.
• Succession Depth and Retention Risk Analysis: These are the essence of talent planning. Retention risk analysis looks at a person’s marketability and mobility (e.g., Susan James, critical for aftermarket sales, needs immediate recognition and potential higher-level positions). Succession depth analysis identifies if there are enough high-potential people to fill key positions and whether key people will be lost if jobs aren’t “unblocked.”
• GE’s Bench Strength: Companies like GE, Colgate, and Honeywell have strong bench strength because their people processes provide a forum for retaining key talent (e.g., stock grants tied to retirement) and ensure immediate replacements when people leave (e.g., Larry Johnson’s successor at GE Appliances was named the same day he resigned).
• Avoiding Inertia and Rapid Promotion: Identifying high-potential individuals helps avoid keeping people in jobs too long (organizational inertia) or moving them up too quickly without sufficient experience.

Talent Review at Honeywell

The talent review (Management Resource Reviews/MRRs) is the main social operating mechanism for the people process at Honeywell, held bi-annually.

• Purpose and Scope: These reviews evaluate people in current jobs, potential successors, and identify those needing to move. They also address organization design, general talent development, and skill gaps needed to execute strategy.
• Rigorous Preparation: Leaders spend significant time preparing, ready to present and debate views on their direct reports and their reports’ direct reports. Assessments are submitted a week in advance and returned if not honest or clear.
• Multiple Viewpoints and Judgments: The meetings provide multiple viewpoints to transform subjective assessments into objective ones. Ram Charan describes how a group accurately identified a “high-potential” candidate (Walt) as lacking follow-through and a tendency to ignore capital implications, leading to a re-evaluation of his CEO potential.
• Larry Bossidy’s Follow-Up: Bossidy writes specific letters to participants after reviews, detailing agreed-upon actions for their people. These letters cover hiring needs, development plans, behavioral issues (e.g., “John X—his people feel he plays his cards too close to the vest”), and succession planning, with follow-up six months later.

Building Block Three: Dealing with Nonperformers

The final test of a people process is how well it distinguishes between non-performers (who may need different jobs) and those who must be moved out, and how leaders handle these painful actions.

• Defining Nonperformance: Non-performers are those unable to regularly accomplish responsibilities or exercise expected leadership. Larry Bossidy cites an example of a plant manager (Rob) who was technically sound but couldn’t fix cost structure or fill critical roles, leading to a new, different job for him.
• Fair and Constructive Action: Even when someone needs to be let go, leaders should do it “constructively” and fairly, preserving dignity to avoid negative impacts on the company’s reputation (e.g., offering a year’s salary, agreeing on resignation terms).
• Promoting Honesty: Larry Bossidy appreciates when managers are honest about their limitations, like the Honeywell manager who chose to retire due to the increased pace and “corporate interference” after 9/11.

Building Block Four: Linking HR to Business Results

The role of Human Resources (HR) must change radically in an execution culture, becoming integrated into business processes and directly linked to strategy and operations.

• HR as a Strategic Partner: Don Redlinger, Honeywell’s SVP of HR, explains that Larry Bossidy demands HR act as a strategic partner, helping solve business problems like increasing margins through talent. HR must have business acumen, critical thinking, a passion for results, and the ability to link strategy and execution.
• Baxter International’s Model: Baxter, a global healthcare company, integrates HR into its strategic planning.
  • Identifying Capabilities: Growth planners, line executives, and HR identify specific capabilities and skills needed to execute strategies (e.g., regulatory expertise, strategic clinical marketing).
  • Strategically Critical Positions: Annual reviews identify “strategically critical positions” at all levels, ensuring the best people are in these roles. If a person is an “action required,” they must be moved or leave the company within six months.
  • “Senior Slating”: Baxter’s process for choosing candidates for ~325 VP positions is highly visible and has significantly speeded up slating (from 16 to 7 weeks) and improved candidate quality. This process ensures the executive management team has a better knowledge of top talent.
• Duke Energy’s “Live Ammo”: Duke Energy, transitioning from a utility model to diverse energy sources, built a new people process with HR as a central, results-oriented function.
  • Common Language: Duke developed a “common language” for assessing people against four basic competencies: functional, business, management, and leadership skills.
  • Global HR Data System: A centralized, computer-based global HR system provides “baseball cards” (one-page profiles) for every senior executive, enabling rapid, informed succession planning and talent assessment.
  • Candid Dialogue: Chairman Rick Priory cultivated a “brutally honest” culture in the policy committee meetings, ensuring assessments were candid and accountability was enforced. Chris Rolfe, head of HR, had the right to “push back” on assessments due to his credibility.

The consistency of practice in the people process develops expertise in appraising and choosing the right people, with candid dialogue (the “live ammo”) at its core. This process underpins effective strategy execution.

CHAPTER 7: The Strategy Process: Making the Link with People and Operations

This chapter argues that for strategies to succeed, they must be deeply linked to the “hows” of execution, involving close attention to people and operations. A good strategy is an action plan that business leaders can rely on.

The Importance of the Hows: AT&T’s Failure

Many strategies fail because they do not address the “hows.” AT&T’s strategy under Michael Armstrong to offer one-stop shopping for communication services (by acquiring cable companies) ultimately failed due to faulty assumptions and a disconnect from external and internal realities.

• Faulty Assumptions: AT&T paid too much for cable acquisitions, long-distance prices declined faster than expected, consumers weren’t interested in bundled services as anticipated, and regulators did not enforce the Telecommunications Act as hoped.
• Poor People Choices: Three sets of executives ran the cable businesses ineffectively, and investors voiced dissatisfaction with execution at Broadband. The strategy was not robust, lacking contingency plans or realistic assessments of organizational capability.

The Building Blocks of a Strategy

The substance of any strategy is defined by its half-dozen or fewer key concepts and actions. Pinpointing these forces clarity and provides a basis for judging the strategy and exploring alternatives.

• Simplicity and Clarity: A good strategic plan should be less than 50 pages and its essence describable on one page. It’s a “roadmap, lightly filled in,” providing room to maneuver.
• Business Unit vs. Corporate Strategy:
  • Corporate-level strategy allocates resources among business units and defines the company’s boundaries (e.g., industrial vs. consumer products). It adds value through initiatives like Six Sigma and by ensuring a constant exchange of ideas and best practices (GE’s boundarylessness).
  • Business unit strategy specifically lays out where the unit is, where it’s going, and how, considering costs, risks, and flexibility.

Building the Strategic Plan

A strategy must be constructed and owned by those who will execute it—the line people. They know the business environment and organizational capabilities best.

• Leader Ownership: The business leader must own the strategy development, not delegate it to planners. They take responsibility for its construction and action plans.
• Teaching Through Planning: The strategy process is a powerful device to teach people about execution, enabling them to detect change, analyze data, and develop judgment. It fosters excitement and alignment.

Questions for a Strategic Plan

Larry Bossidy outlines key questions a strong strategic plan must address, emphasizing realism, competition, and sustainability:

• Assessment of External Environment: The plan must explicitly state political, social, and macroeconomic assumptions. It scrutinizes trends, regulations, new technologies, and competitive alliances. Leaders must have insights and perceptions to detect patterns of change and relate them to their landscape (e.g., GE and AlliedSignal saw the Asian contagion earlier than most).
• Understanding Existing Customers and Markets: Leaders often look at their businesses from the inside out, losing awareness of customer needs. It’s crucial to understand who makes purchasing decisions and their buying behavior (e.g., engineers vs. purchasing managers vs. CFOs). A proposed $300 million investment in a new product was rejected when the division manager admitted he hadn’t talked to the engineers who would specify its purchase.
• Growing the Business Profitably and Obstacles: This involves developing new products, entering new channels, acquiring businesses, and managing costs. GE Medical grew by expanding into adjacent segments and services, overcoming obstacles by acquiring a lower-tech company and demonstrating value with an Ohio hospital pilot. Market segment mapping (e.g., A.T. Cross’s pen market segmentation) helps define growth opportunities and different competitive dynamics.
• Who Is the Competition? Businesses often underestimate competitors’ responses or overestimate their capabilities. The $5 billion company CEO who cut prices to gain market share failed because he “did not ask him what the competitors’ reaction would be,” leading to an industry-wide price war that hurt his company most. Conversely, a small software company initially “terrified of Microsoft” succeeded by realizing Microsoft had a poor execution record in their area. Competitor analysis should include real-time intelligence on actions, sales forces, leadership backgrounds, potential acquisitions, and alliances. The appointment of Bob Lutz at GM signifies a major competitive shift requiring a careful, intellectually honest analysis from rivals.
• Can the Business Execute the Strategy? Many strategies fail because leaders don’t make a realistic assessment of organizational capability. This was a problem for Xerox, Lucent, and AT&T. Leaders must ask specific questions about global experience, sourcing, supply chain management, technical depth (e.g., in electronics or software), and Six Sigma maturity. If capabilities are insufficient, new talent or other corrective actions are needed.
• Short Term and Long Term Balance: Strategic planning needs to be conducted in real-time, adapting to constant change. Plans must “both plant seeds and harvests,” meeting short-term financial objectives while building for the future. Larry Bossidy insisted that a manager’s “hockey stick” earnings plan (initial drop, then sharp rise) explain how to offset initial losses from new projects, forcing creativity and commitment from the entire business team. Companies like Intel, Colgate-Palmolive, and Emerson Electric excel at this balance by constantly driving productivity improvements to fund future growth.
• Important Milestones for Executing: Milestones bring reality to a plan. If not met, the strategy must be reconsidered. They help leaders understand what’s happening and make necessary adjustments.
• Critical Issues Facing the Business: Every business has a few critical issues that can severely impact it or offer new opportunities. Delineating these focuses planning, preparation, and dialogue. Larry Bossidy outlines how he discusses “critical issues” (e.g., Japan performance, technological evolution, aftermarket growth) with managers before reviews, ensuring the plan addresses them. He also emphasizes the importance of addressing “unmentionable” issues (e.g., management failure, financial crises) through robust dialogue.
• Making Money on a Sustainable Basis: Every strategy must clearly lay out the “anatomy of the business”—how it will make money now and in the future. This includes understanding drivers of cash, margin, velocity, revenue growth, market share, and competitive advantage. Leaders need to see detailed projections on pricing, costs, working capital, marketing investment, and competitor reactions.

A strong strategic plan is specific, clear, and leads to robust dialogue that links strategy to people and operations processes.

CHAPTER 8: How to Conduct a Strategy Review

This chapter focuses on the strategy review as the prime Social Operating Mechanism of the strategy process. It contrasts ineffective, “show-and-tell” reviews with robust, inclusive, and interactive sessions that test and validate strategy before it faces the real world.

The Purpose of a Strategy Review

An effective strategy review must be:

• Inclusive and Interactive: All key players must be present and speak their minds, engaging in “solid debate” with robust dialogue.
• Creative Exercise: It’s not about regurgitating data but generating new ideas and thinking.
• Clear Closure: Participants must leave with clear accountability for their parts in the plan and mechanisms for follow-through.
• Leader Learning and Development: The review is a place for leaders to assess and develop their people’s strategic thinking capabilities and coach them. Larry Bossidy advises bringing “new ideas” and not fearing criticism.

Questions to Raise at a Strategy Review

The review sharpens questions developed during strategic planning, getting a fresh diversity of viewpoints from finance, HR, and other functions. Key questions include:

• How well versed is each business unit team about the competition? Beyond historical data, focus on real-time intelligence: competitors’ plans for customer segments, sales force strength, market share strategies, product offerings, leadership backgrounds, potential acquisitions, and alliances. The appointment of Bob Lutz at GM is a prime example requiring honest analysis of a competitor’s significant move.
• How strong is the organizational capability to execute the strategy? This is where the linkage between strategy and people processes becomes critical. For a software services company aiming to sell $2 billion contracts to Fortune 50 CEOs, questions include whether the sales force has the mental capacity and win ratio, if technology roadmaps are clear, and if the cost structure allows profitable competition.
• Is the plan scattered or sharply focused? Many businesses overreach by pursuing too many offerings or market segments simultaneously (e.g., Unilever reducing 1,600 brands to 400). Reviews must ask if the plan is too ambitious or dilutes focus on core segments.
• Are we choosing the right ideas? Strategies fail if ideas don’t fit existing capabilities or cost too much to acquire. A $6 billion industrial company failed by buying distributors to enter retail because it lacked retail expertise and incurred high costs. To make the right choices, ask:
  • Is this idea consistent with market realities?
  • Does it mesh with organizational capabilities?
  • Are we pursuing more ideas than we can handle?
  • Will the idea make money?
    Larry Bossidy recounts licensing flat-screen technology because AlliedSignal lacked manufacturing expertise, demonstrating that “good ideas aren’t the same for everybody.” He also warns against taking on too many long-term projects that lead to starvation and failure, emphasizing prioritizing and funding the “best two.”
• Are the linkages with people and operations clear? The operating plan must have a “seamless transition” from the strategic plan. Questions include:
  • Does the strategy require a new organizational structure and sales management skills?
  • Are financial resources assigned in the next year’s budget for strategic launches?
  • What are the programs for each quarter, and how will they be funded without sacrificing quarterly profits?
  • Do you have the right people and enough lead time for actions?
    Larry Bossidy emphasizes that if the strategic plan and operating plan don’t align, it shows a lack of integration. He cites Honeywell’s electronic packaging business that lost money because they lacked the right technical and manufacturing capabilities, despite recognizing the shortfall, highlighting the danger of betting on a person without sufficient organizational capability.

Following Through After the Strategy Review

At the end of the strategy review, a letter to each leader solidifies agreements, focusing on growth, new products, and linking strategy to people and operations. Larry Bossidy’s example letter includes specific comments on:

• Competition: Recognizing the company as a target, emphasizing competing on cost and technology.
• Market Defense: Defending current strong positions (e.g., Europe).
• Customer Understanding: Identifying customer goals and anticipating needs.
• Project Prioritization: Not funding all projects, but prioritizing for maximum returns.
• Operational Issues: Addressing quality problems (e.g., 30% customer returns), supply chain, and cost reduction.
• Talent Development: Developing diverse leadership teams and addressing non-performers.
  These letters serve as essential feedback and a basis for reviewing progress, ensuring clear accountability and continuous improvement.

CHAPTER 9: The Operations Process: Making the Link with Strategy and People

This chapter explains that the operations process provides the critical “how” to translate strategic plans into actionable, short-term targets. It’s the path for people to achieve the desired levels of earnings, sales, margins, and cash flow, ensuring reality behind the numbers.

The Flaws of Traditional Budgeting

The authors highlight three major flaws in typical budgeting processes:

• Lack of Robust Dialogue: Budgets don’t provide for in-depth discussion of underlying assumptions.
• Disconnect from Action Plans: Budgets are often built around desired results (e.g., “fifteen-five” growth) without specifying the programs needed to achieve them.
• Missed Coaching Opportunities: The process fails to teach people the totality of the business or develop collaborative social architecture.
  This leads to gaming exercises (people “sandbagging” numbers), rigid budgets that miss opportunities, and poor decisions (e.g., loading inventory to pump up quarterly numbers). Ram Charan emphasizes that budgets should be the financial expression of the operating plan, not the other way around.

How to Build a Budget in Three Days

The authors propose a three-day process for budget preparation based on the “principle of simultaneity” and robust dialogue.

• Simultaneous Dialogue: Instead of sequential bottom-up/top-down budgeting, all relevant business leaders (line and staff) sit together for three days.
• Focus on Key Lines: They focus on the roughly 20 budget lines that account for 80% of business outcomes (e.g., revenues by product mix, operating margins, manufacturing costs).
• Action Plan Presentation and Questioning: Each function presents its action plans, and the leader questions assumptions and impacts on other businesses.
• Sub-team Discussions and Real-time Adjustments: Groups break off, discuss information, and load it into a common computer spreadsheet to see real-time financial pictures. This allows for immediate adjustments and reshaping.
  This process requires leaders who can handle conflict and negotiate trade-offs. It produces a reality-based budget that can be adapted quickly and is a powerful team-building exercise.

The Importance of Synchronization

Synchronization is essential for execution excellence and energizing the corporation. It means all moving parts have common assumptions and understanding.

• Aligning Interdependent Parts: It matches goals and links priorities among interdependent parts of the organization.
• Realignment During Change: When conditions change, synchronization realigns priorities and reallocates resources.
• GM’s Zero Percent Financing: After 9/11, GM’s Ron Zarella conceived zero-percent financing. Its implementation required an operating plan to reprogram and reallocate resources and synchronize production, advertising, and regional product mixes, leading to an immediate boost in market share.

Sound Assumptions: The Key to Setting Realistic Goals

An operating plan builds the budget on realities, based on sound assumptions about the capital markets and business environment (sunshine or rain scenarios).

• Debating Assumptions: This is the most critical part of an operating review, where all assumptions (big-picture and specific impacts) are debated. Larry Bossidy would question sales spikes or research budget overruns to ensure realism.
• Inherent Conflict of Interests: Production, sales, and finance often bring different assumptions. The operating review forces these into the open, allowing for intelligent, reality-based trade-offs. This process builds business leadership capacities and publicly solidifies commitments.
• Timeliness of Planning: Operating plans should be timely, with detailed numbers finalized later (e.g., November for Honeywell).
• Types of Assumptions: Assumptions cover:
  • Customer: Who buys, why, needs, and how long those needs will last.
  • Customer’s Customer: Understanding their demands (e.g., Cisco’s suppliers were hit by telecom downturn because Cisco customers’ customers like GM changed plans).
  • Competitors: Their reactions, product introductions, and marketing campaigns.
  • Suppliers: Delivery, pricing, currency fluctuations.
  • Distribution Channels: Timeliness, billing, financial soundness, and new channels (e.g., Internet).
  • Economy: Outlook for various market segments and regions.
• Honeywell’s 9/11 Response: Larry Bossidy details how Honeywell revised its operating plan after 9/11, forecasting 1.2billioninsaleslosses∗∗inaerospaceand∗∗1.2 billion in sales losses** in aerospace and **1.2billioninsaleslosses∗∗inaerospaceand∗∗ 500 million in earnings reduction. They focused on taking out $500 million in costs to maintain earnings, planning for various scenarios (e.g., defense sales pick-up, business aviation growth), and extending terms with suppliers.
• Automotive Product Plan: For an automotive product, assumptions included legislative situation (emissions), macroeconomic environment, motor vehicle trends by geography, and new technology introductions.

Building the Operating Plan

The operating plan, built in the operating review, is a three-part process:

• Setting Targets: Key targets (revenues, operating margin, cash flow, productivity, market share) are set from the outside in (market expectations) and top down (corporate goals to components).
• Action Plans and Trade-offs: The plan includes major programs (marketing, sales, production, functional operations, capital spending). Leaders must make crucial trade-offs between short-term objectives and long-term goals, ensuring strategy direction is clear and resources explicitly allocated. Productivity improvements (e.g., Honeywell’s $37 million from G&A cuts and product mix improvement) are a constant source of funds for future growth.
• Agreement and Closure: Ensure all participants commit and establish follow-through measures and corrective steps.

Outcomes of the Operations Process

• Realistic, Achievable Targets: Targets reflect both what a business wants and is likely to achieve, based on realistic assumptions.
• Organizational Learning: Leaders participating in reviews gain a comprehensive understanding of the business and learn to allocate resources effectively.
• Superb Coaching Sessions: Reviews are opportunities for leaders to teach people how to make trade-offs, balance short and long term, ask incisive questions, and encourage inquiry.
• Confidence Building: The team gains confidence in meeting targets, adapting to changes, and succeeding in various circumstances.

After the Meeting: Follow-Through and Contingencies

• Follow-Through Memos: A powerful technique is to send each person a memo outlining agreed-upon details, serving as a basis for reviewing progress (e.g., Larry Bossidy’s letter to Group X leaders on sales, cost structure, quality, and supply chain).
• Contingency Plans: Companies that execute can implement contingency plans quickly. AlliedSignal and GE created plans within six weeks of the Asian contagion because they had thought about it beforehand. Operating plans should include negative and positive scenarios (e.g., labor negotiations, research budget overruns, sales doubling).
• Quarterly Reviews: These keep plans updated and reinforce synchronization. They provide leaders with a good idea of who is on top of their business and what assistance is needed. Larry Bossidy conducts detailed quarterly reviews to ensure “early action” on any deviations from the plan, preventing issues from snowballing. He challenges managers on “hopes and dreams,” insisting on “realities.”

The operations process provides the “goals to live by,” where targets are owned, accountability is bedrock, and creativity is unleashed to close any gaps between aspirations and reality. This disciplined approach integrates the three core processes, providing a new theory of leadership based on practice and effective execution.

CONCLUSION: Letter to a New Leader

This concluding “Letter to a New Leader” distills the book’s core wisdom into actionable advice, emphasizing the timeless principles of execution for those stepping into leadership roles.

Essential Self-Assessment and Organizational Knowledge

The letter advises a new leader, Jane, to begin by candidly assessing her own skills against job requirements and building a balanced team. It stresses the importance of “getting down where the action is,” talking with people at all levels to learn business realities and establish personal connections. Jane must understand the beliefs and behaviors of her team and ensure an execution culture where performance is recognized and rewarded. If the current culture is one of “political gamesmanship, butt-covering, and denial,” she must initiate the social software needed to change it.

Personal Leadership of Core Processes

The letter strongly emphasizes that personal leadership of the three core processes—people, strategy, and operations—is paramount. This is “the guts of the business” and “your levers for changing or reinforcing the culture.” Leaders must run these processes with “rigor and intensity,” resisting the constant pull to focus on external display.

People Process Excellence

Jane’s stewardship of the people process will convert belief into reality. She must:

• Cultivate a “second to none” people process.
• Know at least the top third of her unit’s people in terms of performance and growth potential.
• Ensure appraisals are honest and direct, providing necessary feedback, coaching, and training.
• Guarantee the compensation system rewards “the doers.”
• Compare her people against competitors, ensuring the performance bar is high enough.

Strategic Process Clarity and Execution

Getting the strategy process right is crucial for long-term success. Jane should ask:

• Are business leaders driving the process, not isolated planners?
• Does the plan contain accurate information for competitive assessment?
• Is it sufficiently detailed with specific programs for growth and productivity?
• Are critical issues identified, debated, and resolved?
• Are resources allocated proportionally to opportunities?
• Is the plan straightforward, concise, and easily understood by everyone?

Operational Process Accountability

The operating plan must be the “action plan the budget should represent.” Jane needs to ensure:

• It sets a template for achievement and synchronizes all organizational parts.
• It links explicitly to strategy and people processes.
• It nails down team commitments by tying performance to incentives.
• Leaders exercise discipline and imagination to deal with unanticipated events.

Continuous Improvement and Self-Awareness

The conclusion reinforces other critical elements for success:

• Customer Understanding: Deeply understand customer needs, buying behaviors, and preferences.
• Initiative for Improvement: Always seek ways to introduce initiatives like Six Sigma or digitization to improve results and bind people.
• Intellectual Honesty: Maintain and sharpen intellectual honesty, being relentlessly realistic and seeing things as they are.
• Confidant and Balance: A leader needs a confidant outside the business for candid feedback and to stay grounded. Maintaining a balanced life and consistent behavior is crucial for inspiring confidence.
• Passion and Growth: Remembers that “some people grow in their jobs, and others swell.” Those who grow are passionate, pay attention to details, stay close to their people, listen, and learn.

The letter ends with a wish for Jane’s continued progress, emphasizing that her commitment to work and continuous learning will lead to further achievements.