and Strategic Measures?
My favorite example of the difference between measuring success tactically versus strategically has a direct connection to my father and his service as a United States Merchant Marine during World War II.
When Great Britain’s war with Germany had reached a point of crisis, the United States Merchant Marine fleet provided the greatest sealift in history.
It began with transporting tanks, aircraft, ships, weapons, food, clothing, and building supplies across the Atlantic.
Not surprisingly, the Germans immediately began attacking the U.S. merchant ships using long-range bombers. These attacks had a devastating impact. Something had to be done, so the United States Navy installed anti-aircraft guns on the merchant ships and operated them with trained Navy gunners.
After the Japanese attacked Pearl Harbor, the Navy’s priorities shifted. The guns and trained Navy gunners were ordered to immediately redeploy to the Pacific theater.
When the inevitable protest arose, the Navy had a ready rationale: while the guns and crews had been on the merchant ships, they had failed to shoot down any significant number of German bombers.
By this tactical measure, the effort was a waste of the scarce resources urgently needed to stem the Japanese assault. Fortunately, someone asked a strategic question: What was the purpose of putting the guns on the merchant marine ships in the first place? Was it to shoot down German bombers?
No. The purpose of the guns was to improve the odds of the merchant ships and their critical cargo making it safely to England. Since installing the guns, German bombers had sunk far fewer merchant ships.
Wait a minute. If the gun crews were not successful in shooting down bombers, why had the number of ships sunk by aircraft decreased?
The answer was surprising. The German pilots could fly in at almost masthead level when the ships were unarmed. At that height, the probability that a bomb or torpedo would hit the vessel and sink it was high.
However, once the Navy’s anti-aircraft gunners began firing at them, the German pilots faced a stream of tracer bullets, and the masthead flight path no longer seemed like such a good idea. So, the German pilots began attacking
from a much higher altitude, which meant that their bombs and torpedoes were significantly less accurate at hitting their targets. Ergo, the Germans sank fewer American ships.
Once the Navy strategically measured the anti-aircraft guns’ effectiveness (and their tracers), they reversed the previous decision.
The skilled Navy gunners would still redeploy to the Pacific theater, but the guns would remain on the ships and be manned by merchant sailors. These sailors were not expert gunners, but that was not a barrier since it did not matter whether they shot down any planes. They just needed to fire at them, so the German pilots faced a stream of tracer bullets.
In 1941, my father, Julian Russell, was an 18-year-old merchant sailor responsible for firing one of his ship’s anti-aircraft guns. He never hit a German plane, but he served his ship well by keeping the German pilots high in the sky.
The Trouble with Tactical Measures
In the mid-1990s, the North America Marketing and Refining Group of Mobil Oil (now ExxonMobil) discovered what happens when an entire organization focuses only on tactical measures.
When I interviewed Mobil North America’s CEO, Brian Baker, he explained. “Many of the measures we had drove behaviors that didn’t get us where we wanted to be because they were short-term and silo- centric. The collective impact of these behaviors put the business at the bottom of our industry ranking.”
When Baker took charge as CEO to drive a massive business turnaround, he linked individual performance metrics and bonuses to the overall strategy. In two years flat, Mobil North America went from the bottom to the top of industry rankings.
The leaders of a large medical center in Boston learned the hard way how counterproductive mandating the wrong measures could be. Like many other healthcare organizations, they tried hard to employ cost-cutting to reduce financial shortfalls.
Every department was required to “share the pain.” The leaders told all department managers to reduce expenses by a designated percentage.
The managers of the Radiology Department came up with a great way to meet their target: make only one copy of an X-ray and keep it in a central location.
This measure immediately lowered costs in the Radiology Department, but it disrupted the entire medical center and increased its overall costs. Earlier, when doctors ordered X-rays, they received copies promptly delivered to them.
In the new process, highly paid doctors, under enormous time constraints, had to go to the central repository to review the X-rays. The doctors were furious, and the overall efficiency of the entire medical center deteriorated.
Measures That Matter Most
The strategic thinking for Desert Storm included how success would be measured. It would not be tactical, such as the number of targets hit, or the number of bombs dropped. The focus would be on the measures that mattered most, those linked
to the Future Picture of success: Iraq has withdrawn from Kuwait, Kuwaiti sovereignty has been restored, and the free flow of oil has been secured. By these three strategic measures, Desert Storm was a resounding success.
Think about your organization. What are the measures that matter most?
In the vast McDonald’s system, the company measures strategic success in three ways: sales growth, customer satisfaction, and franchisee satisfaction. One of our clients, the Western division of McDonald’s, had been the poorest performer in all three areas.
GEO was engaged to accelerate a turnaround. We implemented a rapid-cycle, six-week strategic thinking process. It began with three two-day meetings that engaged the franchisee leaders spanning nine regions, and key vendors and corporate departments.
Seventy participants worked together to design their Future Picture applying the techniques described in Principle One. They created and committed to an audacious Future Picture: to become the #1 performer in the McDonald’s corporate system. Success would be measured by sales growth, customer satisfaction, and franchisee satisfaction.
The Future Picture and success measures were quickly cascaded to over 1000 associates who participated in nine one-day regional meetings. The results were extraordinary:
- In the first six months of our engagement, the division’s sales grew from a negative to a positive increase of 1.5% or $60 million. *During the same period, other divisions had zero or negative sales growth.
- Within one year, the Western division became the #1 performer in the McDonald’s system as measured by sales growth, customer satisfaction and franchisee satisfaction.
- The division president was subsequently promoted to president of McDonald’s North America based on the exceptional results he had delivered with his division.
The Dell Story
In his early years as CEO, Michael Dell realized that his company was in serious trouble. His singular focus on growth had led to a shortfall of available cash to cover expenses and inability to service short-term debt.
He realized that growth was only one of the measures that mattered most.
His team added two more measures and made growth number three. The new measures were: “liquidity, profitability, and growth—in that order.” In his book, Direct from Dell, Dell describes the impact:
Once we established the new measures, we changed our information systems so that a salesperson could see the level of margin for a product literally as he or she was selling it on the phone. Previously, you might have had a case where two salespeople would each sell $1 million worth of our products, but one might have a 28 percent profit margin and
the other only 8 percent. So, our compensation system moved from an emphasis on top-line sales to a more sophisticated measure that motivated people to ensure that each sale achieved the profitability goal.
In sum, making everyone aware of the strategic success measures—all of them— is a powerful tool to promote thinking and behavior that directly supports the Future Picture.