POINT OF VIEW
Prioritizing is usually seen as an individual skill that some are good at, others not so much. We prioritize whenever we think about how we will spend our time today, this week, this month — or this year. But the fact is, prioritizing is also a key organizational capability. Indeed, how and why organizations prioritize their activities is vital to their success. Yet, surprisingly, this is one of the least understood and most neglected areas of organizational life.
The word priority appears in the English language as early as the 14th century. The Merriam Webster dictionary defines it as, ‘what matters most.’ In organizational terms, prioritization sets the agenda in terms of what really matters, which is reflected in how resources are allocated — especially the scarcest resources: Time and money.
Based on 20-plus years of executive experience with large corporations including Glaxosmithkline and Pricewaterhousecoopers, I have found that one of the main reasons companies fail in this area is that they lack a clear sense of what is truly urgent and simply select the wrong priorities. The results can be calamitous, as evidenced by two classic corporate failures of recent times.
In the case of Kodak, it wasn’t that it didn’t foresee the rise of digital photography, but that it chose to prioritize the wrong things. In the 1990s, Kodak invested billions of dollars into developing technology for taking photographs using mobile phones and other digital devices. But in a classic case of Clay Christensen’s innovator’s dilemma, it held back from developing digital cameras for the mass market, because it feared that it would cannibalize its all-important film business. Meanwhile, the Japanese company Canon recognized the strategic priority presented by digital photography and rushed in.
Similarly, Finnish company Nokia developed the technology for smartphones earlier than most of its competitors — yet it decided not to launch projects in this field and instead, prioritized the exploitation of existing products. If it had chosen different priorities, Nokia might still be one of the leading telecom operators in the world.
If an executive team doesn’t clearly prioritize, middle management and employees will do so, based on what they think is best for the organization. At first, this might appear to be a good practice: empowering people to make decisions is something that has been heralded since the times of Peter Drucker. The key is to have a clearly prioritized set of strategic objectives to work from.
To illustrate, let’s look at a real-life example. ‘Sam’ worked as a teller in a local bank, serving customers. He loved his job. His father had also spent his entire career in the same bank. But like many other banks, this one was struggling to survive due to low interest rates, increased competition and the burden of cumbersome regulation. The executive team worked for months to identify a new
strategy that would help to turn the bank around — eventually identifying two strategic priorities that they believed would secure its future.
In a series of townhall meetings, the CEO informed staff — Sam included — that the new strategy was based on two priorities: 1) improve the customer experience, increasing satisfaction by 20 per cent; and 2) increase efficiency by serving 20 per cent more customers per day. The message was crystal clear: As long as Sam and his colleagues stayed focused and met the two strategic priorities, the bank’s future — and their jobs — were assured.
The following day, sam was extra motivated, after hearing his CEO say that the company he cared so much about was, basically, in his hands. He kept in mind the two strategic objectives and started to serve customers as efficiently as possible. That worked fine, until a customer started to talk about a personal loss and the terrible situation he was going through. He clearly wanted to talk with Sam, who was initially pleased with the idea as it would significantly increase customer satisfaction. However, after a few seconds, Sam froze.
What about the second strategic objective, efficiency? If he spent a few extra minutes talking with this customer, his client-servicing rate would suffer. What should he do? He didn’t know for certain which objective was more important, but he had to make a decision. As did all the other bank tellers, every single day.
The executive team thought that it had clearly communicated its strategic objectives, but in fact, it had created an operational dilemma. The result: The bank’s performance didn’t improve and many employees who worked hard to implement the new strategy were let go. As this example indicates, all too often, there is a gap and lack of alignment between corporate strategic objectives and those of different business units and departments.
To address the challenges of prioritization that I have confronted throughout my career, I have developed a simple framework called the Hierarchy of Purpose. Following are its five principles.
If executives don’t clearly prioritize, middle management and employees will do so themselves, based on what they think is important.
1. PURPOSE: ‘Vision’ and ‘mission’ are often used interchangeably, and their key differences are not well understood. The sad result: staff don’t know what really matters. My advice: Use the term purpose instead: State the purpose of your organization and the strategic vision supporting it. The purpose must be crystal clear and understood by everyone. Amazon’s purpose ‘to be earth’s most customer-centric company’ is clear, compelling and eliminates any ambiguity.
2. PRIORITIES: The number of priorities an organization sets is revealing. If the risk appetite of the executive team is low, they will tend to have a large number of priorities; they don’t want to take the risk of not having the latest technology, missing a market opportunity, and so forth. On the other hand, if the executives are risk takers, they tend to have a laser-like focus on a very small number of priorities. They know what matters, today and tomorrow. My advice: Define the priorities that matter most to your organization, now and in the future. Take the example of Amazon: Their purpose clearly puts the customer at the centre. As opposed to Sam, everyone working at Amazon knows what to do when they have to make a decision.
3. PROJECTS: Nowadays, companies have a large number of projects running in parallel, mostly because it is easier to start projects than to finish them. Very
often capacity, and not strategy, determines the launch of projects. If people are available, the project is launched. If not, it is dismissed. By using the answers to the first two points of the hierarchy of purpose, executives can identify which are the strategic initiatives and projects that align best with their purpose and priorities. It also helps to identify projects that should be scrapped. My advice: Although some theorists suggest developing formulas that automate the process of prioritizing and selecting ideas, my recommendation is not to use such a systematic approach. The ultimate decision has to be made by senior management, based on human judgment and intelligence.
Amazon’s purpose, ‘to be earth’s most customer-centric company’ is clear, compelling and eliminates any ambiguity.
4. PEOPLE: Large organizations are made up of individuals with their own strong sense of ‘what matters’. In most cases, these are by their nature self-serving, informed as much by personal ambition and aspiration, as by any sense of alignment with the organization’s strategy. Yet, as shown in the example with Sam, employees are the ones performing the day-to-day business activities and delivering on projects. As a result, they have to make many minor decisions and tradeoffs every day. Creating clarity around your priorities will ensure that every employee works in the same direction. My advice: It is important to allocate the best resources to the most strategic projects and to liberate them from day-to-day operational tasks. Projects are delivered more successfully when they have a fully dedicated team and a strong, committed and proactive sponsor.
5. PERFORMANCE: Project metrics tend to measure inputs (scope, cost, time) instead of outputs. Inputs are much easier to track than outputs (such as benefits, impact and goals). Identify indicators linked to your organization’s priorities, and to the outcomes expected from the selected projects. My advice: Less is more in this case: One or two for each area will do the job. It is better if people can remember at all times how performance will be measured. Finally, management should have the right information to quickly react to market changes and to supervise the pipeline of new priorities.
In closing
Think of your organization’s purpose and priorities. Are all of your employees working according to those priorities? Are their activities prioritized to align with the best interests of the organization as a whole? How would your priorities change in case of a sudden economic downturn?
One of the main hidden benefits I see whenever I carry out the first round of prioritization with top management is that the discussion turns into a very interesting strategic dialogue. For example, the CEO might ask the director of sales, ‘How are we going to meet that international growth target if currently, we only invest in existing markets? Is this sustainable in the long term? What would be the consequences of balancing our portfolio and investing more in growth and cost optimization, and less in compliance?’
Among the organizations I have worked with—and others such as Apple, Amazon, Lego, IKEA and Western Union, all of which have a highly-developed sense of priorities—the payoffs of a hierarchical approach to priorities are clear: they can result in significant cost reductions, as priority activities that fail to deliver against clearly-articulated measures will be stopped; there is potential to reduce duplication, consolidate activities and decrease budget overruns; and there is increased alignment and focus around strategic priorities. Most importantly, the firm as a whole will shift to an execution mindset and culture.
Antonio Nieto-rodriguez is Director of the Program Management Office at Glaxosmithkline Vaccines and Chairman of the Project Management Institute. He is author of The Focused Organization: How Concentrating on a Few Key Initiatives Can Dramatically Improve Strategy
Execution (Routledge, 2012) and is a visiting professor at Duke University’s and Spain’s Instituto de Empresa, among others. He was recently nominated as Thinker of the Month by the prestigious Thinkers50.com. For more: antonionietorodriguez.com.