In today’s business world, there is no lack of good ideas, but fifty percent of them are doomed to fail. Executives often green light strategic initiatives based on a business case or a financial analysis, with no idea whether their company has the ability to execute successfully.
Alex Castro, the author of Measure, Execute, Win, believes there’s a better way to make corporate decisions. He is the CEO of M Corp, and he has helped clients deliver complex corporate strategy for the last twenty years, because you don’t get two or three chances to make a strategy work in today’s environment.
Alex Castro: This book has been rattling in my head for probably five or six years, but the thing that I struggled with was how to put together a very compelling story. How do you present a topic that largely gets overlooked and tell a story about it in a way that is cognizant? A story that can connect the dots and work together.
Speaking at different conferences, to different groups, or having different meetings, I got a lot of encouragement to finally hunker down and get this done. Professional acquaintances, customers, people on my business team, people in my life, were saying that I really needed to get this book together.
Making Strategic Decisions
Rae Williams: What would you say is the crux of the book that people can take action on?
Alex Castro: I’m a data person; I like data because it creates these sort of stable pillars that you can do things with. The crux of the book is that half of all strategic initiatives, in both public and private sector, fail. What you start to take a look at, especially when you dive into the data and the research, is that this has been a problem that has existed for a significant amount of time and people don’t pay attention to it.
The crux of it is—if you can begin to create better pools of strategic initiatives, if you can begin to watershed away the things that either your company is incapable of delivering on, or those projects that you want to do, that are just so compelling, but just don’t have a chance.
If you can begin to watershed those things away and focus on the initiatives that are going to move your vision forward, it’s going to begin to accelerate.
You’re starting to get rid of all those distractive initiatives and projects that just sap energy out of a business, regardless of how good the idea is. This allows that business to really focus on things that it can deliver, and things that it can do.
Businesses also need to understand where they are vulnerable. Most businesses really like to look at themselves from the context of a health assessment, to see how the overall business is and how well it can do. The reality is that this doesn’t tell you anything, because each thing that you’re going to do, whether it’s an acquisition, a new product, or a new market, whether you’re going to modernize your back office to become more efficient, or you’re going to take all of your applications and move them into the cloud, or if you’re going to upgrade all of your systems, each one of those initiatives has its own personality, has its own characteristics.
There are different factors that will impact your ability to do those things. The reality is that, at any given time, half of the things you’re doing are failing or just not performing. That is a significant amount of waste.
If you can begin to understand, as a decision maker, as a chief financial officer, as a CEO, as a chief operating officer, when you have people coming to you and saying, “I need some funding, because I want to support this strategy and I want to do these projects, or I want to buy these companies, or I want to do these different activities within the business,” there’s no way for an executive to understand whether or not the business can actually execute those ideas; whether or not the business has the ability to actually engage and see it through.
What this book is about is really understanding that you have to measure that potential. It’s measuring it like you measure your credit score, it’s measuring it like you’re taking the SAT, or a bond rating, or a personality test before you get hired.
It’s a metric that works within the equation of decision making. It has been missing from corporate governance up until this point. The emphasis is to measure your ability to execute that idea, before you invest in building out the business case, before you invest in building out all the performance, and doing the analysis of months and months of investment. Those things are not only costing you money, but also distracting you from other things that you could be doing.
You can understand very quickly; do we have the ability to execute this or is this going to be one of those things that’s going to have a significant impact on our business?
Why Ideas Fail
Rae Williams: Let’s talk more about why businesses fail and why ideas don’t flourish sometimes. Tell us a little bit more about the executive side of things and why ideas are not flourishing?
Alex Castro: Everything that I tend to go to is about root cause. What is at the root of why something is happening? What’s come out through studies and through authors from MIT, Sloan, Princeton, to Ohio State and many others, is that the behavioral practice of decision bias comes into play. Executives are mostly driving the strategy and vision.
Executives have this very cemented state of mind that their companies are able to execute on their visions. Because they have these great hiring practices, and they’ve got the best people, and they’ve gone out and had retention efforts and training, and getting people up to speed, and doing all these different things that build a good organization, without recognizing that all that work is for your now state.
It’s for your ability to function more efficiently today, to execute today’s strategy, today’s vision. When you make that move up the line, depending on how aggressive it is, you’re going to have a gap in execution capability. That’s where the failure comes from, and it is the single thing that is actually not measured in any decision-making practice at the executive level, consistently across the Fortune or S&P 500, and the Fortune 1000 companies globally.
The Readiness Measurement Score
Rae Williams: Getting into the standard of measurement, you have developed something called the REM Score—the Readiness Measurement Score.
Alex Castro: We went out and started to look at best practices associated with a lot of the studies that have been published by behavioral economist, who are the ones that are really pushing the concept around decision bias and the different behavioral traits that go into making decisions.
We began to take a look at all the different areas that were impacting the different activities that a company does. Anything from something that involved an acquisition, a new product launch, any kind of technology development, back office system optimization where you’re trying to improve your accounting, your logistics, or customer facing CRM.
What we began to recognize is that there was a very clear pattern, in the sense that there were consistent factors—regardless of the size of the company, or the industry, or type of initiative that they were doing. What we began to say is, “What are the areas that are getting impacted?” What we wound up doing is calling them domains.
These domains of impact relate to all the different factors from a postmortem analysis of why something failed or didn’t really reach its optimal state. We built out these domains of measurement and we wound up building about fourteen of them. They encapsulate everything that is important in terms of why something worked.
When I speak to executives globally, what I say to them is, “Every time somebody asks you for money to go do something, in essence, you are a loan officer. A subordinate within the company is saying, ‘Please give us this money, so that we can go out and do this thing, and then we will bring back a multiple of return for the money,’ instead of taking it and putting it into an investment fund, or distributing it to stock holders.”
When you loan that money out, what you’re looking at is not about success and failure, because success and failure is very subjective. What you’re really looking at is did they come through with what they had committed to or did they default on the loan? Did they repay the loan?
The reality is that the default rate inside corporate America, as well as government, is 50%. During the financial crisis in ’09, it peaked out at 18.5%. Think of how bananas everybody was going when the economy was in a state where home loans were defaulting at a rate of 18%.
Companies have a default rate of 50% on the things they invest money in. When we develop the REM score, what we’re looking at is the broad spectrum. What are the factors that are contributing to these defaults, what are the things that are contributing to the ability or the inability to deliver on the commitment?
These 14 domains are fleshed out and then within those domains, we begin to actually dig a little bit deeper and create these thematic models underneath. Then we have to figure out, how are we going to collect data into these domains? Because, if you’re talking to a technologist, they want to say you have to look at the code and the architecture.
You go out and you look at the code and the architecture and you’re doing analysis on that. What you wind up realizing, in this example, is that there is no data that supports that the reason technology projects fail is because the technologists or IT did a bad job.
It’s literally an old wives’ tale, there is nothing that supports it, the technologists are doing a very good job. But it’s a bias—it’s a bias that gets included in the conversation.
We started to look at how we intake information and what we really began to build out, without really knowing it is, in essence, what we call swarm intelligence.
That whole hive mind, where swarm intelligence is beginning to take the inputs of people who are associated with that project or initiative, they begin to provide data through a data gathering interface that begins to guide and steer as a collective, kind of little Star Trek-y.
The thing that we kind of came back and realized, as a fundamental baseline—and this again, is something that I don’t think executives really have the time to recognize, because the blistering speed of expectation is that virtually every answer that they want, in terms of understanding if they can succeed in a market, can they produce the product, where should they go next, what should they be doing, how should they be doing it, can they actually do that—all of those things that they want to understand are actually inside their company.
They have no mechanism, no method to harvest that data and bring it out of their company in a way that they could act on it, so that they could avoid bad initiatives or what’s called a black swan event. One in six large scale strategic initiatives are things that could actually collapse the company.
What we found is that, not only did the 14 domains of measurement beginning to reveal things, we found by using swarm intelligence building, this sort of hive mind of people’s inputs, that were actually steering us into a direction with conclusions that were not only incredibly accurate and able to determine whether or not the business was ready to execute on a strategic initiative, but in fact, that they actually possessed all of that data inside of their own company.
I started to refer to it as the golden ticket from Willy Wonka. You have that dad who is buying cases and cases of chocolate bars and having all of the factory workers just opening chocolate bars looking for a Willy Wonka ticket. At the end of the day, that is a lot like how strategy gets implemented. People are just ripping up candy bars looking for the golden ticket.
What we found is that these domains narrow that down and allow a lot of the distraction to be removed. The focus comes back in and the swarm of your employee base begins to actually stir, because you have invested well in hiring very good people, retaining them, training them, and they know how to get you there, but not as individuals.
They know how to get you there as a group, through a facilitated mechanism that intakes their data into domains that measure what’s important, calculate, and gives you a metric that you can act on.
Trust the Data
Rae Williams: What should executives or leaders do to prepare for the implementation of this method?
Alex Castro: There isn’t anything, really. What you are dealing with when people operationalizing this, is that they struggle with the shift. I have had executives come back to me and say, “Well, Alex, this is going to kill innovation,” and I’m like, “It’s not going to kill innovation. It is going to kill stuff that just doesn’t work.” It is going to kill things that are going to waste your time.
I’ve had other executives come back to me and say, “Alex, this is really going to slow us down.” Look, this assessment can be done in two days. It can be done in a day if you wanted. This is not something that is going to take you months and weeks of collecting data or having people in conferences. This is something that is very quick.
When you go to your bank and say, “Hey, I want to buy a house, I want to buy a car, I want to buy a boat, or I want to buy an office building,” one of the first things they look at is your credit score. Based on that, it sets the path for what you want to do. No matter how good of an idea that asset is as an investment, what they look at as a bank is—“That’s a really great idea. That is a really great asset. Can you pay it back?” And if you can’t pay it back, they don’t care how good the idea is.
This actually begins to melt away a lot of the distraction. Operationalizing this is really more a standpoint of culture and leaders saying, “Look, before you bring me something about how amazing your idea is, I need you to measure whether we can actually do it. When you can tell me whether we can do it or not, I’ll hear your idea.” I think that is the thing that scares leaders the most, because they feel like that is going to somehow create a barrier to innovation.
In reality, it begins to help. It helps the people coming up with an innovative idea. It filters down and they say, “You know, these are really good ideas, but I am going to wind up wasting a whole lot of time, a whole lot of money, and a whole lot of energy on things that we are just not in a position to do.” That tends to be the most challenging thing.
The data you want is inside your business. All you have to do is funnel it through this model to collect it, extract it, parse it, figure out how to read it, and you’re going to begin to see a lot more acceleration in the execution of your strategies.
A Few Examples
Rae Williams: Do you have any examples that you can give us?
Alex Castro: We use a couple of clients as examples, because we tend to be under heavy non-disclosures. One is TaxAudit.com. TaxAudit.com is an independent company that is the tax audit insurance for Intuit.
Whenever you do your taxes online, you have a box you can check and pay some amount of money and in case you get audited, it covers the entire audit cost. They have an automated process and they do an extraordinary job helping people out. They have a very, very high success rate.
When I began to speak with Mark Olander, who was the CEO at the time, he wanted to modernize his entire platform. Not only how people interacted with TaxAudit, in the sense of providing forms, backup material, and content, but also their internal processes.
He already had begun to hire project managers and coders. And he was opening up offices in Southern California to be able do this. He looked at me during the conversation and said, “Alex, the biggest thing that scares me is what I don’t know. I think I’m a pretty good manager. I am a very experienced business person, but it’s always the stuff I don’t know that winds up biting me.”
I said, “Well I understand that.” So, we ran him through a REM Score and revealed some really critical items that were going to impede their ability to execute their vision.
We brought it in front of his executive team, and they took it very well. They said, “Okay, this is good data. This is interesting data, and we suspected some of these things existed, but this really gave us much more direction and concrete action items.” And yet, they were already in process a little bit and their momentum kept them going forward. They began to realize, based on having that REM report and the REM score in front of them that detailed out all of these 14 different areas of measurement, what was going to happen.
The momentum still carried them forward, while they were reviewing the report results and going through their corrective plan. Then they began to see the items that we had identified start to pop out. Maybe it’s because it was something they had already been alerted to and now, it was much more obvious to them. The minute that they began to realize this, they went full force and invested in correcting their approach.
This yielded a modernized platform for them. Once they had gone through their corrective process to make the adjustments for what we call vulnerabilities in their delivery model, they came out with a really, really great product that increased their ability to produce volume and meet Intuit demands. Unfortunately, you know we can’t disclose a lot of those very specific data points, but it was a very successful for them.
The same thing happened to CalPERS. They are the largest pension system in the country, and they needed to modernize their actuarial system. Their CIO and the head actuary got together and realized that they needed to know what they didn’t know. They went through that similar process and once they got the results, they stopped what they were doing for about nine months to correct the vulnerabilities that they had identified.
In that instance, they accelerated their project by about two years and delivered it for two thirds of what they had anticipated spending. It made a significant difference because this actuarial system handled computations for 3200 different pension plans throughout the State of California, and those calculations had to happen on a quarterly basis. It was very significant.
It also allowed them to modernize their back office in a way that really reduced their risk and helped them to optimize the product they were producing.
A Challenge from Alex Castro
Rae Williams: If you had to issue a challenge to anyone who is thinking of implementing this decision making at the executive level, how would you challenge them?
Alex Castro: The challenge is to begin to weave in a readiness score mentality into your decision process. The thing that I see getting very, very confused on a regular basis, is that you’ll have an older executive. I am 50 years old and I blurt this out every once in a while, and more senior executives tend to say, “Hey look, I have this experience. I have been doing this for X amount of years. I have seen everything under the sun.” Or “I have seen this scenario before, and I have been through this.”
They rely on that past performance as though it is going to guide them to future success.
What I have found is that that’s partially true. It is partially true because it is not having gone through that past scenario that is going to actually make them successful in the future, because the things that happened on that past project or that past acquisition may have been based on the past strategy.
That has no bearing at all on what you’re doing today. What does have bearing is how you intake that data, how you take information and process it, and how you connect the dots yourself as a seasoned professional. Then what it gets blended with is the fact that they believe they have seen this same thing before, and they know what to do. The reality is they have seen this before, but now they know how to process information efficiently and recognize what’s happening.
So, the challenge is to leave that bias behind. Leave the bias behind that you know how this is going to work out. Also, there may be that tickle or that gut feeling, and pay attention to it, because it usually serves you well.
That is what that tickle is—here’s this part of you that is saying that the data that is coming at you is not connecting, but you can’t articulate why. And so rather than applying a new bias to it, the challenge is to apply a metric to it. Apply a measurement that says, “I understand what it takes to get this thing done. I don’t have enough information to understand if I can do this next thing successfully. So, I am going to measure that and now, it is going to begin to quantify it a lot better for me so that I can actually make a better decision.”
It’s really transforming the way you look at how you make decisions as a leader and relying on data, rather than the bias that a lot of people have, which is that past performance or past results in your personal history or in the people coming to you, is a predictor of whether they can actually execute in the future.
Rae Williams: How can people contact you if they want to learn more?
Alex Castro: They can get in touch with me through the remscore.com website. Also, with the book, I will be releasing a personal website, alexcastro.io and you can get more information there. I’ve got a channel on YouTube where I do explainer videos and model walkthroughs in terms of different reasons why things work or don’t work.
So, I am open to all kinds of feedback and people having a good dialogue about this. Because in the end, I think that the people who tend to adopt a Readiness Measurement Score or a readiness score start to see that their business actually begins to be much more pinpoint accurate in terms of what it is trying to do.
Shift: Nick Egan