What’s your organization’s strategy? No, I don’t mean the one on page 27 of the corporate handbook, I mean the REAL strategy, the one, or more, that your EMPLOYEES think is the strategy and is in reality driving your business.
Joel Barker, a champion of the concept of paradigm shifts, suggests that you try this exercise: Evaluate your strategy from a bottoms-up perceptive. Wait a minute! Bottoms-up? Isn’t strategy by definition a top-down exercise?
Humor me; set your biases aside and interview your departments, functions and divisions. What are they doing? What are their priorities? How are they responding to challenges and creating value?
See what kind of strategic picture emerges as you connect the dots from this bottoms-up perspective. You’ll find that your organization has a strategy alright; just maybe not the one you had in mind when you and the executive team drew it up in the Board Room.
So you have at least two strategies: one from the top-down that has been poorly communicated, and another from the bottom-up that you have little control over.
Strategy without communication + strategy without control = strategy without management = not much of a chance at achieving your objectives.
What would a proper strategy management process look like?
Consider these five essential elements:
1. DEFINE: Formulate your strategy and goals together with the relationships between objectives, initiatives and metrics (KPI’s and KRI’s)
2. PLAN: Set targets, thresholds, priorities, weights and accountability associated with the strategic objectives and metrics, not only at the top level, but throughout the organization.
3. ALIGN: Align and communicate individual, department and division level strategies, objectives, initiatives and metrics to support those of the organization as a whole.
4. EXECUTE: Monitor leading and lagging indicators of progress toward targets and goals, with alerts that highlight or flag potential problem areas as they are identified.
5. VALIDATE: Test the cause and effect relationships between the metrics and the objectives, and between the initiatives and objectives, quantifying the statistical significance of the measures you have put in place to achieve your goals. When things don’t line up as you expected, or as market conditions change naturally over time, feed these quantitative insights back into the Planning stage.
I’m guessing you could have come up with the first four steps on your own, but that last one, Validation, tends to slip passed unnoticed.
It is important to remember that strategy is a HYPOTHESIS about what is and what isn’t going to work, a hypothesis that needs to be regularly revisited and retested to make certain that your organization is on the right course and is staying on the right course.
The strategy management process needs to take the data feeding the definitions and metrics and statistically analyze it for correlation, significance and cause-and-effect relationship with your stated objectives.
That’s not all that analytics can do for your strategy management. Take KPI’s for example. Please. Take all 400 of them, take them away and just give me the 20-40 that I really need to monitor and manage the business.
Most consultants state that the biggest single challenge their clients face in implementing a scorecard or dashboard is getting down to a manageable number of KPI’s. But how can you get down to that level and still be sure that you’ve got all the bases covered? Analytics.
Analytics can easily weed out the hundreds that have no correlation, or minimal relevance, or are redundant, or are subsumed by a better metric. Analytics can both prioritize your use of KPI’s and help you meaningfully define the thresholds and bands and limits and alerts that signal a need for action. No need to guess at what level to set your yellow and red bands or traffic lights; there are proven methodologies for quantifying the relevant thresholds.
Ready to get started? Then the first step is to:
A) GET STARTED! Brainstorm your definitions and planning and goals and objectives and relationships. Don’t worry about getting it perfect at this stage – Remember, strategy is a hypothesis; you are going to get a chance, several, to test this hypothesis and make changes and adjustments and improvements. Use this as the opportunity to create a holistic vision of your business that integrates strategy cross-functionally, as Banco Popolare di Verona e Novara did for their banking operations.
B) LET YOUR STRATEGY DICTATE YOUR METHODOLOGY: Is the Balanced Scorecard right for you? Maybe, but maybe not. If you are having trouble shoe-horning your strategy map into a TQM process, relax the constraints a bit and see where TQM naturally fits. While SAS® Strategy Management can support many standard methodologies like Kaplan-Norton Balance Scorecard, TQM and Baldridge, it is also built to allow you to design your own strategy framework, the one that best fits how your business actually runs.
C) SUPPORT YOUR METHODOLOGY WITH ACCURATE COST DATA: You wouldn’t steer a ship with a compass that’s accurate to within +/- 60 degrees of true north, would you? Your new strategy lets you set that course precisely, but your old cost systems, using nothing but broad-brush standard cost allocations, mean that you could be well off course and not even know it. You need the accurate understanding of your cost drivers and true costs and profitability at the product and customer level that comes from applying an activity-based management approach. While you can start small and get more complex later with ABC/M if you find you need to, the important thing is to get started with ABC/M early in the process, as you will want to see the true impact your change in strategy is having on the performance of the organization, and, the ability to also track the execution costs of these strategic changes.
D) KPI’s: Think of the 20-40 KPI rule as applying to each level of the organization. KPI’s that work for the CEO might not always be applicable further down the organization, where the tracking and reporting of more operational metrics might be better correlated with improved results on the bottom line, an approach taken by ConocoPhillips with their implementation of “operational scorecards”. Yes, you might end up with 60 or 80 total KPI’s, but no manager individually needs to concern themselves with more than a couple dozen, allowing them to focus and prioritize.
Lastly, understand that your goal to be a strategy-driven organization is eventually going to come into conflict with being a budget-driven organization. You will need not just executive sponsorship of the strategic management process, but executive commitment as well. Part of that process is the alignment of financial, operational and departmental budgets and quotas with overall corporate strategy, but it takes time (and testing, and validation, and retesting, etc …). As the KPI’s, including the budgets, evolve over time to better align with strategy, you will need to err on the side of strategy if this approach is going to lead to sustained performance improvement.
I'd also recommend you check out Jonathan Hornby's post on the "6 stages of executing strategy" which is a great introduction to Kaplan and Norton's Execution Premium Process.
