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Stories by David Linstrom

Processes and value

For those of you following this discussion series (thanks mum!) you should be starting to view strategy as much more than something that gets done once a year. It would not be understating my view that understanding the concept of integrated strategy (see previous articles) will be the difference between you as a leading technologist, or you as a business leader.
A few weeks ago I had tea and biscuits (nice they were too) with Garth Biggs and I sought his opinion on strategy and in particular, turning technologists into business leaders. If you were an antagonistic fly on the wall you would have been disappointed as Garth and I had very similar views. In particular, we agreed that strategy in today’s business world is not just an outcome — it is a process.

Written by David Linstrom03 Nov. 02 22:00

Why strategies fail

Last month I introduced the concept of business strategy, and why I believe it is critical to organisational success. This month I thought I would offer thoughts on why between 60% and 90% of all formulated strategies fail.
Analysis by Practical Strategy from around the world (Strategic Implementation Survey) and observations here in New Zealand shows that organisations and individuals are failing in their ability to implement strategy. Fierce competition, increased customer expectation, pressure on market share, new technologies and delivery channels … All are dictating change more rapidly than ever, and fewer than two-thirds of organisations are coping (Figure 1).
Essentially there are six key issues that impact on strategic success;
1. Strategy is seen as a once a year event (rather than as a dynamic process)
For many organisations strategy is a discrete once a year event that articulates the higher goals and aspirations of those that were involved in developing it. At the operational coalface little changes, budgets and targets get adjusted to meet the revenue and cost requirements but the organisational behaviour of running the company is the same as before the strategy was developed.
Everything changes — all the time: your customers’ needs, competitors’ actions, employee loyalty, shareholder expectations, market behaviour … everything.
So why on earth should organisations sit down once a year and try to predict the future? The future isn’t a year from now. The future is what your competitors do tomorrow, and what your customers read and believe in the newspapers next weekend.
Strategy is only ever a hypothesis. It’s a theory: “If we do this, hopefully we’ll get that”. As new information becomes available strategy needs to be adaptable to that information. If necessary, strategy should be fine-tuned to ensure its relevance within the business environment it is designed for.
To ensure the hypothesis can be implemented, strategy needs to be a holistic (that is, it does not treat strategy development as a separate activity from strategy implementation) dynamic process rather than a prescriptive (development focused) discrete event. (Figure 2)
2. Weak, poor, and non-communicated terminology
Within organisations often there are numerous terms to describe components of strategy: mission, vision, objectives, policies, programmes, measures, KPIs, KRAs, outputs, outcomes, tactics, actions, and the rest. Depending on a manager’s experience (both educational and business) these terms mean different things. However, rarely in business are these critical terms clearly agreed and articulated to staff who use them.
The term strategy is rarely clearly understood by those who are asked to design and implement it throughout the entire organisation. Many organisations see strategy as the overall destination of the company — in short, what the organisation wants to achieve.
As mentioned, strategy is a journey (a process) with the organisation’s destination in mind. Essentially strategy should be seen as the process that supports the hypothesis of what your organisation wants to achieve (via the strategic theme and objectives) and how (via measures, targets and projects) it is going to be achieved. (Figure 3)
Figure 3 offers organisations a clear terminology set for strategy and performance management within an organisation.
Perspectives show the cause and effect relationship within the strategy. The cause and effect relationship explains the strategy’s hypothesis. Every organisation has challenges and opportunities resulting from cause-and-effect relationships. These relationships can best be understood by viewing them from four perspectives, which are the building blocks of any strategy. To create the outcome required (Strategic Theme), we must have access to critical information, skills and attitudes (Innovation and Growth) which, when channelled through specific processes (Processes) will deliver stakeholder value (Stakeholders) whilst achieving expected financial returns (Financial).
The Themes (for example, Create the Experience then Exceed it), answer the question “What does the this strategy want to achieve?”
Strategy can be defined as “the process of what the organisation wants to achieve and how the organisation is going to achieve it”. Strategy exists at all levels within the organisation — for example, corporate, business unit, operational and functional.
Objectives are the longer-term desired outcomes grouped by perspectives and they define how the theme will be achieved. The strategy map shows via the theme and objectives what is to be achieved, and the cause and effect relationship that supports the strategy.
Measures define whether or not the objective is being achieved — that is, the current or “now” state of the objective. The measures include targets for how well the objectives are being met.
Projects are finite actions required to correct or build an objective. Projects need budgets and must be aligned to an objective to ensure its strategic relevance. If measures help define the “now” state of the objective, projects help to determine what is happening in the company to drive up the future state of the objective.
Note: Those of you familiar with the concept of the Balanced Scorecard will see its influence here. I believe that the theory of cause and effect across multiple perspectives (financial, customer, process and learning and growth), as refined by Balanced Scorecard aficionados Kaplan and Norton, have defined a new era in strategic management.
3. Strategy development and implementation are separate activities
In today’s business world, separating development from implementation is not only wrong — it is competitively dangerous.
The business world is a dynamic and turbulent place. In years gone it was commonplace to pontificate about the company’s mission and vision while considering the macro-economic and micro-economic issues, factoring in global trends while dealing with the opportunities and threats within the industry. Once this was done, and only then, did the organisation focus on how to achieve whatever it was it had strategically agreed.
In today’s business environment the what and how (development and implementation) need to go hand and hand. Do not misunderstand — strategic development is critical. However, dovetailing strategy development to an effective implementation methodology that drives it allows for faster and more robust strategies and a complete strategy process.
4. Reporting is not linked to strategy.
What is the point of reporting if it is not delivering strategy? Reporting is one of the last bastions of moving from strategy as a destination to strategy as a journey.
Many organisations have invested millions of dollars on reporting packages that deliver diagnostic, not strategic, reporting capability. Further, the software companies have been quick to define strategy in a way that meets their reporting capability.
Sadly the amount invested in a technology package rarely correlates highly to strategic success. There is good technology out there but a lot of rhetoric as well.
For management reporting to be effective it must be focused on strategy. Without effective reporting, strategies do not get the essential feedback they need to stay relevant within their environment. Further, without strong communication effective co-ordination of competing resources becomes very difficult.
5. Strategy lacks clear cascaded ownership and accountability
For strategy to be truly effective it needs to become everyone’s job. This can be done only if the issues and strategies within the organisation have been cascaded to the correct levels so they can be implemented — for example, corporate, business unit, operational.
When cascading strategy from higher to lower levels (and vice versa) some strategic objectives need to be modified to ensure they are put in the right context for that level in the business. By way of example:
At the corporate level an objective may be to maximise EVA. This objective would be less relevant to second-tier managers, as only (usually) head office can directly influence the capital cost component of EVA.
At the business unit level, the appropriate objective may be maximise operating profit. This objective reflects the business unit’s language and influence. At the operational level, “build revenue and reduce costs” may be the objectives that managers at this level in the business can influence.
To ensure the higher-level objectives are implemented effectively throughout the organisation they need to be cascaded to the appropriate level, in the appropriate context. In essence, this example shows the path profitability has taken as it is cascaded down through the organisation.
An example of a Level 1 objective that may not require cascading is “Enhance Government Relations”, as this may always be addressed by head office.
Clear ownership and accountability of the strategic components are essential. If nobody can be held to account for results, all your efforts will have been in vain. To drive ownership and accountability, strategy should be linked to manager’s remuneration (Figure 4). An effective remuneration scheme linked to strategy (by strategy level within the organisation) greatly improves the focus and commitment of the managers tasked with the strategic delivery.
6. Many organisations lack the discipline to manage dynamic strategy
In many organisations change can be a very difficult thing. Thus changing strategic management ideas and action (especially amongst the senior team) can be very difficult.
Driving any successful strategy will be the processes that support it (see Holistic view, Figure 2), one of the challenges for business and in particular senior management teams, is to ensure they lead by example regarding the strategic management process that the business has commitment too.
Table 1 outlines some factors to watch out for.
To conclude, many organisations are failing to implement strategy. We have observed six key issues critical to strategic success. Strategy needs to be viewed as a holistic process that ensures strategy development and implementation at all levels within the organisation is one, not two, events. Clear strategic terminology, via effective reporting and communication with strong ownership and accountability, helps each strategy become the target of actions required for effective implementation. Finally, at the heart of any strategy is process; all managers need to ensure that they commit to the disciplines that drive and deliver successful strategy.
This document was written by David Linstrom, managing director of Practical Strategy Consulting, david.linstrom@practicalstrategy.net, author of At Last — A How To Guide for Strategy, available from www.practicalstrategy.net.

Written by David Linstrom31 Aug. 02 22:00

Strategy: why bother? (and what is it?)

In the good old days, organisational direction could largely be set and managed by budgets and forecasts, as the competitive environment was relatively stable. However, today’s environment is significantly more complex — increased globalisation, intense competition, shorter and shorter product life cycles, greater customer expectations, and to cap it all … employees are no longer allowed to be flogged! Given this complexity, it’s worth considering how your organisation defines strategy, and in particular what environment you perceive your organisation operates in. Are you still viewing strategy as it was in the good old days?
Let’s find out …
Quick — grab a scrap of paper. Write down your definition of strategy. Now find five people in your organisation and ask them for their definition. Does your definition match theirs? (Note: if you actually do this quick exercise rather than just reading it, you may surprise yourself with the results).
You probably have a whole host of ideas that include words and phrases like “long-term”, “future goals”, “use of resources”, “achieving outcomes”. And we’re willing to bet our entire collection of rare Tibetan three-humped camels that you have at least three distinct definitions (probably four or five). Which isn’t surprising; given that every individual in your organisation has a unique history that has shaped how they perceive where your organisation has come from and where they think it’s going.
Welcome to problem No. 1
There is no agreed definition of what strategy actually is. Put bluntly, we have found that strategy terminology in most organisations is as fluid as drinks on a Friday, but nowhere near as transparent or collectively understood. Our experience tells us that there are two basic views of strategy:
1. The prescriptive view.
2. The holistic view.
The prescriptive view is characterised by MOST: Mission Objectives Strategy Tactics. It is largely authoritarian and top-down in its delivery. It is usually a once-a-year activity that attempts to set the direction of the organisation. In the main, not a lot of effort is given to “how” issues. In organisations that adopt this view, strategy is (usually) firmly in the domain of the senior executive team. Strategy is usually seen as the utilisation of resources for the attainment of long-term goals. Note the lack of connection to the business environment and any reactive capability.
The holistic view looks upon strategy as a continuous process. By its very nature it is dynamic and can be characterised by the accountability for decision-making, clear terminology and a strong integrated framework (financial, customer, process management and development and people). It is a simultaneous top-down and bottom-up process that includes employee input and addresses both strategy development (what is to be achieved) and strategy implementation (how it will be achieved).
We identify most with the holistic view, and a definition we use to describe strategy that supports this view is: “Strategy is an ongoing process (dynamic) that defines what you want, and how you’re going to get it.”
It is the ongoing nature of the strategy process that keeps successful organisations permanently in touch with what’s happening in their environments. Employee input at all levels is the secret ingredient in this approach, through cascading strategy to every level in the organisation and ensuring all managers have a framework for strategic communication and action. And just to clarify what we mean, we are not talking about staff suggestion boxes here.
Okay, so that’s a quick description of what strategy is. But is it worth it? We recently posed this question to a few academic friends, and a number of them quoted articles that indicated that organisations that employ strategy outperform those that don’t.
In addition to the academic view, we sincerely believe that strategy is hugely important to organisations. After all the impressive EVA calculations, detailed customer value propositions and cutting-edge e-commerce initiatives, we boil the benefits of strategy down to three simple points …
1. Staff alignment and motivation. In today’s business environment the key source of competitive differentiation in most organisations walks out of the door every evening. Good people are difficult to find, and even harder to keep hold of.
Engaging key staff in your organisation’s strategic dialogue, irrespective of their role, is a major source of job satisfaction.
2. Stakeholder intimacy. Your stakeholders (customers, partners, suppliers, regulatory bodies and even competitors) are the link between your organisation and its environment. Understanding and responding to the concerns and actions of these groups is critical to long-term success.
3. Smarter profits. With good strategic analysis, organisations can regularly identify and quickly act upon the best business opportunities. A good strategic framework also ensures that assets are efficiently deployed and projects and initiatives are managed effectively. In a nutshell, more revenue and less cost.
David Linstrom is a strategy consultant and head of Practical Strategy. More about his business can be found at www.practicalstrategy.net. You can reach Linstrom at david.linstrom@practicalstrategy.net or Ph: 0-9-443 3520, 021 675 755.

Written by David Linstrom31 Aug. 02 22:00

Strategy — the difference between CEO, CIO and technologist?

If you’re reading this column for the first time, welcome to one of the most important discussions that will define you as a manager, young and old alike.
I’m willing to bet my entire collection of silver-backed, blue tooth bronze whales that many reading this will already have strong views about strategy. The problem is, so does everyone else. For the record, I see strategy as a process, not as an outcome. For example, in my view, implementing CRM to enhance customer loyalty is not a strategy — it’s a project. The difference is critical in terms of action, accountability and strategic success.

Written by David Linstrom31 Aug. 02 22:00