PERFORMANCE MONITORING… THE OTHER VARIABLE

An interesting thought about strategy execution is we often try to get our heads around the concept by preaching that it needs to be seen holistically. In other words, to aid execution, we should design in execution to the strategy formulation part of the process (this makes sense if we think about how an architect needs to know if a creative building design can actually be executed within the laws of physics in the drawing phase before it goes into construction). Viewing strategy and execution as indivisible is difficult because we are still used to different “camps” within the organization doing each of these two parts separately. There is the “Office of Strategic Planning” that takes care of the upstream while the rest of the company executes what they tell us to do.

Another interesting concept floating around is to view strategy as three separate phases – strategy, execution and assessing. By the third component we mean a type of performance monitoring or evaluation. Performance management systems are important because they “codify” the strategy and its end state into measurable indicators that can help companies gain some useful feedback. This feedback could signal that the strategy has been achieved or exceeded (awesome), that it hasn’t yet been achieved but is on track (keep doing more of the same guys) or that it hasn’t been achieved and some weaknesses have been exposed to be either by design or in execution (stock-take guys, we need to do something different).

Perhaps if we did performance monitoring a little better and in doing so provide better clarity to those planing and executing the strategy in real-time, we would be a lot closer to attaining our goals. This brings about another interesting notion that strategy though long-term, needs to be organic and adaptable to market conditions. It may be a KPI fixed for the annual appraisal but if the competition requires us to do a drastic shift, let not our KPIs stand in the way.

Execution, execution, execution.

Mr Bossidy states the obvious. We all know that strategy, no matter how brilliant, is only good if it can be executed. But he does bring home the point.

German military strategist Helmuth von Moltke sagely noted “No battle plan survives contact with the enemy.” In other words, when your strategic plan meets with the real world, things often go wrong and never quite play out the way predicted. We need to prepare for contingencies and also be willing to change/modify our plans. This brings to bear the important distinction that a strategic plan (whatever that means) does not equate to your strategy.

Strategy is longer term and doesn’t change year to year. It is based on insight, that drives hard choices to bring focus to the organization and ultimately culminates in coordinated action to achieve the intended results.  Invariably you’ll produce a plan to execute your strategy. But they are not one and the same.

OK, so we get to the point: once a strategy is crafted, strong execution begins with something very unoriginal and unglamourous… good old organizational  alignment. I’m talking about everyone working like a competitive rowing team performing synchronized movements of the same strength and rhythm to multiply output and keep the skull on the straight (shortest) path to success. In rowing, there’s the cooxswain who verbally commands steering, speed, timing, and fluidity and is responsible also for crew safety, motivation and improving rowing technique.

When running a company, verbal communications (as well as written and electronic messages for that matter) aren’t sufficient. There are additional practical elements that need to be employed for true alignment. These elements are simply to be thought of as organizational sign posts or guides.

The reason why you need organizational sign posts and not just directives is because strategy is executed by everyone from the CEO to the janitor. And while the people closer to the power center have the privilege of direct involvement in the strategy, many others who actually are in the trenches interacting daily with customers and suppliers do not. As an organziation is made up of people, human beings notoriously need to be reminded in as many ways as possible (and as often and consistently as possible) what they need to do to remain focused on, lest they revert to their normal behaviors and old habits of work. Change is difficult because it involves people and people generally don’t like anything that threatens the familiar. When going to a new place, people get lost along an unfamiliar road. You can keep yelling to them the directions but they’re going to use their eyes and other senses as well to assess if they really want to go there. So erect sign posts to nudge them and help them along until it becomes business as usual. When the grass is worn and a clear path forms, that’s when people move the quickest and most naturally, even without signs.

These sign posts include hard and soft structures, such as:

• organizational and job structures (hard)
• incentives and rewards, including performance systems (hard and soft)
• regulations and policies (hard)
• cultural and values, including corporate rites and heroes (soft)

We’ll discuss more about structures in detail but for now, mull over some examples from your own experience. Think of inconsistencies from the “storyline” in the numerous change management programs I’m sure you’ve been subjected to over the course of your career. Has what management been communicating been reinforced by their actions?

Too often, structures remain unchanged (like promotion criteria) and still point to and reinforce the old strategy. This leaves people confused and they cling on to the old messages unwittingly transmitted by the structures of yesterday. Mixed messages is the enemy of alignment and the result is confusion on the ground or a lack of confidence in the leadership.

We’ll dive deeper in our next post. Until then, have a great week ahead.

Strategic Choice Cascade

A.G. Lafley and Roger Martin’s recently released book – “Playing To Win: How Strategy Really Works” – is a great read that is simple and filled with behind-the-scene illustrations from the world of P&G where Lafley was able to conceptualize and refine the model as CEO of one of the most successful companies in recent history.

In order to devise one’s strategy, the authors simplified thinking into the quest to answer five interrelated questions:

1. What is your winning aspiration? The purpose of your enterprise, its motivating aspiration.
2. Where will you play? A playing field where you can achieve that aspiration.
3. How will you win? The way you will win on the chosen playing field.
4. What capabilities must be in place? The set and configuration of capabilities required to win in the chosen way.
5. What management systems are required? The systems and measures that enable the capabilities and support the choices.

As you can see, the model isn’t too different from the “Strategy Diamond” we discussed earlier. The winning aspiration is very much like the mission/vision/business objectives that feed into the diamond and “Where will you play” is similar to the “Arena” element. Lafley’s “How will you win” maps to the “Differentiators”, “Vehicles”, “Staging” and “Economic Logic”. What’s really interesting is the next two choices (4 and 5 above) that provide more detail to the post diamond “Supporting Organizational Arrangements” box required to implement the strategy.

Another interesting point is to look at the arrows. Notice they do not only flow down like a waterfall from left to right but also flow back “upstream”. I think this clearly illustrates the concept that strategy is both iterative and non-linear. In reality, one needs to revisit the answers made to the earlier choices as more clarity is obtained by answering subsequent questions. For example, if one’s organization doesn’t possess the requisite capabilities (determined in choice 4), one would need to revisit prior choices in order to formulate a more implementable or realistic set of strategic choices for a more immediate time horizon. Quite clearly, one can see from the model that copying strategies is not advised because each organization is unique and even if competitors choose to play in the same space and plan to win in the same manner, the capabilities and systems will likely force a different outcome for the copycat (likely a flop). However, knowing a competitor’s strategy would allow you to formulate a counter move to neutralize them or better still to win.

Finally, the authors also point out that these choices (all 5 boxes), as applied to the corporate level, can then be “cascaded” down to the next level i.e. the group or business unit where the leaders there take reference from the parent but work out the answers to their own strategy cascade choices within those boundaries set. This allows the whole organization to align their strategic choices and to better support the overall corporate strategy to formulate – in the words of the Strategy Diamond – coherent and mutually reinforcing activities.

We’ll discuss more about strategy implementation next but for now, I hope you enjoy these two very useful models.

Demystifying the Strategy Black Box

Particularly frustrating when trying to understand strategy are the lengthy expositions  about what strategy is and is not, but nothing that really gets to the heart of the question.

Not until I stumbled upon this article by Donald C Hambrick and James W Fredrickson did my understanding change. In “Are You Sure You Have A Strategy?” the authors defined strategy as an integrated set of choices that nicely put all the various strategic analysis models like Porters’ 5 Forces, PEST, SWOT and the like in the correct position in the scheme of things.

More importantly, it clearly showed how strategy is the driver for many of the supporting organizational arrangements like designing the right organizational structures and reward policies to guide strategy execution.

Then (here’s the real kicker) they went on to unveil what was under the “hood” of the strategy diamond – 5 simple elements that if thoughtfully answered, could describe one’s strategy succinctly and provide clarity of direction for communication to the rest of the organization.

These 5 elements are:

I’ve field-tested this model many times with both sophisticated and unsophisticated clients from offshore chartering to cold chain logistics to book printing and it has been illuminating to leaders in all of these occasions. First class.

Another interesting model which has of late come into popularity: the Strategy Choice Cascade Model in a new book by Roger Martin and AG Lafley (of P&G fame) called “Playing to Win“. Another great practitioner-usable model worth diving into. I am partial to the Strategy Diamond perhaps because it generated that first ‘aha!’ moment but also because it is easy to understand and explain.

A real gem of a find, commit the Strategy Diamond to memory and it will serve you well.

Bring on the ICE!

(Image borrowed from 123rf.com)

Good strategy can be thought of as a combination of three key factors: Insight, Choice and Execution. Let’s call it the ICE Test. See how your own company’s strategy stands up to the ICE Test:

(1) Ever noticed how some small and medium enterprises with very poorly laid out strategies (if any) appear to be doing quite well in their industry (one where generally all competitors are similarly unsophisticated in their use of strategy)? This is normally the result of having the good fortune of being in the right place at the right time; some 20 years ago, a founding member happened to stumble (often by chance) into a lucrative market  and through sheer hard work and determination – good Execution – were able to out play their peers just enough to emerge as a market leader. But they plateau and so our firm is brought in to help take them to the next level. Clearly, Execution is fundamental. If you can’t execute well, you’re not even in the game.  This assumes first, of course, that you’re in the right market.

(2) The next most important part of the test is a firm’s ability to make the hard choices. Strategy Gurus will tell you that Strategy is about limiting available Choices to help focus an organization’s scarce resources and finite energy. This concept is akin to concentrating one’s troops in a defined battle arena to project superior firepower and/or numbers compared to the enemy’s. Having a strategy at its most basic level is to know what not to do (Porter). Doing fewer things tend to allow us to be better at doing them and building a reputation at the same time hopefully. Such companies tend to win their battles more often because they pick the location and type of fight they wish to go into.

(3) Finally, the best strategies are those that are also Insightful. This means the leadership team, through their collective experience or superior analysis of the situation, is able is able to see an opportunity for exploitation in the market. This insight helps the company consciously make the choices they need to deliver that unique proposition that is different (and better) than their peers.  A cohesive plan created to bring all of the company’s people, resources and activities together guided by this insight ultimately increases its ability to execute the strategy and win.

Clearly any leader able to incorporate Insight, Choice, and Execution into their company’s strategy will put his firm in an advantageous position relative to others that don’t have a strategy or have one that doesn’t meet all three criteria in the ICE test.

A great 2014 to you and as you party the new year away, don’t forget the ICE!

Strategy or Execution – Which is more important?

At some point or other, a discussion on strategy – be it in an MBA strategy class or on LinkedIn – will result in participants asking the question ‘Strategy or Execution – Which is more important?’. Let’s address this upfront so we can cut through the fog.

Predictably, three camps will form:

• the strategy proponents;
• the execution-is-king proponents; and
• those who sit on the fence and agree that both are equally important for success

It turns out that camp 3 is not such a cop out answer after all. This group actually may be on to something significant. I’ll explain.

People genuinely want to understand how leaders should go about creating better performing companies. Working within constant limitations on time and budget, people want to know whether in the trade-off between increasing execution that little bit more or taking energy away for investment in the less known concept of  strategy, would ultimately yield decisively better outcomes.

We can’t divorce strategy from execution.
People often make this mistake because it has never been explained that strategy does not equate to having a plan (even if you call it a strategic plan). A plan, such as one comprising of a series of procedural steps to help someone wash dishes more effectively is not particularly strategic. The insight however, that cleaning dishes using an automated machine to save on high labor costs as one expands a chain of restaurants in a tight labor market might actually prove to be strategic. Thousands of companies have perpetuated this with their “Office of Strategic Planning”, almost to say that only strategic activities only take place there and everywhere else in the company is responsible for executing their plan.

So the real question to ask instead is really: How do we create a strategy-focused organization – one that is able to devise an insightful plan (that seeks to exploit a weakness/opportunity in the market) and to successfully put that plan in motion (cheaper, faster or better than rivals). You see, an organization where every function and team is thinking strategically and adapting their operational activities to the enterprise goals is so much more powerful at executing since these are the very people in the trenches running the business and interacting with the customer – in real time. A strategy-focused organization is agile, responsive, even predictive. This kind of alignment is very difficult to achieve with the isolated activities of a single “Office of Strategic Planning.”

If we can’t separate strategy from execution, then it is logical that when crafting strategy, one should think of the organization’s ability to execute it as well, i.e. upfront. This will result in a strategy formulation that is a ‘good fit’ for the company in question. Beware the lazy leader’s lure of copying a competitor’s strategy (one designed to utilize the strengths execution abilities of that other firm). Even if the referenced competitor is similar in every way, this is still a lose-lose approach. Two similar companies in one market executing two identical strategies gives rise to absolutely no value differentiation resulting in me-too products and a likely price war.

Strategy or Execution? I hope you’ve moved beyond this and are well on your way to creating a strategy-focused organization.

What is Strategy?

What it really means is that strategy is a concept with differing viewpoints because experts – often dependent on their training or consulting discipline –  describe it from a favored vantage point. Most definitions do not contradict, but add to a complete picture. For the business leader, you’ll need to use a model that works for you at the right time.

Two definitions require worthy mention:

“The essence of strategy is choosing what not to do.” – Michael Porter, father of modern strategy

and

“The term ‘strategy’ can be understood as referring to how a leader directs the focus of an entire organization. Each division –  finance, marketing, R&D – focuses on that strategy in its own way.” – Daniel Goleman, father of Emotional Intelligence

We’ll discuss these definitions in detail in subsequent postings but it suffices to say that we can now put forward an operating definition as a starting point for our ongoing discussions:

Strategy is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition.

At it’s core, strategy is about choice. The tough ones that cut out the distractions and direct the organization down a clear, singular path. Choices about which customer segments to cater to, what products and services to offer, what technologies to invest in, what type of channels to use, etc. It’s as much as choosing what not to do as it is what to do.

Strategic choice to bring focus so that the company can align its people to the objective, amass its limited resources to intensify its efforts on the things that matter.

We’ll discuss this more with some examples in our next post. Enjoy the last weekend of 2013!