Turning Strategy into Performance
Differentiate your business from 86% of its competitors – turn your strategy into great performance –
An organisation is healthy when its parts – management, operations, and culture – consistently act as a whole in a manner that fits together and support the business’s overall vision. Since budgets generally only consider shorter-term financial metrics, they are limited in their ability to measure organisational health, and thus long-term sustainability, and often bear little direct relation to an organisation’s long-term strategic priorities. According to a study by Fortune Magazine:
60% of organisations do not link their budget to their strategy;
92% of organisations don’t report on any key performance metrics; and
Only 11% of managers have a strategy control system.
It is thus little wonder then that research by Paul Niven, published in his book the “Balanced Scorecard”, found that only 10% of executives felt that they successfully executed on their strategy. Issues with strategy are, however, not confined to large corporations. According to the National Business Association in the USA:
More than 50% of small to medium-sized businesses do not even have written business plans.
Of those that do, only 10% claim to successfully execute it.
Simply put, if 86% to 95% of your competition are not effectively executing on their strategy, and you do, it stands to reason that your business will enjoy superior results if it does.
The Strategy Institute has developed a strategy development and execution methodology based on years of experience working with large corporations globally, and drawing on research from Harvard and Wharton Business Schools. It uses a “Plan-on-a-Page” (POP) at its heart. The Plan-on-a-Page augments traditional financial metrics with performance benchmarks across a business’s stakeholders / customer relationships; internal processes; and its learning, growth and leadership. Together with financial metrics, these benchmarks provide a broad view of the company’s overall health. The Plan-on-a-Page and its Scorecard, used to track the POP’s progress at regular intervals, constitute a dashboard that allows you to fine-tune your organisation’s activities with your overall strategy. Underpinning the Plan-on-a-Page is a complete strategy development and execution programme that relies on an iterative three-step cycle that aligns the organisation’s short-term activities to its long-term goals. The key to the program’s success is that it is holistic, and offers the organisation and its people the ability to learn and improve year-on-year as it repeats the program, to the point where it becomes a key strength and a sustainable competitive advantage to the business.
Most companies have separate processes, and even departments, for strategic planning and budgeting. The discipline of creating a Plan-on-a-Page however, forces the integration of these the two functions, thereby ensuring that financial budgets actually underpin strategic goals. One might think that this is an issue that only faces large, complex organisations, but experience has proven this not to be the case. Even the small- to medium-sized enterprises that we have worked with have benefitted from a Plan-on-a-Page because even they were tending to manage their businesses purely on budget targets.
The toughest and most critical question facing business leaders today is, “How do you build an organisation that consistently executes on its strategy”. Essentially this requires building an organisation that spends as much of its time as possible moving the business forward strategically, by balancing the right choices with the ability and resources to achieve them. I have spoken to countless business leaders and owners over the years, in businesses that range from the size of a multinational to small 5-10 people enterprises. Irrespective of what industry they were in or the size of the business, none had a well-defined repeatable methodology to execute consistently. Our methodology addresses the traditional management inability to link a company’s long-term strategy with its short-term actions, and builds internal capability, a sustainable advantage, and an intangible asset for the business.
The Plan-on-a-Page and its Scorecard offer a complete program and management system to develop and execute a strategy, built on extensive research and years of experience working with large corporations to develop excellence through the consistent delivery of their strategy. The programme involves an iterative three-step cycle that aligns the organisation’s short-term activities with its long-term goals.
THE THREE-STEP STRATEGY CYCLE
1. CALIBRATE / RE-CALIBRATE
The very first step begins with the end in mind. It involves questioning everything and anything pertinent to the success of the business, challenging all assumptions.
It involves using hindsight and foresight to evaluate the business’s health, as well as a rigorous analysis of the business’s internal and external environment, and opportunities and threats. From this analysis, a clear, compelling, attainable picture for its future is derived, usually in the form of a three to five-year strategy, depending on the nature of the business, that will deliver on the business’s vision. In today’s rapidly changing environment, most of my clients have found a three-year strategy to be the best time frame. It is generally only with businesses that deal with commodities, for example, mining operations, where I recommend a five-year time frame.
Calibration, and later Re-calibration, has the added benefit of building business knowledge across the business, as well as creating clarity. It creates a point of reference for managing the business by allowing leaders to evaluate every choice by asking, “Does this take me closer to or further away from the vision?”
If this is the first time a business has ever gone through this cycle, it means that step 1 will involve calibration, as much of this work would not have been done in this way before. If it is the business’s second time through the cycle, this step will involve re-calibration. The analysis done previously does not need to be recreated from scratch. Instead, it needs to be interrogated thoroughly and tested, as well as additional factors and any internal and external changes considered. Anything that has changed needs to be investigated thoroughly and updated. A strategy is only as good as the robustness of its analysis, so it is vital that none of the previous work done during calibration is taken for granted, or the next iteration of annual goals will be built on sand.
A new element involved in Re-calibration is for the business to thoroughly evaluate itself on how well it performed on the 6 Execution Disciplines in the last cycle, and incorporate these learnings into the next cycle. Re-calibration presents the business with the opportunity to revitalize and re-energise the business for the next cycle.
Synthesis involves taking the insights and intelligence, and strategy developed during calibration to develop a Plan-on-a-Page that outlines the 8-10 critical goals (and associated metrics) across the business’s stakeholders / customer relationships; internal processes; and its learning, growth and leadership, that the business must achieve in the next year to ensure its vision is successful. Synthesis not only provides laser-like focus on what the business MUST do, it also facilitates conversations and decisions on what the business is NOT going to do. Choosing what to say no to is just as powerful as making the decision on what to focus on.
A broad involvement with as many leaders as possible is recommended when developing the Plan-on-a-Page. We have found a workshop to be the best, most time-efficient vehicle to develop a Plan-on-a-Page. Taking key people out of the business, into an environment that encourages the right conversations, allows for the right level of focus and discussions that allow a better understanding of where the business is, and what it is trying to achieve. Participation also builds a stronger commitment to the overall Plan-on-a-Page, and is the first step in linking the organisation’s goals to individuals’ goals and actions.
Companies new to the process have often asked why a small team of two to three people cannot develop the Plan-on-a-Page on their own, and then share it with the broader business. We have never found this approach to be effective for the following reasons:
The broader team loses the opportunity to build their broader strategic capability.
Commitment to the plan is much harder to build with people not involved in its development.
It becomes harder to ensure that everyone not involved in the development of the plan has the same level of understanding of the goals.
The opportunity is lost to obtain valuable thinking and feedback from every member of the team in building the plan.
By making sure that the right discussions are had amongst the leadership team as part of the process to develop these goals, it ensures, literally, that everyone is on the same page. Moreover, by relying on measurement, the Plan-on-a-Page forces managers to agree on the metrics they will use to operationalise their vision, and, as is often said, what gets measured, gets done.
We have experimented with various approaches to increase overall engagement across an organisation, and have found that getting everyone involved to some extent in some form of planning, and in connecting their personal goals to the Plan-on-a-Page is the most effective method.
Ideally, Synthesis will also involve determining what project or key actions, and associated resources and milestones, are required to achieve these goals. It is not uncommon for a business to have a large number of initiatives running concurrently that often compete with each other for resources. By allocating resources, and only undertaking projects or initiatives that move the organisation closer to its vision, the business ensures that it co-ordinates its effort, and focusses its resources on the things that will give it maximum strategic impact.
For example: An FMCG company articulated one of its marketplace goals as “Deliver innovation consistently.” The collaborative process of discussing and agreeing on operational metrics to determine what success looked like for this goal forced executives to reconcile their divergent views on a lofty goal, and agree on what constituted innovation to the business. Not only did it give the leadership team a common understanding of what innovation meant to the business, it also helped employees to understand how this potentially nebulous goal translated into appropriate actions for them.
Agreeing on metrics like this also forces leadership to consider the gaps in skills, processes and other systems in the business that need to be addressed if the business is to achieve its vision. Remedial action can thus be taken to close these gaps.
For example: A coal mining client realised that they need to re-engineer their maintenance systems if they were going to give their machines the uptime needed to produce the quantity of coal the business was aiming for in the coming year. Instead of having two maintenance shut downs a week of 12 hours each, they re-engineered and streamlined their maintenance process to have one shut-down a week of 16 hours. This meant an additional 16 hours of uptime per machine per month.
Synthesis builds further on the clarity developed during calibration / re-calibration, and creates focus for the business and the leadership team by forcing the team to commit to delivering a small number of goals with clearly articulated parcels of work required to deliver them.
The third step involves disseminating the Plan-on-a-Page and its Scorecard across the business; creating an annual timetable with monthly milestones; linking individual compensation plans to the goals; and feedback and learning. If the business is large enough to have different functions or business units, goals and measures may need to be translated into objectives and measures appropriate to each particular group. With time, as the organisation becomes more and more skilled at Execution, so its people start to form a community that learns from itself.
Any real-time learning during deployment means that the Plan-on-a-Page and Scorecard can be modified, as and when necessary, as business conditions change, and cause-and-effect relationships are tested. Chris Agyris in his article, Teaching Smart People How to Learn (HBR, May –June 1991), calls this Double Loop Learning. This is particularly important in today’s turbulent business environment where change is constant. Double Loop learning differs from the traditional single-loop sense where any departure from the goals and measures set is seen as a failure that needs to be fixed. It essentially does not allow for any course correction, which leads to inflexibility and a loss of agility to an organisation relying solely on it.
The Scorecard is a perfect vehicle for strategic learning because it provides a holistic perspective of the company’s vision, and then provides a feedback and review system to test it. If, during a review, a goal is not going to plan, leadership needs to question not just if the business needs to do something differently to achieve this goal, but whether the goal itself is still valid.
A vital part of deployment is that the Plan-on-a-Page is thoroughly and regularly communicated across the business. Communicating the Scorecard, and ensuring that it is on the desk of all employees, promotes accountability when done in conjunction with helping people to set goals themselves. It also encourages people to discuss measures and how to achieve them, as well as provide a platform for employees to provide senior management with feedback on innovations and ideas that can improve performance. The Scorecard allows for two-way feedback both up and down the organisation Departments can provide feedback to executives who can, in turn, provide feedback to the Board on strategic progress.
Deployment also involves the use of the 6 Execution Disciplines to ensure that the business successfully achieves its goals. My next post will discuss these in more detail. As Aristotle said, “We are what we repeatedly do. Excellence is, therefore, not an act, but a habit.”
An iterative, repeatable methodology, optimised for the disciplines of setting strategy, developing plans, allocating resources, managing execution, and encouraging strategic learning is
the foundation of a complete strategy execution program, and indeed a business planning and management system that applies to businesses both large and small. It teaches the organisation to stay focused on what is important, whilst dealing with the inevitable surprises that will occur and keeps everyone engaged. Using such a methodology can help business consistently outperform their competition and deliver a truly sustainable competitive advantage