by Brice Alvord
Strategic focus has never been more important than in today’s global business environment. Recent examples of declining profitability, inability to complete and out right poor management have shown that these companies have failed to execute strategy successfully. Closer inspection of many of these “failed” companies were using outdated top-down management processes, financially driven short-term tactics, and ineffective organizational structures that were unable to communicate an accurate assessment of the company’s current state.
In short they were stuck in the old management paradigm of historical observation and reaction. Basically they were focused on fire suppression rather than fire prevention. It is easier to wait until you have a fire and react to put it out than it is to prevent it in the first place. In addition, it is harder to quantify something you can see rather than something that is abstract. In the case of a fire you can measure the difference between the value before the fire and after and determine the loss. In the case of fire prevention, the measures are more abstract and do little to justify fire department budgets. The same hold true in the corporate world. An antiquated cost accounting system prevents managers from creating the types of initiatives required to compete in a world-wide market.
2 Key Continuums For Building Strategic Focus
Strategic focus requires that management look at two key continuums:
• The historic continuum
• The action continuum
The historic continuum is a line plotted between observed history and the anticipated future. The other continuum is the action continuum which is a line between reacting to occurrences to anticipation of future known events.
The New Management Grid
The two continuums can be arranged to form a grid such as the one shown below. This will allow you to plot your company’s position based on how it reacts to the two continuums.
Most companies, especially those that have failed in the recent economic situation, fall in the lower left quadrant represented by the red circle. The challenge for future long-term growth and survival is to transition to the upper right quadrant represented by the blue circle – the “New Paradigm”..
Transitioning to New Paradigm
Making the transition to the new paradigm is not as easy as it looks on the diagram. The transition is fraught with unseen problems and restraining forces. The enabling or driving forces must overcome the negative influences. This can only be accomplished by effective and visionary leadership, complete communications, and a commitment to the initiative.
Half hearted commitment will be quickly telegraphed to the entire organization and they will see such attempts as window dressing or as the flavor of the month. Management must supply sufficient resources in terms of people, equipment and money to ensure success. This commitment must be more than mere lip service; it has to be real and visible.
Creative Thinking Required
Working in the upper right quadrant requires creative thinking. Employees at all levels must become proficient in applying creative thinking to their daily work. Creative thinking is a mix of expertise, creative thinking skills and motivation. It requires that managers and supervisors make a cultural change from the traditional way of managing to team based programs that allow employees to use their heads and not just heir hands. They must be allow to become true partners.
New skills require new training as well as trust and patience on the part of supervision. Supervisors and management must also learn new skills. They will need to learn how to influence their environment.
Influential Impact
The most important aspect of a manager’s job is his/her ability to influence. Unfortunately they often spend most of their time trying to influence that which they have little or no influence over. The following model shows three levels of influence:
1. Self
2. Other people
3. Things
The degree of influence that a manager exerts over these three levels is represented by an inverted triangle. The manager has the most influence over him/herself. This is because there is less resistance and a greater understanding of where the manager is headed. This is controlled by the manager’s vision of where he/she is headed. Next, is the ability to influence others, leadership is the only way to gain this level of influence. The manager can use coercion, but there will be little or no commitment. Finally many mangers attempt to manage things, through complex processes and organizational structures. Managers can not influence in animate objects, they can only organize them and budget for them, which will exert some form of influence. All they can hope to do is to manage resources.
Building A Strategic Focus
Transitioning to the New Paradigm requires that Management rethink their company’s situation and direction. To accomplish any real results from this activity requires a strategic focus. Building a strategic focus requires a sound grasp of the organization mission. It must be written in clear and concise terms that all stakeholders can understand. Knowledge of mission by itself is not sufficient to change the direction of the organization. Mission must be carried out with as concrete set of values subscribed to by all members of the organization. The leadership of the company build upon this foundation by establishing a corporate vision and by sharing it with all employees. The employees must be enrolled in this vision rather than “buy In to it”. Enrollment is by their choice, “Buy In” is coercive.
Getting enrollment requires that the vision be straightforward and honest. The vision can not contain a statement that “our employees are our most important asset” and the company lays them off whenever it is perceived to be economically feasible. They don’t lay off plant equipment, so the vision is a lie.
Once the mission, values and vision have been established and communicated with all employees, the next step is to develop the strategies that will help the company make the transition. Each strategy must have a corresponding measurement system that allows upper management to track progress and to make corrections as necessary. Once the strategy is in place, other levels of management can derive the strategic initiatives required to transform the company and ensure it’s long-term success.
Lower tiers of managers derive their objectives and business goals from the strategic initiatives and then create the budgets to supply the necessary resources for accomplishment. From the individuals objectives come the various projects required to make the changes reality.
Old Management Paradigm
As pointed out earlier, most companies are still operating under the old paradigm. The budget drives the vision and strategies rather than the other way around. Planning and capital allocation are a result of what is available in the budget. The budget is all too often based on historical perspective rather than on what is needed to accomplish what we need to do. It controls the human resources through personal incentives such as contracts and bonuses based on adherence to the budget rather than accountability and real contribution to the long-term health of the company.
Management reviews the budget on a monthly basis and makes corrections and changes based on what is left of the budget and with little or no emphasis on contribution. That is why a CEO can loose $100 Million and still get a $30 million dollar bonus.
New Management Paradigm
The need for the new paradigm has never been more apparent than in today’s economic times. Under the new paradigm, management begins by translating the shared vision in to a strategy, this is followed by realistic business planning using creative and strategic thinking principles. A balanced Score Card is created from these two processes and is sustained by communicating the vision and strategies and linking them to individual performance. This requires a system of accountability for the actions or lack thereof of all managers and staff.
Linking Vision & Strategy
Perhaps one of the biggest failures of modern day management has been to link all strategic elements including individual objectives to the shared vision. Managers often pursue objectives that are guaranteed to get them a bonus and not always linked to company strategies. It is not uncommon for managers to write individual objectives that they know are complete or almost complete in order to ensure their bonus and in some cases so that they can “coast to the end of the year.
Effective linkage requires a framework to ensure that all aspect of the strategic initiative are addressed and considered. These in turn need to have direct linkage to the initiatives of the subordinate manager and so on. A simple strategic framework will accomplish this.
Strategic Framework
The strategic framework is a table consisting of four columns each with 4 rows as shown in the following example. The boxes in the first column are labeled:
• Goal
• Objective
• Output
• Activities
The thinking is that if you accomplish the defined activities, then the outputs will have been produced. If the outputs are all produced, then the objective will have been met. If the objectives have been met, the goal will have been achieved. Typically there are multiple frameworks supporting a single goal. The objectives of one manager typically become the goals of a subordinate manager and the goals of a manager are derived from the objectives of his/her manager. This is where you ensure linkage.
The second column identified the indicators that show the element in the adjoining first column have been met, Column three identifies the means of verification and the fourth column identifies any and all assumptions made about the elements in the first column.
This tool is used not only for planning, but also for managing the strategic initiatives and resulting projects.
Strategy Focused Improvement
Strategy focused improvement requires that the management team breakdown each strategy into sub groups. For example if the strategy is to “Improve Shareholder Value” The management team might determine that this requires two sub strategies:
• The revenue growth strategy
• The productivity strategy
Each of these strategies would in turn be broken down into separate strategic initiatives as shown by the the following diagram. Subordinate managers would in turn develop initiatives such as obtain new revenue sources and leverage current brands and so on
Structure Of A Strategy Map
In the example show below, there are four basic strategies derived from the vision:
1. Financial
2. Customer
3. Internal Processes
4. Learning and growth
The arrows represent the strategic themes or “pillars” for the strategies. Each is based on its own separate hypothesis about what it will take to achieve each strategy. In this case management determined that they needed to:
• Build the business
• Increase customer values
• Achieve operational excellence
• Develop people
Proposed Strategy Map
This structure is translated into an actual strategy map such as the one shown below.
The map contains two strategies that a particular Manager might be assigned:
• The revenue growth strategy
• The productivity strategy
The resulting map show how the manager intends to accomplish these assigned strategies:
This manager intends to increase the return on investment to meet these two strategies intent. This will be accomplished in turn by increasing gross profit and increase asset utilization. Gross profit is expected to increase due to the use of new concepts, adding new customers and increasing the contribution from profit margin. Each step required to accomplish each element above it on the map is spelled out. Of course this map is a simplified version of what you might actually see. However, it is important to try to keep each map as simple as possible for ease of understanding and communication
3 Building Blocks
No matter what you include in your strategy map, keep in mind that as a minimum, you need to include the following basic building blocks:
1. Climate for Action
2. Strategic Technologies
3. Strategic Competencies
Management must build an environment conducive to change based on strategic principles, the three build blocks are essential to accomplish this, Once your strategic plan is established and the proper score cards developed, you are ready to develop an Organization Effectiveness Model similar to the one shown below:
The areas in gray represent the three building blocks described above. Programs to accomplish the strategic intent defined by management are represented by the boxed inside each building block.
The first green box represents the four basic strategies derived from the vision. The final green box represents the overall goal or vision.
Conclusion
This article has given the basic requirements to develop the strategy based performance structures required to support operations and grow the business with a long-term perspective.
Tags: business case for change, planning to Succeed, Problem solving, strategic focus, strategic thinking
