Wednesday, September 19, 2012

So, What is a Strategy Anyway?

I was a guest lecturer at the capstone course in an MBA program. The title of the course was, "Strategic Planning." It was near the end of the semester and the students were on the verge of graduation. I began the class by asking, "So, what is a strategy anyway?" My query was greeted by approximately twenty blank stares. I repeated the question; again, silence.
Finally, one brave soul raised her hand and said, "Porter Five Forces Model." Not wanting to discourage the class, I said, "Good" and wrote the name of the model on the board. Encouraged, another student chimed in, "BCG Growth Share Matrix."

Again, I wrote this on the board. Over the next two or three minutes another half dozen analytic tools made their way onto the board. Then I asked, "If I completed all of these analyses for my company, would I have a strategy?" A gentleman sitting in the front row responded sheepishly, "I don't think so, because you still wouldn't have a plan." Right! At its core, a strategy is nothing more than a plan to achieve your business goals.

Of course this definition of a strategy assumes that a company has established its business goals. All too often, that's not the case. Companies go into business to sell widgets, and sell widgets they do. But, senior managers often get so busy working in the business that they don't get around to working on the business. It's been said that America is the land of opportunity, and in the land of opportunity people can have anything they want. The trouble is that most Americans don't know what they want; because they have never taken the time to thoughtfully write down their goals. So, the first key to an effective strategy is to make the time to think through your goals and write them down.
Once the goals are written down, an actionable plan must be put into place to achieve the goals. We worked with one company whose CEO turned around and removed something from his drawer. With reverence, he presented it as though it were the original of the Gettysburg Address. As he handed it to me he said, "Read this, it's our strategy!" That evening I studied the document carefully. It contained a plethora of insightful analysis regarding the market, competitors, products, etc. It even spelled out the company's goals. Unfortunately, it did not contain so much as one word about who was going to do what, by when to achieve the goals. While perhaps brilliant analysis, this was decidedly not a strategy. A strategy requires a detailed plan to achieve the goals. Further, the plan needs to indicate not only what is going to be done, but which senior manager is responsible for each major task and by when it will be completed.

Further, for optimal results, the responsibilities of each senior manager must be cascaded throughout their respective organizations so that the goals of everyone in the company are aligned both with the company strategy and with each other. Suppose the president of a company declared to his senior management team, "Our goal is to increase profits by 30 percent this year, and it is up to each of you to implement plans to achieve this goal!" With this direction the VP of Manufacturing surveyed his plant and decided that the old equipment they were using resulted in significant inefficiency. Therefore, he would replace all of the old equipment with state of the art machines. This would result in increased productivity, reduced costs and therefore increased profits. The VP of Human Resources observed that many employees didn't know how to properly use the old machines on which they worked. Therefore, he decided to hire an outside training firm to retrain every manufacturing employee on how to most effectively use the existing equipment. This, he reasoned, would increase productivity, reduce costs and therefore increase profits. The CFO decided that she would eliminate all non-essential spending to drive costs down and increase profits. Obviously, this company is doomed to fail. While the plans of the three senior managers are certainly aligned with the company goal of increasing profits, they are most certainly not aligned with each other.

Once the goals of every member of the organization are aligned with the company's goals and with each other it is important to ensure that the human systems (e.g., performance management system, compensation system, hiring system, etc.) reinforce the achievement of these goals. For example, let's assume that one of the company's goals is to increase quality. It turns out that quality can be increase dramatically, but doing so will reduce productivity by 10 percent. Economically, this is a very good trade-off for the company. However, if production workers are paid a bonus based on productivity without consideration for quality, it is unlikely that they will be willing to reduce their output in favor of reduced errors. It is decidedly unfair to expect an employee to do something that is in the company's best interest, but that will reduce their income. A company's human systems must be aligned with and reinforce its goals.
In summary, a successful strategy requires:
  • A set of well thought out goals for the organization
  • A clear plan to achieve those goals
  • Each step in the plan must have a deadline for delivery and a single senior manager who is accountable
  • The goals of each senior manager must be cascaded down throughout their respective organizations so the goals of every employee are aligned with the strategy and with each other.
  • The company's human systems must work in concert with these goals

Successful execution of a coherent strategy requires achieving top to bottom alignment around a clear set of organizational goals. That takes a lot of work. But, experience shows that the results are well worth the effort and the cost of failure can be substantial.
Written by Whitestone Partners


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