This is Part 3 of the series 'Managing a Strategy into Reality'. The objective of this series is to help organizations execute their strategies for success. It documents what I have learned from implementing and managing Strategy Management processes at international and national companies for over a decade, on 3 different continents. It focuses in particular on the 'soft side' – the 'Art' – of Strategy Management: how to engage an organization in strategy and induce it to support the change it entails. It is not intended as a summary of academic literature on the subject, but as a 'practitioner’s guide' covering what I’ve seen work well and not so well.
The previous Part 2 of the series discussed the objectives of the Strategy Formulation phase of Strategy Management, who should be engaged during this phase and how they should be engaged by the Strategy Management Team (SMT). The following Part 3 will focus on Strategic Planning.
Strategy Formulation is about determining a destination for the organization by answering the questions 'Where to do business?' and 'How to do business there?'. Thereafter, Strategic Planning is about determining the course the organization should take to arrive at this destination – how to become the envisioned organization? In other words, Strategic Planning is about converting a strategy into operational action.
SMT task 1: Activity and resource planning
The world changes rapidly and continuously. Consequently, the big opportunities foreseen for the future tend to be different from the big opportunities of today. Through Strategy Management an organization tries to remain aligned with the big opportunities at all times, such that it can continue to be successful. A strategy therefore entails change.
Strategic planning, however, should not be limited to development of a change management plan that exists separately from operational plans covering the day-to-day activities. It would not be very efficient for an organization to have two separate planning processes, one for the strategic change and another for day-to-day operations. Even more important, however, is the fact that an organization should only do what its strategy requires – nothing more since that would be a waste of resources, nor anything less since that would (eventually) result in a gap between desired and actual performance. The strategy should therefore be the guide for decision making at all levels of the organization and covering all four categories of organizational activity (those to be continued as-is, those to be continued but changed, those to be discontinued and those to be launched new). To achieve this, strategic planning should be about the development of a comprehensive plan of activities.
In order to facilitate strategy execution the strategic plan should not only document the activities to be done, but also provide an answer to the questions 'Who is going to do this?', 'When?' and 'What resources need to be prepared for it?'. Planning at this level of detail requires deep insights into the business and specialized knowledge regarding the operations. Such information is normally scattered across an organization’s senior- and middle-managers – Mid Management (MM) – and Subject Matter Experts (SMEs). The activity planning exercise must therefore be done by them, with the SMT ensuring they focus their efforts on achieving the objectives defined during Strategy Formulation and develop comprehensive plans of sufficient detail.
SMT task 2: Alignment management
By design, the focus of MM is on a specific function within the organization, rather than the entire organization. Since most activities undertaken by an organization require cross-functional cooperation, Strategic Planning must address the cross-functional interdependencies that exist in the organization. During Strategic Planning, therefore, the SMT must ensure the plans of the various functions in the organization are properly aligned.
In practice this requires the managers of the different functions in the organization to develop a 'first draft' plan for their functions, identifying the tasks their functions will need to do in order to meet the objectives, the resources these tasks will require, when they will need to be done, by whom, etc. Thereafter, the SMT must lead an effort to consolidate these 'first draft' function plans into a single strategic plan for the entire organization.
This consolidation effort must be based on cross-functional plan review meetings at MM level. This builds awareness across the organization of what the various functions intend to do. In addition, such meetings give the managers of the functions the opportunity to review the alignment of their plan with the other functions’ plans, and identify and resolve any misalignments. This way the consolidation effort actually optimizes the functions’ plans, leading to a more realistic corporate strategic plan.
SMT task 3: Prioritization management
A critical difference between core and support functions is that the former typically know what is needed, e.g. 'increase the sales force', while the latter know what is possible, e.g. 'cash available'. Usually, an organization’s needs and possibilities are not perfectly aligned. The resulting conflicts of needs and possibilities are not limited to core functions on the one hand and support-functions on the other, however. They can also arise between core functions, such as operations and maintenance, and between support-functions, such as human resources and finance.
The SMT needs to ensure these conflicts are identified and resolved through prioritization, such that the final strategic plan is realistic also from the perspective of resource availability. This requires work at three different levels. The first level is where MM managers resolve conflicts between needs and resource availability within their own plans. The second level deals with conflicts between functions. These need to be addressed through the earlier mentioned cross-functional meetings at MM level for plan alignment management. The third level deals with conflicts between needs and possibilities for which MM can not find a solution. Such conflicts require engagement of the C-suite, because their resolution often requires re-prioritization of the corporate objectives. The SMT needs to enable MM to escalate these conflicts to the C-suite to facilitate the reworking of the strategy that allows for the comprehensive and realistic strategic plan to be finalized.
SMT task 4: Completing the KPI pyramid
During the Strategic Planning phase of Strategy Management the comprehensive Key Performance Indicator (KPI) pyramid should be finalized as this is required for effective performance management during Strategy Execution. At this stage, namely, which is before execution of the plans, it is easier to keep the discussion around KPIs objective and focused on the question 'Which KPIs do I need to achieve my objectives?' rather than 'Which KPIs make me look good?'.
This requires development of KPIs to measure performance associated with plan-execution, i.e. KPIs that measure whether the planned activities have been performed, whether they indeed used the expected resources and whether they had the expected impact.
Such lower level 'activity' KPIs would be a natural extension of the KPIs developed during strategy formulation to measure delivery against the objectives of the organization and its functions, since they would be determined based on an inventarization of the activities critical for meeting the corporate and function objectives. This KPI pyramid covering both objectives and key activities will make performance management during strategy execution value adding, enabling investigation, diagnosis and explanation of failure to achieve an objective, identifying the activity causing the failure and facilitating identification of the necessary corrective actions.
KPI Pyramiding: Drive focus on what the function needs to do, in order to improve its performance in the way that supports the organization to meet its corporate objectives
MM should take the lead in developing these activity KPIs, since they are to be based on the plans they developed. In part 2 of the series on strategy formulation the example was given of an organization that decided the big opportunity it wanted to pursue was mobile phones for the lower middle class in a fast growing Asian market. To achieve this it decided it had to become the lowest cost producer of 'dumbphones' and the provider of the best customer experience. During the strategic planning stage of strategy management, then, the manufacturing manager might conclude that in order to become the lowest cost producer, the organization should outsource its manufacturing operation. Consequently, his plan focuses on managing the transition to outsourcing of manufacturing. In this example, one of the lower level “activity” KPIs should look at the progress of the project to outsource the manufacturing.
However, as KPI development is a skill which is part science and part art, the SMT must support MM in developing the activity KPIs to ensure the KPI pyramid is properly formed, with activity KPIs properly supporting the KPIs around the corporate and function objectives.
Dealing with resistance to change
- Engaging MM and SMEs during definition of the strategy effectively communicates the rationale for the change.
- Translating the strategy into corporate and function-specific KPIs with targets removes any ambiguity as to the objective of the change.
- Planning the change based on the insights and specialized knowledge of MM and SMEs gives the eventual executors of the plans a sense of control.
- Consciously managing alignment of plans and prioritization of activities keeps expectations realistic.
Therefore, if done right, this approach leads to the strategic plan becoming a personal commitment from MM to the C-suite, enabling utilization of the strategic plan for effective and value adding performance management during Strategy Execution.
The next article in the series, Part 4, will discuss in more detail the Strategy Execution phase of Strategy Management, and the SMT’s role in it.
The “Managing a Strategy into Reality”-series
Part 1 discussed the necessity of establishing a Strategy Management Team (SMT).
Part 2 reviewed the Strategy Formulation phase of Strategy Management.
Part 3 reviewed the Strategic Planning phase of Strategy Management.
Part 4 will review the Strategy Execution phase of Strategy Management, focusing in the Strategic Performance Management process.
Part 5 will continue the review of the Strategy Execution phase of Strategy Management, focusing on the Strategic Risk Management process.
Part 6 will discuss the key competencies required for effective Strategy Management.
Part 7 will review the relationship between Strategy and Corporate Culture and explain how Corporate Culture can be managed to supporting the Strategy.
Part 8 will review whether Strategy Management remains relevant in today’s volatile, uncertain, complex, and ambiguous world.
If you have any kind of feedback, feel free to leave a comment or connect with me on LinkedIn.