“The end of the year is upon us and, whilst we are exhausted and have been running at a stressful pace all year, it seems little progress has been made against our bigger strategy. Somehow we lost focus on the longer term ambition while running hard at the short term priorities”.
It is so common for us to hear statements along this theme from clients. Despite having a clear plan at the point of strategy formulation and going through time consuming efforts to bring everybody on board, the bigger strategies are often not realized. Short term priorities and crisis management trump strategy every time.
Making a special effort to deliberately embed strategy in the organisation has a measured benefit.
Bain & Company and The Economist measured the relationship between decision making (pace and quality) and execution value and demonstrated a substantial benefit. The benefit of getting better decisions made rapidly was substantially magnified through getting the organisation focused on executing the strategy.
So how do we get around the problem of an overwhelming urge to focus on the short-term at the expense of the strategy?
Firstly, it is important to recognize the importance of short-term management. But it is equally important to hold the strategy as a standard to which management make short-term tradeoffs and the ultimate measure of success.
“The biggest difference between companies that perform and those that don’t is management’s ‘agility quotient’ – the capability to tell when things aren’t going according to plan and figure out how to deliver the numbers.”
– Jim McNerney, Chairman of The Boeing Company 2016
Aligning performance management KPIs for the executive team is a key lever for embedding strategy but this too has comes with risks. The biggest hurdles to success with KPI’s is keeping them relevant to how the execution is progressing and keeping them aligned to how we make remuneration decisions. Few companies dynamically manage their KPI’s in a way that allows them to correct the use of the wrong metrics or the weighting thereof. Again short-term profitability tends to dominate and longer term goals get pushed out to “next year’s” agenda.
Another way of keeping strategy alive in the ongoing focus of management, is to make long term strategies a standing item on the agenda of existing forums, e.g. monthly exec meetings, strategy committee, finance, risk or people forums. This might work where management discipline and management culture already allows for effective reporting and decision making in these forums. Sadly, poor discipline and wordy reports tend to abound and introduction of new metrics every month or quarter makes tracking difficult. The key problem here is time constraints and again the focus on current issues and problems. Strategy gets crowded out. Adding to the agenda is seldom possible. Management teams don’t have the time, nor quality of reporting to specifically allow for in-depth discussion on business unit strategic performance, market environment and key strategic challenges.
We prefer having dedicated business review sessions that form part of the business calendar. The secret to execution of your longer term strategy is to take time throughout the year to make informed decisions continuously, not just once a year during the strategy session. Inevitably another calendar needs to appear in already full schedules, called “strategy progress review”. To justify this new entry, the sessions need to be productive and decisive.
There are some practical steps that we have learned through implementing these kinds of review sessions in client organisations:
- Firstly pick one full day every quarter (or 3 to 5 times per year) to dedicate to one business unit and set them in the corporate calendar as fixed and non-negotiable. These sessions should include the whole executive of the organisation but the focus is on strategy execution in one business unit.
- Set clear objectives for that one day and ensure that the session does not focus on short-term performance (become a performance review). This will be the most difficult temptation to overcome, which will skew the discussions. This could be stated along the lines of the below example.
- The overall aim is to take senior management time to discuss in-depth key strategic issues of the business unit in order to increase group value by:
- Improving the quality and the pace of decision making
- Eliminating blockages to execution
- Rectifying a strategic course within the changing environment with agility.
- The review sessions need to be structured not just to be interesting but also integral to strategic management processes (i.e. outcomes must build towards annual strategy review). Practically this means that they need to be coordinated by the same people that coordinate the annual strategy and planning process.
- They should ideally be structured and facilitated to produce a high quality dialogue about strategy and execution.
- The culture associated with these sessions should be conducive to debate. This means that alternatives need to be tabled. The agenda needs to keep the debate focused on key and value creating issues and must allow for buy-in to challenges and management’s course taken.
- This level of debate should speed up decision-making coupled to more commitment to decisions taken across leadership. The focus should be on decisions and not discussion.
The agenda should typically cover the following ground:
- A brief market review – including new or emerging external threats; the competitive environment (key changes, our position, opportunities unfolding); and key changes in the regulatory, legislative, and socio-economic environment.
- Set out and review the agreed longer term goals, strategy and strategic initiatives. Are we on-track? What are the key risks to achieving target? Confirm that the stated initiatives are the most value driving initiatives with a simple ‘ease of implementation versus impact / value creation matrix’ (assessed from a capital and commercial market perspective). The session should make decisions to add and delete initiatives as appropriate.
- Assess progress against prioritised and key initiatives. Can and should they be accelerated? What added value could be created? Any blockages to execution? Can they be resolved?
Blockages identified might include:
- Resource constraints (investment / people capacity / attitude / competency)
- Pending decisions
- Risk levels too high or trade-offs required
- Assistance from other BUs or central shared functions.
- As mentioned earlier, these sessions need to have an ‘action’ bias. The preparation and discussion should aim to take critical decisions in the forum and not to defer for further investigation and feedback. This means that the preparation must be thorough and the facilitation must be strong.
- Summarise and agree a concrete way forward – capture this immediately and distribute in writing to all affected parties (including key individuals required to execute or support execution). Follow up must be clear. This should include not just what follow-up is required but how it will be conducted. Remember the short-term issues will compete for attention between sessions.
Strong leadership is needed when establishing these reviews, in defining preparation requirements and during the sessions.
These reviews are there to help keep the strategy alive in the face of pressing short-term issues. They therefore need to be positioned carefully:
- Not as time consuming additional reporting but as honest discussions;
- Not micro management of operational issues but strategic alignment;
- Not a check-up on BU management but instead a collaborative supportive group forum;
- Not repetition of other forums / committees;
- Not taking away from BU leadership authority to shape their business;
- Not adding another layer of bureaucracy, or be in any form confrontational.