Major changes in the business environment are forcing organizations to revisit and revamp business strategy on a more frequent basis. To stay competitive 20 years ago, a six- or eight-year strategy cycle may have been sufficient. Today, thanks to globalization, increasing shareholder pressures, enhanced corporate governance, shorter product and service lifecycles, and the exponential growth and availability of information, the timeline for success with a business strategy may be three years or less.
Today’s long-term strategies need to satisfy short-term horizons by allowing retooling flexibility. With higher stakes, stakeholders’ tolerance for strategic missteps is slim. Success with a new business strategy can catapult an organization past its competition – especially if it has succeeded with other equally decisive and positive strategic initiatives. By the same token, strategies that misfire or simply do not produce intended results can quickly gain high visibility on the world’s stock markets, with a devastating effect on customer and investor perceptions of the business value worldwide.
Case Example: The Cost of Not Being Prepared
One key to an organization’s success is an ability to assess its readiness to create or improve the processes underlying its strategy. Often, even a thorough understanding of the business strategy by the executive team or sales leadership is not reflected in the operations delivering the final products and services to the customer.
The experience of an international gas and steam turbine manufacturer illustrates the difficulty of acting on a new strategy without full awareness of whether or not the organization was ready to do so. This company is organized around four primary functions – design, market, build and service. The separate measures that drive the performance management systems (and ultimately the behaviors) associated with the personnel in the four functions were in conflict.
The design function was mainly evaluated and rewarded based on performance specifications for a turbine. The market function measured and compensated excessively for new turbine orders. The build function was measured on timely delivery to customers. Customer service was delivered through two organizations – one that delivers service covered under warranty (primarily measured and driven to reduce cost) and another that delivers aftermarket maintenance and support (primarily measured in terms of maintenance time and fees).
This manufacturer settled on a competitive strategy based on accelerating turbine deliveries. It chose this strategy because an analysis showed that a 10 percent decrease in order-to-delivery cycle time would deliver a 6 percent gain in market share – a substantial increase in the company’s revenue. But in its effort to improve order-to-delivery cycle time, the business failed to account for a number of critical factors:
- The order-to-delivery element of the strategy was championed by only two of the organization’s executive leaders, the CEO and the vice president of global sales.
- Performance management measures were overly adjusted for speed and failed to carry sufficient weighting for turbine performance and for customer satisfaction with aspects not related to order-to-delivery cycle time.
- The organization failed to account for the coordination and redistribution of investment that would be necessary – across many internal business processes – to design and deliver the turbines in less time without sacrificing turbine performance to specifications.
These oversights caused leadership to appear uncoordinated and out of synch with customer objectives. The new “strategy” confused the business. Many managers disregarded it, while others vainly attempted to influence areas of the business that they did not control. And everyone was anxious and uncertain about their contributions and performance goals. The business stumbled badly in the market and experienced a substantial decline, instead of the revenue growth it sought to achieve.
Strategic missteps are not usually this obvious. However, they have subtle, crippling effects on essential business processes. Profits do not climb as efficiently as possible and customers switch products/services more often than supplying organizations would wish. Usually, executive teams never really do figure out whether a particular strategy was wrong – or whether the strategy just did not have a chance because of underlying process flaws within the organization.
Enabling Strategy: The Underlying Dimensions
Business processes are commonly recognized as primary vehicles for implementing an organization’s strategy. Yet other dimensions of the deployment also are critical to the success of the strategy. While in many organizations the act of annual strategic planning more closely resembles (and serves as) a budgeting activity, more leaders are realizing that a true strategic plan should clearly communicate how the business will differentiate itself and compete in the marketplace.
Many organizations start with a well-articulated strategy. But those that actually succeed with the implementation do so by consistently performing well on several of the 10 deployment dimensions:
- Clarity of strategy definition
- Leadership visibility and support
- Process orientation
- Strategy alignment
- Process management and accountability
- Cause-and-effect thinking
- Meaningful business measurement
- Fact-based skills and competencies
- Participative and integrated culture
- Customer orientation and focus
Reading like the Ten Commandments of good business, these dimensions and the criteria for achieving them have headline status on virtually every business conference agenda and business degree curriculum. Even so, organizations are hard-pressed to consistently deliver on them, and are regularly challenged when taking on a new business strategy or simply delivering better results under the current one.
The turbine manufacturing company addressed some of the strategy deployment dimensions – leadership visibility, clarity, alignment and accountability. But it did so in the wrong manner and overlooked other dimensions completely. These errors significantly damaged their strategy implementation.
Substantial insights can be gained when an organization evaluates its readiness for a new or revised strategy. If the turbine manufacturer had closely examined its propensity for understanding, adopting and implementing a process-based approach to its strategy, it would have:
- Evaluated the likelihood of creating and sustaining accountability for the performance of cross-functional processes.
- Identified the barriers to successfully implementing the strategy.
- Guided change-readiness activities to increase the likelihood of successful and sustainable strategy deployment.
Capturing Perceptions and Facing Reality
As the turbine manufacturing company example illustrates, understanding an organization’s readiness for a new strategy can help it take that first step of recognizing and communicating its strengths and weaknesses in each of the organizational dimensions.
Had the turbine manufacturer been able to assess its readiness, it would have discovered weakness in the dimension of “leadership visibility and support.” Equipped with a better understanding of the misalignment among its operating units’ strategic priorities, leadership would have known where to invest energy to obtain the sponsorship necessary to achieve the improvement.
In the dimensions of “business measurement” and “customer focus,” greater self-understanding would have led the company to first explore the causal factors that drive order-to-delivery cycle time, and then align performance measures accordingly. The new measures, based on validated information about customer requirements, would have reconciled the various business objectives so that resources could have been developed and allocated to the right areas of the organization. The net result? A more integrated, comprehensive approach for implementing a substantial change to business priorities.
It is important to keep in mind that unforgiving markets punish the unprepared.