Quarterly Journal on Management
From the publishers of THE HINDU BUSINESS LINE
Vol. 2 :: Iss. 4 :: November 1999
Putting Strategy to work
Prof. John C. Camillus
New techniques, changing contexts, novel managerial perspectives and aspirations have all resulted in evolution and occasionally revolution in the design of strategic planning systems.
IT is widely known that the fate of many strategic plans is to be entombed in an impressively produced document that is promptly shelved and periodically displayed to visitors who need to be impressed by the managerial acumen of the organisation, but otherwise serve little or no useful purpose.
Strategic planning has gone through enormous changes since its emergence and acceptance almost three decades ago. New techniques, changing contexts, novel managerial perspectives and aspirations have all resulted in evolution and occasionally revolution in the design of strategic planning systems.
However, the challenge of effective implementation has always been and still remains a difficult hurdle faced by many organisations.
Two recent studies, one by the International Benchmarking Clearing-house, a service of the American Productivity & Quality Center (APQC) and another by the Asian Benchmarking Clearinghouse, a unit of the Hong Kong Productivity Council, examined the issue of "turning strategy into action." I served as "subject matter expert" for both of these studies. APQC's state- of-the-art benchmarking methodology was used in both studies to identify and understand "best practices" in strategy implementation. These parallel studies employed the same methodology and employed almost identical data gathering instruments. Together they gathered information on 26 companies, seven of which were systematically identified as employing best practices in the area of strategy implementation.
The findings of both studies, one focusing primarily on U.S.- based companies and the other looking at Hong Kong organisations came up with very similar guidelines for ensuring that strategic plans are effectively implemented. The findings of the studies suggested that implementation guidelines apply to the following four areas:
1. Linking Strategy to Performance: In order for an organisation to meet its financial and performance goals, the actions of all groups, departments, functional levels, and individuals must support strategic plans. This area relates to the various approaches that leading organisations use to bring about consistency between organisational strategy and managerial decisions and actions throughout the organisation. It also includes the strategic control processes that check the continued relevance and validity of the current plans.
2. Communication and Incentives: To ensure success in strategy implementation, the process must engage and involve employees at all levels of the organisation. This area focuses on ways of effectively communicating with and motivating all employees to accept and support implementation strategies and initiatives.
3. Organisational Structure: A key enabler for effective strategy implementation is the ability to align organisational structure with strategic goals and objectives. The structure and strategy of the organisation must be complementary. This area looks at the various methods by which companies manage their organisational structures to support strategy implementation.
4. Tools and Techniques: This area relates to the trends in management techniques that are employed to effect the transition from strategy to action.
The findings in these four areas, common to both studies are listed below:
I. Linking Strategy to Performance
1. Strategic plans must be linked to business/operational plans along both process and content dimensions
2. Creating a balance between the different characteristics of strategic planning and action planning is essential to implementation success
3. Shifting from "budgeting" to operational planning supports the implementation of strategic initiatives.
4. Strategic plans are best viewed as "living documents" that require periodic review and continuous improvement.
5. Well-defined, well-communicated, simple planning processes support more effective deployment of plans
6. Identifying a few key strategic foci or objectives enhances the ease and effectiveness of implementation
II. Communication and Incentives
7. Communication is one of the most significant variables affecting the success of strategic planning implementation.
8. Top management leadership and involvement in implementation initiatives is a critical success factor.
III. Organisational Structure
9. Aligning organisational structure with organisational strategy is necessary to ensure implementation of strategic plans.
10. The development of new skill sets is required to support changed strategies.
11. Task forces or special teams specifically charged with the responsibility for implementing key strategic programs enhance the effectiveness of implementation.
12. Executives responsible for the planning function need to ensure that the logic of the planning process is communicated and that planning capabilities are constantly improved.
13. Successful implementation often requires that the strategic planning function be integrated with the human resources and quality functions
IV. Tools and Techniques
14. A "strategic control" framework is needed to support the implementation of strategy.
15. Plan development and implementation should be integrated into the larger management system
Each of these findings is briefly discussed below.
Content and Process Linkages
Organisations reporting effective implementation placed great emphasis on both content and process linkages between strategic and action plans in order to affect performance. These organisations all treated business/ operational/ action plans as an integral "subset" of the strategic plan. The content linkage is effected in two critically important ways.
First, strategic objectives, such as customer satisfaction, lead to the identification of related performance goals, such as the number of complaints and satisfaction indices. In some organisations, senior executives identify a set of "critical few objectives" that are cascaded throughout the organisation to drive the planning process from strategy to operations. Second, operational plans are developed to reflect the strategic initiatives that are adopted. Strategic "transformation" requires detailing of the actions that affect the desired change in strategy.
To support this linkage, some organisations develop a detailed strategy matrix that is comprised of strategic plan objectives linked to specific action plans and goals. This detailed matrix allows those involved in actual implementation to understand the strategic rationale for specific actions that must be taken.
Standard templates and workbooks can be designed to specify the content of operational plans. Strategy implementation is supported by these formats, which require the detailing of actions to be taken in response to the objectives and performance expectations flowing from the strategic planning phases of the processes.
With regard to process linkages, an increasing number of organisations treat the strategic planning process and the business planning process as an integral whole and not as two separate processes that need to be linked.
In these organisations strategic and business planning form a seamless, single process with business planning being viewed as the deployment phase of strategic planning.
Balancing Strategic Planning and Action Planning
One of the most difficult challenges faced by organisations is the effective reconciliation, or balancing, of the intrinsically different characteristics of strategic planning and business planning. The visionary, high aspirations that characterise strategic plans are in direct contrast to the performance commitments that are embodied in business/action planning. Strategic plans anticipate future changes and action/business plans seek to get the most out of the present.
Balancing or reconciling these two very different processes is necessary to avoid dysfunctional conflict where the two processes work against each other instead of in concert. This balance can be achieved by involving those responsible for implementing the strategic plans in the process of developing the strategic plans.
A popular and effective approach to achieving balance between strategy and operations, between creativity and control, and between aspirations and action is to conduct management retreats, or workshops, with diverse groups at certain phases of a planning cycle. These retreats and/or workshops can be designed to promote out-of-box thinking, focus on key issues, and share various perspectives regarding strategic planning implementation.
Identifying key organisational issues also supports the different needs of strategic planning and operational planning. Generating and prioritising key issues, at minimum on an annual basis, provides stimulus and gives expression to the creative thinking required in strategic planning. Focusing on key issues also provides the strategic direction required for effective operational planning.
Shifting from Budgets to Operational Planning
Effective implementation requires an "action planning" approach that goes beyond the scope of traditional budgets. Traditional budgets are 1) expressed in the form of financial statements, and 2) focused on outcomes rather than the means of achieving the outcomes. The shift to operational plans that describe the actions needed to achieve the performance goals is a logical outcome of ensuring that strategic initiatives are implemented.
Detailed operational planning documentation describes the programs being implemented, articulates the strategic rationale for these programs, identifies responsibilities for carrying out the programs and defines time deadlines and expected results. Ensuring consistency between strategy and operations can be accomplished by reviewing the consistency between strategic objectives and performance goals, as well as strategic initiatives and operational actions. Greater assurance of consistency between strategy and operations obviously results from the development of operational plans that explicitly reflect strategic directions and rationale.
Promoting Continuous Strategic Planning
Effective implementation requires that strategic plans be viewed as live and responsive in nature, as opposed to static documents that are periodically updated. The orientation should be one of "issue management," where key and emerging issues are the constant focus of the strategic planning implementation efforts of the organisation. Issues do not recognise the discipline of planning cycles or planning calendars. Inevitably, they force planners into a constant state of alertness, seeking to identify emerging developments that require a response regardless of the recency of the latest planning exercise. Explicitly identifying the assumptions underlying strategic plans makes it possible to better assess their continued validity.
Simplifying the Planning Process
Effective organisations displayed clearly defined, well- understood, highly structured planning processes. Even though the processes seemed to be subject to continuous improvement, there was no lack of clarity about the current systems. In these organisations, all levels of the managerial hierarchy demonstrated a clear understanding of the planning process.
These organisations made significant investments in both documenting the process and training personnel with regard to planning. Planning manuals and online resources describing the process were readily available. Also, the logic underlying the process was clear and convincing.
Ensuring Focus
For organisations to successfully carry out strategy implementation, its employees must understand the priority of business issues and goals. A number of devices can be employed to ensure that management attention is focused on a few key matters. In some organisations, there are a "vital few" objectives that are shared throughout the organisation. Essentially these are priorities that result from meetings and discussions that involve the top management.
This emphasis on focus greatly facilitated the task of communication in these organisations. As will be discussed in later sections of this report, communication is perceived to be of critical importance and carried out strikingly well by each partner company.
Emphasising Communication
The studies suggest that communication may very well be the most significant factor affecting strategy implementation. The research indicates that effective organisations utilise a wider range of communication channels than sponsor organisations. The effective organisations involve senior management in the communication exercise and communicate across more levels. They also employ more formal documents to communicate the strategy message company wide. They share plans more widely and deeply in the employee ranks and engage more intensely in communication processes.
Top Management Leadership
The critical importance of the involvement and commitment of top management for the strategic plans to be effectively implemented is so obvious and has been an accepted mantra for so long that it is no surprise that the studies recognise and highlight the need for such involvement and commitment. It appears that this commitment needs to be displayed visibly in several ways, including:
* publicly expressing support for the planning process and plans;
* involvement in the planning process;
* providing the resources needed for planning and plan
implementation;
* engaging in the process of communicating strategic directions,
rationale, and objectives; and,
* utilising the output of the planning process to guide their
decision making.
Above all, top leadership commitment and communication is necessary to effect changes in culture. "Walking the talk" was seen to be essential. The CEO is seen as the crucially important factor enabling a culture of accepting and initiating change, rather than resisting it.
Aligning Organisational Strategy and Organisational Structure
A seminal understanding in the area of strategy that was developed in the 1960's is that strategy and organisational structure are closely intertwined. As strategy evolves, so too does organisational structure.
Consistent with this understanding, these studies reinforce the conclusion that organisational structure is a major variable affecting the implementation of changes in strategy. Traditional thinking in the management arena has tended to view organisational structure as a constant, unchanging element of organisational design, based on principles derived from bureaucracy and contingency theory, where the contingencies are external to the organisation.
In these studies, organisations in both Hong Kong and the US viewed organisational structure as fluid and evolving constantly just as strategy evolves. Even at the apex of these organisations managerial responsibilities are constantly redefined as the organisational strategy changes.
Developing and Infusing New Skills
As new strategies are developed it is often necessary to develop new technical and managerial skills. The human resources department is, as a consequence, a close working partner with headquarters and planning personnel in effecting change. Special training programs tailored to new technologies adopted in the new strategies need to be developed by the human resources department. Similarly, leadership and management skills need to be honed in response to the evolving strategic directions.
Complementary to the issue of developing new skills within the existing personnel base is the practice of recruiting personnel with skills needed to support new strategic initiatives. This was more evident among the US organisations. The importance given to linking leadership development to strategic objectives was strongly evident among almost all the companies studied.
Task Forces for Strategic Change
A well-designed organisation structure is ideally suited for implementing an existing strategy. As a consequence, special teams or task forces often need to be set up to carry out strategic changes. Such teams are commonly employed by the organisations that were perceived to be better at implementing strategy. Key strategic initiatives are usually assigned to a task force of capable personnel.
Process Design and Improvement
In effective organisations, planning departments serve as a conduit for introducing new thinking and approaches into the organisation regarding strategy and strategy implementation. In addition, the planning department often plays a strong advisory role with senior management analogous to the traditional role of the controller. Generally, the departments' role is one of education and training. They instruct the organisation about planning processes and techniques. In some of the organisations the planning executives engage in a didactic role with regard to planning and plan implementation to a remarkable degree.
Often, the human resource, finance and quality functions are partners in this effort. The training is designed to help all employees build competencies and skill sets that align appropriately with strategic plans and the ability to effectively implement strategic goals and objectives.
Integration with Human Resource and Quality Functions
A particularly noticeable characteristic of the effective organisations was the planning function's relationship to the human resources and quality functions in their organisations. The training and education roles and the need for new managerial and technical skill sets mentioned earlier naturally brought human resources and planning together. Quality tools and techniques for analysis of problems and their resolution similarly made partners of the planning and quality functions.
In the US, strategic planning is an important aspect of the Baldrige-based self-assessment (of quality) programs. The planning function plays another very important role in support of what is traditionally viewed as the responsibility of the human resources function. A stint in or secondment to the planning department is viewed as an opportunity for individuals to develop an organisational perspective, and hone or develop their skills of strategic analysis. Seeding such individuals throughout the organisation supports the plan development and implementation process in both subtle and very obvious ways. This approach was more evident in the US than in the Hong Kong context.
Building a Framework of Strategic Control
A constellation of techniques and approaches are employed by the effective organisations to create an implementation framework that can appropriately be termed "strategic control." Three critical elements are combined to create this framework.
First, a family of performance measures was defined that reflected strategic objectives. These performance measures were not unlike the set of measures popularly referred to as the "balanced scorecard." In some organisations these are viewed as the fulcrum on which the whole strategic management exercise is based. In fact, resource allocation decisions are often based on what is needed to achieve the performance outcomes specified.
Second, action plans/operational plans are developed to detail how stretch goals and strategic initiatives are to be accomplished. The organisations also design the format of the action planning documentation to ensure that strategic thinking undergirds the action plans and that progress toward desired outcomes can be monitored. Some organisations believe the design of planning and documentation formats to be important means of ensuring that the appropriate analysis is carried out and that all relevant "bases are touched."
Third, formal and frequent reviews of progress are carried out. These reviews consider not only whether outcomes are achieved, but also what changes need to be made in assumptions and plans. This emphasis on reviews extends to the planning and implementation processes themselves and what improvements need to be made in these processes.
In addition to the three critically important elements of strategic control, a fourth technique that is employed in the exercise of strategic control is contingency planning. Various approaches to contingency planning were observed in Hong Kong and the US. A popular contingency planning technique appears to be scenario planning. Even in the context of scenario development a variety of approaches are adopted.
The only commonality appears to be a frame of mind that recognises the fundamental uncertainty characterising the future and the necessity to "learn from the future," not only the past. In some organisations scenarios are developed in a somewhat traditional fashion with optimistic and pessimistic alternatives, but are employed in an innovative fashion to identify the robust actions that are likely to be effective in all contexts. Even very simple predictive models driven by one or two variables are found to be of value. Scenario development as a large group exercise in sharing perspectives and mutual education can effectively support informed and effective strategy implementation under conditions of uncertainty.
Management Systems Perspective
Finally, another commonality observed in effective organisations was a remarkably similar perspective on addressing the total "management system." Strategic planning and implementation was not seen as an independent exercise, but as part of a system of processes that constitute the management function in an organisation. Consequently, the design of the planning system and the implementation process was not designed in isolation but as part of a mutually supportive, integrated set of processes such as the capital budgeting process, human resources development process and the management information and control process. The range of staff functions (finance, quality, human resources, management information, controller, etc.) involved in the development and implementation of plans attest to the integrated approach adopted by these organisations.
It is possible to map the elements of their concept of the "management system" onto the 7-S model promoted by McKinsey (the management-consulting firm). However, a more parsimonious, equally effective, and much more comprehensible and manageable 4- S model may be more useful here. The 4-S model employs only four components with six interconnections, while the 7-S model utilises seven components with 21 interconnections. The 4-S model employed by the partner organisations is diagrammed in the chart above. The model and its elements capture and illuminate the logic of the various practices described above as key guidelines for effective implementation of strategic plans.
The author is Donald R. Beall Professor of Strategic Management at the Katz Graduate School of Business, University of Pittsburgh