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Your company creates its strategic plan. Leadership signs off. Maybe they set aside an hour a month to check in. Business units do their own evaluations and make some course corrections. At the end of the year, everybody evaluates again. Too often, this involves coming to grips with the fact that this is one more year of failing to deliver on the plan!
That’s not to say companies are missing revenue targets or other goals, at least in the short term. But that’s part of the problem.
Organizations whose strategic plans go unrealized may have to go all the way back to the drawing board. Maybe they are missing, or not fully investing in, critical strategic planning steps. How is the market changing? How do they want to position themselves in that market? What information could confirm or inform the assessment to determine its validity? What are the internal and external landscapes that need to be considered? Only then can a plan start to take shape.
But the work is not done, yet. Many organizations behave as though the planning is merely checking off the box of annual imperatives. The templates are filled out, decks presented, and the plan is filed away somewhere between offsite storage and the organization’s consciousness. End of story. However smart businesses have recognized that both the unexpected and the comfortable familiarity of the day-to-day have a way of drowning out the latest strategic plan. A successful strategic planning process requires a robust and coordinated effort to ensure the plans’ success. Strategic plans need systems of strategic management as well as leadership.
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What is strategic management?
Strategic business management is the iterative process by which an organization creates and sustains a successful strategic plan that moves the company in the direction it needs to move, year after year, for long-term success. It spans from research and formulation to execution, evaluation, and adjustment. Given the pace of change, strategic management is more relevant and important than ever.
A strategic management initiative might be driven by an internal group — many companies have an internal strategy team — or outside consulting firm. Ultimately, company leaders need to own executing and sustaining the strategy.
The group is responsible for creating and implementing the strategic plan, conducting internal/external analyses, formulating the plan and making it meaningful to the organization. They also organize and run strategic planning reviews. They coach and advise the executive team. They work with management throughout the organization to communicate, coordinate and evaluate progress against goals.They tie strategic objectives to day-to day operational metrics throughout the enterprise. A good strategic management group makes the strategic plan real and compelling to the organization through concrete objectives, results, and timelines.
How does it work? 6 key stages of strategic management
A lot has been written on corporate strategy. Classic corporate strategy, described, refined, and codified by strategy consulting firms and elite business school professors revolves around finding and maintaining competitive advantage. A company would use frameworks such as Porter’s 5 Forces or BCG’s Growth Share Matrix to make sense of its strengths, competitors, and where it can succeed in the market. In the past two decades, classic strategy has had to adapt, and in some cases yield, to markets and a business environment that have become less stable or predictable.
Strategy has evolved, with more iterative approaches gaining favor and moving away from the 5-year plan, yet the basic steps of strategic management can apply regardless of the approach.
- Determine where/what you want to be. Do you approach strategy from the inside-out — identifying the organization’s capabilities and competitive advantages first — or the outside-in — understanding long-term forces and how they are shaping the market first? Be clear about what assumptions you are making. Are the assumptions based on short-term trends in the industry, longer-term trends for customers, or are they focused on analyzing the competition or anticipating what they may do?
- Gather others to test assumptions. Bring together leaders and others with different perspectives and frames of reference to pressure-test the assumptions. What additional information would validate or clarify an assumption? How might you get that information? How would that adjust the plan? Involving others also creates buy-in.
- Analyze strengths and weaknesses. What capabilities and assets does the company have relative to where it wants to play? For example, a pharmaceutical company has a lot of energy behind creating vaccines. Analysis reveals they have obsolete development resources and a far slower process than other companies already going to market. However, they have strength in customer programs, physician relationships, and alliance management.
- Formulation of the plan. When you do the homework, you can make choices and trade-offs — where the company wants to go, what they will need to develop to get there, what they will do, and what they will have to abandon. For example, a hospital system determines that their advantage lies in creating a neuroscience center of excellence. To do so they have to re-allocate resources away from an average cardiology program. This stage includes convening representatives from key stakeholders, clarifying the vision, developing an overview of the plan including goals and objectives, and outlining responsibilities, resources, and timelines. They establish benchmarks to measure progress against goals and objectives.
- Execution. The strategy group has to stay engaged, keeping contact with the various parts of the organization and making sure they have the resources, clarity, and motivation to keep executing the strategy when more immediate pressures threaten to derail.
- Monitor, review, adjust. This step might be the biggest opportunity for differentiating the success and sustainability of a strategic plan. Is reporting and evaluation of results just a check-box formality? An exercise in covering and one-upmanship? Or, is this a frequent check-in where business leaders can talk through what they are doing and seeing and surface roadblocks, concerns and new information that might warrant revisiting the plan?
Many organizations cover the first four steps and consider themselves complete. Often they fail because they don’t have the strategic management team at the table right from the beginning to put to action and monitor the plan.
In The Balanced Scorecard, authors David Norton and Robert Kaplan report that 90% of organizations fail to execute their strategies successfully. They contend that because companies have not created a plan for execution, the strategic plan falls flat.
John Kotter, former professor at Harvard Business School and noted expert on innovation says, “Strategy should be viewed as a dynamic force that constantly seeks opportunities, identifies initiatives that will capitalize on them, and completes those initiatives swiftly and efficiently.”
Why strategies fail in the execution
Leadership deficits or lukewarm commitment
In this HBR article, Ron Carucci from consulting firm Navalent reports that 61% of executives in a 10-year longitudinal study felt they were not prepared for the strategic challenges they faced upon being appointed to senior leadership roles. Lack of commitment to the plan is also a contributing factor. In addition, leaders attending to quarterly targets, crisis-management, and reconciling budgets often consider execution a low priority.
Lack of metrics
Companies fail to apply metrics to track progress, which leads to ambiguous goals. Without metrics, it is easy to go off-track or to not recognize when conditions have changed and the plan should be revised.
Lack of systemic alignment
When strategies aren’t linked to budgets, strategic “priorities” don’t get resources. Local budgeting often reflects the conflicting objectives or goals for a group or business unit that are not consistent with strategic priorities.
Lack of down-the-line communication leads to confusion and lack of information enterprise-wide. This engenders distrust and negatively impacts commitment. The people closest to the customer are often in the dark. Kaplan and Norton report that on average, 95% of employees are unaware of the strategy.
Insufficient management capabilities
A study by the Economist found that “only 41% of respondents say their companies have a sufficient number of skilled personnel to implement high-priority strategic initiatives.” In the same study, only 18% reported prioritizing hiring of people with the skills to drive strategy implementation.
Lack of robust employee performance and development plans.
Kaplan and Norton report 70% of middle managers and over 90% of frontline employees have no link to the success or failure of execution. W. James McNerney, Jr. Chairman of 3M argued that by improving the average performance of every employee by 15%, irrespective of what his or her role is, a company can achieve and sustain consistently superior performance. Joseph Hrebiniak, Emeritus management professor at Wharton warns that the strategic plan has to be reconciled with the organization’s talent. “If you don’t have what it takes, you’re going to have to get it, or modify the strategy to be more realistic.” Develop leaders, managers, and employees to meet the strategy.
Resistance to Change
Change is threatening. In an organization, change often corresponds with budget and resource allocations representing shifts in power and influence for the leaders involved. For employees, fear and anxiety about their own competence, status, and job security also contribute to resistance.
The benefits of strategic management
Strategic management is designed to address the factors that often lead to execution failure. As such, how strategic management is implemented is ultimately unique to each organization. The goal is to provide structure and discipline to ensure success while also being responsive to the particular conditions and changing environment.
How does strategic management address the failure points?
- The organization and its people are set up to succeed.
- Leadership is supported in keeping up momentum.
- Everyone in the organization is aware of the strategic plan and how they contribute to it.
- Progress to plan is communicated throughout the organization and to the board.
- Metrics facilitate course-correction.
- Budgets enterprise-wide are based on strategy.
- Cross-organization alignment as opposed to silos.
- Robust employee performance and compensation plans are created.
- Calls for commitment to training and education.
- The right people are in the right jobs.
Limitations of strategic management
Developing and executing a successful strategy is hard work. Strategic management doesn’t solve everything.
- Complex operations. Global companies with multiple people, multiple products, in multiple countries make enterprise-wide coordination complex.
- Localized ecosystems. A more flexible approach is needed when execution depends on many outside players. For example, a large retailer enters a new market and negotiates terms and commitments with suppliers as they would in the U.S. If the suppliers refuse to play by those rules, the company has to reevaluate its strategy.
- Power struggles. If CEO’s feel managed rather than supported, they will be resistant to an OSM.
- Disempowerment. Possible resentment from middle management who may regard the OSM as taking away their autonomy.
- Not-invented here. When strategy formulation and management is conducted by an outside group, employees may not buy in.
Tips to becoming an effective and efficient strategic manager
- Build trust by focusing on how you can facilitate people’s success. Beware of acting in ways that cast you as a watchdog or the police.
- In discussions around evaluation, lead from what’s going right and discourage blaming.
- Have empathy for executives amid distracting issues and pressures. Do whatever you can to support the CEO.
- Create a multiple outlet/multiple media communications plan to keep stakeholders up to date along the way.
- Enlist trusted colleagues or advisors to give you support and perspective when you need to address complex and challenging situations.
- Learn to think on two time horizons to avoid becoming reactive during rapid change. Even with in-the-moment actions and initiatives, consider how they serve the North Star of the longer term strategy, either through building capabilities or gaining useful insight.
Coaching and leadership development opportunities:
- Executive team coaching for the leadership team. Often leadership teams unwittingly find themselves in the weeds. Executive team coaching can help members to support one another in observing from a higher and more strategic vantage point while holding one another accountable for execution.
- Action learning groups for leaders in cross-functional areas. Individual members bring project-specific issues and opportunities to a common table for ideas, support, and accountability. They are crucibles for synergistic learning.
- Periodic conferences for groups across the organization for updates and knowledge-sharing. Employees can give important feedback to leaders about how things are going.
- Training leaders to be coaches of their teams.
- Coaching emerging leaders, equipping them with skills to manage change.
Case Study: Office of Strategy Management at the Chrysler Group
Though companies have varying structures for implementing strategic management, having a discrete functional unit at the corporate level to drive execution activities is key. This case study on the Balanced Scorecard illustrates how strategic management comes into play.
After innovation successes in the 1990s, US automaker Chrysler was in trouble by 2000. High costs and competition led to a deficit of more than $5 billion.
DaimlerChrysler, the parent company, stepped in. Dieter Zetsche became the CEO and introduced the Balance Scorecard (BSC) as part of the turn-around strategy. Bill Russo, vice president of business strategy, and his unit were put in charge of managing the strategy.
First, this “office of strategy management” worked with the executive team to define the new strategy using the Balanced Scorecard as a framework to align and prioritize strategy initiatives. Their efforts produced a scorecard for the enterprise. This was vetted through senior leadership.
Next, the enterprise-wide scorecard cascaded down through the organization to business units and support units. Each created their own scorecards based on what local operations would need to do to support the larger strategy, creating alignment within the organization. Russo’s strategic management group collected and analyzed this data and created processes for the scorecards.
Then the strategic management group led a communication rollout plan to over 90,000 employees. The strategic management group also set the agenda for monthly reviews and strategic planning budget supervision.
Finally, to keep momentum and raise critical issues, before management meetings Russo would brief Zetsche on issues emerging from the scorecard reporting so that things that needed management attention would be on the agenda. Following the meeting, he would follow-up and ensure proper communication was in place.
Throughout the process, the strategic management group was a central resource and clearing house for data:
- Served as a repository of ideas emerging through the organization
- Supported Human Resources for training and education on the process.
- Communicated strategy, targets and initiatives.
- Supported the business units with communications planning and ensuring clear and consistent messaging.
Betterup Fellow Coach, M.S.Ed, M.S.O.D.