Category: strategy

Strategic Planning: Balanced and Disciplined

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Of the many planning methods proposed and widely used in the last two decades, two stand out for their impact and longevity.   Michael Treacy and Fred Wiersema’s “Discipline of Market Leaders” was published in 1994, closely followed by  Robert Kaplan and David Norton’s “Balanced Scorecard” two years later.  How do the two interact ideally?  Can a strategy process and strategy be both balanced and disciplined?

 The discipline of market leaders is to prioritize resource investments into one dimension of strategic choices, while making modest investments in the other dimensions.  Treacy defines the generic dimensions as Operational Excellence (cost reduction), Product Leadership and Customer Intimacy (best total solution).  Based upon market opportunities (customers and competitors), wise organizations choose one dimension for emphasis and align all other variables to support that choice.

 The balanced scorecard emphasizes the importance of measures and a complementary planning process that ensures that four levels of activity are reviewed:  Learning and Growth (asset management, broadly speaking), Internal Processes (operations, product development, customer interface – the how), Customer Satisfaction and Financial Results.  Asset management feeds optimal processes delivering customer satisfaction and financial results. 

 The two approaches seem to conflict: one says focus (discipline) while the other says diversify (balance).  The resolution lies in their application.  The balanced scorecard provides a universal framework of the factors that drive business success in a logical sequence.  Organizations still have to compare their direction (mission, vision, values) with their situation (SWOT) in order to determine critical success factors.  CSF’s help the organization to select those 10-20 measures that best cover the landscape. 

 The discipline of market leaders is making strategic investment choices, while the balanced scorecard is using a planning and control process that highlights opportunities and links strategy to results.  The advice from Treacy and Wiersema is to focus on a single dimension, rather than to spread the investments evenly.  In balanced scorecard terms, this means that the measures will emphasize different dimensions.

 Focusing on operational excellence indicates the use of more measures in the Internal Processes and Asset Management levels.  Customer intimacy requires customer satisfaction measures, key internal process measures that impact customers and a touch of asset measures regarding the adequacy of the products offered.  Product leadership requires measures of customer satisfaction with the features and benefits set offered, the product development process itself and the availability of key technical resources that create products.

 Organizations will benefit from finding ways to apply the insights from both camps.  Strategy and structure matter more than ever.  The best answers continue to be “both/and” rather than “either/or”.

 http://www.amazon.com/Discipline-Market-Leaders-Customers-Dominate/dp/0201407191/ref=sr_1_1?ie=UTF8&s=books&qid=1262473135&sr=1-1

 http://www.amazon.com/Balanced-Scorecard-Translating-Strategy-Action/dp/0875846513/ref=sr_1_1?ie=UTF8&s=books&qid=1262554699&sr=1-1

 http://www.slideshare.net/kennyong/balanced-scorecard-for-strategic-planning-and-measurement

Role of Corporate Culture

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In the years since World War II, the organizational environment has changed from
 one of static, mechanical efficiency optimization to another of dynamic, organic,
 effectiveness evolution.  Global competition, innovation and limited resources in the
 face of a growing and wealthier world population have lead to non-stop, disruptive
 change in all industries.  This change is accelerating, impacting all organizations
 which now need to improve their activities or face extinction.  
 
 In addition to competitive industry threats, organizations must compete for highly
 qualified staff as never before. The increased requirements for success mean that
 there are more organizations pursuing a limited number of high potential employees. 
 Increased organizational demands for mastery level skills, flexibility, innovation,
 accountability, teamwork, tolerance, self-control, service, self-motivation and loyalty
 have outstripped the ability of labor markets to provide these new versions of the ideal
 employee.  Organizations with the greatest needs and resources are providing
 compensation and work environments to attract, motivate and retain these
 individuals.
 
 There is a growing consensus by thought leaders  that  success requires:
 
 A. Innovation
 
 The ability to digest changes by staff members at all levels and functions.
 The ability for all staff to innovate and apply innovations made elsewhere.
 A customer focus that shapes decisions and relations that first meet external needs.
 
 B. Best Human Resources
 
 Access to the very best human resources at all levels and functions (inside, outside)
 A work environment that is attractive to the very best human resources.
 Cost-effective recruiting/retention of high value employees, contractors,  suppliers.
 Staff members whose value-added assets and results grow by 5% annually.
 Embracing diverse talents, perspectives and cultures in decisions and practices.
 
 C. Cost-Effective Use of Resources
 
 Best use of all resources by matching talents and experience to needs.
 Best use of resources through developmental delegation focused on results.
 Best use of leadership, management and professional roles.
 Synergy from combining complementary talents to produce breakthrough results.
 
 D. Alignment Within Complex Systems
 
 Engaged, self-motivated staff with a minimum of management overhead costs.
 Shared accountability, reducing the need for oversight and measurements. 
 Complex processes that connect many individuals, departments or organizations.
 Systems that motivate achievement, rather than attempt to control behavior.
 Less detailed planning/forecasting, with more capacity for adapting to situations.
 Commitment to a team, organization or mission that motivates personal effort.
 Alignment of global supply chains, without fully integrated planning systems.
 Elimination of waste, duplication and conflict through coordination mechanisms.
 
 Overall Strategies
 
 Organizations that are able to evolve and adapt in a challenging competitive
 environment must have several complementary overall strategies, including:
 
 Effective Strategic Plans … 
 … clearly defining direction, evaluating situations and choosing priority actions.
 Human Resources … 
  … attracted, engaged and motivated by a true commitment to win-win results.
 Leadership … 
 … to set direction, coordinate plans, engage staff, serve customers and inspire.
 Resources … 
 … financial, supplier, brand, processes, patents, intangible and tangible assets.
 Performance Management Systems …
 … planning, reporting and improving systems.
 Culture … 
 … a set of values/expectations that create alignment and motivate optimal results.
 
 Culture
 
 A well-defined organizational culture honestly reflects the expectations of staff
 members for each other and for the organization as a whole.  A set of values defines
 what is expected in terms of behaviors and habits, and what is deemed
 unacceptable behavior.  These values are consistent with the organization’s history,
 customers, experience, strategy and institutional features.  A well-defined culture is
 internally consistent.  It captures the history and expectations of the organization.
 
 An effective organizational culture supports the drivers of success.  It promotes
 innovation and change management.  It values and rewards high performers.  It
 embraces cost-effective practices, especially in terms of delegation which
 empowers strong employees.  Finally, it honors accountability and promotes the
 ability and commitment of staff members to create alignment as an intrinsic part of
 their daily work.
 
 In the end, an organizational culture serves to make explicit the bargain between
 employee and organization in a challenging environment.  Organizations are
 modifying the way they do business to attract, engage, motivate and empower
 individuals who can create the most value.  In return for a commitment to the
 organization and the benefit of their services, employees are provided with an
 environment that maximizes their personal growth, rewards and market value.  
 
 Different organizations select different individual values to define the essence of their
 ideal or preferred cultures. Taken as a collection of values, they clearly provide an
 answer to the question, “what is it like to work at …?” The values represent ideals,
 both of staff and organizational attainment.  They describe what employees want to
 be like, what they aspire to show at their best.  Organizations can slowly change their
 values if they find that the existing set is inadequate to meet the needs for survival. 
 This is a slow process, requiring very significant investment in selecting, defining,
 complementing and implementing.
 
 As an ideal system that coordinates and controls behavior, cultures and values in
 organizations are like those in other social institutions: families, churches,
 communities and clubs.  They are effective only when the members believe in them. 
 This means that leaders are held to a high standard.  It means that trust is essential. 
 It means that individuals must have personal relations with others and that emotions
 matter.  Inconsistent messages or behavior can rapidly undermine commitment. 
 Like an emotional bank account, organizational values can be a reservoir of goodwill
 or an overdrawn checking account.  Directors, management and staff are required to
 hold each other accountable or the values and culture can quickly become
 worthless.
 
 In addition to setting an example in their personal behavior and creating an
 environment of trust, senior managers are responsible for ensuring that
 complementary policies, procedures, processes and plans are consistent with the
 organization’s values.  The primary focus is on human resources systems for
 recruiting, performance management, training, advancement and benefits.  Systems
 for planning, measurement and control are equally important.  Managers must also
 commit to enhanced communication to ensure that consistency is understood or
 inconsistencies addressed.  In addition, managers must operate consistently,
 holding all to the same standards. Managers must develop open, constructive
 relationships with their bosses, peers and staff which allow for constructive
 communication to address situations that appear to challenge the organization’s
 values.
 
 Summary
 
 The demands on organizations are greater today than ever before.  Organizations are
 concluding that global competition, innovation and competition for the best staff will
 continue.  To survive in this environment, they are adjusting their structures to
 promote innovation, best human resources, cost-effective use of resources and
 alignment within complex systems.  A key strategy is to define a set of values which
 comprise the organization’s culture and expectations.  By formally defining their ideal
 values and committing the organization to operating in accord with these values, they
 are seeking to attract, engage and retain the best employees, who are then motivated
 and aligned to produce the greatest results for the organization.  This organizational
 effectiveness strategy is being adopted and refined in all industries with increasing
 success.  It is not the easiest strategy, but it promises the greatest individual and
 organizational rewards to those who can commit to living up to the high standards of
 an ideal culture.

ROI on Personality Styles

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In a world of non-stop change, financial managers agree that “alignment” is the most difficult challenge faced by most organizations.  Through time, more equal access to all other resources has grown: materials, suppliers, facilities, financing, technology, products, entrepreneurs and human resources.

 Organizations have used a variety of methods to create alignment.  Military command and control, strategic planning, portfolio management and process management in various forms have been tried with mixed success.  In some static environments with less technology change, less competition and simpler processes, these approaches have worked well.  In the highly specialized, global, decentralized, changing, virtual world of today, many organizations have concluded that alignment can best be achieved through defining, shaping and reinforcing their corporate culture.

 A critical element in any corporate culture initiative is helping all staff members to have the self-awareness and other-awareness to manage their relations with others.

 My favorite introduction to self-awareness and paradigms is through the fable of “The Blind Men and the Elephant”.

 http://www.peacecorps.gov/wws/stories/stories.cfm?psid=110

 Individual blind men conclude on the basis of their personal investigations that an elephant “IS” a wall, a snake, a spear, a cow, a magic carpet or an old rope.  The moral is that an elephant is more than the sum of his parts.  Attempts to generalize from limited information or paradigms are doomed to failure.  The blind men can see neither the forest, nor the trees.  Many individuals have these same blind spots.  They are unable to see the big picture and they passionately hold onto their world view because they are not aware of the possibility of another approach.

 To help staff members with the personal growth needed to overcome this limitation, many organizations implement a personality styles program.  Myers-Briggs, DISC, Predictive Index, Gallup Strengthsfinders and a dozen others can be used to help all staff understand a few key results and begin to practice seeing the world from multiple perspectives, even forming the habit of expecting to employ multiple perspectives.

 These programs deliver 5 main lessons.  Individuals tend to behave in their own patterns or styles, which can be described.  No pattern is inherently better or worse, except as a means for completing certain responsibilities.  Personal styles make individuals especially effective in functions (accounting, sales, design, or engineering) that match their natural talents.  Individuals are not limited by their styles, but these habitual behaviors are more natural and using other complementary styles requires significant effort.  Since organizations have many functions and individuals with different styles, it is necessary for all staff members to be aware of their styles, recognize the styles of others and learn how to flex their styles to get along with others.

 Since these programs have been implemented many times in most firms across 30 years, one might expect that self-awareness would be the norm, followed by cross-functional cooperation and sophisticated used of different perspectives.  Unfortunately, many of these programs have not delivered the desired results.

 For personality styles programs to build self-awareness, complement corporate cultures, align teams and deliver results, firms need to invest more resources.

 1)      All managers, beginning at the top, need deep training, evaluation and feedback.

2)      All staff require experiential learning, examples, reinforcement and consistent guidance.

3)      Firms need to use the tool everywhere to create the skills, habits and expectations: training, hiring, promotions, cross-teams, planning, performance evaluations, etc.

4)      Firms need to break down the functional barriers and require a mix of styles in each function, job rotation for managers and cross-team experience for everyone.

5)      The personality styles tool, profiles and understanding needs to become part of the culture.  This is the language we use.  These are the stories we use.  These are the executives we use as examples of this style.

 Invest the resources to create a real asset for your organization.  Half of an investment produces little return.

The Effective CFO: Black and White!

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A friend of mine has been a highly successful CFO with middle market companies for 25 years.  I pondered what made him succeed in a variety of companies and industries.

 He’s professionally competent and intellectually curious.  He’s always had a large professional network.  He is a good listener and is especially skilled at cutting through ambiguous or complex situations to identify the core problem or most promising solution.  He understands the basis for business success in his industry and he’s a good negotiator.

 On the other hand, he’s sometimes overly direct, not a technical leader in the CPA profession, not someone who automatically attracts the spotlight, doesn’t outsmart the quantitative business analysts and doesn’t often lead cross-functional projects.

 I think he succeeds because he has established a role and the skills to guide all key players to honestly confront the gray reality of situations.  He offers the financial perspective, but is just as quick to insert a sales, strategy or cultural viewpoint.  He ensures that risk versus return is considered through numbers, stories and analogies.  He contrasts short-term with long-term factors.  He plays devil’s advocate as needed to derail quick decisions or to shore up support for a tough alternative that must be chosen.

 In addition to these decision making skills, he has the wisdom, courage and skills to anticipate the perspectives of the key roles and to guide players into greater self-awareness and understanding of other perspectives.

 He helps finance, accounting, HR and IT staff to see that the fully integrated system and a 1,000 page policy and procedure document, without exceptions, is probably too structured.  He encourages engineers and six sigma black belts to reduce variation and to consider financial and strategic implications.

 He works with entrepreneurial owners to support change and risk taking, but to also gauge how much can be digested, how it can be hedged and what an ideal portfolio looks like.

 He works with boards and shareholders to understand that stock values do not always go up in a predictable manner, unless the books have been “managed”.  The long-term growth in shareholder value includes short-term fluctuations.

 He works with IT, engineering and product developers to have resources, time and authority to learn, experiment and develop new products – within a framework of long-term evaluation.

 He provides sales and marketing teams with the freedom and flexibility to meet company goals, but ensures that measures of final results are fair and the system can’t be beat.

 The effective CFO serves as a fulcrum in Jim Collins’ world of “both/and”.  Stakeholders and role players must be able to leverage their talents and preferred styles AND the contrasting factors which must also be considered for long run success.  CFO’s need to be more than gray; they need to be both black AND white.

Labor Market Failure and Recovery

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After 18 months of hiring freeze, it’s time for all profit-maximizing firms to kick start their recruiting.  At present, we’re hiring too few, we’re too focused on exact hiring matches and we’re unwilling to invest in the future.

 The recession was first sensed by wise businesses in 2Q 2008.  The banking crisis of Fall, 2008 terrified even those whose careers went back to 1974-1982 when the last panic of gas prices, inflation, interest rates and Japanese competition derailed the post WWII expansion.  While the freeze and risk-averse decisions were justified at the time, they are wrong today.

 The all-in cost for a senior professional staff member is roughly $100,000 per year.  A good hire lasts for up to 10 years.  A typical hire is a $1 million investment.  In the current environment with 16M candidates chasing 3M jobs, the odds of finding a great candidate are excellent and the ability to hire at 20% below old market salaries is a given.  Firms with a strategic view of human resources should be first in line to hire these high ROI assets – TODAY.  Every good hire is a $200-300,000 addition to the firm’s net worth.

There is little joy in HR departments these days.  Hiring volume is down so the pressure is on to reduce HR staffing and to NOT use external recruiters.  The volume of applicants per position has quadrupled.  HR’s ability to use on-line application forms and screening tools has improved, but not enough.  To cope with the excess supply, HR and hiring managers have decided to make an exact match of past experience by industry and function to the position the penultimate criteria for hiring.  This allows the greatest percentage of candidates to be eliminated in the first screening. 

 Unfortunately, this means that many qualified candidates are not considered.  Narrowly experienced and over-tenured candidates are favored, even if they have had the same experience for 8 years in a row.  Firms pursuing this approach will soon find that they have hired adequate candidates who have limited upside potential.  They are also likely to find that they have made many “hiring errors” because they have not given equal weight to the questions of personal motivation/drive and teamwork/manageability.  I recommend Martin Yates “Hiring the Best” as a guide.

Firms that continue in “hiring freeze” mode have a bias towards replacement of existing positions versus investment in the staff who deliver future value.  There are thousands of highly skilled project managers, business analysts, scientists, quality specialists, product managers, marketing researchers and other professionals who are unemployed because firms are unwilling to restart the investment cycle.  This recession will end and success will depend upon investing in new products, new customers and better processes.  There may be some areas where NOT replacing a separated employee is the right choice.  Successful firms make decisions one choice at a time rather than relying on simple rules.

 Firms that have their financial house in order need to race to the labor market while supply exceeds demand and hire skilled, motivated team players to pursue the next cycle of business investments that deliver long-term value.