Building and executing an optimal business strategy has challenged CEOs, executive committees, and boards of directors for decades. Your business strategy should reflect an integrated set of choices, around which the entire business aligns. Optimizing your strategy requires that its design and execution work together.
Many companies are guilty of dusting off the prior year's strategic plan, conducting an annual offsite exercise and then moving quickly to the budgeting exercise. In this manner, the following year’s business objectives and financial targets are simply a derivative of the prior year. Think of this as ‘strategic incrementalism.’ The inherent flaw in this approach is that it relegates the design of your strategic plan to an annual homework exercise in which the hardest questions will never really be asked and the most prevailing assumptions will never really be questioned.
After years of building plans and seeing varying levels of achievement, I decided to evaluate the entire process more deeply, and I learned a great deal. The result is a revised, seven-step process that, if implemented completely, will deliver optimal results.
Step 1: VISION – It all begins here. This is where you establish what you would like to be when you grow up. It defines the end state over at least a 5-7 year period of time and provides the direction you need to build your strategy. Your vision should be an aspirational declaration of the journey you’re on. If you need a thought here, think of JFK’s vision of a lunar landing:
“I believe this nation should commit itself, before this decade is
out, of landing a man on the moon and returning him safely to the earth.”
Your vision should ideally be framed from the perspective of your employees and clients. It should invoke emotions to engage and join you on the journey. Try to avoid declarations of financial achievement, like “our vision is to be a $1 billion company.”
Step 2: THINK – Strategic thinking is different from strategic planning. This is the step where you evaluate and make strategic choices. Strategy is about choice; it’s about deciding what you will do and what you won’t do. The latter is the harder part; most companies quickly compile a list of priorities reflecting what they would like to do but rarely challenge what they are currently doing. Over time, if this continues unabated, it guarantees that your objectives become ‘white noise,’ lost amidst the proliferation of priorities.
There are two critical tasks that have to occur during this step. The first is a healthy review of your current business model.
1) How are revenue and profits created today?
2) How do you deliver client/customer value today?
3) How do you support and scale the enterprise today?
4) What do your clients and employees think about this today?
The second critical task is the evaluation of your strategic choices.
1) Understand the opportunities within your competitive environment
2) Assess and prioritizing these opportunities (no trivial exercise)
3) Assess the capabilities and resources needed to succeed in the chosen sectors
4) Make the choices of what you will do AND won’t do
These two tasks each require a comprehensive effort and can take anywhere from a few weeks to several months of effort. I recommend using a professional facilitator, consulting firm or appointing an internal team to lead these tasks. There are numerous models available to assist in the effort. Examples include the Ansoff 2x2 Growth Matrix, BCG Dogs-Stars Matrix, or the Monitor Strategy Cascade, among others. The outcome of this step is a set of choices, which forms the foundation of the plan to be built.
Step 3: PLAN – This step receives as inputs the choices you just made. It is focused on identifying the plan’s objectives and allocating the resources necessary to achieve them. It is critical to allocate the resources required to accomplish the objectives or you risk being saddled with ‘unfunded mandates,’ which will only erode functional alignment and employee support for the overall strategy. If strategic thinking is about choice, strategic planning is about change.
This step forces a rationing exercise between competing objectives—and, it’s not easy! It forces difficult questions to be asked. Some examples include:
1) What percentage of your total fixed overheads or CAPEX investments will be allocated to protect and grow your core business?
2) What new offerings will be developed to expand into adjacent markets?
3) What new markets will be opened to accelerate existing offerings?
4) What new relationships will be formed to diversify your business?
5) How will you attract, develop and retain your A players?
This step may also iterate with the prior step of Thinking. If you are guilty of having too many choices, this will become evident when you complete the resource allocation, forcing a fresh look at the priorities of your choices.
At this point, it’s tempting to think that the design of your business strategy is complete. You’ve engaged your executive committee to ratify your vision, you’ve made strategic choices, and you’ve built a plan. It’s time now to Align.
Step 4: ALIGN - Most business strategies are the product of the office of the CEO, a corporate development team or an executive committee. The resulting plan does not yet reflect the collective consensus of your business unit or functional leaders. Consensus requires commitment and alignment to the chosen course of action, as well as a strong understanding of the rationale for the decision. The Japanese refer to this process as Nemawashi, the informal process of quietly laying the foundation for some proposed change by sharing it with the people concerned, gathering support and eliciting feedback. The original meaning referred to digging around the roots of a tree to prepare it for a transplant.
It’s quite likely that during this process there are a small number of leaders who are sitting on pocket vetoes. Ideally, the process has been facilitated to encourage full disclosure and open dialogue, but some participants will opt out of the inherent conflict associated with the debate of choices. You have to overcome this by actively creating a safe haven, which engages and elicits the viewpoints of the entire leadership team.
Many new alignment questions will be asked at this point. Examples include:
1) How does your marketing communications plan support the expansion of existing offerings into new geographic markets?
2) How does your HR recruiting plan support the new skills required in your services hiring plan?
3) How will your Southeast region new client acquisition plan align with your Northeast region existing client support plan?
4) What new metrics will be used to track your progress against these objectives?
This last question is critical because it speaks to the inspection process that will be used when you execute. The last task in the design of your strategy is the selection of the metrics and tools that will be used to measure your progress and communicate with your employees. Now you’re ready to connect with your employees and other stakeholders.
Step 5: CONNECT - This step addresses the commitment required of your various stakeholders. Many plans fail because they lack great answers for some critical questions:
1) How will you win the hearts and minds of your employees to commit to your chosen business strategy?
2) How will you leverage the culture you have built or seek to build?
3) How will you engage your board, clients and partners to support your business strategy?
Repeat after me … “Secret strategies don’t work.” You have a great plan and you’ve achieved the leadership alignment required for it to be successful. Now, it’s time to share it liberally with your employees, clients and other stakeholders.
1) What are the 3 – 5 organizational objectives or messages that will engage your employees?
2) How will your leaders connect the day-in-the-life activities of their employees with your strategic objectives?
3) What is your monthly or quarterly communications plan to share your progress?
Step 6: EXECUTE – Finally, you’ve reached that step where you make it happen. A well-executed strategy always trumps a well-designed strategy. Once you’re comfortable that your Thinking, Planning and Alignment have produced a good enough strategy, focus on great execution. At this point, you have already begun to execute because you have connected with your employees. It’s time now to accelerate this progress by implementing the business disciplines required to accomplish the tasks associated with your objectives.
Most companies have a large number of existing processes related to the current operation of their businesses. They have processes for creating sales pipeline, converting opportunities into orders, and tracking orders through delivery, as well as many for HR, Finance and other shared services. Successful execution of your strategy requires the use of an integrated scorecard, which aligns the choices of your strategy with the operations of your business.
For smaller companies, you can make do with a series of spreadsheets. For larger companies, the Norton and Kaplan balanced scorecard is just one example of a methodology with a wide selection of tools available to support its use. The result is a strategy map comprised of four key elements:
1) Financial 2) Customer
2) Internal Processes 3) Learning & Growth
To build a balanced scorecard, you convert the objectives associated with your 7-step plan to their places on the strategy map and scorecard. Regardless of the tools you use, successful execution requires the business discipline of inspection and accountability.
Step 7: RENEW – Competing in the marketplace today requires high levels of business agility. You have to be able to respond to market and competitive shifts on a more agile basis. This is the renewal of your strategy.
Paramount to success here is the regular review of the assumptions used in making your choices and setting your objectives. For example, if one of your assumptions was the growth rate of a market segment, and that sector experiences a decline, you don’t want to wait until your annual offsite to make an adjustment. Conversely, your performance toward one of your objectives may be so impressive that you should ‘double-down’ your investment in the current year to ride a wave of success.
Finally, the Renewal step includes the evaluation of whether your firm is guilty of the “Innovator’s Dilemma,” in which your business erodes because it has become too comfortable with the status quo. Take a second look at your core business (existing offerings to existing clients) and ask some hard questions: Is the market still growing? Is your market share falling? Is increased competition driving down margins? It may be time to accelerate innovation into new offerings or markets … which leads right back to Thinking and choices.
These seven steps summarize both the design and execution elements of your strategy. They work together by building on each other and by challenging earlier progress. How effective is your strategy?
