The Alpha Strategies

Chairs run meetings. CEOs run companies.

“Chairs run boards. CEOs run companies.” 

That's how George Bradt saw it in a Forbes post in 2013: The Right Way To Divide Responsibilities Between Chairman and CEO.

While separating the CEO and Chair roles may be an accepted governance practice globally according to the 15th Strategy& Annual Study of CEOs, Governance, and Success, this is not the case in the U.S. or Canada.

What is it about "running a board" that makes so many North American CEO Chairs reluctant to give up running the board while at the same time running the company?

We think it's because "running the board" actually means "running meetings" of the board to deliver corporate governance. Running board meetings ensures control of the meeting process and control of the meeting discussions. Running the board means control of governance.

Control of meeting processes

The Chair has significant power over board meeting processes.

The Chair can exercise a great deal of influence over the agenda. Board meetings are organized by agendas. Agendas determine what gets discussed and put forward for approval. Agendas can control the amount of time to be spent on each issue.

The Chair has the authority to chair or lead the meeting by virtue of being Chair. This means the Chair controls who speaks at the meeting and when. The Chair has the power to call the meeting to order and even the power to end it. The Chair may have the power to cast a deciding vote. The Chair always gets to speak first and last.

To be clear, setting agendas and having the authority to lead discussions only give a Chair momentary power and control.

As Bradt notes: "What really matters is clear leadership that inspires and enables others. Titles don’t matter. Formal divisions of responsibility don’t matter. Behaviors, relationships, attitudes, values and the environment matter."

Nevertheless, the Chair's power over meeting process can impact the content and quality of the board meeting.

Control of meeting discussions

Consider now what boards are supposed to discuss. Board meetings are about the well-being of the corporation itself.

That well-being turns on what the CEO and CEO’s management team have been doing and plan to do.

In other words, a board meeting can be seen by a CEO as a forum to second-guess the CEO.

CEO’s are not known for their appreciation of review or advice, let alone being second-guessed.

Combining the roles  of CEO and Chair reminds everyone in the meeting that the CEO is the most powerful person in the room. As judge, jury, and executioner, the CEO Chair can use rhetorical questions rather than probing ones to discourage or contain any full discussion of an issue.

An example "I can't see why anyone should have any concerns about this. Are there any questions?" The intent of the statement is clear. No questioning is expected. No concerns are warranted.

The focus of the meeting shifts from the looking after the well-being of the corporation to that of the CEO Chair.

Running the board should mean delivering governance

Running the board should mean good governance. The board's purpose is to be an independent forum for sober second thought so that the best interests of the corporation are served.

Separating the Chair and CEO roles introduces the possibility for more meaningful discussion of issues, assuming that the board has the requisite competencies and desire to do so.

In fairness, separating the roles is not essential for all companies. Consider most family-owned and privately-held companies. The shareholders don't need a voice. They are already at the table. It is when shareholders don't have effective representation that separation of the roles provides , at the very least, an appearance that best practices in governance are being followed.

One veteran of the boardroom put it this way: "Splitting the roles is one of the easiest boxes to tick in moving to better governance."

Perhaps Mr. Bradt's description of the roles could be restated as: "Chairs run meetings. CEOs run companies." It's the board meeting that is key to governance.

 

 

The CEO: A Job Description

The CEO's job description is typically presented as a collection of vague, mushy sounding tasks such as setting the vision and creating culture.

This is hardly the stuff of a meaningful job description for the role of the Chief Executive Officer of start-up, let alone an established corporation, be it a hospital, a charity, or a for-profit company.

Let's move beyond the touchy-feely and look at what the CEO's job is all about through the perspective of the strategy system to be managed in any organization.

Managing eight strategies

Think of strategy as being choices of action and not just as being something about competitive advantage or value creation.

This was how Henri Fayol saw strategy on the first page of his General and Industrial Management, arguably the first book written on the newly emerging discipline of strategy management.

Fayol identified six strategies that he felt had to be managed in any organization.

Peter Drucker identified 2 more in The Practice of Management, in 1954. They were growth and business definition (which Drucker called "mission").

These 8 strategies are common to all for-profit, nonprofit, and public sector organizations.

They are the basis of the strategic plan, the starting point for all strategy implementation planning, and the foundation of all organization design.

The CEO's job is to understand deeply how each of these eight strategies are being implemented and to ensure that each is properly staffed and managed.

Managing the strategy system

 The CEO isn't just managing 8 separate strategies. These 8 form the basis of the strategy system found within any organization, be it for-profit or nonprofit.

One of the eight strategies is the dominant strategy for the organization.  It represents what has been called the core competency of the firm. This strategy creates the dominant culture of the organization.

This is what makes, for example, banks, having financial management as dominant strategy, different from retailers, typically having marketing / sales as dominant strategy. Or car companies, having manufacturing as dominant strategy, different from insurance companies, which have risk as dominant strategy.

CEO selection should be aligned with the dominant strategy of the firm to ensure that the CEO has the requisite skills to manage that dominant strategy. This is why car company CEO's don't run banks and so on.

As for the notion that the CEO has to come up with a "vision", we would point out that dominant strategy is the source of any vision for the organization as a whole. This is because we define vision as being a description of the hoped-for outcome of long term successful pursuit of dominant strategy.

Our definition of a vision makes it clear that no one can manage a company by just having a vision. Managing a company requires understanding and managing the eight strategies of the company's strategy system.

Managing strategy to address emerging external reality

It is the CEO's responsibility to ensure that choices of action and strategies are consistent with the ever-changing external reality the firm faces, including changing major stakeholder expectations.

This is the essence of strategy management: using a comprehensive understanding of factors that cannot be controlled (e.g., industry dynamics, markets, customers, trends, competitors and best practices) to set strategies that recognize the opportunities and challenges raised by those factors.

But strategy setting by itself is meaningless without implementation. The CEO's job also includes the responsibility for setting and imposing clear expectations for strategy implementation.

For instance, it's not good enough to say "We've decided to grow by entering new markets. So just get it done and don't bother me with the details!"

Managers responsible for strategy implementation need clear direction.

Expectations form the direction and constraints on what constitutes acceptable implementation of strategy. The CEO's fingerprints should be be all over these expectations.

 The CEO's job: The Takeaways:

Let's move away from the vague and meaningless notion that the CEO is responsible for everything.

Everyone knows that. It's time to get down to what a CEO really gets paid to do; which is to manage strategy.

Managing strategy means understanding the strategy framework common to all organizations, and in particular, the dominant strategy of the firm.

Managing strategy means staffing and allocating resources to the strategy framework appropriately.

Managing strategy means understanding the external factors impacting the firm and whether present strategies remain appropriate to do so.

Managing strategy means setting and imposing expectations on the organization for strategy implementation.

Managing strategy means holding folks accountable for meeting those expectations.

That's a big job with a lot of moving parts. Done right, the CEO looks like a hero. Done wrong and the entire organization is put at risk.

No wonder not everybody wants to be the CEO. With a proper job description, it is easy to see what  a big job it is and what it takes to be qualified to do it.

For more on strategy, see The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization

 

Mission Statements: A Reality Check

You are probably reading this because you have concerns about your present mission statement or are being asked to participate in a fast-approaching session to develop one.

Either way, doing a reality check on mission statements holds some appeal for you.

It's not hard to understand why.

The simple definition of a mission statement is that it should be a clear statement of the core purpose of the organization. However, common practices then dictate that values, goals, and a host of other issues , such as markets served, products, and so on need to be included. Very quickly, mission statements balloon into something confusing.

So what is a mission statement? Let's do a reality check.

The Origin of Mission Statements

Mission statements come from the military. Unfortunately, the concept doesn't transfer well from a very, very old body of knowledge about making war to a very, very new one, business strategy, which is about staying relevant and sustainable.

Peter Drucker was the first to write about missions. In The Practice of Management, published in 1954, he writes that a mission answers the question "What is our business?"

What a delightfully clear answer. If your organization has audited financial statements, take a look a the notes to the statements. You will find a clear description of the business, at least in the opinion of its auditors.

So how did mission statements get so convoluted that they became the never-ending stuff of Dilbert cartoons?

A lot of the credit has to go to an article Dr. John Pearce wrote for Sloan Management Review in Spring 1982, titled The Company Mission as a Strategic Tool. In it, Dr. Pearce offers an approach for developing mission statements.

Unfortunately, the perspective offered by Dr. Pearce is completely the opposite of what Drucker was describing. Drucker saw mission as being an outside-in, fact-based description of the business. Dr. Pearce offered an inside-out, opinion-based approach: "What do you want the mission to be?"  And a era was born - 30 years of weekends ruined by strategic retreat discussions centered on which words to use in the perfect mission statement.

For public companies, the 2008 financial meltdown saw the end of mission statements, a process that had started with the tech wreck of the early 2000's. Too many giants, thought to be best-in-class, from Enron to GM, had gone bust. They all had fancy mission statements.

The mission statement as strategy

Clearly, Dr Pearce's "mission as a strategic tool" is no longer working. 

Or maybe Dr. Pearce was trying to do too much with one tool.

If you read his original article, you will see that he was trying to make the mission statement address much more than just Drucker's concept of mission as a business description. Pearce thought it should also cover markets, products, technology, aspirations, values, and so on.

We think Pearce's mistake was jumbling together a number of strategies. The right approach is to think of strategy as being choices of action and to describe each one separately. This way, "mission" becomes one of a number of choices of action to be made and managed.

This was how Henri Fayol saw strategy on the first page of his General and Industrial Management, arguably the first book ever written on the new discipline of strategic management.

Fayol identified six strategies (he called them activities) that he felt had to be managed in any organization.

They are Financial Management, Organization Management, Production (also known as Service Delivery or Manufacturing depending on what the organization does), Risk, R&D/technology, and Marketing/Sales (sometimes called communications in nonprofits and public sector organizations).

Drucker identified 2 more strategies in The Practice of Management. They are growth and business definition (which Drucker called "mission").

These 8 strategies are common to all for-profit, nonprofit, and public sector organizations. They are the basis of the strategic plan and the starting point for all strategy implementation planning. They are the basis of all organization design.

The reality check takeaways

1. Mission as just business description: Forget drafting mission statements. We now know they failed because they mixed together too many other strategies. Focus on developing an accurate description of the way the business is positioned today in the external environment today. For nonprofits, you can also look at the legislation which created the organization. That will set out a description of what the organization is supposed to do.

2. Don't stop with just a business description: Now that you have a good description of the business definition strategy, keep going! Try to capture descriptions of the other seven strategies.

3. Get consensus on the 8 strategy descriptions: Believe it or not, this is the hardest part in strategic planning; getting consensus on existing strategy!  This is when folks start saying things like: "But we don't have a (fill in one of the eight strategies) strategy! This, of course, is code for "I don't like / agree with the strategy we have" or "I don't think the strategy we have is working".  But those are very different issues than not having a strategy.

4. Understanding current strategy is the first step in all strategy planning: In our experience, the failure to understand current strategy is a major cause of the failure of strategic planning. How can you plan to change something if you don't known what you are changing?

5. Don't waste time doing mission statements:  If you take away one thing from this article, it is to forget working on mission statements. Understanding all eight strategies is more important. And if that is not possible, either because you can't or don't want to rock the boat, you can amuse yourself at the mission statement meeting by watching how close the proposed mission statement comes to the description of the business in the organization's financial statements and by counting how many of the other seven strategies end up in the mission! 

 

 

Vision Statements: How to do a Reality Check

Vision statements are typically defined as an aspirational description of what an organization would like to achieve in the long term.

Because this definition is so vague and vision development processes are  generally based on emotion and intuition rather than on an informed thinking process, many vision statements could use a reality check.

We want to show you how to do just that. Or, if you are trying to develop a vision, how to make sure it is grounded in reality.

The source of all visions: dominant strategy

The source of all visions is found in dominant strategy for the organization.

Vision statements become flawed when folks try to develop them as a first step in the strategic planning process without understanding dominant strategy. It should be the last step, a crisp sound bite that reflects where we want the organization’s dominant strategy to take us.

Think of strategy as choice of action. There are 8 choices, or strategies, common to every type of organization from for-profits and non-profits to public sector ones. They are always present and are being implemented even if there is no strategic plan.

Henri Fayol identified six of them on page one of the first book written on modern strategic management: General and Industrial Management.  Peter Drucker identified the other two, growth and business definition, in The Practice of Management.

Any one of these eight strategies can be the dominant strategy, also known as “core competency” of an organization.

Banks have financial management as their dominant strategy. Insurers, regulators, and pension funds will have risk as dominant strategy. Many retailers will have marketing/sales; while any organization creating proprietary products will typically have R&D/technology. Other organizations, such as Walmart, have chosen growth. There are many organizations that have service delivery as the dominant strategy. Service delivery is also known as production or as manufacturing, depending on the nature of the business.

The first step in strategic planning should not be about crafting vision statements. It should be about developing a deep understanding of each of the 8 strategies and how they are actually being implemented. That understanding then drives insight into what external factors are impacting each of the eight. It will also identify which of the eight is presently dominant strategy for the organization.

Vision statements go horribly wrong when they cannot be reconciled with dominant strategy. We define a vision statement as being a description of the hoped-for outcome of long term successful pursuit of dominant strategy.

In other words, before you can develop a vision statement, you have to know which strategy is the dominant one in your organization. Then you can think through the hoped-for outcomes that might be possible from long term pursuit of that dominant strategy.

When vision is not aligned with dominant strategy...

What happens when you don’t know what dominant strategy is? Let’s look at some examples that should make you cringe.

First up is a large government social housing agency whose vision statement was “to become the largest social housing agency in North America”.  What’s wrong with this vision? Well, for starters, the legislation in which the agency’s mandate (being the term nonprofits and government organizations use for the business definition strategy) is described, says nothing about growth. But the legislation says a great deal about being a landlord and providing housing for folks in need of housing. In other words, the mandate points to service delivery as the dominant strategy, not growth.

Fortunately, a new board and executive team for the agency made it their first order of business to change to vision to being about “landlord excellence”. In other words, they aligned the vision correctly with the organization’s dominant strategy of service delivery.

Or, how about the airport that retained a branding firm to develop its strategic plan? You guessed it. Branding firms are all about marketing/sales strategy. So it should come as no surprise that the airport ended up with a fancy new logo and a vision statement that looked like a marketing/sales strategy.  It read something like: “to be a portal to the world”.

This vision statement sure had airport employees scratching their heads. They were thinking, correctly we might add, that running an airport is all about service delivery, heavily influenced by risk, another of the eight strategies. As a frequent flyer, I know that I want airport management focused on service delivery, not marketing/sales. A new CEO came in and immediately changed the vision to being about service excellence.

Let’s look at one more example. This one is really interesting.  The vision for a government-run new home warranty program was “No more defects; no more claims”. It was explained to us that the intent was to reach for a vision that would put the organization out of business, if achieved.

The good news is that the first phrase, “no more defects” clearly addresses risk, the dominant strategy for any insurer. The bad news is that builders will never be perfect. They will always make mistakes. This means the only way to achieve the vision is to stop all builders from building new homes. That’s not going to be acceptable to builders, new home buyers, or to anyone else in the new home building industry.

Just as bad, though, is the second phrase in the vision, “no more claims”. This confuses the focus on risk by suggesting an equal focus on the financial management strategy, being the obligation of the warranty company to pay claims. Is the vision based on the risk strategy or the financial management strategy?

The takeaways on vision statements

-       If you must have a vision statement, make sure it is aligned with the organization’s dominant strategy 

-       Vision statements don’t come from thin air. They are a description of the hoped-for outcome from long-term successful pursuit of dominant strategy

-       There are 8 strategies common to all organizations and one of them is dominant strategy of the organization

For more on strategy, read The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization available online everywhere.

 

 

 

 

 

 

 

Value Creation: A Metric; not a Strategy

We are told time and time again by academics that strategy is about value creation. At best, we think value creation is a metric; not a strategy.

Saying that strategy is about creating value is about as unhelpful as saying strategic thinking is about "doing the right thing". It's no more than a platitude.

It is much easier to see value creation as a metric. For example, shareholder value increased by 400%.

Just for the record, we understand the value creation concept. We get it.

What we see are the very real difficulties caused by such a narrow definition of strategy.

Value Creation as Strategy Marginalizes Other Activities

The first issue we see with defining strategy as value creation is that it marginalizes all other activities of the organization.

Value creation is essentially about marketing; the defining of a compelling value proposition to a chosen target market.

The approach was made popular in the 1960's by Bruce Henderson's enormously successful consulting firm, Boston Consulting Group, the first management consulting firm to hold itself out as "strategy consultants". Then Dr. Porter came along in the late 1980's and further blessed strategy as being only about value creation and competitive advantage.

The trouble is that this trivializes all other activities of the organization.

If "strategy" is only about marketing, then the remaining activities are not "strategy". They are reduced to a grab bag of less important activities usually listed as process, structure, technology, risk, people, mission, and growth.

Value Creation doesn't Explain Organization Design

Thinking strategy is just about value creation and marketing doesn't explain organization design.

Dr. Chandler told us in 1962 in his book, Strategy and Structure, that structure follows strategy.

Everyone agrees that the first step in organization design is to decide on what needs doing and choices of action, namely strategies.

Then those strategies can be staffed with the appropriate personnel.

It is not easy to understand how to do that when strategy is defined as being about value creation.

Value Creation is Different for Nonprofits & the Public Sector

Value creation is different for nonprofit and public sector organizations.

This is because these organizations don't need to develop a value proposition. It is already embedded in the legislation or charter that created the organization.

Taxpayers and donors can get quite annoyed when they see their hard-earned dollars and donations being used for "marketing" instead of "communicating" relevant information to the organization's relevant users and clients.

Think about it. The IRS doesn't need to market. Its mandate gives it a monopoly on collecting taxes and enforcing tax law. It needs to communicate relevant information about tax law and compliance, not market itself.

Moreover, those nonprofits that become focused on trying to develop value propositions and competitive advantage as strategy are usually the same ones that forget to review the mandate that created them. As a result, they end up wandering away from their mandate, a condition known as "mission creep". See: 7 steps to warding off (mission) creep by Patty Hasselbring

Strategy is a dynamic system; not a concept

We think the biggest issue with believing value creation is strategy is that it prevents any opportunity to see strategy as a dynamic system of activities to be managed in any organization.

We all know organizations are dynamic systems. They are dynamic because of changing choices of action, our definition of strategy. Therefore, strategy must be an interconnected, dynamic system.

This, by the way, was how Henri Fayol saw strategy on the first page of General and Industrial Management, arguably the first book ever written on the new discipline of strategic management emerging in the 20th century as a consequence of industrialization.

Fayol identified six strategies (he called them activities) that he felt had to be managed in any organization: Finance Management Organization Management, Production (also known as Service Delivery or Manufacturing depending on what the organization does), Risk, R&D/technology, and Marketing/Sales (sometimes called communications in nonprofits and public sector organizations).

Drucker identified 2 more strategies in The Practice of Management: Growth and Business Definition (which Drucker called "mission").

These 8 strategies are common to all for-profit, nonprofit, and public sector organizations.

The Power of Strategy as a System v. Value Creation

There is real power is seeing strategy as a system rather than as simply being about value creation.

The 8 strategies are the basis of all organization design. There are now companies that have a "Chief" for every one of them, from the Chief Financial Officer right through to Chief Risk Officer and Chief Growth Officer.

The 8 strategies are the basis of the curriculum for every business school.

The 8 strategies are the basis of  the strategic plan and are the strategies that should be the focus of strategic plan monitoring by the board of directors and executive management.

The 8 strategy framework enables boards and management to prioritize strategy, something that cannot be done when "strategy" is one thing.

The 8 strategy framework enables boards and management to test the impact of decisions on one strategy on the other seven, something else that cannot be done when strategy is defined as one thing.

The 8 strategy framework enables construction of business models for each of the 8 strategies as well as combinations of them. For us, business models show how strategies (choices of action under our control) relate to external factors outside our control. At this point in time, too many business modeling methodologies are focused solely on developing a value proposition for the marketing strategy.

So what happens to the concept of value creation? The answer is simple. It is still very much the quest of the marketing/sales strategy. But marketing is just one strategy of 8 that need to be managed in any organization. Start thinking about the other seven and about strategy as a dynamic system.

For more on strategy as a system, see The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization

 

 

 

Expectations v. Culture

Which is more important; expectations or culture?

Let's put it this way. If you ask employees, they are likely to say "I have no idea what 'culture' even means. But I sure pay attention to what my boss wants."

And in a heartbeat it is apparent that expectations (i.e. what the boss wants) are the driver of all strategy in any organization. They are the bricks in the wall that we see as culture. Pull out a few that are critical to the wall's  structural integrity and the whole wall comes tumbling down.

So why aren't we focused on understanding the power of expectations instead of culture. Well, for starters, Peter Drucker said "Culture eats strategy for breakfast." So no one has looked past strategy. Everyone assumes culture is more powerful than strategy. The question we are raising is "If expectations are the driver of all strategy implementation, does this make expectations more powerful than culture?"

The Top-Down Stigma

Little is written about expectations as being the driver of strategy. We think this is because of what we call "the top down stigma".  This is the notion that employees are independent, autonomous thinkers who, if left alone, will figure out what to do. So we hear things like: "Get me the right team and they'll know what to do."

The notion that strategy is imposed by top-down expectations seems to be an anathema to most academics and business writers. For them, all employees need to be able to figure out their own objectives. That may be so but it cannot happen without a clear articulation of the expectations those employees are expected to meet.

When you look at successful strategy implementation, the first thing you find is the articulation of clear expectations. This, in turn, enables managers and employees to be clear on strategy priorities and to identify choices of action to satisfy the imposed expectations.

The second thing you find is that all expectations flow top-down. What defines good organizations for us is that when employees and managers find that the expectations imposed on them cannot be reconciled with the realities of their external environment, they are allowed to speak up and say so. This is how employee and managerial feedback drives informed decision-making on strategy implementation.

Unfortunately, in far too many organizations, managers and employees are expected to keep their heads down and mouths shut when they see a disconnect between expectations imposed on them and their external reality. Eventually, strategy implementation fails because of this.

Confusing Strategic Thinking with Problem Solving

The second reason we think the focus should be on expectations rather than culture is that expectations are a key component in strategic thinking. However, there are far too many who make the mistake of thinking strategic thinking is about problem solving.

Peter Drucker told us in 1954 in The Practice of Management that strategy decisions were not problems to be solved. Back in Drucker's day, before strategy got tied up in a strait jacket labeled "competitive advantage", strategy was about choices of action. 

Strategic thinking is a subset of critical thinking characterized by thinking about those choices of action. It does this by thinking about how to manage assigned responsibilities consistently with both imposed expectations and the realities of a changing external environment.

Problem solving is a distinctly different subset of critical thinking and is characterized by spending as much time time trying to identify "the problem" as will be spent solving it.

The point is that strategic thinking is driven by imposed expectations. For the CEO, Managing Director, or owner or, in the case of nonprofits, the Executive Director, these expectations come from major stakeholders, such as major shareholders, lenders, or donors. For all employees, the expectations are imposed on them by their boss.

It seems obvious to us that the best way to improve strategy implementation, as it cascades down through the organization, is to improve the articulation and discussion of expectations for its implementation.

Increasing the Reach of Expectations

Right now, expectations are the foundation of every annual performance appraisal. Employee performance is judged on the basis of whether it met, exceeded, or did not meet imposed expectations.

What we see missing is the direct link between employee expectations and how business units, departments, and functions go about their planning. This is because there is a huge void between employees and the strategies of the strategic plan.

The strategic plan should be the source of the initial expectations to drive strategy implementation by departments, business units, and functions. For example, if the growth strategy is to grow by acquisition, what expectations should be articulated to guide an acceptable implementation of the growth by acquisitions strategy?

Without these expectations, the growth strategy can quickly run amok (as it did for the Icelandic banks that went so spectacularly bust) or go nowhere (as it does for many organizations that do not understand how to use expectations to drive strategy implementation).

Obviously, the board of directors should be playing a large role in understanding and reviewing expectations as part of its role in providing oversight of the strategic plan.

Expectations are not going away

We often hear that an organization is dysfunctional because of its "culture". But at the end of the day, it becomes obvious that poor articulation and management of imposed expectations is always the cause of "bad culture".

There are still far too many managers and bosses who don't articulate clear expectations, preferring instead the deadly and ambiguous "Just get it done, okay? And don't bother me with the details."

We need to start focusing on clear articulation of expectations as the primary means to improve strategy implementation.

If expectations are the individual bricks in the wall called culture and you want to change the culture, then start by pulling out and changing the expectations most critical to holding up the wall. That's how to change culture. Don't focus on the wall. Focus on the most important bricks, the expectations.

For more on strategy and expectations, see Strategy + Expectations = Culture

For more on strategy, see The Alpha Strategies: Understanding Strategy, Risk, And Values in Any Organization

 

Strategic Planning: A Review of Strategy

Strategic planning is a review of strategy. This is the first step in any strategy planning process; a review of current strategy.

Reading the literature on the subject, one could be forgiven for thinking that strategic planning is only concerned with strategy development. This is because there is a general belief that unless there is a strategic plan in place, there is no strategy to review. Yet we can name lots of organizations that have prospered for decades without a written strategic plan.

Every organization has a dynamic strategy system

Every organization has a dynamic strategy system in place whether or not the organization has a written strategic plan.

In fact, in our experience, many organizations have written strategic plans that are not consistent with the strategies actually being implemented throughout the organization. No wonder those plans never go anywhere.

Let’s first define some terms. We define strategy as being a choice of action.

Our research tells us there are eight choices of action / strategies common to all organizations from for-profits to nonprofits to public sector ones.

For more on this, see our book: The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization (available at online retailers everywhere). 

Current popular wisdom has it that strategy has something to do with creating value or competitive advantage.

In our opinion, this definition is far too narrow and makes it impossible to see the eight-strategy system in place in all organizations. For us, this typical definition of strategy is simply a description of the marketing/sales strategy, one of the eight strategies in any organization.

Our definition of strategic planning is that it is a review of current strategy against changing relevant major stakeholder expectations and factors in the external environment to determine if change to strategy is warranted.

Start strategic planning with consensus on current strategy

Armed with our definition of strategic planning, the appropriate starting place for it is to reach consensus on what is currently being implemented within each of the eight strategies. You'll be surprised, if not shocked, at how little common understanding there is.

The most common cause for failure of a strategic planning process is the lack of a common understanding by the board or management team or both of current strategy. This, in turn, drives multiple personal change agendas. Individuals push their perceptions of the appropriate priorities to pursue based on a flawed understanding of current strategy.

Without a common understanding, it becomes impossible to identify the relevant external factors impacting strategy performance that the strategic plan should address. It is the correct identification and understanding of external factors that should drive any strategy change decisions.

Start thinking differently about strategic planning

• Start thinking of strategy as something much more than about creating value or competitive advantage. This definition is far too vague. It makes me think of a first year MBA's answer to the question: "What do you want to do after you graduate?" Invariably, it will be "I want to make a lot of money". Think about it. If your organization is seeing as doing a great job, folks will flock to it. How can the organization do a great job? It starts with seeing the bigger strategy system in your organization.

• Start thinking that strategy is present even without a written strategic plan. Strategy is a choice of action. All organizations that are up and running having already made eight basic choices whether or not those choices were ever written down in a plan. Those choices are now being implemented. The question becomes "Do you understand what is being implemented?"

• Start thinking that strategic planning is much more than strategy development. It's about understanding whether the strategies of the current strategy system are appropriate given a changing external environment and changing major stakeholder expectations. A strong understanding of those relevant external factors will point to whether current strategy needs to be changed or improved.

 

How Many Chiefs Does It Take to Run a Business?

How many chiefs does it take to run a business? It has certainly become more than one.

The common chiefs today are the CEO, COO, CFO, CIO, and financial services firms have their CRO (risk).

Recently emerging have been the CMO (marketing, manufacturing,  morale, or mission - take your pick - they're all in use!), CTO (chief talent officer - see also morale officer above - it used to be called HR), CRO (research or risk officer - also known as the CTO - technology), CSO (service / service delivery or supply), and CGO (growth).

Meanwhile, the CRO (risk) is evolving into several different roles depending on the nature of the firm. There can be the Chief Reputation Officer, the Chief Sustainability Officer, Chief General Counsel, Chief Compliance Officer, and Chief Corporate Responsibility Officer; to name just a few of the current titles being used.

And every time new chief's title is proposed, it is based on the same rationale: "This strategy is so important, it must report directly to the CEO!

 What is the reason for the proliferation of chief titles in organizations? We think it is because there is a system of strategies to be managed in any business.

Structure follows strategy

Dr. Chandler told us in 1962 that structure follows strategy. Unfortunately, he didn't tell us why. He just described how he saw large businesses organize themselves around strategy. Unfortunately, there was no common definition of the term strategy. There still isn't.

And worse still, strategy is thought to be one "thing", usually a way to achieve competitive advantage or create value. This is a hangover from a different kind of strategy; military strategy thinking. In the military, strategy is all about the attack.

Hard to build an organization structure around vague concepts like value or advantage.

Our research tells us there are 8 strategies common to every organization.

Henri Fayol identified six on page one of the first book written on strategy, General and Industrial Management. Peter Drucker identified two more, growth and business definition, in The Practice of Management, 1954.

These 8 strategies represent the basis of the strategic plan and are the basis of all organization design.

Strategy is a System

But organization design reflects more than just a number of strategies. It also reflects the priority of strategies within any given organization.

The priorities comes from the fact that strategy is a system. Not only are 8 strategies common to all organizations, there are also 3 types of strategy that characterize the strategy system in any organization.

We call the 3 types Alpha, Influencers, and Enablers.

One of the eight strategies is the dominant and strategy and leads the other seven.  We call the lead strategy the Alpha. We think it sets the dominant culture of the organization.

Influencers are the three strategies that most guide and constrain the implementation of the Alpha and the third category of strategies, the Enablers, being the remaining four strategies.

Any of the 8 strategies can be the Alpha. For banks, it is typically Financial Management. For insurers, pension funds, and all regulators, it is Risk. For many retailers, it is Marketing/Sales. For  many  technology companies, it is R&D/technology. The Alpha is the single-most important strategy in the system. Think of all the companies that got into trouble because the CEO's skills didn't match the skills required to manage the Alpha. Think of a banker in charge of a retailer or a marketing guru trying to run a regulator.

And the next 3 strategies, the Influencers, are the second-most important. Consider a bank with Financial Management as Alpha. Typically Risk, Technology (being primarily information systems) and Marketing will be the Influencers. Now look at the org chart for a typical bank and you will see these roles are managed usually managed by a "Chief".

So expect to see the role of chief become common for every one of the 8 strategies in any company of size.

Or, as we like to say, "Anyone who has run a business knows you have to wear 8 strategy hats."

For more on strategy as a system, see The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization

 

The Board Agenda: A Guide for Strategic Plan Oversight

The board agenda has come a long way. Gone for the most part are the long lists of matters to be discussed.  At least matters are now usually organized into those requiring approvals and those providing updates and information.

However, there is still a great deal of concern about what should be on the agenda.

Well, given the primary function of a board is oversight of the strategic plan, we think a board agenda should support that responsibility.  Here's how we recommend doing that.

Relating the board agenda to the strategic plan

We are saying that the board agenda should be closely related to the strategic plan. Yet, in many cases, it is not. This is because it is difficult to find any definition of a strategic plan that enables preparation of a board agenda.

But consider our definition: The strategic plan is a completed review of the 8 strategies common to all for-profits and nonprofits.

In other words, the completed strategic plan has considered the impacts that changing external factors and major stakeholder expectations are likely to have on the performance of current strategies. And the review has reached informed decisions on whether existing strategy needs to be changed. Those decisions may take the duration of the strategic plan to implement.

Consider also that we believe strategy is properly defined as a choice of action. Our research finds there are 8 common strategies or choices of action at the core of every organization, be it for-profit or nonprofit.

6 were identified by Henri Fayol in his book, General & Industrial Management, arguably the very first book published on the newly emerging subject of strategic management. The remaining 2 strategies were identified by Peter Drucker in The Practice of Management, 1954.

These 8 choices are the foundation of the strategic plan of any organization and the basis for all organization design. These are the strategies that boards are expected to understand and monitor.

In other words, our definition of strategy and of the strategic plan enables a board agenda to built around the 8 strategies.

Priorities: What is strategic and what is operational?

But what is strategic and what is operational? This is the perennial question asked by board members and management. We think the answer becomes apparent when the 8 strategies are seen as a system.

It has been known for some time that strategy organizes around a lead or dominant strategy. One of Dr. Henry Mintzberg's earliest research findings was on strategic direction and how it doesn't change over long periods of time. Couple that thought with Drs. Tregoe and Zimmerman’s concept of 9 Driving Forces and with Drs. Hamel and Prahalad’s notion of core competencies, and you have a broad picture of the strategy system.

Unfortunately, all of these fine academics were locked into the paradigm that “strategy” must be defined as a value proposition or way to compete.  So at best, their system would have a strategy as the lead supported by something vague called core competencies. Hard to give those notions oversight at a board meeting.

If you accept older definitions of strategy  as a choice of action, such as envisioned by Fayol, it is possible to replace vague terms such as core competencies with something more meaningful.

We think there are 3 types of strategy common to all organizations.

We call the 3 types Alpha, Influencers, and Enablers.

One of the eight strategies is the dominant and strategy and leads the other seven.  We call the lead strategy the Alpha. We think it sets the dominant culture of the organization.

Influencers are the three strategies that most guide and constrain the implementation of the Alpha and the third category of strategies, the Enablers, being the remaining four strategies.

While all of the 8 are clearly “strategic”, considering it can take years to change strategy within any one of the 8 or to move any of the strategies within the system, clearly our model depicts a priority of strategies.

Indeed, in our experience, the Alpha and Influencers are the ones most commonly treated, albeit intutitively, as strategic while the Enablers are thought of a “operational”. This thinking misses the point that the system can be likened to an 8 cylinder engine. It any of the strategies misfires, performance of the system is seriously impaired.

Boards need to understand their organization’s strategy system and provide oversight to all 8.

Oversight starts with understanding the strategy system

Oversight has to start with understanding how the 8 strategies are configured within the organization's strategy system.

Consider the following map for a typical insurance company. Risk should be the dominant strategy for an insurer. That's what insurers do. They underwrite risk. Therefore, it must be their first priority and culture.

The Influencers mostly guiding and constraining implementation of the risk strategy are financial management, R&D/technology, and marketing/sales. The remaining strategies are enablers.

For purposes of building a board agenda, we would think a lot of board focus would be on implementation of the Alpha and the Influencers.

There would be reports on a less regular basis on the enablers.

Board members might want to additionally consider that  we define “vision” as being a description of the successful outcome of long term pursuit of the dominant strategy, in this case, risk. This definition provides a means to test whether the vision statement is consistent with dominant strategy.

We define “Mission”, on the other hand, as Drucker did. It simply asks the question “What is our business?” and is what we call the business definition strategy. The business definition strategy is concerned simply with how the organization, for-profit or nonprofit, is positioned within the external environment.

Our approach, using an 8 strategy system configured into 3 types of strategy, gives boards a powerful means to build a board agenda that provides meaningful oversight of the organization's strategic plan. And that's the point of board oversight, isn't it?

For more on our strategy thinking, read The Alpha Strategies, Understanding Strategy, Risk, and Values in Any Organization.

Strategic Planning: The Speed of Change

A question I get asked a lot is “How can a 3 or 5 year strategic plan possibly address a world that can dramatically change in a year?”

My answer borrows from Hemingway.  “Change, like bankruptcy, occurs in 2 speeds. It happens slowly and then all at once. The purpose of a strategic plan is to plan for change.”

The myth of disruption as something new

We are told we live in times of enormous disruption, as if change is something unique to the 21^st century. 

Clearly, someone hasn’t been following Downton Abbey.

For five seasons, the highly popular television series has been chronicling the impact of change on the lives of the landed gentry in Britain in the early decades of the 1900’s. The seeds of change were planted with the beginnings of the Industrial Revolution in the 1700’s. They took almost 200 years to bear fruit and create the full blown changes causing heartburn for Lord Grantham.

The reality is that change takes time to take hold and actually become a force to be reckoned with. What is commonly referred to as disruption is when change actually arrives.

Let's look at some examples. We were told that the advent of wireless in the 1990’s spelled the end of long lines and traditional telephone companies. It will happen. But it hasn’t happened yet. 

The Wright brothers were the first to prove airplane flight was possible. But it took another 25 years for the airline industry to become a reality. It took the airline industry another 30 years to dispatch ocean liners as the popular means of trans-oceanic travel.

Cheap manufacturing processes were supposed to destroy the craft industry. They haven't. In fact, the craft industry has gone through a tremendous revival.

Change is not only driven by technology

We are lead to believe technology is the source of all disruptive change. That view is very narrow and ignores other sources of disruptive change that can impact every aspect of the way organizations go about their business. Thinking technology is the only source of disruption will leave your business vulnerable to being blind-sided.

Consider the changes in manufacturing practices since The Love Canal environmental disaster in the 1970’s. This event marks the beginning of the end for unacceptable manufacturing processes in North America. But it has taken decades to result in better practices. The changes put a lot of folks out of business and a lot more into whole new businesses.

Change is fast transforming the workplace because of a changing and more diverse workforce.

The entry or exit by governments into markets, whether through a change in the laws or regulations or through a government agency, can be disruptive. Consider the impact Fannie Mae and Freddie Mac has had on the US housing market over the last many decades.

But, again, change doesn’t happen quickly and it isn't always about technology. Consider how many U.S. companies are now lined up to enter Cuba.

The key to managing change is to be ahead of it

The key to managing change is to be ahead of it by identifying and monitoring it.

This is the rationale for a strategic plan.

Setting goals and targets is the stuff of business plans - not the strategic plan. We see folks getting too busy setting goals for the coming years to have done the study necessary to understand that their goals are set on uninformed assumptions about emerging change and its impact on their strategy.

To separate the strategic plan from business planning, we define a strategic plan as being a review of the 8 strategies common to every for-profit and nonprofit organization. This leaves business planning as being something concerned with the implementation of the expectations of the strategic plan strategies.

Strategic planning must start with a deep understanding of how each of those strategies is currently being implemented.

This understanding enables the identification of external factors, either present or emerging, that might impact, for better or worse, the implementation of the individual strategy.

In other words, boards and executive management need to invest in understanding and monitoring what might impact their business definition strategy, known as mandate in nonprofits, their growth strategy, their risk strategy, their financial management strategy, their organization management strategy, R&D/technology strategy, manufacturing strategy, also known as service delivery or production depending on what the organization does, and, finally, their marketing / sales strategy, also known as the communications strategy for many nonprofits.

These eight strategies are the basis of the strategic plan and of all organization design.

Take-Aways for strategic planning

The take-aways for you to think about are “Is this how we look at strategy in our organization; namely, as a system of activities and choices of action that are inter-connected?” 

If you did, you would be able to structure a monitoring system centered on each of the strategies. You would be able to see change more clearly as it emerges. This puts you in a much better position to know when to change current strategy, given that emerging change.

The second take-away is that you will no longer think of change as immediate or disruptive. Instead, you will be wondering whether your organization needs to invest more in trying to identify and understand emerging change. And whether to invest more in the training, development, process improvements, and product/services development requirements required to be ready for that change.

That's what a strategic plan is supposed to address.

For more on strategy, see The Alpha Strategies, Understanding Strategy, Risk, and Values in Any Organization.

Leadership: Where's Strategy?

Much is written about the soft skills needed to become a great leader.

You know the ones. They include a positive attitude, commitment, empathy, the ability to delegate, being a good listener, and so on, and so on.  

The trouble is I have yet to meet an owner or senior executive with any of those skills.

Maybe my career boils down to a series of episodes from The Devil Wears Prada because the leaders and owners I have known didn't have great people skills. But they sure understood strategy. And so, the post title: Leadership: Where's Strategy?

Strategy is the Content of All Management Discussions

Strategy plays a bigger role than all of the “soft skills” combined. Strategy is the content of all management discussions. You're not going to be a leader until you understand and can explain strategy.

For purposes of this discussion, let’s define strategy as being choices of action rather than getting tied up in various academic definitions having to do with creation of competitive advantage or value creation.

The skill that all leaders must master is understanding what choices of action (strategies) their organization has made and what expectations for its implementation are created by those choices.

This is how strategy implementation is explained and pushed down throughout the organization.

In other words, great leadership is about understanding and communicating strategy (choices of action), its rationale, and the expectations for its implementation.

Gerstner and Palmisano Knew How to Talk about Strategy

I'm not sure from anything I've read that Lou Gerstner was an easy guy to work for. I know he shocked the media (and business academics) at his first press conference as CEO of the troubled tech giant, IBM, in 1993. When asked what his vision was for the company, he growled: “The last thing IBM needs right now is a vision statement.”

Nine months later, after becoming informed on IBM’s strategies, Gerstner was finally prepared to talk about his vision (i.e. long term strategy) for IBM. The lesson: becoming informed on current strategies of any company takes time. Gerstner knew strategy can't be changed unless there is a good understanding of current strategy. Otherwise, you will not be able to explain the rationale for change.

Gerstner’s successor as CEO, Sam Palmisano, put it even more succinctly:  “Smarter is always the answer.”

No doubt, Mr. Palmisano was not talking about knowledge for the sake of knowledge. He was talking about his expectation that all IBMers make choices of action (strategies) consistent with his strategy and expectations for driving IBM forward.

Great Leaders Don't Suffer Fools Lightly

When I consider the leaders and successful entrepreneurs I have met and worked for, I can see they have a couple of things in common. They can talk about their business all day long and they don’t suffer fools lightly. If you aren’t feeding their insatiable appetite for facts and insight on their strategies and industry, it becomes a very short conversation. Why do you think everyone avoids riding the elevator with the boss? It's nerve-wracking.

By all means, hone your soft skills. You’ll make a more pleasant boss. But you are not going to be a great leader until you truly "get" strategy and its communication.

For more on strategy and its communication, read The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization.