In the beginning of the series, strategy is examined as a competitive advantage essential for creating and sustaining superior performance. In this part of the series, I would like to elaborate fundamentals and decisiveness of its implementation.
Few weeks ago while conducting a management workshop for leaders in an organisation, it emerged strongly that while the senior team had necessary wherewithal for forming up world class strategies, it was the ability to execute it flawlessly or with minimum deviations that was the biggest concern and deterrent in meeting goals. Rather at some point the senior executives confessed that the path to execution is the toughest and more important than even the quality of an advanced or distinctive strategy, latter formed with due market intelligence, diligence and competition analysis.
The recent upheaval at Tata Group also indicated that change of strategic direction needs closer attention and simply cannot be underestimated. As per my experience of interacting with core or senior teams across various industries, I observed that selling of a strategy internally in an organisation is critical and needs to be unanimously accepted and appreciated by employees before it can become a success story, and that happens much later. The Board’s involvement and role in approving strategy is a prime factor as during the later stages of execution, fallouts can be avoided.
One of the reasons strategies change and many a times drastically is to utilise opportunities to its optimal while creating value. An example to explain further is that in an industrial economy, companies create value with their tangible assets by transforming raw materials into finished products and opportunities may shift from managing tangible assets to managing knowledge based strategies deploying organisation’s intangible assets. Automation for instance has changed the way machines were operated and supervised changing roles and processes. A Brookings Institute study conducted in 1982 showed that tangible book values represented 62% of industrial organisation market values. By 1993 – 94, that ratio dropped to 38% and recent studies show it accounts for only 5 to 10%.
Now tools to assess current and appropriate strategies must also be reviewed and undergo best suited changes. As we know Amazon has been making continuous losses since its inception as per books and recent valuations substantiate it further, barring few exceptional quarters. This also suggests that Jeff Bezos’ strategic direction is arguably proving right but had we used archaic tools for strategy assessment, he would have been seen as failed.
Another critical issue for senior teams is attempting to implement knowledge based strategies in organisations designed originally for industrial age achievement. Past strategies were developed at top and executed through the central command. Change was incremental and ‘budget’ was a tactical management control system slowing reactions and response rate of managers, this may have been a wise strategy then keeping in check critical decision making process. These were suitable in 20th century but are considered passé now.
Organisations in current times have recognised that competitive advantage comes more from intangible assets – knowledge, capabilities and relationship created over time. Hence alignment of strategy with all internal stakeholders becomes critical. Organisations now need a language for communicating strategy, processes and systems that help them implement strategy to gain constructive feedback ploughed back into the organisation. Aligning organisations to a common philosophy or strategy is certainly daunting and fatiguing, but worth every penny and sweat. In very large MNC’s with multiple divisions and units that also compete in other industries or within themselves for both market shares and talent, it is most important that they are driven by a single belief or value set. There will be synergies in terms of sharing perspectives across spectrum of various functions like finance, customer experience, internal process frameworks, market intelligence and growth. Tata Empire is an example with big companies within its fold – Tata Steel, Tata Motor, TCS catering different business segments. Corporate role is primarily of providing them values to govern, vision to follow, financial views, creating synergies by operating an efficient internal capital market.
Some of the organisations share common business processes and require corporate’s role of ensuring their most effective use. Few MNCs and their SBU’s share common technologies and knowledge like LG Electronics Inc. and Honda Motor Co Inc. use its superb capabilities in engine and design and manufacture produce superior products in different market segments – Air Conditioners, Refrigerators, or Motorcycles, automobiles, power generators et al. Procurement is also often a shared business process as in case of Walmart.
Developing ‘balanced scorecard’ can resolve complexities in such situations. This corporate scorecard should articulate the theory of the corporation, the rationale for having several SBUs operating within the corporate structure rather than each SBU operating as a separate entity. Originated by Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that adds strategic nonfinancial performance measures to traditional financial metrics to give managers and executives a more ‘balanced’ view of organizational performance, balanced scorecard serves as a strategic planning and management system and the most extensively used across industries, government and non-commercial organisations. Balanced scorecard has also been selected by the editors of Harvard Business Review as one of the most influential business ideas of the past 75 years that can address a serious deficiency in traditional management systems: the inability to link a company’s long-term strategy with its shortterm financial goals. The scorecard lets managers introduce four processes that help companies make that important link other than helping create synergies through shared services. The service agreement and the SSU Balanced scorecard should accomplish the following:
- Translating the vision – SBUs must hold commonly shared values, beliefs and ideas that reflect the corporate identity, it helps managers build a consensus concerning a company’s strategy and express it in terms that can guide action at the local level.
- Communicating and linking – This calls for communicating strategy at all levels of the organization and linking it with unit and individual goals. It aligns the efforts of the unit as per the priorities of its customers. Actions mandated at the corporate level that create synergies at the SBU level are taken, like cross selling to customers across SBUs. It further strengthens a culture of customer based performance and continuous improvement within the unit.
- Business planning – This provides a basis of accountability between the units and its customers enabling companies to integrate their business plans with their financial plans.
- Feedback and learning – gives companies the capacity for strategic learning testing the hypotheses on which a strategy is based, and making necessary adjustments. This further helps track the progress in the performance of the unit.
While we are at discussing ‘Corporate Strategy’ it is important to know that there will be no particular framework of keeping it defined in a block, it undergoes transformations even while I pen down my past experiences and bring forth current definitions, theories, practical contexts and most pragmatic approaches until there are updates, reviews or innovations to the existing ones.