Strategy development: are you making the right trade-offs in the process?
May 2019 | SPECIAL REPORT: BUSINESS STRATEGY & OPERATIONS
Financier Worldwide Magazine
May 2019 Issue
With organisations today facing numerous challenges, from digital disruption to consolidation and maintaining growth, leaders must take a serious look at their strategic options. During strategic reviews, which can take place at regular intervals or be triggered by key events or moments, it is important for leaders to keep in mind that the ultimate goal of strategy development is to improve both the organisation’s financial and non-financial performance. In order to put a strategy into action, key decisions and trade-offs must be made when designing the strategy development process, as these decisions will impact financial and non-financial outcomes.
For example, after a series of strategy workshops by a leading global construction company, the senior vice-president in charge of strategy led the company to develop a viable organisational strategy. However, he was having trouble getting other senior managers who had not been involved in the strategy development process to commit to the new direction. “In trying to drive strategy implementation from the top down, there are inherent challenges and weaknesses,” he said. This frustration is frequently shared by top management teams in multiple industries. Strategy implementation and the associated changes – which happen after the new strategic direction has been decided upon – are rarely straightforward. Issues around implementation and change, however, are a predictable result of the decisions made earlier in the strategy design process.
The strategy development process
Most organisations have an intentional strategy and go through an active process designed to define it. This results in the formulation and execution of intended initiatives by deploying capabilities to deliver results. If the strategy development process is to lead to increased financial and non-financial performance, managers must focus on four key areas: documented strategic choices, commitment to choices, coordinated action plans and the increased organisational capabilities required to implement the plans. An often-overlooked step in the strategy development process is the strategy design phase, which can be made more effective using workshops. This requires a number of workshop design choices early on: How many people are to be included in the workshop? At what level are they in the organisation? How clearly defined should the scope of the strategy be at the beginning of the process? How much is left open for discussion? How many iterations of the workshops should there be? Over what period of time should the workshops take place?
Strategy design decisions
The strategy design process involves design decisions that are often not explicit, but have significant consequences for an organisation’s ability to implement strategic choices afterward. Given that there is no ‘one size fits all’ solution, it is important to bear in mind the tensions in the design choices for strategy workshops, either onsite or offsite. These have an impact on delivering not only an aligned strategy but also one that leads to a commitment to the behavioural changes required to implement the strategic choices that will ultimately result in higher performance.
Here are two examples: Company A is a €1.5bn chemical company which has global operations in 80 countries and 5500 employees. To prepare for its next strategic period, the company chose a relatively broad and open strategy development process that lasted 12 months. With four major workshop iterations exploring the full scope of activities of the existing business, as well as adjacent areas, the company engaged large numbers of stakeholders to build the future strategic direction. In the first iteration, the top 250 managers at the group and regional levels were invited to participate in nine regional strategy workshops reflecting the company’s major areas of presence across the globe. These were initiated to explore growth areas for the company. The outcomes of these nine workshops led to a global mapping of growth opportunities. This was used as input for the second workshop, held with the company’s extended top team of 17 executives to consolidate and make early decisions on alternative growth paths. These paths were then explored in teams of five to seven individuals with knowledge in that particular industry segment.
The next step involved teams making high-level strategic plans by growth area, which were presented to the top team and led to two growth areas being dismissed. This decision was made by the most senior executives and provided the basis to continue exploring the remaining growth opportunities with the top 60 individuals in the organisation. The focus of the further exploration in the third workshop was to ensure the group of 60 executives understood the market opportunities and capabilities required to execute on the growth platforms. Then the top 100 came together in the final workshop, which preceded the organisational rollout of the strategy, in order to coordinate global action plans for each growth segment.
The decision to have broad involvement in the process meant that new ideas could be generated and allowed for increased commitment from the organisation’s top 250 managers. It also led to multiple decision makers wanting to have an active say in the outcome. However, people in the regions did not know how their inputs were to be incorporated when it came to making decisions, which led to some confusion about how the strategy would be implemented after the strategic growth areas had been selected. Some in the top 100 thought they were involved in the final decision-making process and were led to believe that they had more voting rights than was actually the case. Ultimately, the open scope and broad involvement opened the door for parties to explore different opportunities, without necessarily understanding the resource limitations involved in pursuing these opportunities. Nonetheless, commitment toward the growth areas was high.
Company B is a publicly listed construction company operating in the Nordic region with a turnover of €6.5bn and 18,000 employees. After years of delivering on profitability targets to the stock market, the company started to explore higher growth options while keeping existing levels of profitability. It chose to undergo the strategy development process in a selective manner and with a defined scope. There was exclusive board and top-team involvement, with only the organisation’s top 15 people invited to participate in the five workshops that took place over a period of 20 months. Before the final top-team workshop, there was a meeting with just the board of directors to further refine the strategy. After the final board and top-team workshop, the strategy was communicated in simplified terms to the rest of the organisation.
The result of this strategy development process meant that there was agreement at the top level of the organisation, and the top team had a strong mandate from the board on moving forward, yet there was limited commitment of key stakeholders throughout the organisation toward implementing the strategy. The workshops also focused on refining an existing organisational strategy and thus, there was a defined scope of business opportunities to explore. One participant noted that there were challenges in working with a small group, including the lack of diversity and strategic capabilities in the top team. Given the defined scope of the strategy development workshops, the team was occupied by short-term tactical issues and it was difficult to get them to focus on the long-term strategic issues. In addition, implementation was challenging. Although simple, repeated communication at key events was deployed, the intricacies of the discussions were not captured and many one-on-one conversations were required to reach the understanding necessary to facilitate strategy implementation.
To be able to assess which trade-offs to make when designing a strategy development process, in terms of involvement, scope of issues explored and iterations, it is important to understand two dimensions of an organisation’s starting position: (i) the existing clarity of strategic choices; and (ii) organisational readiness for change. The greater the clarity and the higher the readiness for change, the fewer people need to be involved, the fewer issues there are to be explored and the fewer iterations required in terms of workshops. In the case of Company B, there was already clarity on a number of strategic choices and less external changes, so there were fewer open issues to explore and the organisational readiness was high at the top of the organisation, but was not as high beyond the top. The lengthy and closed process made it difficult to get commitment from the lower levels of the organisation as they had largely been excluded from the process.
With lower strategic clarity and relatively higher readiness for change, as in the case of Company A, the number of issues to be explored increases and often, this is associated with higher employee involvement and, in some cases, a greater number of workshop iterations. This initial assessment of the situation provides a guiding light in terms of trade-offs to be made in the strategy development process. However, a common refrain from top team members, even those with years of experience, is that involvement and communication are repeatedly underestimated. Making decisions ‘on the fly’ about designing a strategy process can have severe consequences for an organisation’s ability to be able to execute these choices. Issues with implementation are often a predictable result of the decisions made earlier in the strategy development process.
Dr Bettina Büchel is professor of strategy and organisation at IMD. She can be contacted on +41 21 618 0569 or by email: firstname.lastname@example.org.
© Financier Worldwide
Dr Bettina Büchel