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Closing the gap: going from strategy to performance in five steps.

Translating strategy into performance is management's biggest challenge. In fact, managers feel there is a 37 per cent performance loss between the strategy-as-planned and the strategy-as-executed, a recent survey in Harvard Business Review revealed.

Managers also indicated that communicating strategy in clear terms is the number one way to solve this problem. This communication needs to be underpinned by clear and decisive leadership practices that are consistent with the strategy and make it meaningful to frontline employees.

Research and development of tools such as the balanced scorecard and other strategy execution practices have been effective in helping organizations close the strategy-execution gap. The following five simple steps can help an organization achieve the performance described by their strategy by creating a strategic pilot.

STEP 1:

COMMUNICATE THE STRATEGY

Organizations need to make their strategy accessible. The first step is capturing the strategy and communicating it in a way that all stakeholders can understand. The strategy description should

* be simple. It must be simple enough to be top-of-mind to facilitate day-to-day execution.

* be clear on strategic priorities. Align ail stakeholders around what needs to be focused on now to ensure the organization's future.

* help people understand what needs to be done (strategy), not how to do it (tactics).

* enable strong ownership of the strategy by all stakeholders.

The strategy needs to be described in a new way that goes beyond financials. It must describe the cause-and-effect relationship between the .strategic objectives and success, show the relative importance of various strategic objectives and illustrate how strategy changes as it cascades down and across the organization.

By describing your strategy this way, it becomes the basis for all communication about the strategy, objectives, relationships and priori ties; a clear focus for strategic priorities; and a tool that aligns ail management and employees against strategic goals.

Even if a company's strategy is no t formally documented, the leadership team should be able to create a strategy model in just a few hours based on what the organization will and will not do.

STEP 2:

ENABLE EFFECTIVE PERFORMANCE MONITORING

The average leadership team looks at only 7 per cent of the data collected by their organization, and they find just that amount of data overwhelming, an IBM study revealed. The solution to universal information overload lies in selecting the few right measures from the huge amount of data available. The task is like finding the right needle in a pile of needles.

The strategy model helps because the right measures are those that best describe the organization's strategic priorities. Select one or two available indicators that relate to each strategic objective on your strategy model. For example, if your strategy is to penetrate new markets, data relating to success in new markets needs to be highlighted. Other sales data, such as share-of-wallet data, may not need to be reported at this high level.

Once an organization begins using the balanced scorecard, many people in the organization will contribute indicator ideas. As original pilot measures are replaced, two things will happen: the scorecard will improve, and ownership will transfer from the leadership team to the entire organization.

STEP 3:

TRANSLATE STRATEGY INTO PERFORMANCE

Unfortunately, the strategy model and scorecard may hold little interest to your associates. To make the scorecard more accessible, link day-to-day responsibilities to the strategic view of the organization. Do this by listing strategic objectives down the left of a spreadsheet and core process groupings across the top. This way, the impact and performance of each core process can be rated against each strategic objective.

Processes that support highly weighted strategic objectives need to perform at higher levels than processes supporting less important ones. Take the process of order filling. If the employees at Tim Hortons give you the wrong type of coffee, they just give you a new one and let you keep the wrong one. Hospital order-filling processes have more at stake. Take releasing babies from the nursery to their parents. This process is so critical that there are many more steps to ensure the highest quality possible.

These same principles can be applied to any organization. Processes that support highly weighted strategic objectives need to perform at a higher level than processes supporting less important objectives. A process performance grade of C in support of a low-importance objective may still earn a "green" score, but a grade of C in support of a highly weighted objective earns a "red."

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In this way, strategy translates into performance, and it's possible to see how well existing processes support strategic priorities.

Projects are another important component. Projects arc activities with defined beginnings and ends as well as budgets and timelines, and are intended to improve how processes function. Projects can be scored just like processes to confirm whether they address the performance gaps that arise from the processes.

What would happen if a strategic objective were not well supported by existing processes and no projects were in place to improve those processes? Or worse: what if all the existing projects were lined up to support strategic objectives but existing processes were already meeting the strategic performance requirements? After working with more than 2,000 clients in the last 25 years, I know that 40 to 60 per cent of projects in atypical organization do not support current strategy. They should he halted, and project resources should be reallocated to other projects with higher impact.

STEP 4:

MANAGE THE BUSINESS STRATEGICALLY

The strategy model, performance indicators and process and project linkage should form the foundation of all management practices within an organization. Using these tools to answer all operational questions creates strategic awareness, engages leadership, builds a strategic governance process and enables agility.

When you use this approach, strategy is at the centre of all management practices, and the drivers are the same as for driver-based planning and activity-based management. The importance and performance of the strategic objectives inform which areas require the higher detail provided by dashboards and business analytics. Finally, these performance results, seen in strategic context, point the organization toward process improvements.

How does this work? Imagine a performance meeting where the leadership team agrees to hold a special meeting to discuss one of the strategic objectives. Who should attend? Look horizontally across the grid to see which processes affect the strategic objective. If an owner has not been assigned to the point where the process affects the objective, now is a good time to do so. You have just done some strategic organization design.

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Let's say one process in particular keeps triggering red. The organization needs to build detailed analytics (a dashboard) around that specific issue. That is strategic analytics.

This approach lets an organization deploy strategy from the top down and build solutions only where they add value. As you build down those "legs," feedback from the organization will go backup and help inform the strategy. This is the top-down bottom-up strategy cycle to which effective managers aspire.

STEP 5:

USE THE PILOT!

Ironically, the most important step is often the one that is most frequently deferred: turning it on. Becoming a strategy-focused organization is a bit like riding a bike. It cannot be done by thinking about it. You have to do it.

There's no question: your first efforts will go wrong. But using the pilot is the most effective way of uncovering errors. Getting many people involved in using and improving the pilot will build understanding, ownership and overall quality.

Our experience shows that when systems like this one are built in isolation, only 35 per cent of them are in use five years later. However, those deployed as a rapid pilot and improved while in use have a 90 per cent survival rate.

RELATED ARTICLE: From strategy to success

1 COMMUNICATE THE STRATEGY

Capture your strategy in a strategy model: a prioritized cause-and-effect diagram that aligns the organization and enables clear communication, performance measurement and linkage to processes and projects.

2 MONITOR PERFORMANCE

Develop simple performance indicators for each strategic objective to ensure all stakeholders understand how the organization is performing. Focus on longer-term, strategic issues.

3 TRANSLATE STRATEGY INTO PERFORMANCE

Document the linkage between your core processes, projects and strategic success to help all people understand their performance roles, allocate time and resources, and support performance dashboards.

4 MANAGE THE BUSINESS STRATEGICALLY

Develop strategic management practices to make strategy a continuous process, enable accountability and build agility.

5 USE THE PILOT!

Build strategy-to-performance capability by using these tools to align, communicate, monitor, manage and continuously improve the organization through decisive and consistent leadership.

Brett Knowles is a senior team member of pm2--Performance Measurement and Management--and a co-founder of the first Balanced Scorecard application. He and his organization have completed more than 2,000 scorecard projects around the world. A webinar version of this article is available at BalancedScorecard.net. This is the first in a series of three articles.
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Author:Knowles, Brett
Publication:CMA Magazine (Mississauga)
Geographic Code:1CANA
Date:Jul 1, 2011
Words:1490
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