Current Thinking on Strategic Planning and Implementation

1. Current Thinking on Strategic Planning and Implementation Cap Gemini Ernst & Young July 2001

2. We’re trying to answer two questions • How do global, multi-business line companies develop strategy? • Focused on the role of the corporate centre in helping companies make, communicate and implement strategies. • What is the latest thinking on how these companies should develop strategy? • What does “good” look like? • Best practice? • Useful approaches? It is intended to foster discussion about how to address the key challenges.

3. Document structure • Corporate Strategic Planning?: • Why Do It? • How Does It Happen? • What Does It Look Like? • What Are Some of the Pitfalls? • Evolving Ideas on What “Good” Looks Like • Implementing Strategic Intent • Company Examples • Implications for Global, Multi-business Companies

4. Corporate Strategic Planning • Why Do It? • How Does It Happen? • What Does It Look Like? • What Are Some of the Pitfalls?

5. Why have a corporate strategic planning function? • To be the custodian of the overall best interests of the corporation: • Maximise the overall performance of the business portfolio • Manage trade-offs across the business • Tee-up investment/resource-allocation choices and decisions • To set the “boundaries” of the company: • What’s in the portfolio • Manage merger and acquisition activity • To steer and influence “strategy making”: • Influence managers in the business unit • Determine key mechanisms (planning procedures, hurdle rates, control processes, organisational processes) • Develop culture in which business units propose and implement strategy.

6. How does it happen? Formal Strategic Planning Process OpportunisticProcess And/Or • Set calendar • Links corporate and BU strategic plans • Linked to planning and budgeting cycle • One-off event or process • Possibly triggered by internal or external changes • Could be managed internally, or draw on external help • May or may not be linked to planning and budgeting

7. What does it look like? It’s very Varied Centre very involved in BU strategies Centre very detached Elaborate planning systems No planning systems Strategic discussions very structured and formal Strategy discussions ad hoc and informal Centre initiates and executes acquisitions Centre reacts to BU acquisition proposals etc

8. What are the pitfalls? Pitfall Definition Habits of Mind Tunnel vision, blindspots, or enthusiasms about the right strategy Barons Senior group executives fight to build up their own territories with little regard for the corporate interest Interference Corporate influence over business unit strategies seen as arbitrary, unpredictable, indiscriminate or uninformed Exercise in Cleverness Fall into an adversarial mode in which corporate and business levels try to score points off each other Bureaucracy Seen as a planning exercise, a repetitive annual event that adds little value Hockey-sticks Over-optimistic projections which reduce the value, and credibility of planning and control Lip Service Disconnect between strategic goals and what really influences promotion and financial rewards—people pay lip-service to the strategy Control Games Control objectives can become ends in themselves and gamesmanship to meet defined targets can damage long term business health Moving the Goalposts Shifting strategic objectives “Yes, Chairman” Studies arrive at conclusions that already enjoyed wide support in the business Strategy and Inaction Communication and consensus-building is not an integral part of the strategic decision making process Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987.

9. Evolving Ideas on What “Good” Looks Like

10. This section is a “potted history” of ideas about “good” strategic management Hamel Hax and Majluf Markides Goold & Campbell Kaplan & Norton Mintzberg Gratton 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 T H E M E S Structure and roles. Formalised planning process. A “looser” role for strategic planning. How to operationalise strategy. Be creative.Be different.“People” focus.

11. GOOLD & CAMPBELL Goold and Campbell tried to describe the best role for the corporate centre • How the centre should add value to the businesses. • What sort of relationship it should have with business unit managers. • How it should manage the process for making strategic decisions. But they found no “ right answer”—no single, universal to good strategic management. Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Goold & Campbell identified 8 strategic management styles, of which the above 3 were the most commonly used.

12. GOOLD & CAMPBELL Instead they found different—but valid—strategic management styles Framework to Describe Strategic Management Styles High Centralised Planning Influence • Degree to which centre shapes strategies • Measure of top-down involvement • About input to decision Strategic planning Strategic programming 8 different strategic management styles Strategic venturing Strategic control Financial programming Holding company Financial control Low Flexible Strategic Tight Strategic Tight Financial Control Influence • Targets the centre agrees with BUs • How centre reacts to results • About outputs of decisions Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Goold & Campbell identified 8 strategic management styles, of which the above 3 were the most commonly used.

13. GOOLD & CAMPBELL The three most common styles were “strategic planning”, “strategic control” and “financial control” Strategic Management Style Strategic Planning Strategic Control Financial Control Management Approach • The centre: • Establishes extensive planning process. • Makes major contributions to strategic thinking. • May have a corporate strategy guiding BUs. • Less attention devoted to control targets. A variation on the Strategic Planning style. Centre prefers to leave initiative in development of plans to BU managers. Centre “checks quality” of plans, rather than provides direction. Targets set for strategic objectives (e.g. market share) as well as financial performance. Centre’s influence exercised mainly through budgeting process. Broad strategic direction left to the business units. Company Examples BOC BP Cadbury Schweppes Courtaulds ICI BTR GEC Hanson Trust Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Goold & Campbell identified 8 strategic management styles, of which the above 3 were the most commonly used.

14. GOOLD & CAMPBELL Successful companies matched their strategic management style to the business circumstances Characteristics of Companies with successful decision-making process Diagnostic to help making strategic management style to business circumstances Match strategic management style to the business circumstances Central managers close enough to each business to be able to add value A free and open exchange of information and views between the centre and business units Shared commitment, energy and purpose between all levels of management. • Nature of the business: • Diversity of the business portfolio, and linkages between business units • Size and payback of investments • Stability of the competitive battle facing the business • Resources in the organisation: • Personality of the Chief Executive • Skills and experience of senior managers • Degree of financial stress on the organisation. Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Goold & Campbell identified 8 strategic management styles, of which the above 3 were the most commonly used.

15. HAX AND MAJLUF Hax and Majluf focused on the process to develop a strategic plan They outlined two Major Cycles in the Strategic Planning Process Strategic Formulation Strategic & Operational Budgeting Corporate Corporate Business Business Functional Functional Source: A.C. Hax, N.S. Majluf: “The Strategy Concept and Process, A Pragmatic Approach,” 1996.

16. HAX AND MAJLUF They prescribed the whole strategic planning process through to detailed budgets Planning Perspectives Strategy Formulation Strategic and Operational Budgeting Corporate Strategy Internal Scrutiny Environmental Scan • Horizontal Strategy and Vertical Integration Revisited • Resource Allocation and Portfolio Management • Budgeting guidelines Budgeting Consolidation and Approval Corporate Strategic Thrusts and Performance Objectives Business Strategy Mission Business Budgeting Internal Scrutiny Environmental Scan Proposed Strategy, Programs, and Budgets Functional Strategy Functional Budgeting Internal Scrutiny Environmental Scan Proposed Strategy, Programs, and Budgets Source: A.C. Hax, N.S. Majluf: “The Strategy Concept and Process, A Pragmatic Approach”, 1996.

17. HAX & MAJLUF In this view, “good” strategic management involves following a disciplined process • Same process regardless of the company’s business circumstances • Strong focus on rational dimension, and data-driven approach • Although prescriptive, probably reflects key elements of many strategic management processes: • Strategy cycle feeding in to planning and budgeting cycle • Top-down and bottom-up iterations • Corporate, business and functional dimension to strategy making and planning and budgeting. Source: Michael Goold and Andrew Campbell, “Strategies and Styles,” 1987.

18. MINTZBERG Mintzberg puts forward a very different view about “good” strategy making and “good” strategic planning Deliberate Strategy Emergent Strategy Realisation of the strategy matches the intended course of action Planned strategy Strategy developed in a formalised process Essence of strategy formulation = analysis Provides the organisation with a sense of purposeful direction. • The strategy is identified from patterns of consistencies deserved in past behaviour - despite, or in the absence of, intention • Strategy develops inadvertently: • Without conscious intention of senior management • Often through a process of learning • Synthesis of past and current behaviour • Essence of strategy formulation = creative act of synthesising experiences into a novel strategy. Source: Henry Mintzberg, “The Fall and Rise of Strategic Planning”, Harvard Business Review, Jan–Feb.1994.

19. Strategy making needs to function beyond the boxes: Understand the difference between strategic planning and thinking Strategic thinking involves intuition and creativity. Strategies often cannot be developed on schedule and immaculately conceived: Must be free to appear at any time and at any place in the organisation Typically through messy processes at informal learning By people at various levels who are deeply involved with the specific issues at large. MINTZBERG For Mintzberg, successful strategy making is looser, messier, and more creative than “conventional” planning Search all those strategic planning diagrams, all those interconnected boxes that supposedly give you strategies, and nowhere will you find a single one that explains the creative act of synthesising experiences into novel strategies Source: Henry Mintzberg, “The Fall and Rise of Strategic Planning”, Harvard Business Review, Jan–Feb.1994.

20. MINTZBERG Role Specifics Strategic Planning Codify - clarify and express - the strategies in terms sufficiently clear to make them fully operational. Elaborate them into sub-strategies, ad hoc programmes, and action plans. Convert them - e.g. consider their effects on budgets and performance controls. He saw five roles for strategic planners Communication & Control Communicate strategic intentions - via programmes, schedules, budgets Control pursuit of them Gain support of influential outsiders Finding Strategy Help managers find fledgling strategies: Find patterns Discover new ways of doing or perceiving things Analysis Analyse specific issues Provide simple, alternative conceptual interpretations of the world Catalyst Encourage managers to think about the future in creative ways Get others to question conventional wisdom, and help people out of conceptual ruts. Source: Henry Mintzberg, “The Fall and Rise of Strategic Planning”, Harvard Business Review, Jan–Feb.1994.

21. KAPLAN & NORTON Kaplan and Norton—in the 90s—shifted the focus to operationalising the strategy • Kaplan and Norton, like others, linked shareholder value creation to strategy to tangible measurable performance at a grass roots level • Their unique insight was to balance the financial perspective against a customer perspective, an internal business perspective, and an innovation and growth perspective • Power of approach is in integration: • Links strategy to shareholder value creation through an integrated set of specific objectives with clearly-defined measures • Enables strategic goals to be translated into achievable, measurable objectives throughout an organisation. Source: Robert S Kaplan and David P Norton, “The Balanced Scorecard, Translating Strategy Into Action”, 1996.

22. KAPLAN & NORTON In 2001, Kaplan and Norton broadened the role of the Scorecard to encompass mobilising and engaging people • The new scorecard has a stronger mobilisation focus: • Provides a mechanism for integrating the efforts of the whole organisation, involving all employees in the strategy discussion • Provides continuous feedback or the effectiveness of the strategy • Mobilises change through executive leadership • The most important broadening of the role is in the concept of the strategy map: • Provides the primary basis for conceptionalising how the strategy works • Maps all the underlying dynamics through which strategy drives performance • The strategy map is a visual tool to link the scorecard’s financial perspective with new, broader customer, internal and learning and growth perspectives: • Customer perspective - defines the customer value proposition that will deliver the financial performance • Internal perspective - outlines how internal operations and innovation will create customer value • Learning and growth perspectives show how to develop internal capabilities that the internal processes need. Source: Robert S Kaplan and David P Norton, “The Strategy-Focused Organisation: How Balanced Scorecard companies thrive in the new business environment.”

23. HAMEL Hamel’s most recent view is “good” strategy making is about “information” and “revolution” Key themes: • Today’s business environment is in an ‘age of revolution’ • The status quo is doomed - the only chance for survival is innovation: • Business concept innovation • Innovation that changes the bases of competition in an industry • Call to create permanent revolution: • Continually challenge, refresh and overturn prevailing mindsets in an industry. Too influenced by the dot.com bubble? Source: Gary Hamel, “Leading the Revolution”, 2000.

24. MARKIDES Markides’ view is also about innovation—“good” strategy making is about thinking and being different Key themes: • Companies need to continually explore new opportunities for strategic innovation • Strategy innovation is about exploiting unique strategic positions. To do this companies need to answer some basic questions: • What business are we in? • Who are our customers? What will we offer them? • How will we do this efficiently? • What kind of organisation do we need to support our choices? • Unusual success in business derives from doing unusual things • The essence of strategy and competitive advantage is not doing the same things as your successful competitors, but doing it differently. Source: Constantinos Markides. “All the Right Moves”, 2000.

25. GRATTON And Gratton’s perspective is that “good” strategy making is about capturing the emotional commitment of people Key themes: • A company’s capacity to perform is dependent on its ability to: • Capture the emotional commitment of its members, and • Integrate this commitment into complex modem of co-operation and collaboration • Gratton proposes humanistic and action-orientated view of organisations: • Humanistic : corporations are social entities that provide meaning and purpose for people • Action-orientated : Companies exist not for the development of their employees, but to perform business tasks and deliver on business goals • Companies that successfully bridge those two ideas can enhance organisational performance • Gratton provides a six-step management process to link the nature and aspiration of human beings with the performance of the organisation. Source: Lynda Gratin, “Living Strategies: Putting People at the Heart of Corporate Purpose”, 2000

26. So, “good” strategy making (from corporate view) is about . . . Emerging Themes . . . horses for courses (specific to each company) Situational Strategic Management Styles . . . following a disciplined, formal process A Formal Process . . . “between the boxes” stuff (creativity, learning) Fresh Creative Thinking/Ideas . . . operationalising the strategy Operationalising the Strategy . . . mobilisation Being Different . . . innovation . . . revolution Buy-in and Mobilisation . . . being different, being unusual . . . capturing the emotional commitment of people

27. Implementing Strategic Intent • Mintzberg’s Three Step Operation • Balanced Scorecard • Business Management Process

28. STRATEGIC IMPLEMENTATION High Unfulfilled vision Challengingvision No vision Pedestrianvision OperationalEngine Strategy Pace Power of Strategy Low Low High Power of Delivery Method Having decided one’s strategy, implementing strategic intent is essential for operational reality to follow Turning Vision into Reality A powerful business strategy needs to be matched by a powerful delivery mechanism in order to turn vision into reality • The tools to develop an appropriate organisational strategy for change are well proven • However many businesses fail to deliver the strategy they develop • Usually the fundamental business management process is at fault – the bridge between strategy and operation is not functioning • Various models exist to ensure the machinery between strategy and operational engine are effective: • Mintzberg’s three step operation • Balanced scorecard • Business management process. To exploit an organisation’s capability and potential, the power of its strategy needs to be matched by the power of its delivery mechanism and pace of implementation. Source: Alan Meeking, Business Strategy Review, Winter 1994.

29. STRATEGIC IMPLEMENTATION: MINTZBERG’S THREE STEP OPERATION Strategic planning must be differentiated from strategic thinking Strategic Planning Overview What is Strategic Planning? Strategic Planning Issues • Many companies have a problem with the actual planning system. It often breaks down because of faulty preparation and implementation • Line managers not involved • Business units not designed correctly • Action steps not defined in detail • Strategic plans not integrated with other organisational controls like budgeting • Objectives not defined properly by top management • However, the “how to do it” in practice varies significantly between companies – there is no one “right” solution. Strategic planning is defined as “the process by which an organisation envisions its future and develops the necessary procedures and operations to achieve the future… it requires the clear setting of goals and objectives which provide the organisation with its core priorities and a set of guidelines for virtually all day-to-day managerial decisions” It is a structured process that organises and co-ordinates activities of managers who do the planning. What is Strategic Thinking? This is the creation of new business strategies in either a formal or informal setting. Source: “The Fall and Rise of Strategic Planning”, Henry Mintzberg, HBR, Jan-Feb 1994.

30. STRATEGIC IMPLEMENTATION: MINTZBERG’S THREE STEP OPERATION Strategic planning can be used to programme and operationalise a company’s strategies in three steps Codification Elaboration Conversion Strategies must be clarified and expressed in terms sufficiently clear to render them formally operational, so their consequences can be worked out in detail Care and attention to detail is essential so as not to lose nuance and subtlety E.g. A broad vision like “capturing the market for a new technology” is very different from a specific plan to “increase market share to 35%, focusing on the high end”. Codified strategies need to be broken down into substrategies and adhoc programs as well as overall action plans specifying what must be done to realise each strategy E.g. Build four new factories and hire 200 new workers. Consider the effects of changes on the organisation’s operations e.g effects on budgets and performance controls Objectives need to be restated and budgets reworked, policies and standard operating procedures reconsidered to take into account the consequences of the specific changes. Co-ordination of strategy and formalisation into an operational plan. Programing of strategy in this way will also gain the tangible as well as moral support of influential outsiders such as financiers, suppliers and governmental agencies. Source: “The Fall and Rise of Strategic Planning”, Henry Mintzberg, HBR, Jan-Feb 1994.

31. STRATEGIC IMPLEMENTATION: BALANCED SCORECARD The balanced scorecard facilitates the development of strategic planning through to an operational plan • The four management processes on the scorecard separately, and in combination, contribute to the linking of long-term strategic objectives with short-term actions. Managing Strategy: Four Processes Translating the vision • Clarifying the vision • Gaining consensus Communicating and linking • Communicating and educating • Setting goals • Linking rewards to performance measures BalancedScorecard Feedback and learning • Articulating the shared vision • Supplying strategic feedback • Facilitating strategy review and learning Business planning • Setting targets • Aligning strategic initiatives • Allocating resources • Establishing milestones Source: “Using the Balanced Scorecard as a Strategic Management System”, Kaplan and Norton, HBR, Jan-Feb 1996.

32. STRATEGIC IMPLEMENTATION: BALANCED SCORECARD The balanced scorecard facilitates the development of strategic planning through to an operational plan Business Planning Communicating and Linking Translating the Vision Feedback and Learning Almost all organisations are implementing a variety of change programs. Managers have difficulty integrating diverse initiatives to achieve their strategic goals, leading to frequent disappointment When managers use the ambitious goals for balanced scorecard measures as the basis for allocating resources and setting priorities, they undertake only the initiatives that help achieve their long term strategies. • Lets managers communicate their strategy up and down the organisation and links it to departmental and individual objectives • E.g An oil company uses the scorecard as the basis of calculating incentive compensation. • Traditionally departments are evaluated by their financial performance and individual incentives are tied to short term financial goals • The scorecard gives managers a way of ensuring that all levels of the organisation understand the long term strategy. Helps managers build a consensus around the organisation’s vision and strategy, in order for people to act on becoming “best in class”, “number one supplier”. Statements must then be translated into operational terms that provide useful guides to action at the local level. Existing feedback and review tends to focus on whether company/department/ employees have met their budgeted goals With balanced scorecard a company can monitor short term results from three additional perspectives – customers, internal business processes and learning and growth – and evaluate strategy Strategies can therefore be modified to reflect real-time learning. Source: “Using the Balanced Scorecard as a Strategic Management System”, Kaplan and Norton, HBR, Jan-Feb 1996.

33. STRATEGIC IMPLEMENTATION: THE BUSINESS MANAGEMENT PROCESS 2 Key PerformanceIndicators Customer and Shareholder Needs 3 Strategic BusinessObjectives 1 PerformanceTargets StructuredReview 6 4 Gap Analysis 5 ImprovementInitiatives 7 Linkage The business management process is dynamic and is built up in stages The Business Management Process (BMP) Framework • The business management process is a framework to facilitate operationalisation of an organisation’s strategy • Its elements do not have to be implemented concurrently or in full to start producing an operational benefit and organisational learning • The framework is founded on the premise of Plan-Do-Review – new strategic objectives are set in the light of achievement and experience hence, institutionalising continuous improvement. Source: “Implementing Strategic Intent: The Power of an Effective Business Management Process”, Alan Meeking, Business Strategy Review, Vol. 5 No. 4.

34. STRATEGIC IMPLEMENTATION: THE BUSINESS MANAGEMENT PROCESS 2 3 1 6 4 5 7 The seven elements of the business management process allow incremental progress to be achieved and reviewed Business Management Process Framework 1. Strategic Business Objectives 2. Key Performance Indicators 3. Performance Targets Setting objectives based on needs of organisation’s primary stakeholders (customers and shareholders) Translating these needs into a limited number of strategic business objectives to be achieved in a given time period. Introducing a balanced set of KPIs related directly to the strategic business objectives linked top-to-bottom throughout the organisation and derived from the root causes and key drivers of operational and financial performance. Setting challenging targets against the KPIs as a spur to achievement and as a foundation for systematic progress review Targets must be cascaded throughout the organisation, broken down into sub-targets for shorter time windows and communicated visually. 4. Gap Analysis 5. Improvement Initiatives 6. Structured Review 7. Linkage Identifying the performance or capability gaps that must be closed in order to deliver the targeted performance levels, based on the premise that you cannot have a performance target without some concept of the means for its delivery. Developing a limited set of properly planned resources and managed improvement programs to close the gaps in performance or capability Identifying, prioritising merging and rationalising the large number of existing initiatives thereby releasing energy, resources and goodwill across the organisation. Implementing structured, simultaneous and interactive review of progress against both KPI targets and improvement initiatives KPIs are reviewed at an appropriate frequency Performance information is factual and is simply presented Focus is an action not on excuses Follow up is well planned and conspicuous. Replicating the basic BMP framework at each review level and connecting the organisation top-to-bottom through cascaded KPIs and structured review. The critical elements of this system are structured review and top-to-bottom linkage. Source: “Implementing Strategic Intent: The Power of an Effective Business Management Process”, Alan Meeking, Business Strategy Review, Vol. 5 No. 4.

35. STRATEGIC IMPLEMENTATION: THE BUSINESS MANAGEMENT PROCESS Improved performance using the business management process The Pull-Through Effect of KPIs and BMP Potential Pitfalls Reasons for BMPs Success • Barriers to change • Managerial frustration • Staff cynicism • Lack of resources • Lack of support from the top. Top-to-bottom attention is directed on achieving the organisation’s key objectives Shortfalls in performance are promptly and systematically addressed A continuous cycle of planning, objective-setting, achievement and review drives organisational learning and continuous improvement Activities not contributing to key business objectives are quickly identified and eliminated, releasing resources for more productive use. Business Need Customer driven businessprocess management and improvement Market-focusedbusiness strategy Implementation and Use of KPIs and BMP Cross functional collaboration and problemsolving EffectiveLeadership Management and supervisoryeffectiveness Critical Success Factors Support from the top Target the enthusiastic first External help in implementation to start the process off and move it to the point where improvement is self-sustaining. Involvement Teamwork Learning organisation Culturechange “The whole process gives a substantial boost to managerial productivity. Anything up to a 10-fold cut in unproductive meeting time is common place” Alan Meekings Source: “Implementing Strategic Intent: The Power of an Effective Business Management Process”, Alan Meeking, Business Strategy Review, Vol. 5 No. 4.