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How Effective is Your Implementation of Your Strategy?

July 2011

We recently discovered one of those book gems. Small and concise, with wonderful simple, crisp, informative writing. The book is called “Seven Strategy Questions” by Robert Simons, published by Harvard Business Press, 2010. Just asking seven questions of your strategy can help you quickly identify whether you are on the right track, or where there are gaps.

The seven questions with their follow-up questions are:

  1.  Who is your primary customer?

    • Does everyone know what your primary customer values are?

    • How have you organised to deliver maximum value to your customer?

    • Have you minimised resources spent on shared services and other functions not directly associated with delivering to a customer?

  2. How do your core values prioritise shareholders, employees and customers?

    • What tough decisions have been guided by your core values?

    • Do your core values recognise your business’s responsibility to others?

    • Is everyone committed to your core values?

  3. What critical performance variables are you tracking?

    • What is the theory of value creation?

    • What could cause your strategy to fail?

    • How do you create accountability for performance?

  4. What strategic boundaries have you set?

    • What are your major reputation risks?

    • Does everyone know what actions are off-limits?

    • What strategic initiatives will you not support?

  5. How are you generating creative tension?

    • How are you motivating everyone to think like winning competitors?

    • How do you encourage innovation across units?

    • Have committees and dual reporting made your organisation too complex?

  6. How committed are your employees to helping each other?

    • What is your theory of motivation?

    • How are you creating shared responsibility for success?

    • How do your compensation policies affect commitment to help others?

  7. What strategic uncertainties keep you awake at night?

    • How do you focus everyone’s attention on these uncertainties?

    • What systems do you use interactively to stimulate change?

    • How do you encourage bottom-up information sharing?

In today’s world where there are so many options and choices, companies (here we include large, medium and small businesses) sometimes take what they think is the easiest route and try to be everything to everyone. No-one can achieve this. However, deciding what to offer and to whom, involves tough uncomfortable choices. We also often get caught up in jargon and the latest buzzwords and forget to go back to basic principles when reviewing the effectiveness of our companies.

Can you list on one hand:

Your primary customers?
Your core values? – (not your desired behaviours)
Your measures of success?

Or do you have a plethora of measurements, scorecards and spread sheets that make it easy for you to postpone having to make tough choices because you need to measure more?

The critical element of implementing your strategy effectively is to engage with your organisation. No-one can ever have all the answers all of the time. Your service technician is sometimes the first person aware of changes in your customer’s business; your employees can tell you how your company is perceived in the market – are there compliments passed around the braai or dinner table or are they too embarrassed to say where they work? So what are effective ways of engaging your organisation:

You must pose the questions face-to-face. Face-to-face communication is the most effective and powerful channel. It is also the one that is often neglected. How easy is it to just churn out e-mails and think you have done your job? Wrong. These e-mails are glanced at, ignored or just deleted. Face to face, people can see your eyes, your intent and passion. That’s also how trust is built.

Discussions must cascade downwards throughout the organisation. If your managers do not see communication/debate as part of their day-to-day job, then there will be a gap in understanding between management and employees.

The process must truly “engage” operating managers. This ensures that the people who actually run the business are involved, not high level theorising in an ivory tower.

Debate must be about what is right, not who is right. How often is the person with the loudest mouth, exuberant personality or a smart political player, the one that is listened to? When in fact, there are others who have greater insight, but are ignored. Rank, titles, office politics must be left outside. It is also important to ensure that people who speak uncomfortable truths are not punished. This shuts up everyone very quickly.

You must root every discussion in: “What are you going to do about it?” If action does not follow a discussion, then your company will end up wheel-spinning endlessly and people will just talk for the sake of talking.

Below is a more detailed explanation of each of the Seven Questions:

Who is your primary customer?

Up to 2003, McDonald’s clearly defined its primary customer as multisite real estate developers and franchise owners. The same menu was offered around the world and there were large centralised functions. However, in 2003, the same-store sales declined and growth was zero. The new CEO – Jim Cantalupo – made the call that the new primary customer was now the consumer. Regional managers were introduced to ensure that the tastes of specific areas were addressed. You can now get porridge for breakfast in a UK McDonald’s, or soup in a Portuguese one. As of January 2010, McDonald’s has delivered 81 consecutive months of increasing same-store sales!

When you are asked who your primary customer is, do you answer: “We have multiple customers?” If so, then you are spreading your resources across too many functions and units in an attempt to meet different customer needs. This doesn’t mean that your primary customer is only Company A – this is dangerous as you are putting all your eggs in one basket. It is rather a specific targeted market. Mary Kay Cosmetics defines its primary customer as the independent beauty consultants who contract with Mary Kay as sales agents.

Trying to please other parties can also dilute your focus. Amazon has two sources of income – direct-to-consumer sales and fees from independent retailers. These retailers now provide more than a third of Amazon’s revenue. Yet, Amazon has defined its primary customer as the consumer. This has created unhappiness with the retailers, some have even filed lawsuits to force Amazon to devote more resources to them, but Amazon has held firm. As a result, it has the highest customer-loyalty rating for any retailer in America.

Once you have defined who your primary customer is, you need to ensure that you and everyone in your company understands what that customer values – low price, customised service, world-class technology, etc. Of Proctor and Gamble’s executives, 70% spend several days at their primary customer – the consumer – eating meals and accompanying them on shopping trips in order to understand their needs and how they use P&G’s products.

Then you need to ask whether you have organised to deliver maximum value to your clients. Different customers require different organisation design. MasterCard has defined its primary customer as large global banks who value low prices. Hence, it has centralised its resources to maximise global efficiency and drive down costs. Visa on the other hand, has chosen regional banks with local preferences, hence it has organised its resources by region.

The final action is to ensure that you minimise resources on non-customer functions, i.e. staff functions. This is tricky – if you cut too much, it can be very detrimental, but if you spend too much, you are wasting money that you could be spending on your primary customer. You need to ensure that you measure the effectiveness and value produced by each staff function.

How do your core values prioritise shareholders, employees and customers?

Defining core values is not a “feel-good’ thing to do. It’s a critical business decision. When faced with critical decisions, which way do you turn? Which come first -shareholders, customers or employees? Your business needs to select one and this has to be consistent in every tough decision that you need to make. Each choice is based on a different value creation. The more decentralised you become, the greater the need to ensure that every employee understands the core values of the company. Core values are not integrity, teamwork etc. These are just behaviours.

When you are a pharmaceutical company that gets slightly bad results for a new drug, do you pull it or do you carry on measuring - hoping more stats will change the results? Are your core values to put customers first, and hence, at any sign of possible danger, you pull the drug, or do you put shareholders and profits first and continue with the drug?

Interestingly, Jack Welch used to profess shareholders as the primary value. He now says that it is the dumbest one to follow. Shareholder value is a result of putting employees, customers or products first.

What critical performance variables are you tracking?

If you are currently tracking a bunch of performance indicators that are not explicitly linked to your strategy, you will present people with a random list of measures that may, or may not make sense to them.

Scorecards with 30 to 60 measures can be created under the false assumption that more measures result in a more complete, i.e. better, scorecard. The more measures, the more attention managers have to spend on each measure and eventually there is a great opportunity cost that is lost. Rather focus your attention on seven things that result in far more effective implementation and action, than on 40 things with far less attention paid to each measure.

A question to ask instead of implementing “more measures”, are: “Where could our strategy fail?” List the top three. If these are not in your top 7 list, then you are not focusing on the right things. At Amazon, convenience for buyers tops its list of things that could cause strategy to fail. Hence, executive focus is on making it as easy as possible to purchase items.

What strategic boundaries have you set?

This is all about controlling strategic risk. Pressures caused by performance measures can result in people doing things that could compromise your business strategy, e.g. reducing quality to meet delivery targets. You must also ensure that people are not wasting time and resources on things that are not in line with your strategy.

There are two ways to control risk. You can tell people what they must do, or tell people what they cannot do. Think of the Ten Commandments. It’s all about setting boundaries and telling people what they cannot do. Telling people the limits of the boundaries of what they cannot do, frees them up to be creative and innovative within these boundaries.

Companies also need to learn to say no. Steve Jobs said that if Apple did not have the strength to say no to developing PDAs, which all of its competitors were doing, it would not have had the resources to create the iPad and look where that is today!
When boundaries are set, it is very important that they must be powered by punishment, rather than reward. If someone goes beyond the boundary they must be disciplined and fired if necessary.

How are you creating creative tension?

On November 5 1990, George Bush signed into law a new Tax Bill that put a 10% luxury tax levy on boats that sold for more than $100 000. As a result, boating company J Boats, who in 1990 sold more than 30 boats costing in excess of $100 000, sold only two in 1991. The company executive knew if they didn’t do something drastic, they would go under. They designed a new type of boat with a price tag of below $100 000. It was only when they were cornered that creativity flourished with the subsequent new design and concept.

If you shield your company and staff from the ever-prevalent competitive pressures, there will be very little innovation. Plus, the larger a company becomes, the more isolated people become from understanding their competitors. What is the race about in your company? Getting to the next level in the organisational structure or beating the competition in the marketplace? To spur innovation, we need to break comfortable habits, which we all fall into easily.

Stretch targets must also be set and realistic performance measurement scores must be provided. This does result in challenging conversations at times. But how many times have you heard of huge executive bonuses when the company has not been doing well? This is a company where this is very little respect for the leadership. Do you think people bring their creativity with them to work in such a company? No way, they leave it at the door. People like to know where they stand honestly.

Set the span of accountability for managers greater than their span of control. This is contrary to management theory, but does result in greater collaboration to find solutions to clients’ needs. For example, make the finance director accountable for customer satisfaction. They will be forced to have a broader picture of the company rather than just the Rands and cents! John Chambers, CEO of CISCO, requires the top 750 executives to spend 30% of their time on initiatives that are outside their primary job responsibilities.

How committed are your employees to helping each other?

Southwest Airlines has the fastest turnaround of any airline. This has resulted in it being one of the few companies that have grown consistently each year. One of the ways it achieves this quick turnaround time is that the pilots are responsible for helping the baggage handlers unload the mail and freight. Think of it, a pilot being a postman as well! This allows them to achieve a turnaround time of 15 minutes. Wouldn’t it be great if airlines in this country could achieve this?

Whereas, at Enron, traders had to lock their computer screens when they went to the bathroom so that others wouldn’t steal their trades! And where is Enron today?

Most companies are not built on self-interest, and hence people should only be rewarded for that in few unique instances, such as boutique investment houses. What is your theory of motivation? Is it that people are just driven solely by money (Theory X of Douglas McGregor – no relation I’m afraid) - or are they driven by more than money? Do they want meaning in what they do and a feeling of self worth? (Theory Y)

If people are proud of the vision of the company and its broader purpose, they will take shared responsibility for ensuring its goals are achieved. This includes helping others to succeed in their jobs, not the cutthroat world of Enron.

The one thing that causes any collaboration effort to fail is unfairness in reward. If there is not a fair and transparent reward system in place that rewards everyone in a high performing team, then there will not be a culture of collaboration.

What strategic uncertainties keep you awake at night?

One thing is a given. Today’s strategy won’t work tomorrow. Products become obsolete, new competitors appear on the market, customers’ needs change. The only unknown is how soon it will happen!

Any company must be able to adapt to change quickly and sustainably. To adapt successfully, companies must continually focus on the strategic uncertainties, i.e. what could change that would result in changing the original decisions used when designing your strategy.

These can be built into an interactive control system that is visible and watched constantly. The system needs four characteristics:

  1. Capture simple and “easy to understand” information

  2. Conduct face-to-face discussions between leaders, operating managers and employees

  3. Focus debate and discussions on strategic uncertainties

  4. Generate new action plans

Or

The Company should ask:

“What has changed, why, and what are we going to do about it?”