360° analysis

360° Strategy Analysis

 

In the world in which the ability to change is a key “engine of success” the shift from strategy into capability demands leadership, action planning, the ability to cope with pressure, uncertainty and a willingness to learn. Managing strategy is in essence managing change. Strategy is formulated at the top but executed from below all through to bottom. Thus it must be able to mobilise all resources and provide clear goals in order to secure successful execution. It becomes execution ready only when it is hard-wired into management processes and employees of the organisation and the best way to achieve it is to develop and implement a bridge of strategy execution capabilities which can provide efficient two-way traffic between strategy formulation and operations. Take it as a set of all decisions and activities needed to produce results within the context of implemented strategy. It bridges the gap between brilliant strategies and superior performance.

Both strategy and operations can be developed and excelled on their own but only in synergy they create superior value to stakeholders. You may heard about companies where strategy planning is isolated at head office but, in reality, operation executives steer the business. Or when strategy guys bypass operations management and give direct orders to frontmen. Sounds familiar? So many companies developed great strategies but failed to execute them profitably. On the other hand, even more use ‘simple’ strategies but instead focus on channelling them down the organisation in effective way to deliver clear vision, mission, objectives and goals to each unit of operation. These companies often achieve better results and operate at lower vulnerability and risk.

A bridge that reaches out of strategy toward operations is a set of specific internal processes, procedures, capabilities and company culture that I call execution. As it reaches out of strategy it should be consider as an extension of strategy framework. However strategy execution can be screened, described, measured, analysed and improved separately.

Although strategy formulation defines products, markets, business model and objectives, in most instances it is not the immediate cause for good or poor business results. If your company is in trouble right now, even if you see true indicators that your strategy falls behind times and competition, I would still suggest that you start from analysing your strategy execution and/or operations first as you might get short-term problems solved at this stage. Certainly, quick fixes in sales incentives, debtors management or production costs could turn your cash flow from red to black. Even if strategy re-formulation is inevitable these findings provide for better understanding which strategic capabilities fell behind and need upgrade.

My understanding of the relationship between strategy, execution and operations as described above defines the procedure which I follow in my 360° business analysis. In practice, it would be a huge and probably time and money wasting job to look at all three segments at the same time i.e. analysing strategy formulation, execution and operations simultaneously. Thus I always start with the Orientation phase which provides me with a direction toward a next step, being it strategy and execution exercise or operations analysis only. During any of these analysis I uncover strengths, weaknesses, opportunities and threats in layers and deliver packets of information to client. It allows decision makers to digest (bad) news gradually however always remaining in drive seat regarding next steps, choices and expenditure.

In the following text I will describe the strategy route i.e. 360° Strategy Analysis, starting with the Orientation and followed by Strategy Execution and Strategy Formulation phases.

 

Phase one – ORIENTATION

 

I normally start with existing strategy documents – mission, vision and strategy formulation – focusing on objectives and measurable goals. Only then I proceed with accounts as those are only the outcome. I will compare strategy objectives and goals with data from financial and management accounts for the past three to five years. If no formal strategy is available (which is often the case with SMEs) I would still need to get its traces from interviews with owners and managers. Besides establishing if a company followed clear direction in the past and how successful it was at that, the accounts usually point to weak business areas. Trends and ratios are very useful here. Look both at revenue and cost items. However, this won’t uncover reasons for bad or good performance. It will only define areas for further investigation in phases that follow.

Brief interviews with senior managers/executives will provide opportunity for asking questions about each suspicious area, being either strategy misalignment or inefficiency. Managers must tell which product and/or service lines are on offer to which markets and customer segments. Don’t forget to ask about competitors as these can be used for performance benchmarking later. This should be enough information to start your office research. Look for market reports, industry case studies, competitor performance and offers. Prepare initial review and comparisons i.e. try to highlight areas of underperformance or those which differ from either local, regional or global competitors or practices significantly. Always try to link cause and effect. In a final stage of Orientation I will conduct a second round of interviews with key executives (or a workshop with all senior managers) to present, discuss and clarify these high-level findings and ask questions raised during my office research.

The objectives for this phase are: (1) perform high level screening, (2) establish a need for urgent action if the findings point to that, and (3) define a scope for next phase(s). Depending on the Orientation phase outcome the next step could be Strategy Formulation Analysis or Strategy Formulation and Execution Analysis or Operations Analysis only. The objective of this phase is not to provide reasons for unsatisfactory performance. The following phases will address that.

 

Phase two – STRATEGY EXECUTION ANALYSIS

 

The process of strategy execution must be dynamic and adaptive, responding to unanticipated events. Execution requires involvement at all levels of your organisation. The notion that higher executives (owners) can pass execution to the lower levels is simply false. “Let the grunts handle implementation” is a formula for certain failure. Experience shows that relatively few major initiatives are executed well for reasons that vary from getting too many people involved to creating a process that takes too long. Other factors that hamper execution are poor communication, spotty information sharing, weak organisational structure, bad coordination, undefined accountability and responsibility, and a culture that doesn’t adapt well to change.

In order to analyse strategy execution practice in an organisation we must first brake it into elements and define key attributes and best practice for each one. This will provide us with benchmarks which can then be used for assessment. Based on 30 years of experience, of which 16 in management consulting, I compiled a list of eight essential elements of efficient strategy execution framework. As I wrote at the beginning of this article, change is constant and inevitable. Best practice today is not the best practice of tomorrow. Although my selection of elements may stand for a long period, best practice for each one must be subject to constant upgrades.

 

strategy-execution-framework-sera

 

Strategy Execution Framework

 

  1.  EXECUTABILITY. Strategy must be executable in a sense that it can be expressed in operational terms and implemented to the bottom of pyramid where it turns into operational activities. Senior managers must be clear with company’s goals, objectives and chosen strategies in order to create an organised system. Their role is to clearly articulate strategy and specify goals for each team and individual and to establish the appropriate governance procedure for the business.

In order to sustain the performance of an organisation over time, two ingredients are required:

a)   Everyone must understand the strategy and tailor own activities and behaviour accordingly;

b)   The governance process must be linked to strategy.

  1.  PROCESS ORIENTED LEADERSHIP. Corporate management must be taken in a form of process. Management-process-oriented leadership utilise a range of processes that enable people to move more readily from the one level to the next. A properly implemented organising process should result in a work environment where all team members become aware of their responsibilities and goals. If the organising process is not conducted well, the results may yield confusion, frustration, loss of efficiency and limited effectiveness. Otherwise, it will lead to high performance.
  1.  CUSTOMER FOCUSED COLLABORATIVE PERFORMANCE CULTURE. Management process must concentrate on aligning all aspects of business with the wishes and needs of their clients. This is a comprehensive management approach that promotes business effectiveness and efficiency while at the same time fighting for innovation, flexibility and integration with technology. It allows organisation to be more efficient, more effective and more capable of change which is different from traditional hierarchical management approach that relies on functional parts.
  1.  ENGAGED HUMAN CAPITAL. Employees’ talent, speed of response, shared mind set, individual accountability and opportunity, learning and innovation skills must be at the level when they act as enablers to strategy execution and not its obstacles. As the share of intellectual capital in total assets of many companies grew, the capability of human resources has become an important indicator of sustainable market advantage. This advantage is achieved through the development of human capital – their talent, speed of response, free exchange of ideas, individual responsibility and opportunity to learn, innovate and add value to organisation. Human capital is the key element in the process of value creation and functions as a strategic lever to companies.
  1. DECISION AND INFORMATION MANAGEMENT. Information management must provide necessary support to key business processes for timely and informed decision making. It is much more than just technology. It is about the business processes and practices that underpin the creation and use of information. This is why information management covers people, processes, technology and content. Speaking in terms of technology, information management encompasses systems such as web content management, document management, records management, digital asset management, learning management systems, learning content management systems, collaboration, enterprise search and many more.
  1.  RISK MANAGEMENT.Risk management has long been a key part of project management, but in recent years, it has become an increasingly important part of organisational best practices. Corporations have realised that effective risk management can not only reduce the negative impact of crises; it can provide real benefits and cost savings. It must follow the effective process for ongoing identification, assessment and management of strategic business risks related to industry, technology, brand, competitors, customers, projects, economic stagnation and geopolitical change. It is a process of planning, organising, leading, and controlling the activities of an organisation in order to minimise the effects of risk on organisation’s capital and earnings.
  1.  CUSTOMER IMPELLED REVENUE. Organisations want customers they can build sustainable, profitable relationships with in order to boost revenues. That means they need better understanding of the market; better understanding of customer needs; better, more targeted propositions and better understanding of their investment in marketing. Thus sales organisation must focus on revenue generating elements and revenue enablers at all time. Generating revenue is always on the CEO’s agenda. Irrespective of what survey or market analysis you look at, growing revenue is one of the top three – if not the number one – priorities of all commercial organisations. It is the lifeblood of any business. Without bucks flowing in, it is impossible to pay employees, suppliers or vendors.
  1.  CORPORATE SOCIAL RESPONSIBILITY (CSR). CSR is the process of assessing an organisation’s impact on society and evaluating its responsibilities. In the same time it is a measure of acceptance of the company by society. It is about considering the whole picture, from your internal processes to your clients, taking in every step that your business takes during day-to-day operations. It is much more than environmental responsibility or having a recycling policy. Successful CSR initiatives take organisations beyond compliance with legislation and lead them to honour ethical values and respect people, communities and the natural environment. CSR is sustainable – involving activities that your organisation can maintain without adversely affecting its business goals. Thus it must be part of strategy itself – not only in formulation but measures must be agreed, reported and actioned upon regularly.

 

Strategy Execution Readiness Assessment (SERA)

 

Before moving onto the in-depth analysis of strategy execution framework my usual practice is to conduct a self-assessment questionnaire with senior managers first. I use my own diagnostic tool developed some 10 years ago for identifying ineffective parts of company’s strategy execution practices. Being a self-assessment tool which only measures perceptions prevents me in making immediate conclusions with confidence. Although these findings still need to be clarified during a hands-on exercise they provide direction and good indication of the situation. The questionnaire compares one’s management practice with the world best and contains about 180 mostly rating scale questions. It is placed on-line and takes 30-45 minutes to complete. Currently available in English and Serbo-Croat.

By answering my questions managers provide a comprehensive set of data enabling me to pull it together and understand the gap between company’s current management capability and its required capability i.e. the one which is necessary to reach goals as set in their own strategy formulation documents on one side and the gap between currently required capability and its full potential on other side. After identifying and quantifying those gaps the tool will give me an estimate of the change effort needed to bridge each one.

The tool is intended for medium to large organisations. It can be used as a stand-alone tool or together with in-depth analysis for clarification and revealing details. The report will help you gauge – and ultimately boost – your organisation’s intangible value by helping a management team to (only) cover the ground they need to cover.

sera-question-design

 

Strategy Execution Capability Audit

 

Strategy execution is demonstrated through company’s practices, processes, procedures and culture, particularly the extent of drive for performance and readiness for change. By following this path within a context of strategy execution framework I can draw a detailed picture of company’s strategy execution capability.

My methodology consists of on line questionnaires, interviews with middle managers, process owners and selected team leaders, decision-to-execution-to-review-to-corrective action business process mapping in each area, accounts screening, CSR and customer satisfaction records screening.

Besides SERA I use Human Capital Readiness Assessment (HCRA) as another proprietary tool designed some years ago and used in Southern Africa and Balkans. It is an on-line questionnaire for employees measuring performance and change enablers. In essence, it has been designed to quantify “results orientation” and “performance potential” of human capital on one side and their “readiness for change” on other.

When it comes to business process mapping I use the variety of techniques including interviews with key employees, business information systems and information flow tracking, document flow tracking, meetings observation, decision-making and risk assessment protocols.

I will use past company records regarding customer satisfaction such as surveys, customer complaints, credit note issues, own service records etc. In case of B2B I may send additional on-line survey to key clients.

Within a context of strategy execution framework my report uncovers process weaknesses, poor practice and/or procedures and weak culture which directly contribute to failed strategy transfer and poor results.

 

Phase three – STRATEGY FORMULATION ANALYSIS

 

Strategy can neither be formulated nor adjusted to changing circumstances without a process of strategy analysis and evaluation. It is an attempt to look beyond the obvious facts regarding the short-term health of a business and appraise instead those more fundamental factors and trends that govern success in the chosen field of endeavour.

Strategic analysis is concerned with understanding the relationship between the different forces affecting the organisation (e.g. Michael Porter’s Five Forces). It may be that the environment exercises severe constrains or yields potential opportunities and thus needs to be understood. It may be that the firm has particular competences on which it can build, or that it needs to develop these. It may be that the expectations and objectives of stakeholders who influence the organization or the culture of the organization play an important role in determining the strategy.

One should consider a context in which company operates before finalising a plan for analysis. Look at current business model, strategy, structure, industry, location(s), size and life cycle stage. For example, a company may only act locally or it operates internationally. Manufacturing may be geographically diversified or at single location. Is the business capital intensive or labour intensive or both? If a company is in a growth phase, where the finance comes from – from own positive cash flow, banks or shareholders? In essence, what are the key strategic influencers and risk factors for business to succeed? Answers to these questions will define my plan and a list of tools to be utilized on analysis. The pool consists of, but not limited to, SWOT (strengths, weaknesses, opportunities and threats), PEST (political, economic, social and technological), BCG (Boston Consulting Group) matrix, Porter’s diamond and value chain, benchmarking and competitive profile model.

Products, brands, markets and customers will certainly be part of assignment. For example, when analysing costs and prices I may use the experience curve, a graph showing the decline in a company’s or an industry’s costs or prices as a function of accumulated experience. Or when looking into markets and customers it is all about you versus competitors. Market size and share are essentials as well as customers’ potential (customer segmentation, needs, behaviour and buying power for each segment).

Bottom line is to evaluate how good is the fit between current strategy formulation and both internal and external forces that define company’s might. The report will use pro and contra arguments to point to alternative strategies.

You can now download this methodology in a .pdf document! Before you do this please complete a short survey. Download button can be found below.

 

 

button-english

3 responses to this post.

  1. Dear Alex, I am working on my thesis and find all your articles very interesting. I wish to know more about the methodology that you are using to assess firm’s performance during the restructuring process, and whether there is a training curriculum available for our pre-MBA students. Looking forward…

    Reply

  2. Hi
    These articles have foundation in 15 years of my management consulting experience and numerous hours of seeking extra knowledge from Internet, management books and magazines.
    Three articles on my site relate to your inquiry (360 analysis, Restructuring and Strategy Execution Readiness Assessment) and I believe you’ve already read them.
    Unfortunately I don’t have any training manual on this subject. However I recommend searching McKinsey Quarterly and HBR articles.
    Good luck,
    Alex

    Reply

  3. Dear Alex,
    Thank you for your reply. I have some material from my course Business Strategy, MarkStrat, and Technology and Innovation which I just attended, and will try to research on McKinsey and HBR. BR, Anh Tho

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: