Evergreen Strategy
Moving from the Annual Planning
Exercise to Continuous Strategic Renewal
Alan Brache,
Director, Consulting Services
Mike Freedman,
Executive Vice President
and Partner
Does Strategy Still Make Sense?
Initiatives…are
aimless and
potentially
damaging if
they are not
guided by the
firm hand of an
organization
strategy.
Business strategy has emerged from the wilderness. During the late 1980s
and early 1990s, many executives believed that business conditions—
market needs and expectations, technology, deregulation, global
competition—were moving too fast for any strategy to survive until its ink
dried. They accurately perceived that the predominant strategy concepts
and methodologies, which had served them well in more stable times, did
not equip them to deal with the vagaries of a more dynamic environment.
During this period, executives and managers turned their attention to quality
improvement, cost reduction, and time compression. The primary tools that
were used to address these issues were Total Quality Management and
reengineering. The prevailing mentality at this time could be described as
“Where we’re headed is less important than our need to travel smoothly,
inexpensively, and quickly.”
Enlightened executives now realize that the successful resolution of quality,
cost, and time issues demands direction and context. Furthermore, they
recognize that improvements in these areas do not typically result in the
breakthroughs that, in Prahalad and Hamel’s words, “redefine your industry.”
Initiatives such as penetrating new markets, developing and introducing new
products, improving customer service, establishing alliances, and launching
electronic commerce are aimless and potentially damaging if they are not
guided by the firm hand of an organization strategy.
However, the concern that relegated strategy to the back burner was, and is,
valid. How can a strategy, any strategy, remain viable in a world that is
moving so quickly? To paraphrase Daryl Conner, how can we “strategize at
the speed of change”?
We can begin addressing this question by drawing a lesson from the quality
movement. W. Edwards Deming and others helped us understand that: 1)
quality had to be designed into, not inspected into, products and services;
and, 2) quality had to be deployed not as a program of projects, but as a
system of continuous improvement. Similarly, we can effectively respond to
the “Our situation is changing too fast for strategy to be meaningful”
objection if we: 1) weave strategy into the fabric of daily organization life;
and, 2) structure strategy as a continuous pursuit, not an annual exercise.
1
What Really is Strategy?
Communicating about strategy is difficult because the word is used to
describe so many different activities, many of which are tactical. People
produce documents containing what they call a marketing strategy, an
information technology strategy, a cost containment strategy, a human
resources strategy, and a facilities management strategy. Important as it is
that these activities have focus and direction, the content of these
documents is rarely consistent with our definition of “strategy.” Strategy—
whether it is for a corporation, a division, a region, or even a department—is
a set of decisions that reflect the nature and direction of the business. A
strategy answers the questions listed in Figure 1.
One of the reasons that many strategies are obsolete as soon as they are
printed is that they contain “how” decisions such as prices, marketing
activities, manufacturing practices, and software platforms. These choices
may require monthly or even weekly modification. These nine questions
focus on “what” and “why,” enabling an organization to reap the benefits of a
strategy with a longer shelf life.
Strategy—
whether it is for
a corporation, a
division, a
region, or even
a department—
is a set of
decisions that
reflect the
nature and
direction of the
business.
Figure 1: The Nine Strategic Choices
1. What are our fundamental values and beliefs?
2. What are our assumptions about the future?
3. What products/services will we and will we not offer?
4. What customer groups will we and will we not serve?
5. In what geographic areas will we and will we not
do business?
6. What products and markets represent our greatest
potential and require the most significant investment?
7. What competitive advantage(s) will enable us to
succeed?
8. What capabilities do we need to support our
competitive advantage(s)?
9. What financial and non-financial results will we
achieve?
2
What Factors Influence the Value of Strategy?
We have
learned that the
quality of
strategic
decisions is
only as good as
the information
upon which it is
based.
The hard work
and good
thinking…pay
only short-term
dividends if the
top team doesn’t
constantly
and proactively
refine the
strategy….
Our twenty years of helping executives forge and deploy their visions have
taught us that the factors that most influence strategy’s contribution to
organization health are: 1) the depth and breadth of the information upon
which strategic decisions are based; 2) the quality of the process by which
these decisions are made; 3) the design of the actions that will convert these
decisions into operational reality; 4) the effectiveness and efficiency with
which these actions are taken; and, 5) the efforts that ensure that the
strategy remains viable and is playing its intended role.
Figure 2: Kepner-Tregoe Strategy Formulation and Implementation
Phase 1:
Strategic
Intelligence
Gathering
and Analysis
Phase 2:
Strategy
Formulation
Phase 3:
Strategy
Implementation
Planning
Phase 4:
Strategy
Implementation
Phase 5:
Strategy
Monitoring
and
Updating
We have learned that the quality of strategic decisions is only as good as the
information upon which it is based. As presented in Figure 2, Phase 1—in
which an organization’s executives become aware of the present and likely
future condition of markets, competition, technology, regulation, and
economic conditions—provides the platform of understanding upon which
Phase 2 is built. In Phase 2, the top team makes the nine tough choices
listed in Figure 1. In Phase 3, the plan for strategy installation is developed.
In Phase 4, this plan is carried out. In Phase 5, ongoing assessment enables
mid-course corrections to be made to both the implementation effort and to
the strategy itself.
The hard work and good thinking in Phases 1–4 pay only short-term
dividends if the top team doesn’t constantly and proactively refine the
strategy to reflect the dynamics of the business environment. The role of
Phase 5 is to guarantee that this evolution takes place.
Figure 3: Five Strategy Renewal Questions
1. Is our strategy guiding the organization?
2. Are we successfully implementing our strategy?
3. Are our strategic assumptions valid?
4. Is our strategy viable?
5. How will we update our strategy to reflect today’s
reality?
3
Renewal Question 1:
Is our strategy guiding the organization?
To answer the first Phase 5 question—“Is our strategy guiding the
organization?”—you need to examine the directional choices that you and
others are making. Are your product development decisions, pricing
decisions, market research decisions, equipment purchase decisions,
outsourcing decisions, and hiring decisions consistent with the strategy?
Are they helping you institutionalize it?
If the answer to these questions is “no,” the cause is most likely a weakness
in your implementation. Decisions may not support the strategy because the
strategy isn’t understood or isn’t supported by resource allocation,
processes, or incentives. In Renewal Question 2, we will identify
opportunities to improve the implementation effort.
Many strategies
are gathering
dust not
because the top
team has failed
to intelligently
address these
questions but
because they
have not done
what is
necessary to
implement their
decisions.
In Phase 2 (Strategy Formulation), the top team of a financial services
company dealt directly with the unsuccessful diversification path it had been
following for almost ten years. They decided to cease their forays into real
estate, personal banking, and offshore banking and return to their roots in
savings, mortgages, and investments. However, communicating this more
focused direction was not enough. Across its network of hundreds of
branches, customer interface decisions—what business to accept, what to
reject, and what to refer—were continuously tracked against the criteria
documented in the strategy. When this monitoring surfaced a decision that
reflected the one-stop-shopping strategy of the past, the executives found
the cause and took corrective action.
The other possible reason that your strategy isn’t guiding the organization
could be that the strategy itself is flawed. Perhaps it isn’t specific enough to
guide decision making. Or, it may not square with market reality and people
are deliberately making decisions that reflect that reality. In response to
Renewal Questions 3 and 4, we identify opportunities to improve the
strategy.
Renewal Question 2:
Are we successfully implementing our strategy?
There are a number of strategy formulation models that help an
organization’s top team move from the lofty heights of missions and visions
to the difficult decisions demanded by the nine questions listed in Figure 1.
Many strategies are gathering dust not because the top team has failed to
intelligently address these questions but because they have not done what is
necessary to implement their decisions.
We have found that there are seven dimensions of successful strategy
implementation: 1) action planning; 2) communication; 3) infrastructure
development; 4) performance support; 5) issue resolution; 6) change
management; and, 7) project management.
4
Strategies, no
matter how
brilliant, don’t
spontaneously
drive
organizational
behavior.
Solid strategic
intelligence…
ensures that
these
assumptions
are
informationbased
projections
rather than
guesses or
dreams.
Strategies, no matter how brilliant, don’t spontaneously drive organizational
behavior. Successful deployment requires a comprehensive, detailed plan
(dimension #1). Even if the strategy is simple, the plan has to address: the
need of internal and external stakeholders to understand the direction (#2);
the need to ensure that processes, information systems, and policies
reinforce the strategy (#3); the need for skills, tools, and rewards to support
strategic contributions (#4); the need to solve strategic problems and make
strategic decisions (#5); and, the need to identify and overcome “soft”
(human, as opposed to system) barriers to implementation (#6).
To address the second Phase 5 question—“Are we successfully
implementing our strategy?”—you assess the quality of your work in Phases
3 and 4. A pivotal skill is project management (#7). Well-managed projects
are driven by metrics that enable you to determine if the breadth and depth
of your actions are appropriate (Are you, in fact, installing the strategy?),
within budget, and on schedule.
As a result of the impending privatization of the oil industry in a Latin
American country, a state oil company needed to take a radical turn from the
path it had been traveling. The cornerstones of the executives’ strategy were
a significant shift in market emphasis and a series of joint ventures. Their
“strategic project master plan” contained several hundred separate projects
that required contributions from hundreds of employees. The project
manager and his strategy implementation team used the project metrics as
the basis for continually monitoring results, reporting progress to top
management, and making adjustments to actions and resources.
Renewal Question 3:
Are our strategic assumptions valid?
Every strategy is based on a set of assumptions about the future. What do
you think your market will need? How do you see technology evolving? Do
you expect competition to proliferate or consolidate? What inflation rate do
you project? Solid strategic intelligence (Phase 1) ensures that these
assumptions are information-based projections rather than guesses or
dreams.
However, the clarity of any crystal ball is limited. The economic collapse of a
small country in our increasingly global economy, a step change in
technology, or a radical strategic move by a competitor may invalidate your
assumptions and, as a result, call your strategy into question.
As with Questions 1 and 2, the answer to Question 3—“Are our strategic
assumptions valid?”—must be supported by solid metrics. Each
assumption should have an indicator against which performance is tracked
and fed back to the top team. If your strategy is based on an assumption
5
about the unemployment rate, or trade policy, or semiconductor speed, or
clothing trends, you need a periodic reading of how closely reality is
matching that assumption.
A European post office established a strategy based on assumptions that
included:
• Courier companies’ range of services will expand, delivery times will
decrease, and prices will drop.
• The amount of communication that occurs through fax and e-mail will
increase dramatically.
• The government will privatize all or part of postal operations.
They continually monitored the environment in terms of these assumptions.
The first two stood the test of time. When it became clear that the third
assumption was no longer valid, it triggered a Strategy Update session in
which the strategy was reexamined and changed to support the current
assumption.
Renewal Question 4:
Is our strategy viable?
Perhaps you
are doing a
good job of
implementing
a strategy that
was logical
when you
established it
but is no longer
the best
prescription for
success.
Perhaps you have evidence that your strategy is guiding your choices. You
are satisfied with the results and pace of your implementation. Your
assumptions about the future appear to be holding up. Question 4—“Is our
strategy viable?”—asks if the strategy still makes sense. Perhaps you are
doing a good job of implementing a strategy that was logical when you
established it but is no longer the best prescription for success.
The primary viability assessment tool is a strong strategic measurement
system that includes: 1) a set of externally-focused metrics; and, 2) a
tracking mechanism that provides you with timely understanding of where
you stand in terms of those metrics. These metrics should include financial
indices like stock price, return on net assets, and operating profit. However,
the best sets of strategic metrics also include leading indicators like market
share, competitor price comparisons, and customer satisfaction feedback.
Kaplan and Norton’s concept of a multi-dimensional “balanced scorecard”
applies directly to strategy viability assessment.
We worked with a packaging company that also owned a paper mill. During
Strategy Formulation, the top team determined that the mill was not a core
part of their strategy. However, they would allow it to continue operating as
long as it met strict financial criteria and equaled or surpassed the price and
quality performance of alternative suppliers. After a period of time, mill
performance stopped meeting these tough-but-realistic targets, triggering a
Strategy Update session. During that session, the executives decided to sell
the mill.
6
Renewal Question 5:
How will we update our strategy to reflect today’s reality?
There are five Strategy Update triggers: 1) information that indicates that
your strategy is not working; 2) information that indicates that a key strategic
assumption is invalid; 3) information that indicates that your strategy is not
guiding day-to-day decisions; 4) information that indicates that you are
failing to implement your strategy; and, 5) a date.
Frequent
reexamination
of your strategy
is valuable,
even if you
make no
changes.
When addressing Question 5—“How will we update our strategy to reflect
today’s reality?”—you should avoid “jumping to cause” and “jumping to
action.” Your performance against the financial or non-financial strategic
metrics may be below expectations due to operational factors, not to a flaw
in the strategy. The fact that an assumption that underpins your strategy has
turned out to be untrue doesn’t mean that the strategy is invalid. If your
strategy isn’t guiding decisions or your implementation effort is
unsatisfactory, the shortcoming may be in your implementation capability,
not in the strategy. These four types of information should cause you to
assess the strategy. You may or may not change the strategy or its
implementation plan. This assessment and possible refinement or redirection
occurs in a Strategy Update session.
In some industries (e.g., petrochemical, pharmaceutical, power generation),
a strategy that doesn’t look at least five years into the future may not deal
effectively with business cycles, entry/exit barriers, regulatory approval
cycles, and product development/commercialization cycle times. In other
industries (e.g., toys, telecommunications, software), any strategic choices
intending to guide behavior three or more years from now would have to be
based on unsupportable assumptions. Regardless of the strategic time
horizon, the strategy should be reviewed well before its expiration. So, if
none of the four types of “things aren’t right” information stimulates an
earlier review, the top team should schedule a Strategy Update session after
a period of time. While an annual review cycle is normally appropriate, the
frequency of Strategy Updates can be increased or decreased to fit external
and internal reality.
A Strategy Update does not have to consume the time and resources of the
initial formulation session. It may only require two or three hours of
examining the section of the strategy affected by the information surfaced by
the strategic tracking system. On the other hand, if the information calls into
question the entire strategic direction, or if a significant amount of time has
passed since the strategy was formulated, the update may require a number
of days spread over a period of weeks.
You shouldn’t set the update trigger threshold too high. Frequent reexamination of your strategy is valuable, even if you make no changes.
7
Summary
A robust
strategy equips
executives to
adapt,
anticipate, and
dictate by
providing a
rudder to their
organization’s
decision
making.
Surviving companies demonstrate an ability to adapt quickly to changes in
the business environment. Successful companies anticipate change and
alter their strategies accordingly. World-class companies dictate the nature
and pace of change. A robust strategy equips executives to adapt,
anticipate, and dictate by providing a rudder to their organization’s decision
making.
A strategy can only guide the ship in the right direction if: 1) it answers the
right questions; 2) it is implemented; and, 3) it is current.
A strategy should reflect tough choices regarding product priorities, market
priorities, and competitive advantage. Focusing strategy formulation on
“what” and “why” decisions avoids the need for monthly changes. Strategy
implementation should ensure that the strategy takes root in the policies,
processes, structure, rewards, and hearts of employees.
Continuous monitoring and regular updating ensures that the strategy is a
living document. Your first need is to determine if your strategy is being
implemented, if its implementation is having the desired effects, and if it
continues to represent a winning game plan. These assessments demand a
strong set of metrics, a continuous influx of external intelligence, and the
discipline to regularly track performance and feed that information to those
who can use it. The second need is to take action based on what’s been
learned.
The top teams of world-class organizations understand that their primary
responsibility is setting and steering a strategic course. They dedicate the
time necessary to update the strategy as often and as radically as is
necessary to guarantee its currency.
So, how can you ensure that your strategy will keep up with a world that will
change before the ink is dry? Don’t let the ink dry.
8
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