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Professor Jim Scholes (UK) shared his expertise in "Strategy -
Innovation & Growth" in Warsaw on 14 November 2005 during 18th
seminar in "Authorities" series of events organised by Bigram S.A.
(BPCC Member) & Golden Mark. During the same event growth and
resilience in Poland were addressed by Ramin Khabirpour, General
Director of Danone Poland.
Below is a summary of the key insights offered to delegates at that event.[the article first appeared in EBF issue 21 Spring 2005]
Steps to implementation
The idea of simultaneously working on strategic direction and
implementation may upset some business leaders, but the truth is that
strategic questions and implementation issues go hand in hand, says Jim
Scholes.
Before becoming a consultant and academic, I started my career in the
real world – the government service and the private sector. In nearly
20 years as a manager, it seemed to me that the most of the time and
effort invested in strategy was concerned with strategy-making rather
than implementation. I’m not sure whether this was because of – or
despite – the fact that “the dirty little secret of the strategy
industry is that it doesn’t have any theory of strategy creation,” as
Gary Hamel, my colleague and chairman of Strategos commented in Fortune
magazine in 1997.
At that time, the strategy industry had been enjoying something of a
boom: the number of MBAs graduating through European business schools
was doubling every five years; and strategy consultancies were growing
at a rate of over 20 per cent a year. Unfortunately, there doesn’t seem
to have been any correlation between the level of investment in
strategy and the subsequent competitiveness of companies. In ‘Dangerous
Company’ , O’Shea and Madigan question the value of such advice as they
describe horror stories such as AT&T investing: “almost half a
billion dollars by conservative estimate” on consulting advice between
1989 and 1994. They add: “what is amazing about the figure is the fact
that AT&T seems as confused ….. as it did when the period began”.
Little wonder that, almost 10 years later, serious questions remain
about strategy’s relevance and value. Business schools are having to
compete more and more as MBA places begin to exceed demand. Many
strategy consultancies have rethought their business models and some
have become part of bigger services firms. Meanwhile, managers struggle
to make sense of an increasingly complex business environment as they
try to deliver results to ever more demanding investors and
stakeholders. It seems that strategy is needed more than ever, so what
has gone wrong?
How you see the problem depends on who you are
In preparing this article, I spoke to senior executives who had
experienced the difficulties of leading organisations through strategic
change and had achieved a successful outcome. Tonn van de Laar,
formerly Chairman of the European cable manufacturer NKF Holdings and
more recently Chairman of the Dutch Co-Operative Cehave Lanbouwbelang,
summed up a consistent theme: “Failure in execution is the main source
of failure in strategy. It is the most difficult and the most
important. Nine out of 10 strategic plans that fail in execution.”
Perhaps we shouldn’t be surprised that this is the common view among
senior executives. What is more surprising is that in many
organisations where top management identify execution as the problem,
managers sitting just two or three layers down will say the problem is
that there is no strategy: “we just don’t have a clear direction” is a
comment I often hear as a consultant. So how can both responses be
true? Is it simply a question of communication? Strategos has found
this dilemma so often that we’ve concluded that these apparently
contradictory perspectives are almost bound to exist in companies that
separate the development of strategy from its implementation. The
traditional wisdom has long been that first you create strategy, then
you put in place the necessary organisational capabilities to deliver
(form follows function). This may seem reasonable, but if strategy is
effectively coming from outside the organisation – often from
consultants and sometimes from inside the heads of one or two very
smart senior people – implementation is almost bound to be problematic.
Think about it this way, if a strategy is beyond an organisation’s
capability to conceive, why should one believe it is within its
capability to implement? Figure 1 illustrates the nature of this
groundless relationship.
Where is the strategy around here?
If one accepts the notion of a groundless relationship between the
‘quality of strategy’ and ‘organisational capabilities’ as portrayed in
Figure 1, then where might we expect to find strategy in an
organisation? It is often enlightening to compare the espoused strategy
in communications from senior executives with the day-to-day decisions
and actions of managers throughout the organisation – it is the sum of
such actions that represents the de facto strategy.
The question is how well espoused strategy and actions in practice
align. We’ve found that in most organisations – private or public
sector – top managers and people lower down the organisation really do
want to do the right things to help the organisation suc- ceed. They
want their collective actions with their colleagues to add up to
something which is purposeful and makes a difference. Strategy can
provide this sense of purpose. Consider the case of Danone’s Dairy
business in Poland (see Case Study 1)
Case Study 1 Danone Poland
Danone established a successful dairy business in Poland, bringing
desirable ‘western’ products and management techniques into a growing
market with consumers who aspired to catch up with richer western
European neighbours. As Poland developed so did competition – with a
combination of low-cost local manufacturers and sophisticated
multi-nationals creating increasing pressures on margins. Ramin
Khabirpour, Danone’s General Manager, decided to deal with the
challenge of increasing commoditisation by engaging a group of 20
young, local, managers and his own Management Team to:
* Mobilise local management to support Danone’s ongoing success in Poland;
* Find some new growth opportunities, recognising that the nature of the Polish market for dairy products was changing;
* Build local management capabilities through a combination of discovery, dialogue and implementation tasks.
Sending groups of young managers on study tours to London, Chicago,
Istanbul and Barcelona provided rich insights and appreciation of
important differences in the food industry and ways that Danone might
benefit from these in Poland. These insights and ideas fuelled an
ongoing dialogue in the top team. In effect, the young managers who had
been on the study tours were able to catalyse the strategic dialogue at
the top and had sufficient understanding and commitment to act on
projects resulting from the top team’s dialogue. Reflecting on this
initiative three years later, Mr Khabirpour said: “One of the most
helpful things was the dialogue that the project helped management team
members develop in order to think about strategic options in Poland and
a commitment to growing a business that is increasingly managed by
local people to meet the needs of this developing market”.
Strategising
Part of the problem is that ‘strategy’ is a noun – it describes an
object, a thing. Even extending the label to ‘strategy process’ doesn’t
quite deal with this issue. A strategy process is simply a process to
produce a ‘strategy’; whether that is a report, a plan or a set of
slides. Moreover, a strategy process runs annually, so if things happen
in the outside world that don’t match the cycle or ‘fit’ strategy –
what do you do? Wait until next year? The real-world challenge for
managers is that while they strive to provide strategic direction, make
sound choices and guide implementation, they are facing continual
change. Mintzberg, Ahlstrand and Lampel captured this point succinctly
when they wrote: “The world has no need to cooperate with a particular
view of strategy-making”.
The relationship between strategy and organisational capabitity [click on the picture to see it enlarged]
A popular approach to dealing with this complexity seems to be to not
deal with it. Some companies appear to be run on the basis of numeric
targets supported by issue-based management as a substitute for a
priori strategic thinking. For example, EVA provides criteria that may
be useful in deciding what not to do (based on the criteria
themselves), but these criteria are not designed to provide direction
in a changing world. Even if the tactical capabilities exist to deal
with the implementation ‘issues’ effectively, there seems to come a
time when the lack of strategic thinking takes its toll. For
corporations that have reduced themselves to a ‘core’ set of activities
with few remaining cost-savings available, it is unclear what to do
next. An alternative is to grasp the nettle and recognise that the
world is complex and cannot easily be described in terms of internally
based measures. If the world is in constant flux, we can only engage
with it if we are prepared to deal with ‘strategy’ on an ongoing basis:
it is never complete and companies must manage the development and
implementation of strategy as one continuous activity. This may seem
problematic, but it is the real-world of management. The fact that the
world won’t stand still while you develop your strategy is obvious in
high-growth, technology-based industries such as mobile communications,
but the same dilemma faces managers in industries that have a much
longer ‘strategy lifecycle’ such as food or oil – both of which have
had to deal with their own kinds of turbulence in recent times.
Scenario Planning is an approach that acknowledges this problem. Van
der Heijden describes its origins thus: “Scenarios were initially
introduced as a way to plan without having to predict things that
everyone knew were unpredictable.”
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In describing how scenario work has evolved, Van der Heijden makes an
important distinction between strategy (the thing) and strategising
(the action). The importance of this distinction is well recognized in
the field of systems thinking and the development of methodologies that
can be applied to a variety of management problem situations. Companies
that successfully manage the migration from strategic ideas to
implemented actions are doing this in real-time, all the time. They are
strategising and organising continuously. They are connecting ideas and
their implementation through an ongoing dialogue. Consider for example,
Nokia in 1995 (see Case Study 2)
Case Study 2 Nokia
In the early 1990s, Nokia had recovered from major losses and spun off
many of its traditional businesses. Mobile communications was growing
rapidly, but the company was little known outside Finland and trailed
behind Motorola and Ericsson at the time.
Strategos worked initially with 20 managers in Nokia Mobile Phones to
help them develop an approach to dealing with one question: What core
competencies will Nokia need to take advantage of future industry
changes?
As lessons began to emerge from this discovery work, Jorma Ollila (now Nokia’s Chairman and
CEO) began to reframe the question through dialogue with his team and
started to ask: how do we access new growth opportunities in
multi-media starting from our current base of core competencies? This
was in 1994 when the internet had just begun to surge and ‘multimedia’
was talked about but not well defined.
Nokia's strategic architecture (1995-200)
The process was not a traditional top-down, forecast-laden ‘strategic
planning’ exercise. The goal was not to come up with a plan but to
create a process of strategy innovation that involved the whole
company. That process was iterative, working through a set of
interlinked modules that helped Nokia’s managers develop a deep
understanding of current and potential core competencies, major
discontinuities reshaping the business landscape, and the opportunities
they could create beyond the boundaries of existing business.
The
result was a ‘strategic architecture’ that would provide ongoing
guidance for daily operational and strategic decisions and a pipeline
of new business ideas that would enable the company to push for
industry leadership along the dimensions of its architecture. Nokia’s
strategic architecture, illustrated above, represented the company’s
unique point of view on the dimensions that they could shape in order
to succeed in an industry undergoing dramatic change. It was published
in Nokia’s Annual Report in 2000. Starting initially with 12 full-time
Nokia managers from across the company, ‘The Strategy Project’ was a
process that would eventually include hundreds of company employees
ranging from top management and newcomers who had been with the company
for only a matter of weeks. The hope was to generate a company-wide
perspective on a wide range of strategic options. This was not an
attempt to predict the future but to gain ideas on how to shape it.
What those options might be and how they would be acted on were not
clear at the outset but were to emerge through the process itself.
Nokia’s unconventional approach to strategy and their unique point of
view on the industry helped them to gain brand recognition around the
world through a wide range of distinctive products. From Jorma Ollila’s
perspective, one of the most valuable outcomes was the quality of
strategic dialogue that was created during the project and sustained
through a variety of mechanisms including the ‘Strategy Panel’ he
created at the top of the company. It is the ongoing nature of this
dialogue that has enabled Nokia to both stake out a position as
described in its Strategic Architecture but also to respond rapidly in
reconfiguring the organisation when needed and dealing with
implementation challenges when they arise. In Ollila’s own words “We’ve
created something very important – a process through which we can renew
ourselves”.
Bridging the gap to implementation
The notion of simultaneously working on strategic direction and its
implementation may create some feeling of discomfort if only because
the annual strategic planning cycle is so deeply ingrained in most
large organisations. On the other hand, the reality is that, every day,
like it or not, they are dealing with both strategic questions and
implementation issues. Companies that recognise this connection and are
prepared to deal with it can provide some pointers to bridging the gap.
These pointers, distilled as lessons from strategy assignments over the
past decade, are summarised below.
1. Beliefs about strategy
Strategy making cannot be outsourced, it must draw from and contribute
to the management capabilities of the enterprise. Good strategy
differentiates the enterprise and creates wealth through identifying
and implementing opportunities rather than simply solving current
problems.
2. Responsibility for strategy
Though the CEO carries ultimate responsibility for the success of the
enterprise, he or she cannot possess all the knowledge necessary for
strategising. The CEO and top team must tap into the collective wisdom
of the organisation: implementers are strategists and strategists are
implementers.
3. Tools and language are needed to underpin a collective approach to strategy
Three related points emerge here. First, creating a common language for
strategising means moving beyond traditional views of strategy as an
annual, top-down, planning round. Second, building a common language
encourages dialogue on the meaning of new words and ideas rather than
assuming an understanding of standard presentations and assertions.
Third, the development of enterprise-specific tools and language for
strategising can become part of the culture and competence (see Nokia
above).
4. The strategy process
‘Strategising’ is best considered an ongoing dialogue or process. It is
iterative. It is never complete. That said, one can observe distinct
phases in the dialogue: ‘discovery’, leading to new perspectives on
important trends and discontinuities, deeper appreciation of customer
needs, core competencies and so on; ‘direction’, which typically
involves moving between a range of opportunities, and an emerging
‘strategic architecture’ resulting in the improvement of both; and
‘realisation’, which often involves a range of projects, experiments
and temporary structures to address opportunities, build competencies,
find alliances and perhaps deal with issues of organisational
alignment. One can also observe phases at which the dialogue is
divergent – exploring a range of new possibilities and others during
which there is convergence in order to make choices for action.
5. The outcomes and outputs
Though outcomes and outputs vary depending on perceptions of organisational need and priorities, we see four main types.
Those which provide context for the business, for example an industry
‘map’ characterising some of the key factors driving change and
illustrating the perceived positions of competitors.
Those which provide a context for strategic and operational decisions
in the business, for example a strategic architecture such as Nokia’s.
Those which represent opportunities for growth and wealth creation –
and which generally proceed in the form of new ventures or projects,
often as quite modest experiments initially.
Those which represent new capabilities or skills. Generally, some
derive directly from what is learned through strategising, others may
be competence-building projects; and a few may be experimental forms of
organisation or ‘temporary structures’ such as Nokia’s Strategy Panel.
6. Learning and adaptation
Leaders must decide whether it is better to institutionalise an
approach in order to sustain it or constantly challenge and reinvent
it. There isn’t a simple answer and we have observed that companies
sometimes do a bit of both. For example, Shell periodically uses a
variety of outsiders to challenge and refresh its Scenario Planning
activities; and Nokia has used a more junior shadow team to challenge
the Strategy Panel. The most important consideration is to be open to
learning and prepared to adapt it on the basis of experience.
Reflections
If we ask what good strategy looks like, it is always easier to
describe it after the event. It seems probable that Nokia has had
‘good’ strategy because the company came from third place to dominate
its industry. While it is fair to argue that this success was a result
of good strategy, it would be wrong to attribute it only to strategy.
Without a first-rate execution of its ideas, Nokia would never have
achieved its remarkable performance. It is a direct, practical, example
of bridging the gap to implementation. Strategising and organising
implementation are continuous; they go hand in hand and they happen
every day.
Jim Scholes is a Director of Strategos, a strategy
consultancy, and a Visiting Professor of Management Science at
Lancaster University Management School. An author of many articles on
business strategy, he is an experienced practitioner of strategy and
systems thinking, having worked with public and private sector
organisations in Europe, the US and Asia.
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