Regardless of the particular methodology you use to develop your strategy, when done, you have the:
- Objectives that you want to accomplish
- Work (tasks and activities) that needs to happen
- Measures for determining your progress and success in achieving them
A good (“balanced”) strategy seeks to keep an eye on longer-term goals while meeting short-term priorities in order to sustain strong and steady growth. The strategy should also reflect the needs of a variety of stakeholders and not just focus on financial performance. Why? If you’re so narrowly focused on financial results at the expense or your customers and employees, then eventually you’ll pay the price. For example, a global retailer embarks on a strategy of gradually reducing the quality of their merchandise in order to improve margins, but eventually customers notice and sales decline.
What you need is a mix of objectives – linked in cause-and-effect relationships – that enable you to achieve your short-term goals without completely mortgaging the future. If your strategy ends up looking like an enlarged financial plan, that’s likely to portend future problems
Recent research indicates little to change this picture. Organizations consider scorecards and performance management systems a priority; and the majority of key performance indicators they’re tracking tend to be financial and lagging ones.
Moving Beyond Just Financial Goals
There’s plenty to be found on the Internet to explain the what and why behind having a strategy that focuses beyond just the financial goals. And effective execution still remains the biggest sticking point. It’s harder though to find much in the way of a beginner’s guide to building a strategy management system. In the first of a series of blogs on this topic I’ll outline at a high level the steps in defining a strategic performance management system sans going into the underlying applications needed (or desirable). (BTW while some of the terminology I use will sound familiar to those of you versed in the balanced scorecard methodology this guide is not intended to be limited to the implementation of that form of strategic model)
- Step one – assess the current state of affairs: Start by evaluating your organization’s mission and vision, challenges (pains), enablers, and values. Think of this as the background research and preparation that will help you define the strategy.
- Step two – develop broad strategic guidelines (a theme-based strategy framework): What do you want to achieve? What’s the value proposition to your customers? Which processes will you focus on/emphasize? What lines of business will you improve?
- Step three – have a multi-year focus: How will the strategic emphasis change from year to year, e.g., product development and innovation, market share, increased profitability and globalization? If you were to view the strategy over time, you should clearly see which objectives were the priorities depending on where you were on your timeline.
- Step three — establish objectives: Decompose the strategic elements developed in step two into objectives and categorize them in a matrix by line of business and theme.
- Step four — create a strategy map: You need to establish cause-and-effect relationships between the objectives. For example, will improving employee customer service lead to more sales? You can show these relationships in a strategy map that also categories the objectives by focal areas, lines of business, and themes.
- Step five — determine performance measures: How will you measure success? You must identify a mix of leading and lagging indicators, establish expected targets and thresholds, and collect baseline and benchmarking data. If you can’t collect the data for these KPIs within the necessary, say monthly, timeframe, you need to pick other ones.
- Step six define an initiatives portfolio: Ideal initiatives are doable in the desired timeframe, support more than one objective, and have lower costs.
- Step seven — integrate risk: All initiatives must be evaluated in terms of expected risks involved, which may involve adjusting strategic objectives or defining mitigation plans.
In part two of this series, I’ll dive deeper into the strategy management lifecycle.