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Operational Alignment
The Operation Process is where the strategic plan gets operationalized, where you break the long-term goals into annual business plans and into annual budgets. The annual plan is not only the numbers exercise, but more so the understanding of how we will meet the short-term targets, which lead to the long-term targets. Annual plans have to have clear-cut goals that can be achieved during the fiscal period (not to say they cannot be BHAGs). If we have been less than honest and avoided the robust dialogues necessary to grasp the reality or test the assumptions behind the plans, then we will not be able to execute and meet the expected results.
It is therefore fundamental that the annual plans be i) linked to clearly understood assumptions that can be verified month after month; ii) flexible, so to adjust to the changing conditions; and iii) aim at profit. We have seen so many business plans that aim at losing money for several years. Although there are times where early investments are necessary, it should always remain an unnatural act to plan to lose money.
Annual plan should be built topdown, where the budget and key drivers are derived from the strategic plan’s expected annual achievement; and bottom-up, where we are trying to figure out how to execute with the resources and the capital available and the assumptions made. The final budget becomes only the financial expression of the business plan.
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Business or operational governance principles also need to be clarified in the annual plan. Business governance spells out the rules of the game; deals with such issues as the way decisions are made and the discipline that leaders impose on their teams. Business governance will help answer questions such as where to allocate capital and resources, how the measure and manage performance.
Although there is a need for flexibility, processes need to be established to guide employees in the executions of tasks in a consistent way, time after time (that is also the purpose of ISO certification). Organizations that follow prescribed processes rigorously perform better. A rigorous process does not drive quality, only consistency. If the process is flawed, it should not be avoided, but rather it should be fixed and re-implemented. As Chet Huber, founding president of GM’s OnStar services once said “the organization needs to be entrepreneurial, and not the individuals within the organization [who] need to act more like synchronized swimmers to keep the organization well aligned.”
As we said earlier, the best organizations establish a culture of discipline, empowerment, performance management and accountability; and for the culture to take hold, it has to be institutionalized into core governance processes.
Disciplined Processes
A balance must be struck between no processes and a bureaucracy. A powerful business accelerator is empowerment. It allows leaders, managers and employees to make decisions and take action. To be able to implement an empowered culture, leaders need to demand discipline, define empowerment fences, define performance guidelines and ensure accountability.
Amongst the tools available to leaders to implement a disciplined empowerment culture are a coherent and complete set job descriptions, an exhaustive set policies and procedures formally documented into manuals and addressing employee matters, customer matters, supplier matters, stake holder matters, just to name a few, designed to remove work (GE’s Work Out motto) and ease execution.
In business, one thing is certain; expense budgets are often met and exceeded, while revenue budgets are not met as often. One of the key processes to tackle is the process of spending cash. In our management philosophy, all spending should be considered a project and treated as such. This means that before engaging in a project (or spending), the project owner needs to have a clear idea of the economic reasons this project should move forward. This clear idea takes the form of a firm justification that the organization would be much worst of if the project (or expense) did not go forward. Like any project, the justification needs to be approved, according to guidelines established.
This emphasis on documenting business processes should almost be obsessive. You cannot expect have a disciplined organization, unless the discipline principles are documented for all to absorb.
In default of implementing a set of structured processes, employee will make calls using their best judgment, which may or not be what the organization wants; or the CEO will become the bottleneck for all decisions, which is definitely not what the organization wants.
Measurement and control systems
To ensure that the plan is going as anticipated, the Board of Directors and the CEO must implement measurement and control systems across the business. Because the translation of strategy into short-term operating objectives is so important to execution, of business strategies, it must be controlled and orchestrated. It is not to say that one measurement system works for all aspects of the organization. The Board of Directors and the CEO must then implement the metrics that are relevant for each part of the business.
Here are ten principles Amir Hartman shares with us:
- Focus on a select few meaningful measurements
- Shareholder value is priority number 1, all other measures come second
- Revenue growth, Cash flow, Working Capital reduction and Return on capital drive shareholder value
- So that the measurement metrics are relevant, all should be linked to strategic priorities
- Measurement metrics are action oriented, clear, controllable, relevant to the day-to-day activities and easy to communicate to all
- So to ensure relevance, do not blindly used the same measurement metrics and targets across whole business
- Measure results of meaningful business initiatives
- You want measurement systems to be disciplined and rigorous so to ensure you can compare apples with apples
- Revisit metrics regularly to ensure relevance as the organization evolves and the market conditions change
- When you are comfortable with your measurement systems, it leads to the comfort of establishing meaningful stretch goals
Measurement and control systems require timely and validated information, yet timeliness and validation are negatively correlated. Increasing validity may decrease timeliness and vice-versa. The gathering, distillation, assimilation and dissemination of information cannot be fortuitous, but should rather be part of the disciplined processes. You have to make sure that the right people receive the critical information and that they can act on it.
Information Sharing, Knowledge Transfer and Communications
Organizational design has been done, creating clear accountabilities and responsibilities. Notwithstanding the division of work, interdependence always exists between various business units, whether, pooled, sequential or reciprocal, and therefore a certain degree of integration remains. Achieving coordination is therefore paramount to successful execution, and it is achieved by sharing information, exchanging knowledge and communicating effectively.
Information sharing and knowledge transfer require formal methods, tools and processes. These will vary from one organization to the next, and may include databases, structured files systems, reporting, meetings and so on. It is vital that such methods, tools and processes be documented, communicated and enforced. Although essential, the methods, tools and processes are not sufficient for effective information sharing and knowledge transfer. Organizations need to ensure that the informal system is just as effective. Such informal systems include encouraging knowledge of who’s who and who is doing what; encouraging direct communications, minimizing hierarchical travel; and creating a common language to avoid ambiguities.
Kotter says that communications have to be counted in the thousands, at every encounter with management, at every meeting, during hallway or water cooler conversations(10). Every encounter is an opportunity to reinforce part of the culture, part of the vision, part of the mission, part of the strategies, part of the process and policies, part of the alignment, … Every encounter is a coaching opportunity.
However, care must be taken that communications are consistent and coherent, and this will not occur naturally. The Board of Directors, the CEO and the management team must develop a communications plan around the key components of their leadership framework, and ensure all are on the same page.
Regularly, as often as weekly, but at least quarterly, the CEO should address all employees with a particular topic that needs to be focused on.
After key meetings, such as strategic planning retreats, or even monthly operations review meetings, it is a good practice to close the meeting with a topic titled communications. This ensures all are on the same page as to what and when to communicate as well as who will deliver the communication. Then, a brief note can be sent to update employees.
Follow through
For organizations to succeed, the leadership team should practice what Cisco’s John Chambers coined healthy paranoia. Leadership teams must try to anticipate the unimaginable, they must concern themselves with how their competitive leadership teams are performing compared to themselves; they must watch every step they make, yet move fast; they remain cold-headed because they know they are disciplined and in control. Follow through is about not taking anything for granted, it is about reviewing the effectiveness of strategies and plans; it is about confirming understandings, it is about creating more opportunities for fine tuning.
Operational reviews are nothing more than follow through meetings that serve as a forum to express this healthy paranoia, preempt any future disasters and deal with the issues that are stuck. More importantly, operations reviews drive accountability, alignment and synchronization. This is where accountability takes all its power. When a group of managers meet and review each-others progress, it is no long that peer pressure start to take effect. In addition, it gives the management team the opportunity to increase alignment and synchronization by making visible obstacles that prevent the team from meetings its targets. Once identified, the obstacles can be dealt with, corrective actions can be taken and the annual plan can be adjusted consequently.
Such lateral communications and managing across organizational boundaries are important to successful strategy execution. Transferring knowledge and achieving coordination across operating units are vital to strategic success.
Operational reviews should occur weekly or monthly, depending on the size of the business units. Departments should meet more frequently. Corporate level reviews may occur monthly or quarterly. The main purpose of operational reviews is to maintain a commonality of assumptions, targets, plans and continuously challenge what the unit should stop doing, continue doing and start doing.
Strategic reviews allows the leadership team to step back from the daily clutter and ensure that the strategies are still valid and delivering the results. Strategic reviews are intensive analysis of strategy, execution and performance. They allow leadership to test and evaluate contribution of functional and product-line strategies to important strategic and short-term outcomes. Strategic reviews are not a luxury, they are an invaluable necessity providing a framework to integrating planning with execution.
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Published at 20:01
11 March 2011
