"...could just go down in history alongside books like Crossing the Chasm as a technology industry must read..." (Computer Business Review, August 2003)
The Strategy Gap: Leveraging Technology to Execute Winning Strategiesby Michael Coveney, Dennis Ganster, Brian Hartlen, Dave King
With shortened business cycles, increased competition, and rapidly changing technologies, companies need to be more nimble than ever. They must narrow the gap between strategy formulation and operation execution to guarantee success. The Strategy Gap will provide a framework that senior financial managers can use to ensure that their strategies are/i>… See more details below
With shortened business cycles, increased competition, and rapidly changing technologies, companies need to be more nimble than ever. They must narrow the gap between strategy formulation and operation execution to guarantee success. The Strategy Gap will provide a framework that senior financial managers can use to ensure that their strategies are implemented successfully and that their corporations remain competitive. Filled with informative case studies and best practices for optimum financial processes, this valuable resource will help managers leverage information technology to successfully implement corporate strategies. This book also shows managers how to eliminate surprises in poorly managed or unforeseen activities, while applying new approaches to financial management for faster and more accurate business modeling. Expert advice from those who have used these strategies clearly explains how to integrate planning, budgeting, consolidation, and reporting into one cohesive management system.
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The Strategy GapLeveraging Technology to Execute Winning Strategies
By Michael Coveney Dennis Ganster Brian Hartlen Dave King
John Wiley & SonsISBN: 0-471-21450-7
Chapter OneStrategy Gap
We often come across companies that have set an ambitious long-term goal, perhaps to double revenue and profits over five years, or to dramatically increase the proportion of revenues coming from new businesses, but have devoted almost no intellectual effort to thinking through the medium-term capability-building program that is needed to support that goal. In too many companies there is a grand, and overly vague, long-term goal on one hand ... and detailed short-term budgets and annual plans on the other hand ... with nothing in between to link the two together.... There seems to be, in many companies, an implicit assumption that the short term and long term abut each other, rather than being dovetailed together. But the long term doesn't start at year five of the current strategic plan. It starts right now! -Gary Hamel and C.K. Prahalad, Competing for the Future
Long-term goals and detailed, short-term budgets, with nothing to link the two together. Does this organization sound familiar?
Whatever the answer, most business professionals understand that achieving a long-term goal requires a series of logical, achievable, sequential steps. Organizations cannot rely on chance or luck. Yet the steps that lead from where abusiness is today to where it wants to be-its objectives-often are missing.
The "strategy gap," as this group of missing steps is called in this book, is real and exists within most organizations. Often unseen, the gap is a threat to the future performance-and even survival-of an organization and is guaranteed to impact the efficiency and effectiveness of senior executives and their management team.
Imagine for a moment that you are early in your chosen career and the thought of retiring is many, many years away. However, your objective is to retire early, perhaps at 55. To achieve this objective, you have to start planning and executing the plan today. It is no use waiting until you are in your 40s to start executing the plan; it will be too late and you will need to push that retirement date out much farther than desired.
Or consider an oil tanker navigating its way into a port. Newton's law says that a body in motion tends to stay in motion unless something changes it. An oil tanker weighing 500,000 tons requires over an hour and six miles just to slow down from 15 knots. This means that the plan to stop has to be executed well in advance of the intended result.
It is the same in business. Organizations must plan and start executing that plan today if they expect to achieve their objectives some time in the future. Yet surveys indicate that this just is not happening. Despite the increased spending on systems and the technological advances in recent years, only 33 percent of executives take advantage of electronic decision support tools that could help them in managing performance.
The failure of organizations to manage the transition from where they are to where they want to be is one of the most critical management challenges facing senior executives today. Consider that in 2001, more than 250 U.S. organizations-with a combined asset value exceeding $255 billion-failed. As this book is being written, companies are on track to match that figure in 2002. More than 25 percent of the top 100 U.S. companies that survived in 2001 lost at least 66 percent of their market capitalization. Without the ability to achieve objectives, executives and managers become mere bystanders in an organization where performance-or nonperformance-"just happens."
So what is going wrong? What is it about the strategic planning process and its execution that fails? Why do systems so frequently fail to live up to management's expectations? These are crucial questions that need to be answered if the strategy gap is to be avoided.
FAILURE OF STRATEGIC PLANS
According to the dictionary, strategy is "a plan," "an approach," and "a line of attack." There are many different types of strategy, which will be discussed in the next chapter. For now, consider strategy to be "the art of guiding, forming, or carrying out an action plan." When applied to business, strategic planning is about deciding where an organization wants to go and how it is going to get there.
Strategic planning is still the most widely used tool for managing the performance of an organization. In Bain & Company's annual survey of senior executives from around the world, 76 percent of these executives said they look to strategic planning as the top management tool to improve long-term performance and to strengthen integration across an organization. Despite the appearance of many other tools, the report states that senior management trusts familiar tools during difficult times.
Strategic plans typically have a structure that makes them easy to follow. Most start by stating the purpose of the organization, which is usually followed by documenting the long- and short-term goals and the plans for achieving these goals. However, the terminology contained within these plans often varies between organizations, and the words have different meanings. In the context of this book, these definitions will be used:
Mission. A concise statement of the organization's reason for existing
Objectives. Broad statements describing the targeted direction
Goals. Quantifications of objectives for a designated period of time
Strategies. Statements of how objectives will be achieved and the major methods to be used
Tactics. Specific action steps that map out how each strategy will be implemented
Key Performance Indicators (KPIs). Measures of performance that show progress of each tactic in reaching the goals
For its Apollo space program, for example, NASA's strategic plan may have looked something like this:
Mission: Lead all other nations in the race for space. Objective: Send a man to the moon and bring him back alive.
Goals: Be the first to do it. Do it by the end of the decade.
Strategy 1: Investigate and select safe landing sites for manned missions.
Tactic 1: Create and launch a series of unmanned spacecrafts to take and transmit high-quality pictures of the moon back to Earth for scientific study.
KPI 1: Launch moon reconnaissance spacecraft by the middle of year 2 of the plan and analyze photos by the end of that year.
For a manufacturer of consumer electronics today, the strategic plan may look like this:
Mission: Be the premier global provider of consumer electronics.
Objective: Expand the cellular phone product line.
Goals: Cellular sales for all regions will be 35 percent of total revenue with an overall increase in revenue of 5 percent.
Strategy 1: Target a new market segment-senior citizens.
Tactic 1a: Launch a new cell phone with larger pushbuttons and a "panic" button that connects the user immediately with the local emergency response unit, coupled with a special senior citizen discount rate.
KPI 1a: Produce 1,000 units by May.
Tactic 1b: Partner with existing national senior citizen organizations for additional user benefits and marketing opportunities.
KPI 1b: Sign two partnerships by April.
Certainly these examples are simplistic. They are used only to demonstrate the intended meanings of words used in this book. Also for the purposes of this book, it is assumed that organizations know how to prepare a good plan. A typical organization, for example, would have several objectives, each with a set of goals. Each goal could have several strategies, which in turn would have tactics and associated KPIs. Tactics must have measurable KPIs in order to gauge their success. Without these KPIs, an organization has no way of knowing whether a particular strategy worked. Without successful strategies, the organization will not achieve its goals and objectives.
Strategic planning as a management tool has existed for decades. Lack of planning is not causing the strategy gap. According to Hackett Best Practices, a division of Answerthink, companies spend on average nearly five months each year on strategic planning; a little over four months are spent on annual financial planning. This leaves just three months a year when a typical company is not actively planning. A joint report by Cranfield University School of Management and Accenture indicates that planning and budgeting consume an astonishing 25,000 person-days annually at a typical $1 billion company. The same report also suggests that 80 percent of companies are dissatisfied with their planning and budgeting processes.
Failure to implement the strategic plan can be disastrous. At best, an organization might achieve acceptable performance based on luck and quick tactical thinking. At worst, the organization may cease to exist. Today's corporate world is littered with the remnants of organizations that failed to implement their strategic plan. An article investigating the reason for the spectacular failure of dot-com companies found that, in most cases, the failures had nothing to do with the strategic plans themselves. The failures resulted from a lack of executing those plans.
So the questions remain: What causes the gap between vision and execution? What can be done to close it? What role should systems play? Based on existing research and experience, the main causes of the strategy gap can be grouped into three areas, each of which interacts with the others:
1. The way management acts to implement strategic initiatives
2. Traditional processes (e.g., budgeting, forecasting, reporting) used to implement strategy
3. Technology systems used to support those processes
Management can cause a gap between strategy and execution through both action and inaction. Four main ways management causes this gap include failure to secure support for the plan, failure to communicate the strategy, failure to adhere to the plan, and failure to adapt to significant changes.
Failure to Secure Plan Support
The senior management team must develop a strategic plan with objectives, goals, strategies, and tactics that everyone supports. If people do not accept and support the plan, they are unlikely to put in the right amount of effort to make it succeed. Their allocation of resources may be counterproductive to implementing strategic initiatives, while their management time is diverted into seeking out factors that will justify their position. This misplaced time and effort will lead to a gap, which could prevent the execution of the plan.
To achieve buy-in, management must create a corporate culture and a set of values that support the vision and guide employees' decisions and behavior. Employees must have the opportunity to provide feedback regarding their ability to implement strategy. Not listening to their views, not addressing-and resolving-conflicts and major differences of opinion, and not building a learning culture-one that tracks and learns from its own successes, failures, and mistakes-will result in strategies that are unrealistic and cannot be implemented. This situation leads to the strategy gap.
Failure to Communicate the Strategy
Operational managers and their employees are typically the people within an organization who implement strategy. They need to know how the strategy impacts them. Yet according to research by Kaplan and Norton, creators of the Balanced Scorecard, "less than 5 percent of the typical workforce understands their organization's strategy." Without a clear idea of what the strategy, vision, and direction of the organization are, they are unlikely to act in ways that will result in effective implementation of the corporate plan.
Communication of strategy is vital in all management processes. When budgeting, employees need to see the tactical plans and related targets that affect them so they can modify their behavior accordingly. During the year, they need to assess how well they are carrying out those tactics and the progress they are making toward strategic goals. When forecasting, employees need to know when their activities are unlikely to achieve their KPIs and, hence, their strategic goals so they can act early to bring the tactical plan back on target. Technology clearly has a role to play in facilitating this communication. Failure to effectively communicate strategy and how well or poorly it is being implemented will result in the strategy gap.
Failure to Adhere to the Plan
As the year progresses, many organizations make decisions reactively rather than strategically. Often the cause is the reporting of results based on a purely financial view of the organization, such as on the chart of accounts by cost center, rather than by a strategic and tactical view. As a result, operational managers focus on financial variances that do not relate to the specific strategic initiatives outlined in the plan. To put things back on track, the accounts become the target of any decision rather than the agreed-on action plans, which may have long been forgotten.
Test this for yourself. In your current reporting pack, how many of the reports tie actual and forecast results back to the strategies outlined in the strategic plan? The reports may monitor the goals, but how many of them actually monitor KPIs by tactic? Without this link, organizations are likely to act and react in ways that are divorced from the strategic plan, which results in the strategy gap.
Failure to Adapt to Significant Changes
The reality of today's business environment is that it continually changes. Strategic plans are built on a set of assumptions, such as market growth, production capability, and competitor actions. If these assumptions change, it is unlikely that the plan will still hold true. Following the attacks of September 11, 2001, for example, most organizations found themselves in an economy that was substantially different from the one that existed when they planned earlier in the year. Continuing to follow a plan when the basic assumptions on which it was founded have changed makes no sense. Unless plans are modified to reflect changes to these assumptions, the result will be the strategy gap.
Excerpted from The Strategy Gap by Michael Coveney Dennis Ganster Brian Hartlen Dave King Excerpted by permission.
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Meet the Author
MICHAEL COVENEY is Senior Director of Strategy Management for Comshare, Incorporated, a leading provider of software to help companies implement and execute strategy.
DENNIS GANSTER is Chairman, President, and CEO of Comshare.
BRIAN HARTLEN is Senior Vice President of Marketing for Comshare.
DAVE KING, PhD, is Senior Vice President of Product Development as well as Chief Technology Officer for Comshare.
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