Getting Engaged: An Inclusive Approach to Strategy Development
One of the key job requirements for any CEO is to be able to set a future direction for the enterprise – in other words, to provide an overall strategic thrust for the company. That doesn’t mean that a CEO must undertake this important task unaided. In fact, many CEOs have reached out to the consulting world for external experience and expertise in developing their strategy. Other CEOs have looked to their internal head of strategy to lead the charge. Under either scenario, the process was fairly standard: data was pulled together, broad industry trends were gauged, competitor countermoves were assessed, and the strategy and strategic plan came into focus. Senior management would kick the tires – sometimes even challenge the strategy or its underlying assumptions. But ultimately the game plan was set and enclosed, and the strategy locked, loaded and launched, often with great fanfare.
This approach has the virtue of drawing on experts in the field of strategic planning, and of year-over- year consistency in approach, which led in turn to the standard annual strategic planning calendar: begin pulling data in July, review broad trends in August, begin developing budgets in September, finalize budget in October, present plan to Board in November, finalize plan and sign off in December.
Yet this approach still touches only a few members of the organization (other than those asked to send data “up to Corporate” without context or explanation!) Accordingly, over time, organizations began to find fault with this closely contained and (frequently) rote approach to strategy development. With limited input into the crafting of the final product, company managers tended to ignore, half-heartedly support, or (in some cases) actively undermine strategies from which they were disenfranchised and that they failed to understand or accept. Slowly, companies began to realize that treating strategy development as something done to (or for) the organization wasn’t working, so more thoughtful companies began to see benefits in greater involvement in strategy formulation by those senior managers ultimately responsible for executing it. In addition, companies come to feel that a one-size-fits-all process for strategy development was less than optimal: an approach appropriate for an old-line manufacturing company made little sense for companies in the more dynamic and faster paced world of high-tech enterprise. Further, companies developing strategies began to realize that traditional sources of competitive advantage (size and scale, access to scarce resources, legal protection) were being supplanted with newer bases for competitive advantage (think “core competencies”), which required new ways of thinking about strategy. Accordingly, strategies and planning processes became more open to organizational input, more adaptive (as product lifecycles contracted and technology boomed), and more tailored, and they got better.
Even today, many strategic planning and development processes remain underpowered. They have remained too rooted in past approaches and failed to incorporate more progressive features of superior strategy development – features that will lead to a new renaissance in strategic planning, with strategies that are truly owned by the organizations they are developed for, that have an unusually high degree of flexibility appropriate to an ever-changing business environment, and that acknowledge the importance of cultural alignment with the strategies themselves as the keys to sustainable longer-term success.
Whose Strategy Is It Anyway? Many strategy development efforts still fail to draw fully upon the talent and insights of the organization at large. True, the organization’s input is being increasingly solicited; but active involvement by members of the organization at all levels is still disappointingly limited. As a result, senior management owns the strategy but has to rely on a disenfranchised work force to execute it—hardy the recipe for a good team effort!
In today’s world, winning strategies have the organization’s fingerprints all over it. As a result, they incorporate a level of organization- and industry-specific knowledge and experience that competitors can never replicate, while they begin creating organizational buy-in from Day One. The reason? An organization that is engaged in the task of strategy development ends up seeing itself, its inputs, and its efforts in the end-product. Not only does this build organizational commitment to the strategy, it also increases the chances of successful execution, as the strategy is tailored to the organization that created it. Finally, since strategy development, like most other skills, is learned rather than innate, having members of an organization intimately involved in the process is a form of “action learning” – the process by which active participation in a common or shared experience builds knowledge and skill.
Anything Can Happen. Strategies and strategy development efforts also remain confidently (and surprisingly) predictive (“here are the trends and perspectives”) as well as rigid (“the three-year plan”). Yet, as most enterprises are increasingly aware, in today’s dynamic, ever-changing business environment, there are many unknowns and imponderables. When industries can consolidate (or fragment) at breathtaking speed; when regulations can overnight either unleash or cripple marketplace participants; and when the price and availability of critical inputs can fluctuate wildly -- the task of strategy development must now be undertaken under conditions of extreme uncertainty. This does not mean that developing sound strategies is a game of chance. To the contrary, strategy development requires a broader consideration of any number of variables. Winning strategies will therefore incorporate multiple scenarios to generate a range of feasible strategic solutions; they will also retain significant flexibility to allow rapid adjustments as industry or marketplace conditions change and alternative scenarios become more attractive.
Culture as Competitive Advantage Organizational culture – the norms, values, and beliefs that underpin what people do and “the way things work around here” has always had an influence on the ability of companies to grow and change in response to shifting marketplace conditions. In the past 20 years, executives have paid increasing attention to Corporate Culture and its impact on performance and competitive success. Most, however, have viewed it as a “fact of life” -- a feature of the organization’s make-up that should be recognized and accommodated but that can only be changed over an extended time frame that exceeds the realistic life of any strategy.
But strong performers who craft winning strategies take a contrary perspective. They believe that every winning strategy rests on and is enabled by a winning culture, and that a critical – and inextricable – element of strategy development is defining and then laying out a roadmap to building a winning culture. Winning strategies and winning cultures both require investment and take time to bear fruit. But once strategy and culture are aligned and mutually reinforcing, they generate an extra level of competitive advantage that can be difficult if not impossible for others to copy, since a culture, by definition, represents the unique DNA of any organization.
A Case Study: Developing a Winning Strategy in the Utility Industry. The CEO of a $3+ billion utility holding company recently undertook this more progressive approach to strategy development, enlisting the organization’s support and involvement in the process, while applying flexible, scenario-based tools to generate a portfolio of strategic options, and – most significantly – insisting on the creation of a “winning culture” as an integral part of the strategy.
Setting the Stage. The CEO started the process of developing a new strategy for the company with a few basic beliefs:
- Since the organization as a whole needed to own the strategy, widespread involvement in the strategy development and planning process was critical.
- To support the goal of strategy development as a learning process, employees needed to understand the perspectives of industry experts, customers, and other knowledgeable outsiders to build a better strategy.
- Given the uncertainty surrounding several key variables (the pace and direction of industry regulation, the future prices of natural gas supplies, the nature and scope of potential environmental legislation), a “hard wired’ strategic plan was rejected in favor of a broad strategic intent, in which multiple scenarios based on alternating assumptions could be examined and “stress tested.”
- The CEO declared, up front, that the creation of a winning culture was a precondition to strategic success.
These basic beliefs were reflected in the design of the overall approach to craft a winning strategy – an approach that, almost 18 months after launch, is clearly bearing fruit.
Getting Started. A set of teams with anywhere from 5 to 15 employees from all levels of the company (union workers to executive officers) were created to be the cogs and wheels of the strategy development process. Three teams were organized around business segments and focused opportunities in those segments, in light of industry and marketplace changes. Three additional teams were created that focused across business segments on financial, regulatory and cultural issues and trends (see chart). The output of these segment opportunity scanning teams and issue assessment teams generated a detailed set of scenarios. These scenarios, in turn, allowed the development and testing of strategic options depending on several variables, including fit with anticipated regulatory and legislative environments and sensitivities to change in interest rates and gas prices. Coming out of this analytic phase was a portfolio of strategic alternatives with the flexibility to be reconsidered (and changed) if underlying assumptions themselves changed materially.
Exposure to Experts: Stimulating Employee Growth and Contribution. If strategy development is to be a meaningful learning experience for the organization, a variety of alternative viewpoints (from both inside and outside the company) need to be considered. Accordingly, with the CEO’s encouragement, a series of organization-wide seminars were structured and held, at which outside experts discussed relevant topics with strategic impact, including Technology Trends in Distribution, Wall Street’s View of Energy Companies, the Changing Community, the Changing Customer, and Engaging the Workforce. Equally important, the views of these experts helped those employees in attendance (over 400 at many sessions) raise issues, share perspectives, and make recommendations (in small breakout sessions) that were incorporated into the emerging Strategic Intent for the Company. This exposure to outside experts thus increased the “strategic IQ” of many who had never before been involved in strategy development. At the same time, it also created “better” strategies” through broader organizational input, and strengthened organizational “buy-in” to the end-game strategy that resulted.
Winning Culture: What Are We Talking About? Perhaps the most elusive concept for the organization to grasp was what the CEO meant when he declared the imperative of building a “Winning Culture” as part of the Strategy Development process. As noted above, one of the six teams created to engage the organization in the task of strategy development came to be known as the “Winning Culture” team. This team – a true cross-section of the entire organization – recognized that it faced a variety of challenges up front, including figuring out what a winning culture looked like, identifying what it would take to build one, and then getting the entire organization engaged in the journey from the current culture to “Winning Culture.” Even before tackling these challenges, the team realized that it had to approach the task of winning culture design, development, and implementation as a major change effort. This meant that the team needed to get the organization’s attention and let it know that the CEO and the team were serious about change. The very fact that a Culture Team was chartered as one of the six strategy development teams, that the CEO served as the team’s executive sponsor, and that the team was led by a well-respected operating manager (rather than someone from Human Resources) all served notice on the organization that the effort to create a winning culture was for real!
The team also needed to make the “soft stuff” of culture change “hard,” so that the organization could put its shoulder to the flywheel and drive change through concrete actions. As noted below, the push to translate cultural goals into concrete initiatives with discrete performance measures helped frame the culture development effort as a tough-minded business project with specific deliverables.
Finally, the team needed to take “the long view,” recognizing that changing cultures is typically a multi-year process. This, in turn, required keeping a steady pressure on the organization for change, while sharing tangible progress to maintain momentum and morale.
Winning Culture: Where Are We And Where Do We Want To Be? The culture team rapidly got down to business, first defining what it meant by the term “corporate culture” (“the way things are done in an organization. . .a description of the personality of the organization that guides how employees think, act and feel”) and then creating a profile of what the winning culture should look like in this organization. In doing so, the team over a period of several weeks drew upon multiple sources of input:
- An internal employee attitude survey that highlighted both what the organization did well and areas where improved performance was required
- Literature searches on and interviews with companies known to have strong cultures – cultures that reinforce their strategic thrust and overall performance: Starbucks, Dell, Southwest Airlines, Procter & Gamble, and UPS, to name a few
- Outside experts, who were invited to lead the highly-attended employee seminars
The emerging profile of the desired winning culture was compared with a description of the current culture, not just to identify gaps but to generate responses to three critical questions:
- What about our current culture do we want to preserve?
- What about our current culture do we want to keep but strengthen?
- What about our current culture do we want to change?
Finally, as the definition of the winning culture came into focus, the culture team identified linkages between culture and key elements of the emerging strategy. For example, with the strategy emphasizing new technology-enabled solutions for customers, the team stressed the importance of a culture of innovation in the go-forward environment.
Winning Culture: Making the “Soft” “Hard”, Getting Into Action, and Driving It Into the Organization. Effective management of cultural transformation requires a set of concrete performance measures as part5 of an overall performance management system. With a journey this long, it will be important to set near- and longer-term goals, track and monitor progress, and make adjustments to the game plan as required to maintain the momentum for cultural change. In this instance, the company found the Balanced Scorecard framework to have real power as part of an overall strategic management process. Whether measuring line of business improvement programs outlined in the new strategy (e.g., strengthening the company’s ability to generate additional power more cost-effectively) or evaluating programs targeted at creating a winning culture (e.g., training and development efforts aimed at increasing new leadership behaviors at all levels), the Balanced Scorecard set appropriate measures and hard targets at multiple levels of the organization and helped managers communicate the “what”, “how” and “how well” associated with strategic initiatives.
The Culture Team also applied disciplined project and program management skills to the challenge of designing and launching concrete initiatives that would get the organization into action on building a “winning culture.” Whether in strengthening leadership training and development, creating a content-rich and user-friendly web site dedicated to informing and engaging employees on the cultural transformation underway, or exploring total reward systems aligned with accomplishment of strategic initiatives and demonstration of Winning Culture behaviors, the team understood that when successful strategy execution is dependent on cultural transformation, effective initiative and program management (with timetables, accountabilities, and performance measures) is a necessity.
One of the most powerful initiatives created and launched by the winning culture team was driven by the realization that ownership of the new culture by the entire organization was a precondition to that culture taking root and flowering. Even the winning culture team, whose representation mirrored the organization overall (with union laborers and managers, superintendents and executives, line and staff workers) could only drive the task of cultural transformation so far. Accordingly, a series of smaller, dedicated “Winning Culture Partner Teams” were created in locations across the organization (distribution centers, generating plans, staff functions) and staffed with employees from that location. These teams became advocates for the cultural transformation in their locations, as well as conduits for communicating new ideas and “best practices” across the organization. In this way, the impact of the enterprise winning culture team in strategy development was magnified and extended down, through and across the entire organization.
The Score at Halftime. This utility holding company is well into the second year of applying this new approach to strategy development and execution. It can point with justifiable pride to the level of overall organizational understanding and commitment to the elements of the new strategy. This is not a surprising outcome, given the high level of employee involvement in strategy development and execution, whether by serving on one of the six strategy development teams, attending one of the many seminars held to communicate future trends, opportunities and challenges, participating in a series of focus groups for front-line supervisors, or serving on the Winning Culture Partner Teams across the company.
This sense of ownership of the strategy has been deepened by a broader understanding of the strategic context – those trends at work in the industry that illuminated both opportunities for the company (resulting from advances in technology or the identification of unmet customer needs and potential rules it faced (e.g., legal and regulatory constraints or societal resistance from environmentalists to expansion of fossil fuel operating plants).
Another positive result of having the organization deeply involved in strategy development has been the increased capability within the organization to think strategically – to consider not only immediate outcomes in one part of the business but longer-term implications across the entire organization. Similarly, the exposure to multiple scenarios in developing a portfolio of strategic options appears to have strengthened the ability to think and act under conditions of uncertainty and to recognize the importance of making tradeoffs in decision-making.
Of course, much remains to be done, particularly in the more time-consuming task of shaping corporate culture. There are initiatives yet to be launched, e.g., taking a holistic, end-to-end view of performance management systems to strengthen objective-setting, incent performance improvement, and enhance accountability. And internal communications – the lifeblood of any change effort – remain maddeningly inconsistent in application across the company (hence a multi-year culture team initiative to strengthen internal communications!) But, on balance, the application of the new, more progressive approach to strategy-development and execution has paid rich dividends, in terms of buy-in and support.
What It Takes: Some Lessons Learned: Deeply engaging the organization in the process of strategy development; creating flexible, scenario-driven strategies that illuminate strategic options and alternatives; aligning strategy development and culture development processes so that winning strategies are grounded in winning cultures; any one of these tasks is challenging, but undertaking all three is fraught with risks. And yet, as shown in our case study, the task is not impossible, provided one approaches the effort with a different mindset and expectations of what is required.
First, recognize that this new approach to strategy development requires a slightly expanded time horizon. To the extent that the organization is more fully involved in the strategy development process (e.g., by serving on workteams dedicated to customer, competitor, legal and regulatory, and financial issues that will impact the strategy), it will take more time than if undertaken by an experienced cadre of strategic planners or strategy consultants. There is both a “learning curve” effect for managers new to strategic planning and planning frameworks, and the inevitable intra-team and inter-team coordination requirements involved in the strategy development process. Yet the process can also save significant time by treating strategy development and implementation as parallel rather than sequential activities. With multiple teams of managers involved, new ideas can be generated, tested, and evaluated in real time, rather than being treated as open issues to be explored once the full strategy has been approved and implementation begins.
Second, the presence of talented managers and down-the-line employees throughout the process serves as a catalyst for creativity. While analytic rigor remains a key ingredient in successful strategy development, the inclusion of individuals from all parts of the organization ensures that new ideas and insights regularly bubble to the surface.
Third, going this route requires executive (and organizational) patience. Action learning – learning by doing – inevitably results in false starts, errors due to inexperience, and other “bumps in the road,” as the organization struggles to build its strategy development muscles. Furthermore, changing a corporate culture is subject to what Jim Collins, author of Good To Great, calls the flywheel effect: it takes tremendous effort just to get the flywheel to move, much less pick up sustained momentum, but once momentum is built, it is increasingly easy to sustain. It is important, therefore, to exercise patience in this new approach to strategy development; positive results will come but typically with significant lead-time.
Finally, it requires courage. Creating a strategy under conditions of uncertainty is not for the faint of heart; nor is a declaration of intent to build a “winning culture” as part of creating a winning strategy. But the rewards – in terms of successful execution of a flexible, competitively advantaged strategy – are worth it and represent a rich return to any CEO who is willing to invest in his or her organization and its willingness and capability to generate a strategically-relevant, culturally-appropriate game plan for marketplace success.