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This is the beginning of the season when companies that are on a calendar year begin their strategic and long-term planning. Ventana Research performed an extensive investigation in this area with our long-range planning benchmark research. Strategic and long-range planning is a process and discipline that companies use to determine the best strategy for succeeding in the markets they serve and then ensure they have the capabilities and resources needed to support their strategic objectives.
I use the term “strategic planning” to mean the formal conceptualization of strategy, which is more qualitative than quantitative. Typically, it involves a relatively small number of people on the senior leadership team. Long-range planning, on the other hand, is the formal quantification of the strategic plan, which translates ideas into numbers. This process involves fewer and more senior people than the annual budget, and it is designed to serve as a bridge that connects an organization’s strategic conceptualization with its operational planning and financial budgeting.
Our research shows that nearly two-thirds (64%) of participants – all of whom are involved in long-range planning – are satisfied with the results of their process. If that was all there was to it, companies wouldn’t have to worry about how well they connect strategy with execution. However, other financial performance management research we conducted, which includes a broader sample of executives and managers in a variety of corporate roles and departments, paints a different picture. Among those participants, two-thirds (64%) said that their company’s executives have a well-defined strategy, but only 14 percent said that their company manages it well on a consistent basis.
There are complex reasons for the disconnect between corporate strategizing and day-to-day execution. A clear statement of strategic objectives is necessary, of course, but translating it into objectives for business units and individuals is another matter. Typically, executives use a combination of methods for communicating strategy and goals, including verbal iterations, electronic messages and scorecards with quantitative objectives. Executives may think they are communicating effectively, but often their efforts fall short. Our research finds that only one-fourth of participants understand these objectives well. This is often the case, as our long-range planning research finds that only 27 percent of executives communicate clearly and – just as important – consistently. As well, a common management approach is to set specific, measurable objectives for each business unit: About two in five do that. However, these objectives typically focus mainly on financial measures and do not include the nonfinancial objectives that are critical to achieving corporate strategy, among others market share, quality, customer satisfaction and time to market. Fewer than half (45%) of companies lay out formal, strategy-driven objectives in a scorecard, and almost none of those outside of financial services incorporate risk factors as part of their formal assessments. Only one in five find that when they need to determine the underlying facts behind numbers, it’s easy to determine the “what, why and how” behind them. Nearly half (45%) present little or no information about the company’s operating data, and 80 percent get little or no information about leading indicators that would enable managers to anticipate opportunities or issues.
Another aspect of knowing how to manage to the company strategy is understanding how the objectives and actions of one part of the business affect the others. Since most companies do not operate in a rigid command-and-control environment, it is important for managers in one area of the business to be able to anticipate how a change in their part of the company will affect others. An important objective in any corporation is to ensure that strategy and objectives are aligned across departments and business units. Yet only one-fourth of our participants said they have a clear understanding of the specific goals of other parts of the business, such as sales quotas, production targets and profitability, and how these affect their own area. This helps explain other findings described above, such as why so few companies react to changes in their overall business in a well-coordinated fashion – and why it is so common for the left hand not to know what the right is doing.
Since in business the only constant is change, it’s crucial for companies to ensure that they maintain strategic alignment when managing change. Unfortunately, few do. Only 14 percent said that when market or economic conditions change, their company’s response is well coordinated. While six in 10 said their response is somewhat coordinated, I think “somewhat” is an unacceptable standard because it results in diminished performance. After all, a “somewhat coordinated” juggler drops a lot of balls. Improving coordination is an area in which better communication across the company and a clearer view of operations are likely to improve performance in a sustainable fashion. Issues of coordination generally arise from a lack of communication or information availability, both of which reflect what information a company gathers and how it makes it accessible. When the problem is an inability to coordinate actions, the underlying issue usually is an inability to share information easily. Here again, having the means to bring together information from multiple data sources can make it feasible to increase the visibility of actions and status across functional silos.
Improving the connection between strategy and execution starts with a relatively simple conversation between the CEO on the one hand and executives and managers on the other. If asking “What is our strategy?” elicits answers that are inconsistent or rambling (or just blank stares), there’s a strategy communication issue. If the answer to the follow-on question “Can you measure how well you are performing to the company’s strategic objectives?” is no or “sort of,” then the company has a performance measurement or data availability issue or both. Addressing these gaps can go a long way toward diminishing disconnects between strategy and execution. Even if your company does an excellent or very good job of connecting strategy and execution, there is still likely to be room for improvement, especially in terms of providing executives and managers with a more complete view of what’s happening outside of the company, including market trend information and competitive intelligence. Despite a massive, two-decades-long investment in making business data of all types widely available, a majority of companies have yet to fully break free of process and management behavior constraints that are artifacts of a bygone, information-poor era. At the start of the strategic and long-range planning season, it’s time to think about translating all of the thoughtfulness and hard work into better execution.
Robert Kugel – SVP Research
The business/IT divide is a barrier that prevents most companies from achieving their true performance potential. The divide has remained a constant impediment since the dawn of business computing six decades ago. It’s not necessary for a CEO of a company to be able to write Java code or master the intricacies of an ERP or sales compensation application. However, that CEO must master the basics of IT just as he must understand basic corporate finance, the production process and – at least at a high level – the technologies that support that process. Only a handful of business schools give prospective MBAs a good grounding in the practical elements of information technology or preach the necessity of mastering an understanding of IT as they would, say, the efficient market hypothesis.
CEOs and other senior executives (such as the heads of sales, finance and manufacturing, to name three) by necessity have limited time to spend on understanding the opportunities and challenges in using IT strategically. They likely rely on their CIO or IT consultants for this. However, I think every senior executive must know certain essential aspects of IT. This post, the first in a series, will briefly cover the overarching approach to IT. Later posts will discuss important supporting technologies and today’s essential software categories. Each of these subjects is worthy of a chapter-length discussion or indeed a book; what follows is the “elevator pitch” version.
The most essential overarching question a senior executive needs to ask is, “How strategic should IT be to my company?” I think the answer depends on several considerations.
One such consideration, the strategic importance of IT to a particular industry, is essentially a given. If market leaders are innovative in the use of IT to drive and support many or all aspects of the business (such as marketing, sales, production, logistics and product development, to name some of the more common ones), it’s likely that every company in the same business will at least need to match these capabilities.
If no clear leader uses IT for differentiation, another consideration is what opportunities exist to employ information technology in any aspect of the business to gain a competitive advantage.
A third consideration is the attitude of executives and the board of directors to IT. If the culture of a company is dismissive of the value of IT, then it’s unlikely that IT can play a major role until and unless there is a change in attitude. It may not be enough that a market leader owes its position to better use of IT, and that an outside consultant has identified how to address gaps in the use of IT to enhance competitiveness. If the executives believe the company’s success rests solely on, say, superior merchandizing or advanced production, and that IT is just some tool for recording the details, it’s unlikely they will do much more than go through the motions of embracing information technology as a strategic tool. Companies get the IT departments they deserve. CEOs who think IT is unimportant probably cannot attract or retain top-shelf IT talent, who go where they are most appreciated.
The matter of how to use IT strategically in the business is a question that every senior executive must consider formally at least annually and optimally on a quarterly basis. This consideration needn’t go into a great deal of depth or require a multi-day offsite gathering. An hour or so to consider what’s possible and to delegate followups should be sufficient. A consistent, periodic approach produces better results than an ad-hoc one.
While high-level strategy is the most basic overarching issue, managing the low-level details is not far behind. Effective data management is a core capability almost as important as the ability to manage cash (either the physical stuff or the bank balances). Our research consistently shows that managing data is a challenge for companies, and the magnitude of the challenge multiplies with the size of the organization. Data management is critical regardless of where a company decides to put IT on the strategic scale. One reason why companies find it challenging is that few pay sufficient attention to managing it, and it’s nobody’s responsibility. Nobody wants to do it because it’s a very dull job. However, someone in the IT organization, not just the CIO, must have responsibility for data management, someone must establish performance metrics for it and the company must fund efforts to improve it.
A third overarching need is having someone with a good grasp both the business and information technology to bridge the business/IT divide. This individual should lead a cross-functional group that sets the direction of the strategy for using IT to improve corporate competitiveness and performance. It’s hard to say who this individual might be because in my experience it’s hard to find someone who understands both business and IT in sufficient depth. It might be the CIO if that individual understands the business end. It could be someone in a more junior position in finance or marketing or some other role. Taking the role of facilitator could be a career-building step for them. However, this is not a full-time position and it should not be treated as one. The company may consider bringing in an outside consultant, but if it does, that person should have no vested interest in actually implementing something, since those people have their own agendas and are more likely to focus on their areas of self-interest. Separating the guiding and assessing from the implementing and doing may seem inefficient or an invitation to pie-in-the-sky solutions, but it probably will save money, and whoever a company hires should demonstrate a flair for the practical.
These are the three overarching issues that each CEO should formally address on an ongoing basis with respect to his company’s use of IT. If they are not already doing so, everyone running a company needs to carve out time from their already overloaded schedules to better understand and manage the information technology dimension of their business. Over the past 60-odd years, IT has grown in its importance to the daily functioning of a business and increasingly has become a means of competitive differentiation. Technology continues to advance, bringing threats and opportunities. CEOs must stay on top of how IT can serve their businesses.
Robert Kugel – SVP Research