A Solution to the Pitfalls of Ineffective Strategic Planning

A Solution to the Pitfalls of Ineffective Strategic Planning

Forrest W. Breyfogle III CEO and President, Smarter Solutions, Inc.



Abstract

In strategic planning sessions, often at an executive retreat, business leaders develop strategies that provide direction for the organization. Key Performance Indicators (KPI's) might then be created for tracking how well the organization is moving toward achievement goals aligned to these strategies. The balanced scorecard1 and hoshin kanri are techniques that provide vehicles for aligning organizational-chart work efforts to executive-determined strategies and goals.

Because of this sequence of events, strategic planning could be considered as step one in an overall traditional business-management-system process. However, what is the implication of this business management approach? Does it lead everyone in the organization to do what is best for the business as a whole? What is really important for business success is that the business moves toward achievement of the 3 Rs of business; i.e., everyone doing the Right things, and doing them Right, at the Right time. Is there a better approach to achieve the three Rs of business? This whitepaper suggests that there is and describes a completely-documented system for addressing these issues.

Our current management system is broken and needs reinvention. This whitepaper describes such a business management governance system, providing a guiding light for organizations to address the challenges of the 21st century.

Consider how with a traditional approach, organization-wide communicated developed strategic statements can be very difficult to translate into specific employee actions. There was one organization which communicated an "expansion of production capacity" strategy. Should this strategy be applied to all produced products? For most situations, this would not be effective.

Created strategies can significantly change over time and with leadership changes. It is important to have strategies; however, is it best to have strategy-building as step one from which organizational metrics and operational goals are determined?

This whitepaper first considers the sequence of events from a traditional strategic planning approach and the resulting actions, both of which can lead to very unhealthy business behaviors. Next, an alternative, enhanced methodology is described where strategies are determined analytically/innovatively in step five of a 9-step business-management-system framework. Within this described enhanced Corporate Performance Management (CPM) System, welldefined strategies are created, which lead to targeted improvement or design projects that benefit the enterprise as a whole.

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Traditional Strategic Planning

Organizations often annually create a strategic plan to provide direction for the year. In a facilitated off-site session, executives could create a next-year strategy using a tool such as a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. This effort can result in statements such as that shown in Figure 1.

Foxconn's obj ect ive is t o m aint ain it s posit ion as one of t he leading m anufact urers of connect ors, PC enclosures, and other precision com ponent s, and to successfully develop products and m arket its products for use in network com m unicat ion and consum er electronic products. A num ber of strategies have been developed to attain this obj ective:

D e ve lop st r a t e gic r e la t ion sh ip w it h in du st r y le a de r s -- By working closely w it h t op- t ier PC and I C com panies, Fox conn is able t o predict m ark et t rends accurat ely and int roduce new product s ahead of it s com petitors.

Focu s on t h e de ve lopm e n t of globa l logist ic ca pa bilit ie s -- This enables Foxconn t o respond quick ly and efficient ly to t he custom er's requirem ents around the world.

Ex pa n sion of pr odu ct ion ca pa cit y -- Foxconn current ly has product ion facilit ies in Asia, Europe, and t he Unit ed St at es. Expanding it s exist ing product ion capacit y increases econom ics of scale.

Ach ie ve fu r t he r ve r t ica l in t e gr a t ion -- Furt her int egrat ion of t he product ion process allows Foxconn t o exercise better control over the quality of its products.

M a in t a in t e ch n ologica lly a dva n ce d a n d fle x ible pr odu ct ion ca pa bilit ie s -- This increases Foxconn's com petit iveness relat ive to its peers and allows it to stay one st ep ahead of the opposit ion.

N e w pr odu ct s -- Foxconn will leverage off it s m anufact uring expert ise and cont inue t o m ove t irelessly int o new areas of relat ed business.

Figure 1 Corporate Strategy Example1

From Figure 2.4 The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning and Business Improvement, Forrest W. Breyfogle III, Bridgeway Books, 2008.

In the traditional next-step, Executives communicate these statements to their organization with the belief that this action will help their managers make good decisions.

Comment: In an Elephant in the Room white paper2, several common management practices are described that are not openly challenged, but can lead to unhealthy, if not destructive, behaviors. In an objective assessment, one might ask how managers throughout the organization expect to do a better job with knowledge that the firm is pursuing a strategy of "develop strategic relationship with industry leaders." Described later is an alternative business system that addresses this elephant-in-the-room issue.

One approach for the organizational deployment of these strategies is hoshin kanri, which means management and control of the organization's direction or focus. In the hoshin kanri methodology, strategies are cascaded downward throughout the organization chart using a "catchball" give-and-take negotiating process until consensus is reached relative to specific enterprise-wide tasks being identified with project-management goals.

Organizations can implement hoshin kanri in conjunction with "the balanced scorecard3." Metrics in the balanced scorecard are to be aligned with the business vision and strategy statements, where each category is to have objectives, measures, targets, and initiatives as illustrated in Figure 2.

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Financials

Customer

Vision and Strategy

Learning and Growth

Internal Business Processes

Each Category has: Objectives, measures, targets,

and initiatives

Figure 2: Aligning projects with business needs through EDMAIC roadmap for project selection and P-DMAIC or DMADV roadmap for project execution

From Figure 2.5 The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning and Business Improvement, Forrest W. Breyfogle III, Bridgeway Books, 2008.

In an organization these objectives can then lead to red-yellow-green scorecards, where the color is red when the goal is not being met and there needs to be immediate corrective action, as illustrated in Figure 3.

Comment: Red-yellow-green scorecards are another elephant in the room issue2 where this form of scorecard reporting can lead to the treatment of common-cause variability as though it were special cause and to much firefighting. "Creation of Effective Organizational Predictive Metrics that Lead to the 3 Rs of Business"4 elaborates more on this elephant-in-the room issue and provides a resolution.

Elephant-in-the-Room Issues with Traditional Strategic Planning

Hambrick and Fredrickson5 made the following statement about a set of strategic statements similar to those listed in Figure 1: "What do these (strategic statement) declarations have in common? Only that none of them is a strategy. They are strategic threads, mere elements of strategy. But they are no more strategies than Dell Computer's strategy can be summed up as selling direct to customers, or than Hannibal's strategy was to use elephants to cross the Alps. And their use reflects an increasingly common syndrome--the catchall fragmentation of strategy." Organizations need strategies; however, strategy statements need to facilitate business movement toward achievement of the 3 Rs of business.

Let's now assess elephant-in-the-room issues with hoshin kanri, the balanced scorecard, and red-yellow-green scorecard business practices.

The following hoshin kanri issues were identified in the book, The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning, and Business Improvement6:

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? Execution possibilities for strategies (using hoshin kanri) are very team dependent and can lead to detrimental activities for the enterprise as a whole.

? The driver and infrastructure of hoshin kanri center on the cascading of executive management's strategies throughout the organization. The direction of work activity could significantly change when there is a significant change in executive leadership or leadership direction. The time could be lengthy and resource needs could be large to incorporate executive direction change into an enterprise hoshin kanri system.

? Missions and strategies are to cascade throughout the organization chart. An organizational change, company purchase, or company spin-off that redirects focus could lead to much confusion and frustration.

? For a given situation, there can be many ways to analyze data. A roadmap is needed for these analyses; for example, analyze phase of P-DMAIC.

? Table listings for performance-measure action limits can lead to the wrong activity. This format for action-limit establishment does not systematically address process shift and other situations that can be addressed only through charting. Performancemeasure action limits set without examining a 30,000-foot-level operational control chart can lead to firefighting.

Many organizations have found that hoshin kanri can become a paperwork jungle.

The following observations and issues with the balanced scorecard were also presented in the book6:

Scorecard balance is important because if you don't have balance you could be giving one metric more focus than another, which can lead to problems. For example, when focus is given to only on-time delivery, product quality could suffer dramatically to meet ship dates. However care needs to be given in how this balanced is achieved. A natural balance is much more powerful than forcing balance through the organizational chart using a scorecard structure of financial, customer, internal business process, and learning and growth that may not be directly appropriate to all business areas. In addition, a scorecard structure that is closely tied to the organization chart has an additional disadvantage in that it will need to be changed whenever significant reorganizations occur.

The system, described later on page 8, achieves a natural scorecard balance throughout the business via the enterprise value chain, noting that overall learning and growth would typically be assigned to HR but, when appropriate, can also be assigned to other functional performance. Metrics are assigned to an owner who is accountable for the metrics' performance. These metrics can be cascaded downward to lower organization functions, where these metrics also are assigned owners who have performance accountability. With this system, whenever there is an organizational change, only the ownership will change but not the basic value chain metrics,.

When creating these metrics, it is important not only to determine what to measure but also to focus on the how to report so that this metric performance tracking leads to the most appropriate action, which maybe to do nothing.

Jim Collins describes in Good to Great10 a level five leader as someone who is great while leading an organization and whose effect remains after the person is no longer affiliated with the organization. I describe the level-five-leader-created legacy as being a Level Five System.

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In my workshops, I often ask, "Do you think that your organization's strategy would change if there were different leadership?" A vast majority gives a positive response to this question. Because of this, it seems to me that it would be very difficult for an organization to create a Level Five System when the primary guiding light for the organization is its strategy, which can change with new leadership.

I don't mean to imply that organizational strategies are bad, but I do believe that strategies created without structurally evaluating the overall organizational value chain and its metrics can lead to unhealthy behavior.

In addition, the book6 states the following about red-yellow-green scorecards:

When it is conducted throughout an organization, do you think that red-yellow-green form of goal setting and managing to these goals will lead to the right behavior? Goals are important; however, metric targets need to be SMART (specific, measurable, actionable, relevant, time-based). Arbitrary goal setting and management to these goals can lead to the wrong behavior!

When creating red-yellow-green scorecards, metrics are established throughout the organization, along with metric goals, as illustrated in Figure 3. When a metric goal is being met, all is well and the color is green. When measurements are close to not being met, the color is yellow. The metric is colored red when the goal is not being met and corrective action needs to be taken.

What will you often see in a red-yellow-green scorecard system that follows a "the balanced scorecard" approach? Many metrics are grouped by business area. Also, many measurements could be colored red, and metrics even transition from red to green and back. Finally, there can be many metrics for one scorecard. Experts say that most scorecards should include 7-10 metrics. Any more than that, and a person will struggle monitoring and acting on them.

After examining a chart, one might ask a particular red-yellow-green pattern: How can you have a metric that is red for the entire reporting period? Is no one monitoring it? Is it based on an arbitrary target and just ignored? Who knows, but all are possible.

These types of scorecards/dashboards can initially sound very good. However, metric tracking against goals can lead to non-effective firefighting activities or playing games with the numbers. Game-playing to meet calendar goals for bonuses occurs not only at the executive level but also in the sales department. The following example illustrates how the wrong activity can be stimulated at an employee level by a goal-driven metric.

All employees in a company were given a bonus if they met a calendar-based revenue goal. This company's business service involved managing large amounts of customer money. Large checks could flow to the company from its customer even though the company kept only a small portion of the money. A company goal had been set at one level for many years, so that employees became accustomed to receiving this periodic bonus compensation.

A major customer was to make an unusually large payment. The payment size required signature approval by the customer's CEO. The customer asked if he could pay in smaller amounts spread over a longer period so that he could avoid the hassle of having CEO approval. The service company agreed since it wanted to be customer-driven but later determined that this agreement negated the periodic bonus.

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