Current Thinking on Strategic Planning and Implementation

Cap Gemini Ernst & Young

July 2001

Were trying to answer two questions

How do global, multi-business line companies develop strategy?
Focused on the role of the corporate centre in helping companies make, communicate and implement strategies.

What is the latest thinking on how these companies should develop strategy?
What does good look like? Best practice? Useful approaches?

It is intended to foster discussion about how to address the key challenges.

Cap Gemini Ernst & Young Proprietary and Confidential

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Document structure
Corporate Strategic Planning?:
Why Do It? How Does It Happen? What Does It Look Like? What Are Some of the Pitfalls?

Evolving Ideas on What Good Looks Like Implementing Strategic Intent Company Examples Implications for Global, Multi-business Companies

Cap Gemini Ernst & Young Proprietary and Confidential

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Corporate Strategic Planning

Why Do It?
How Does It Happen? What Does It Look Like? What Are Some of the Pitfalls?

Why have a corporate strategic planning function?

To be the custodian of the overall best interests of the corporation:
Maximise the overall performance of the business portfolio Manage trade-offs across the business Tee-up investment/resource-allocation choices and decisions

To set the boundaries of the company:

Whats in the portfolio Manage merger and acquisition activity

To steer and influence strategy making:

Influence managers in the business unit

Determine key mechanisms (planning procedures, hurdle rates, control processes, organisational processes)
Develop culture in which business units propose and implement strategy.

Cap Gemini Ernst & Young Proprietary and Confidential

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How does it happen?

Formal Strategic Planning Process

And/Or

Opportunistic Process

Set calendar Links corporate and BU strategic plans Linked to planning and budgeting cycle

One-off event or process Possibly triggered by internal or external changes Could be managed internally, or draw on external help May or may not be linked to planning and budgeting

Cap Gemini Ernst & Young Proprietary and Confidential

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What does it look like?

Its very Varied

Centre very involved in BU strategies

Centre very detached

Elaborate planning systems

No planning systems

Strategic discussions very structured and formal

Strategy discussions ad hoc and informal

Centre initiates and executes acquisitions etc

Centre reacts to BU acquisition proposals

Cap Gemini Ernst & Young Proprietary and Confidential

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What are the pitfalls?

Pitfall
Habits of Mind Barons Interference Exercise in Cleverness Bureaucracy Hockey-sticks Lip Service Control Games Moving the Goalposts Yes, Chairman Strategy and Inaction

Definition
Tunnel vision, blindspots, or enthusiasms about the right strategy
Senior group executives fight to build up their own territories with little regard for the
corporate interest

Corporate influence over business unit strategies seen as arbitrary, unpredictable,

indiscriminate or uninformed

Fall into an adversarial mode in which corporate and business levels try to score
points off each other

Seen as a planning exercise, a repetitive annual event that adds little value Over-optimistic projections which reduce the value, and credibility of planning and
control

Disconnect between strategic goals and what really influences promotion and
financial rewardspeople pay lip-service to the strategy defined targets can damage long term business health

Control objectives can become ends in themselves and gamesmanship to meet Shifting strategic objectives Studies arrive at conclusions that already enjoyed wide support in the business Communication and consensus-building is not an integral part of the strategic
decision making process

Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Cap Gemini Ernst & Young Proprietary and Confidential
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Evolving Ideas on What Good Looks Like

This section is a potted history of ideas about good strategic management

Hamel Goold & Campbell
Hax and Majluf Mintzberg

Kaplan & Norton

Markides Gratton

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

T
H E M
Structure and roles. Formalised planning process. A looser role for strategic planning. How to operationalise strategy. Be creative. Be different. People focus.

E
S

Cap Gemini Ernst & Young Proprietary and Confidential

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GOOLD & CAMPBELL

Goold and Campbell tried to describe the best role for the corporate centre
How the centre should add value to the businesses. What sort of relationship it should have with business unit managers. How it should manage the process for making strategic decisions.

But they found no right answerno single, universal to good strategic management.

Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Goold & Campbell identified 8 strategic management styles, of which the above 3 were the most commonly used. Cap Gemini Ernst & Young Proprietary and Confidential
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GOOLD & CAMPBELL

Instead they found differentbut validstrategic management styles

Framework to Describe Strategic Management Styles
Centralised

High Planning Influence

8 different strategic management styles

Strategic planning

Strategic programming

Degree to which centre shapes strategies Measure of top-down involvement About input to decision

Financial programming

Strategic venturing

Strategic control

Holding company

Financial control

Low

Flexible Strategic

Tight Strategic

Tight Financial

Control Influence

Targets the centre agrees with BUs
How centre reacts to results About outputs of decisions

Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Goold & Campbell identified 8 strategic management styles, of which the above 3 were the most commonly used. Cap Gemini Ernst & Young Proprietary and Confidential
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GOOLD & CAMPBELL

The three most common styles were strategic planning, strategic control and financial control
Strategic Management Style

Strategic Planning
The centre:
Establishes extensive planning process. Makes major contributions to strategic thinking.

Strategic Control

A variation on the Strategic Planning style. Centre prefers to leave initiative in development of plans to BU managers. Centre checks quality of plans, rather than provides direction. Targets set for strategic objectives (e.g. market share) as well as financial performance. Courtaulds ICI

Financial Control

Centres influence exercised mainly through budgeting process. Broad strategic direction left to the business units.

Management Approach

May have a corporate strategy guiding BUs.

Less attention devoted to control targets.

Company Examples

BOC BP Cadbury Schweppes

BTR GEC Hanson Trust

Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Goold & Campbell identified 8 strategic management styles, of which the above 3 were the most commonly used. Cap Gemini Ernst & Young Proprietary and Confidential
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GOOLD & CAMPBELL

Successful companies matched their strategic management style to the business circumstances

Characteristics of Companies with successful decision-making process

Match strategic management style to the business circumstances Central managers close enough to each business to be able to add value

Diagnostic to help making strategic management style to business circumstances

Nature of the business:

Diversity of the business portfolio, and linkages between business units Size and payback of investments Stability of the competitive battle facing the business

A free and open exchange of information and views between the centre and business units
Shared commitment, energy and purpose between all levels of management.

Resources in the organisation:

Personality of the Chief Executive Skills and experience of senior managers Degree of financial stress on the organisation.

Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Goold & Campbell identified 8 strategic management styles, of which the above 3 were the most commonly used. Cap Gemini Ernst & Young Proprietary and Confidential
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HAX AND MAJLUF

Hax and Majluf focused on the process to develop a strategic plan

They outlined two Major Cycles in the Strategic Planning Process

Strategic Formulation

Strategic & Operational Budgeting

Corporate

Corporate

Business

Business

Functional

Functional

Source: A.C. Hax, N.S. Majluf: The Strategy Concept and Process, A Pragmatic Approach, 1996. Cap Gemini Ernst & Young Proprietary and Confidential
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HAX AND MAJLUF

They prescribed the whole strategic planning process through to detailed budgets
Planning Perspectives
Internal Scrutiny

Strategy Formulation
Environmental Scan

Strategic and Operational Budgeting

Horizontal Strategy and Vertical Integration Revisited Resource Allocation and Portfolio Management Budgeting guidelines

Corporate Strategy
Corporate Strategic Thrusts and Performance Objectives

Budgeting Consolidation and Approval

Mission

Business Strategy

Internal Scrutiny Proposed Strategy, Programs, and Budgets

Environmental Scan

Business Budgeting

Functional Strategy

Internal Scrutiny Proposed Strategy, Programs, and Budgets

Environmental Scan

Functional Budgeting

Source: A.C. Hax, N.S. Majluf: The Strategy Concept and Process, A Pragmatic Approach, 1996. Cap Gemini Ernst & Young Proprietary and Confidential
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HAX & MAJLUF

In this view, good strategic management involves following a disciplined process

Same process regardless of the companys business circumstances Strong focus on rational dimension, and data-driven approach Although prescriptive, probably reflects key elements of many strategic
management processes:
Strategy cycle feeding in to planning and budgeting cycle

Top-down and bottom-up iterations

Corporate, business and functional dimension to strategy making and planning and budgeting.

Source: Michael Goold and Andrew Campbell, Strategies and Styles, 1987. Cap Gemini Ernst & Young Proprietary and Confidential
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MINTZBERG

Mintzberg puts forward a very different view about good strategy making and good strategic planning

Deliberate Strategy

Emergent Strategy

Realisation of the strategy

matches the intended course of action Planned strategy Strategy developed in a formalised process Essence of strategy formulation = analysis Provides the organisation with a sense of purposeful direction.

The strategy is identified from

patterns of consistencies deserved in past behaviour despite, or in the absence of, intention Strategy develops inadvertently:
Without conscious intention of senior management Often through a process of learning

Synthesis of past and current

behaviour Essence of strategy formulation = creative act of synthesising experiences into a novel strategy.

Source: Henry Mintzberg, The Fall and Rise of Strategic Planning, Harvard Business Review, JanFeb.1994. Cap Gemini Ernst & Young Proprietary and Confidential
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MINTZBERG

For Mintzberg, successful strategy making is looser, messier, and more creative than conventional planning
Strategy making needs to function
beyond the boxes:
Understand the difference between strategic planning and thinking

Search all those strategic planning diagrams, all those interconnected boxes that supposedly give you strategies, and nowhere will you find a single one that explains the creative act of synthesising experiences into novel strategies

Strategic thinking involves intuition and creativity.

Strategies often cannot be developed on

schedule and immaculately conceived:
Must be free to appear at any time and at any place in the organisation Typically through messy processes at informal learning By people at various levels who are deeply involved with the specific issues at large.

Source: Henry Mintzberg, The Fall and Rise of Strategic Planning, Harvard Business Review, JanFeb.1994. Cap Gemini Ernst & Young Proprietary and Confidential
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MINTZBERG

He saw five roles for strategic planners

Role Specifics
Codify - clarify and express - the strategies in terms sufficiently clear to
make them fully operational. Elaborate them into sub-strategies, ad hoc programmes, and action plans. Convert them - e.g. consider their effects on budgets and performance controls.

Strategic Planning

Communication & Control

Communicate strategic intentions - via programmes, schedules, budgets Control pursuit of them Gain support of influential outsiders Help managers find fledgling strategies: Find patterns Discover new ways of doing or perceiving things Analyse specific issues Provide simple, alternative conceptual interpretations of the world

Finding Strategy

Analysis

Catalyst

Encourage managers to think about the future in creative ways Get others to question conventional wisdom, and help people out of
conceptual ruts.

Source: Henry Mintzberg, The Fall and Rise of Strategic Planning, Harvard Business Review, JanFeb.1994. Cap Gemini Ernst & Young Proprietary and Confidential
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KAPLAN & NORTON

Kaplan and Nortonin the 90sshifted the focus to operationalising the strategy
Kaplan and Norton, like others, linked shareholder value creation to strategy
to tangible measurable performance at a grass roots level

Their unique insight was to balance the financial perspective against a

customer perspective, an internal business perspective, and an innovation and growth perspective

Power of approach is in integration:

Links strategy to shareholder value creation through an integrated set of specific objectives with clearly-defined measures Enables strategic goals to be translated into achievable, measurable objectives throughout an organisation.

Source: Robert S Kaplan and David P Norton, The Balanced Scorecard, Translating Strategy Into Action, 1996. Cap Gemini Ernst & Young Proprietary and Confidential
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KAPLAN & NORTON

In 2001, Kaplan and Norton broadened the role of the Scorecard to encompass mobilising and engaging people
The new scorecard has a stronger mobilisation focus:
Provides a mechanism for integrating the efforts of the whole organisation, involving all employees in the strategy discussion Provides continuous feedback or the effectiveness of the strategy

Mobilises change through executive leadership

The most important broadening of the role is in the concept of the strategy
map:
Provides the primary basis for conceptionalising how the strategy works Maps all the underlying dynamics through which strategy drives performance

The strategy map is a visual tool to link the scorecards financial perspective
with new, broader customer, internal and learning and growth perspectives:

Customer perspective - defines the customer value proposition that will

deliver the financial performance
Internal perspective - outlines how internal operations and innovation will create customer value Learning and growth perspectives show how to develop internal capabilities that the internal processes need.
Source: Robert S Kaplan and David P Norton, The Strategy-Focused Organisation: How Balanced Scorecard companies thrive in the new business environment. Cap Gemini Ernst & Young Proprietary and Confidential
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HAMEL

Hamels most recent view is good strategy making is about information and revolution
Key themes:

Todays business environment is in an age of revolution The status quo is doomed - the only chance for survival is innovation:
Business concept innovation Innovation that changes the bases of competition in an industry

Call to create permanent revolution:

Continually challenge, refresh and overturn prevailing mindsets in an industry.

Too influenced by the dot.com bubble?

Source: Gary Hamel, Leading the Revolution, 2000. Cap Gemini Ernst & Young Proprietary and Confidential
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MARKIDES

Markides view is also about innovationgood strategy making is about thinking and being different
Key themes:

Companies need to continually explore new opportunities for strategic

innovation

Strategy innovation is about exploiting unique strategic positions. To do this

companies need to answer some basic questions:
What business are we in? Who are our customers? What will we offer them? How will we do this efficiently? What kind of organisation do we need to support our choices?

Unusual success in business derives from doing unusual things The essence of strategy and competitive advantage is not doing the same
things as your successful competitors, but doing it differently.
Source: Constantinos Markides. All the Right Moves, 2000. Cap Gemini Ernst & Young Proprietary and Confidential
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GRATTON

And Grattons perspective is that good strategy making is about capturing the emotional commitment of people
Key themes:

A companys capacity to perform is dependent on its ability to:

Capture the emotional commitment of its members, and Integrate this commitment into complex modem of co-operation and collaboration

Gratton proposes humanistic and action-orientated view of organisations:

Humanistic : corporations are social entities that provide meaning and purpose for people
Action-orientated : Companies exist not for the development of their employees, but to perform business tasks and deliver on business goals Companies that successfully bridge those two ideas can enhance organisational performance

Gratton provides a six-step management process to link the nature and

aspiration of human beings with the performance of the organisation.

Source: Lynda Gratin, Living Strategies: Putting People at the Heart of Corporate Purpose, 2000 Cap Gemini Ernst & Young Proprietary and Confidential
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So, good strategy making (from corporate view) is about . . .

Emerging Themes
. . . horses for courses (specific to each company) . . . following a disciplined, formal process . . . between the boxes stuff (creativity, learning) . . . operationalising the strategy . . . mobilisation . . . innovation . . . revolution . . . being different, being unusual . . . capturing the emotional commitment of people
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Situational Strategic Management Styles A Formal Process Fresh Creative Thinking/Ideas Operationalising the Strategy Being Different

Buy-in and Mobilisation

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Implementing Strategic Intent

Mintzbergs Three Step Operation
Balanced Scorecard Business Management Process

STRATEGIC IMPLEMENTATION

Having decided ones strategy, implementing strategic intent is essential for operational reality to follow

The tools to develop an appropriate organisational strategy for change are well proven However many businesses fail to deliver the strategy they develop Usually the fundamental business management process is at fault the bridge between strategy and operation is not functioning High

Turning Vision into Reality

A powerful business strategy needs to be matched by a powerful delivery mechanism in order to turn vision into reality

Unfulfilled vision Operational Engine

Power of Strategy

Challenging vision

Strategy

Various models exist to ensure the machinery between strategy and operational engine are effective:
Mintzbergs three step operation Balanced scorecard Business management process.

No vision

Pedestrian vision

Low Low
Power of Delivery Method

High

To exploit an organisations capability and potential, the power of its strategy needs to be matched by the power of its delivery mechanism and pace of implementation.
Source: Alan Meeking, Business Strategy Review, Winter 1994. Cap Gemini Ernst & Young Proprietary and Confidential
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STRATEGIC IMPLEMENTATION: MINTZBERGS THREE STEP OPERATION

Strategic planning must be differentiated from strategic thinking

Strategic Planning Overview What is Strategic Planning?

Strategic planning is defined as the process by which an organisation envisions its future and develops the necessary procedures and operations to achieve the future it requires the clear setting of goals and objectives which provide the organisation with its core priorities and a set of guidelines for virtually all day-to-day managerial decisions
It is a structured process that organises and co-ordinates activities of managers who do the planning.

Strategic Planning Issues

Many companies have a problem with the actual planning system. It often breaks down because of faulty preparation and implementation
Line managers not involved Business units not designed correctly Action steps not defined in detail Strategic plans not integrated with other organisational controls like budgeting Objectives not defined properly by top management

However, the how to do it in practice varies significantly between companies there is no one right solution.

What is Strategic Thinking?

This is the creation of new business strategies in either a formal or informal setting.
Cap Gemini Ernst & Young Proprietary and Confidential
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Source: The Fall and Rise of Strategic Planning, Henry Mintzberg, HBR, Jan-Feb 1994.

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STRATEGIC IMPLEMENTATION: MINTZBERGS THREE STEP OPERATION

Strategic planning can be used to programme and operationalise a companys strategies in three steps
Codification

Strategies must be clarified and expressed in terms sufficiently clear to render them formally operational, so their consequences can be worked out in detail Care and attention to detail is essential so as not to lose nuance and subtlety E.g. A broad vision like capturing the market for a new technology is very different from a specific plan to increase market share to 35%, focusing on the high end.

Elaboration

Codified strategies need to be broken down into substrategies and adhoc programs as well as overall action plans specifying what must be done to realise each strategy E.g. Build four new factories and hire 200 new workers.

Conversion

Consider the effects of changes on the organisations operations e.g effects on budgets and performance controls Objectives need to be restated and budgets reworked, policies and standard operating procedures reconsidered to take into account the consequences of the specific changes.

Co-ordination of strategy and formalisation into an operational plan.

Programing of strategy in this way will also gain the tangible as well as moral support of influential outsiders such as financiers, suppliers and governmental agencies.
Source: The Fall and Rise of Strategic Planning, Henry Mintzberg, HBR, Jan-Feb 1994. Cap Gemini Ernst & Young Proprietary and Confidential
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STRATEGIC IMPLEMENTATION: BALANCED SCORECARD

The balanced scorecard facilitates the development of strategic planning through to an operational plan
The four management processes on the scorecard separately, and in
combination, contribute to the linking of long-term strategic objectives with short-term actions. Managing Strategy: Four Processes
Translating the vision Clarifying the vision Gaining consensus Communicating and linking Communicating and educating Setting goals Linking rewards to performance measures

Balanced Scorecard

Feedback and learning Articulating the shared vision Supplying strategic feedback Facilitating strategy review and learning

Business planning Setting targets Aligning strategic initiatives Allocating resources Establishing milestones
Source: Using the Balanced Scorecard as a Strategic Management System, Kaplan and Norton, HBR, Jan-Feb 1996. Cap Gemini Ernst & Young Proprietary and Confidential
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STRATEGIC IMPLEMENTATION: BALANCED SCORECARD

The balanced scorecard facilitates the development of strategic planning through to an operational plan

Translating the Vision

Helps managers build a consensus around the organisations vision and strategy, in order for people to act on becoming best in class, number one supplier. Statements must then be translated into operational terms that provide useful guides to action at the local level.

Communicating and Linking

Lets managers communicate their strategy up and down the organisation and links it to departmental and individual objectives
E.g An oil company uses the scorecard as the basis of calculating incentive compensation.

Business Planning

Almost all organisations are implementing a variety of change programs. Managers have difficulty integrating diverse initiatives to achieve their strategic goals, leading to frequent disappointment When managers use the ambitious goals for balanced scorecard measures as the basis for allocating resources and setting priorities, they undertake only the initiatives that help achieve their long term strategies.

Feedback and Learning

Existing feedback and review tends to focus on whether company/department/ employees have met their budgeted goals With balanced scorecard a company can monitor short term results from three additional perspectives customers, internal business processes and learning and growth and evaluate strategy

Traditionally departments are evaluated by their financial performance and individual incentives are tied to short term financial goals The scorecard gives managers a way of ensuring that all levels of the organisation understand the long term strategy.

Strategies can therefore be modified to reflect real-time learning.

Source: Using the Balanced Scorecard as a Strategic Management System, Kaplan and Norton, HBR, Jan-Feb 1996. Cap Gemini Ernst & Young Proprietary and Confidential
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STRATEGIC IMPLEMENTATION: THE BUSINESS MANAGEMENT PROCESS

The business management process is dynamic and is built up in stages

The Business Management Process (BMP) Framework
2 Key Performance Indicators

Customer and Shareholder Needs

Strategic Business Objectives

Performance Targets 4 Gap Analysis 5 Improvement Initiatives

Structured Review

Linkage

The business management process is a framework to facilitate operationalisation of an organisations strategy Its elements do not have to be implemented concurrently or in full to start producing an operational benefit and organisational learning The framework is founded on the premise of Plan-Do-Review new strategic objectives are set in the light of achievement and experience hence, institutionalising continuous improvement.

Source: Implementing Strategic Intent: The Power of an Effective Business Management Process, Alan Meeking, Business Strategy Review, Vol. 5 No. 4. Cap Gemini Ernst & Young Proprietary and Confidential
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STRATEGIC IMPLEMENTATION: THE BUSINESS MANAGEMENT PROCESS

The seven elements of the business management process allow incremental progress to be achieved and reviewed
Business Management Process Framework

1. Strategic Business Objectives

Setting objectives based on needs of organisations primary stakeholders (customers and shareholders) Translating these needs into a limited number of strategic business objectives to be achieved in a given time period.

2. Key Performance Indicators

Introducing a balanced set of KPIs related directly to the strategic business objectives linked top-tobottom throughout the organisation and derived from the root causes and key drivers of operational and financial performance.

3. Performance Targets

Setting challenging targets against the KPIs as a spur to achievement and as a foundation for systematic progress review Targets must be cascaded throughout the organisation, broken down into sub-targets for shorter time windows and communicated visually.

2 3 4 5 7

4. Gap Analysis

Identifying the performance or capability gaps that must be closed in order to deliver the targeted performance levels, based on the premise that you cannot have a performance target without some concept of the means for its delivery.

5. Improvement Initiatives

Developing a limited set of properly planned resources and managed improvement programs to close the gaps in performance or capability Identifying, prioritising merging and rationalising the large number of existing initiatives thereby releasing energy, resources and goodwill across the organisation.

6. Structured Review

Implementing structured, simultaneous and interactive review of progress against both KPI targets and improvement initiatives KPIs are reviewed at an appropriate frequency Performance information is factual and is simply presented Focus is an action not on excuses Follow up is well planned and conspicuous.

7. Linkage

Replicating the basic BMP framework at each review level and connecting the organisation top-to-bottom through cascaded KPIs and structured review.

The critical elements of this system are structured review and top-to-bottom linkage.
Source: Implementing Strategic Intent: The Power of an Effective Business Management Process, Alan Meeking, Business Strategy Review, Vol. 5 No. 4. Cap Gemini Ernst & Young Proprietary and Confidential
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STRATEGIC IMPLEMENTATION: THE BUSINESS MANAGEMENT PROCESS

Improved performance using the business management process

Reasons for BMPs Success

Top-to-bottom attention is directed on achieving the organisations key objectives Shortfalls in performance are promptly and systematically addressed

Potential Pitfalls

Barriers to change
Managerial frustration Staff cynicism Lack of resources

The Pull-Through Effect of KPIs and BMP

Business Need
Effective Leadership

Lack of support from the top.

A continuous cycle of planning, objective-setting, achievement and review drives organisational learning and continuous improvement
Activities not contributing to key business objectives are quickly identified and eliminated, releasing resources for more productive use.

Critical Success Factors

Support from the top Target the enthusiastic first External help in implementation to start the process off and move it to the point where improvement is self-sustaining.

The whole process gives a substantial boost to managerial productivity. Anything up to a 10fold cut in unproductive meeting time is common place Alan Meekings

Source: Implementing Strategic Intent: The Power of an Effective Business Management Process, Alan Meeking, Business Strategy Review, Vol. 5 No. 4. Cap Gemini Ernst & Young Proprietary and Confidential
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