The last two years have been pretty crazy. Whether your business has been doing well or badly in this environment, much of the last two years have probably felt a lot like crisis management. Starting with the new year in 2022, it’s a good idea to refocus your efforts on achieving your long-term strategic goals instead of continuing to just react to the short-term chaos. At this time of year, most companies already have a strategy in place. Hopefully, this strategy has at least informed your annual budgets and financial targets for the year. But have you thought about how to balance the short term need to ‘make the numbers,’ with the long-term actions needed to make the strategy real?
At Amphora we are a boutique consulting partnership focused on developing impactful strategies for our clients. If you have read our book, “Grassroots Strategy: Cultivating B2B Growth from the Ground Up”, or worked with us to develop your Business Unit or Corporate Strategy, you know that we have well-formed views on what a good strategy is and a proven process to develop one.
Typically, developing a strategy is structured as a discreet project; however, finalizing the strategy document is obviously not the end of the process. The strategy needs to be implemented, monitored and adjusted over time. A strategy is explicitly about making decisions today focused on achieving a result in the future. As we often say, a strategy that doesn’t change the decisions that you make is unlikely to be a good strategy. If you do not plan what you will do to achieve your strategy, set aside resources and define specific milestones, you are unlikely to achieve the desired future results.
Several years ago, we worked with a mid-sized company to develop a strategy for the business. The management team, the board and our team believed that we had developed a winning strategy that would deliver outstanding long-term growth and set the company up to be a leader in their industry.
One year later, we were asked by the board to come back and revisit the strategy. After some examination we determined that the company had delivered earnings beyond expectations, but had not grown relative to their markets and had not really done anything but pay lip service to the strategy we had developed together. In a discussion with the board, we all agreed that the strategy was still the right strategy but that the management team had not done anything to implement it. One of the board members put it best, he said “So you mean we have a really good strategy on paper and now we need to turn it into a real strategy”.
Since we judge ourselves on results, we felt at least partially responsible and dug in to see what we could do to turn our ‘paper strategy’ into a ‘real strategy.’ It wasn’t too hard to figure out that higher than forecast commodity prices that year had provided the business with great tailwinds that allowed them to easily make and exceed their earnings targets, almost completely explaining the performance. Like most companies, the management team was primarily compensated on earnings and the quarterly board meetings focused mainly on updates versus the plan, with strategy relegated to an annual discussion.
To be fair the company had just come under new ownership, so they were still working out their governance model. We were able to help them establish a meeting cadence and compensation scheme that helped drive the right discussions. That having been said “paper” strategies are all too common.
At another client we were brought in to develop strategies for each of the corporation’s three major Business Units. Our instinct was to start the strategy work by revisiting the previous strategies. It turns out that they had done a similar exercise three years before, developing strategies with the help of a major consulting firm, that were then presented to the board. One of the first signs that there was something amiss was the time it took for each of the business units to locate and send to us these previous strategies.
Upon examination the previous strategy work was coherent and had good ideas about how to grow the business, but apparently had no relationship to what the business units actually did over the three previous years. In fact, the business unit leaders clearly had not referred to the strategies over the ensuing three years and struggled to see their relevance now. Once again, they were ‘paper strategies’ documented to satisfy the board, so the management team could go back to business as usual with day-to-day operation of the business. As we helped develop the new business unit strategies, we also changed the review process to build in accountability for actually changing the business.
So how do you make sure you end up with a “real strategy” and not just a “paper strategy”? We don’t have all of the answers, but we have some guidelines based on our experiences over more than twenty years and hundreds of product lines, business units and corporations.
- Don’t “give” a Management Team a Strategy. Strategies are most likely to be understood and implemented if they are developed by the management team themselves. Good strategy consultants can guide the process, do a lot of the analysis, make recommendations and even write the document but the management team has to make the key decisions and own the strategy itself.
- Don’t Focus on a Document for the Board. While it may not seem that way at the time, it is really important that the strategy be a living document that articulates how the management team intends to meet its aspirations not be framed up as something to deliver to Senior Management or the Board. The most important output of a strategy process is an agreement among the management team as to how the business will win, a communication of this understanding to the rest of the organization and a translation of this into priorities that cascade through the business. This can be reported to Senior Management or the Board but the process should not be focused on “the document”.
- Include Quarterly Milestones and Non-Financial KPI’s in the Strategy. Once the strategy has been developed, go through the process of being explicit about what you will start doing, what you will continue doing and what you will stop doing. It can be helpful to articulate the major “themes” or “pillars” of the strategy. Then, you can then break the strategy down into key initiatives that support each pillar and set milestones for making progress against each initiative. Don’t just include financial metrics, develop KPI’s that reflect what we should expect so see if the strategy is working (e.g., “Version 2 of our maintenance platform being used across the company by the end of Q2”).
- Monitor the Strategy more than Once a Year. Too often the rhythm of governance is dominated by reviews of financial metrics usually focused on meeting quarterly earnings goals. When this happens management’s focus is exclusively drawn to the short term and it should be no mystery why, at the end of the year, little progress has been made towards longer term strategic goals. We see the value and necessity of monthly financial and operating reviews; however, these need to be counterbalanced with a cadence of similar meetings focused on the strategy and strategic goals. In our experience these meetings need to be set up as completely separate from monthly operating meeting so that the short term does not constantly crowd out the longer-term initiatives. We think a quarterly review of progress against the strategy is about right, and if desired, a simple “red/yellow/green” dashboard can keep management informed between these meetings.
- Create Incentives that include Strategic Goals not Just Financial Metrics. We are not compensation experts but, we know enough to understand that people’s behavior are driven by what they are rewarded for. Compensation based primarily on annual financial results will drive short term focus. Balancing incentives between financial results and strategic goals will get a different result. If you’re having trouble keeping the management team’s focus on longer-term strategic goals, you may want to look at your compensation structure to make sure this is not part of the problem.
It is not always easy for strategy consultants to admit that implementation and follow-through are at least as important as the strategy on paper. But in the end, we are reminded of the Seinfeld episode where Jerry has made a reservation for a rental car but the rental car company had run out of cars. Jerry says, “You see, you know how to take the reservation you just don’t know how to hold the reservation”. Developing the strategy is not enough you also have to know how to pursue the strategy.