Strategic management – Improving strategy execution and business coordination

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chess-140340chess-316658Planning a project can be complex and requires a lot of time and effort. However, even a well thought out blueprint cannot ensure that in reality everything goes as planned. It needs to be well executed.

When planning to build a house, preparing a meticulous plan and a detailed budget is important, but is not a guarantee for success. Problems often begin appearing when the construction starts.  If activities are not well coordinated, supplies may not arrive in time or may not be of the right quality, and tradesmen can miss deadlines and delay other work. This may result in a lot of frustration, additional cost, and maybe even in a house that is different from what was planned in the first place.

Business managers experience similar challenges. They make plans for how to manage existing business, and they plan how to grow and evolve the business. Planning helps to define strategy, to take decisions and to allocate resources to various activities. So does coordination.

Budgeting and financial planning serve as baselines
For the purpose of this article, we can distinguish two main types of planning approaches. The first approach is called budgeting and financial planning. It focuses on how the company manages its current activities and the respective financial outcomes. It covers the upcoming financial year and includes a projection of the financial performance for another few years. However, it rarely deals with changes in the competitive environment e.g. new entrants or new products in the market.

Strategic planning takes market uncertainty into account
The second approach is strategic planning. The strategic plan is a result of a strategy formulation process that includes, amongst many other things, the analysis of the competitive environment, evaluating opportunities with their associated risks, prioritizing opportunities, and allocating resources. It helps the business to focus on its strategy, to set goals, to communicate internally, and to define responsibilities and who does what. Strategic planning includes the analysis of the competitive environment and therefore deals more effectively with uncertainty.

Executing strategy is about turning a plan into reality
Planning is indeed important, however, we know that it is only the first step. Strategy implementation or execution is a critical part in ensuring the long-term success of a business.

Donald Sull, Rebecca Homkes and Charles Sull define strategy execution as “the ability to seize opportunities aligned with the strategy while coordinating with other parts of the organization on an ongoing basis”.

There can be many impediments to turning a strategic plan into reality. Over the years, companies must constantly improve their business processes in order to reduce the risk of strategy execution failure.

Multinational companies are complex organizations
Today’s business environment is increasingly complex and competitive, in large part due to ongoing globalization. Multinational companies are active in many markets and countries. To be successful, these organizations need to be experts in many locations and many products, complying with different laws and regulations, and taking into account different requirements from different business partners. This creates a strong demand for cooperation across functions and geographical locations. In order to address this external complexity, multinational companies became more complex themselves.

Donald Sull, senior lecturer at MIT Sloan School of Management, launched a project nine years ago to look into “how complex organizations can execute their strategies more effectively”. The project includes experiments carried out in companies and a survey that was “administered to 7,600 managers in 262 companies across 30 industries”.

The work is still ongoing, but some preliminary findings were published by Donald Sull, Rebecca Homkes and Charles Sull in an article called “Why Strategy Execution Unravels – and What to Do About It” in the March 2015 edition of the Harvard Business Review.

The article describes some of the typical problems and common misconceptions that can lead to execution strategy failure. The authors also offer different perspectives on how to improve a business’ chance of success.

Empowering people that run critical parts of the business
One of their conclusions is that “execution should be driven from the middle”. This is based on the idea that there are “distributed leaders” among the managers that deal with customers, partners and employees on a daily basis. Distributed leaders are part of an informal network that includes managers and experts that “run critical businesses and functions”. They are at the front line and the first to learn about changes in the markets and in the needs of customers and business partners. They can swiftly combine their market knowledge with a strategic perspective and drive actions that are relevant for the strategy and meaningful for customers and business partners.

This premise, however, implies that the strategy is being properly communicated by the top management and understood by the distributed leaders.

Proximity to markets helps to be quick and effective
If he or she keeps in close contact with suppliers or customers, a manager could, for example, learn about a business acquisition opportunity. Understanding how that opportunity could fit into a company’s strategy would enable him to collect more relevant information and arguments as to why that opportunity should be pursued. That means communicating within the organization quickly and effectively.

Managers want more structured business coordination
Another observation the authors make is that managers demand “more structure in the process to coordinate activities across [business] units” rather than more structure in the “management-by-objectives system” (MBOS).

Management-by-objectives systems can be too rigid
An MBOS, a set of goals that should result in an outcome, provides ways to measure performance and goal achievement. This works well for actions that have a high probability of resulting in a measurable outcome within a relatively short period. Such a system can be effective when the competitive environment is stable.

However, when the competitive environment is in flux, the direct impact of actions is less predictable. Yet that just may be the time when strategic opportunities arise and should be pursued with focus and dedication.

This is why an MBOS can be too rigid for dealing effectively with these opportunities. Managers may prefer to take actions that are more likely to help them to hit targets in terms of turnover, cost reduction or annual profit generation.

Opportunities that do not provide an immediate, measurable, positive result may not be pursued, at least not with the needed focus and dedication.

Business coordination has several advantages
Well-structured coordination helps businesses to overcome this problem. It allows the organization to use the proximity of “distributed leaders” to create common strategic knowledge across the organization.

Business coordination includes these leaders as experts in their field, but allows them to keep their focus on their regular duties. That way, the organization learns about relevant opportunities in a timely manner and ensures that they are effectively pursued.

Through business coordination, stakeholders can share knowledge across silos and on all levels of the organizations. This improves strategy execution by applying and adding to the “best practices” of an organization.

Business coordination also helps to promote the evolution of the existing strategy by applying the common strategic knowledge to new markets, new products or new business models.  Coordinating the strategic knowledge of operating business units with the activities of corporate and business development creates additional value in strategy execution and strategy innovation.

Finally, by managing the strategic knowledge of an organization, business coordination can provide a platform for top management to communicate strategy at the right time and in the right way.

We may conclude that in complex organizations like multinational companies, business coordination should be a focal point of strategy execution. Communicating the strategy and collaborating with the managers that run critical parts of the business ensures alignment, agility and effectively helps the business to seize opportunities that have strategic relevance.

Source:

Donald Sull, Rebecca Homkes and Charles Sull, Why Strategy Execution Unravels—and What to Do About It, HBR.org

Picture credit:

PublicDomainPictures on Pixabay, CC0 Public Domain

Comments

  1. Carline Kelly

    Well said, Eduard! A business plan without a well defined strategy for execution, is doomed to fail. That strategy at the end of the day must fit the business objectives and achieve the project benefit. Otherwise is it is not worthwhile.

  2. Eduard Tjart

    Carline: Thanks for your kind comment. Indeed, a business plan should be aligned with the strategy and take into account the resources needed to execute the strategy.

    That includes financial and human resources. Having the right people at the right place is one of the most important objectives for all businesses and organizations.

  3. A.PF

    It is certain that a company that cannot define its own projects cannot put in place good strategies to perform. It has to integrate all the things it can do with its resources, but also find the best way to use them. The example of the house is a very good way to illustrate this.

  4. Vera Ribeiro

    Good planning, in addition to allowing us to control whether we are meeting the objective(s) provided also allows the company to be better prepared for the external adversities not foreseen, as happened with the situation of Covid for example. No one was expecting that.
    it is true that financial planning does not provide for new inputs or new products on the market, but on the basis of a starting point more easily managers can make decisions because of these facts, something that a company that does not have such planning will take much longer to prepare an “attack” plan if it is not even in time to do so.
    Just as strategic planning not only allows us to analyze the external environment and have several possible scenarios to happen, as well communicated, will make the organization itself is moving to the same side, with a sense of belonging and organized in pursuit of the objectives outlined, thus dealing better to any external eventuality.
    In fact, the pursuit of objectives can lead organizations to be too rigid to set objectives for their employees for fear that they may move away from strategic purposes, however, this can have its negative side to the extent that if employees perceive these objectives to which they are proposed as limiting or unrealistic it can bring instability to the company and a large turnover of resources.
    From my point of view, understanding that strategic and financial planning is vital to the company’s success in meeting its objectives and preparing for both internal and external factors. However, good strategic planning should also include a communication plan and involvement of its resources so that everyone feels willing to achieve the company’s objectives.

  5. Beatriz Maria Krause de Ramos

    For sure, sometimes having a plan or strategy that are not well executed can lead to frustrations, When talking about strategy it is not the plan that is worth, but also the development of every part of it, as well as the good communication along the whole process. The part that talks about communication and the coordination reminded me of the concept of Business Partners and how they can improve and impulse a big company.

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