Archive for January, 2012|Monthly archive page
For many companies, strategic planning is one of the most important and time-consuming exercises they undertake (hopefully) on a regular basis. Without a doubt, a well crafted strategic plan can improve competitiveness, business performance and morale. Since companies are not equally profitable or competitive it would not be a stretch to suggest that bad strategy is responsible for many of the differences between them.
Obviously, capabilities, competition and financial position have a major impact on plan success. However, I have learned through consulting to dozens of organizations that bad strategy can result from problems in their strategic planning approach – if there is one.
Weak thinking = poor plans
Strategic plans that miss the mark share many characteristics, including:
- Aping one’s competition – Firms are often under the mistaken belief that they can go down the same strategic path as their competitors but somehow achieve better results. Management over-reliance on benchmarking and best practice analysis can easily lead to “copycat” strategies that do not deliver strategic differentiation and are not a good fit with the company’s capabilities and culture.
- Over-emphasizing the customer – It’s natural for strategy to fall out of a focus on the customer, with lots of attention paid to the value proposition and branding. Giving short shrift to other vital areas of the business – supply chain, HR and customer service – creates significant operational and financial risks and reduces the likelihood that the company will capitalize on opportunities.
- Using fuzzy metrics – In their zeal to measure progress, managers often create a laundry list of (often conflicting) goals, which masquerades as strategy. In other cases, firms neglect to choose any metrics making measurement impossible. Goals are the outcome, not the source, of a strategy.
- Lacking practicality – Weak strategic plans are overly long, lack focus, are full of fluff and short on actions. All too often, manager’s substitute disciplined planning for blue sky thinking with no clear idea how to get there.
A number of process and psychological factors lie at the heart of bad strategic thinking, including:
- Vanilla approaches – Too much strategy is developed as a ‘fill in the box exercise’ using templates that have little relevance to the business challenges or available expertise. These exercises rarely feature the deep strategic thinking (e.g., counterfactual analysis or simulations) needed to craft high potential/low risk plans.
- Hubris – Anyone who has ever participated in a SWOT analysis knows that managers regularly overestimate their firm’s strengths and underestimate their competitors, the potential threats they face, execution difficulties or the resources required. Furthermore, many cultures have an inward-looking bias that assumes their capabilities are market-beaters – which they usually are not.
- An inability to choose – Strategy is as much about what not to do and as it is about what to do. High levels of management ego and consensus-based decision-making will create conditions where firms are unable to focus on a few strategic priorities, resulting in tepid or confusing plans.
Getting strategy right
How can senior leaders ensure that the optimal level of strategic thinking takes place without stressing the organization? I have distilled down 20 plus years of strategy development and research into 3 best practices for creating winning strategy:
Get the right people meeting often
Strategy is best developed by a senior team representing the key functions and lines of business. These individuals should have an intuitive sense of the business and where it is going – what the Germans call a fingersptizengefűhl or fingertip feel. To foster healthy debate, participants should hold key personality traits such as critical thinking, open communications and introspection as well as being regularly engaged in the process.
Utilize the right process
Without a doubt strategic frameworks like Porter’s Five Forces or SWOT analysis are useful to understand a firm’s market position and recognize opportunities. However, an effective planning approach should also include other tools such as business simulations, failure analysis and game theory. These techniques will help produce breakthrough ideation, challenge assumptions & bias and dissect competitive threats.
Does it pass strategic muster?
Great strategy is powerful yet practical. It should:
- Emphasize a few, actionable priorities that will directly drive profitability and competitive position;
- Include a coherent operational plan that is coordinated between functions and business partners;
- Feature tight integration between the customer and operational sides of the business;
- Have an eye towards long term competitiveness and strategic flexibility without sacrificing its medium term focus;
- Demonstrate aspects of strategic uniqueness that can not be easily replicated by others.
For more information on services and work, please visit the Quanta Consulting Inc. web site.
It’s no secret that leading firms such as Walmart, American Express, Capital One, Amazon and CarMax use cutting-edge Data Analytics to outflank competition, improve marketing & operational efficiencies and get closer to their customer’s needs. Making sense of internally generated data – it’s collection, synthesis and reporting – and turning it into learnings and actionable strategy is what DA is all about. All medium to large size companies generate reams of data on their customer habits, supply chain execution and financial performance. Yet, few of them derive as much value out of this vital asset as they could. What separates the pace setters from the laggards is the organizational environment underpinning the DA function, specifically, the level of management commitment, cultural readiness, and analytics & IT expertise.
A recent global survey (the second one in as many years) of 4,500 business executives by MIT’s Sloan Management Review explored key barriers and success drivers around DA. The results dovetail closely with our consulting experience in a number of data-intensive Canadian organizations. Below are some of the key findings and implications:
Analytics is growing in strategic importance
Increasingly, managers see analytics in strategic terms – outflanking competition, transforming customer relationships, sparking operational innovation – and not just a means of incrementally improving business performance. According to the survey, 58% of respondents viewed DA as a source of competitive advantage, up from 37% in the previous survey.
Not surprisingly, the study found that “experienced” firms are extracting significantly more benefit from DA than “basic” users. The most experienced DA companies (who utilize tools like data visualization, advanced modelling and sophisticated data mining) reported a 50% year-over-year improvement in competitiveness. Conversely, organizations that are employing basic functionality such as spreadsheet-based budgeting and forecasting cited a 5% year-over-year decline in competitive advantage. What are the lagging companies missing?
Leveraging analytics requires a trio of competencies
Many would suggest that deploying high performance hardware and software solutions is the best way to enhance DA capabilities and deliver a strong return on investment. Though resources and technology are important, the respondents – particularly the experienced users – reported that demonstrated competencies in 3 areas is more crucial:
- Managing information, in areas such as integrating data silos, making data usable, deploying collaboration tools;
- Maintaining analytics expertise, around using predictive analytics, supporting scenario development, automating algorithms etc;
- Fostering a data-oriented culture.
The findings and our research confirms that there is no “typical” roadmap as to which competency is more important or should come first. They are all prerequisites.
Like many good things, there is a risk of over-indulging in DA before a company can fully digest its capabilities. For example, the sheer amount of data can slow down decision making by creating “analysis paralysis” as well as lead to significant data management and hardware/software costs. Leaders must set yearly DA priorities while ensuring their functional groups/divisions align to the data that directly impacts key metrics – versus what is merely “nice to have” information.
Data-oriented cultures have unique attributes
Analytics-focused companies go beyond clichés to incorporate specific cultural norms and practices that leverage analytics capabilities and learnings. A significant majority of respondents reported that data-oriented cultures had the following key elements:
- View analytics as a core enabler of business strategy and day-to-day activities;
- Senior leaders and middle manager champions regularly support DA across the organization;
- An emphasis on communicating data and insights vertically and horizontally, especially to the front-line employees who need them on a daily basis;
The more experienced a firm is with DA, the greater is their ability to overcome internal challenges around sharing information, sustaining focus and coping with poor processes. Only 30% of experienced DA users considered organizational issues to be difficult to resolve compared with 60% of basic users.
Resources still matter
When it comes to enabling sophisticated analytical modelling, data visualization and knowledge management there is no free lunch. Companies still need the right methodologies and a robust, enterprise-wide IT infrastructure to effectively collect, process, report and manage the data. Furthermore, there must be sufficient analytics expertise and tools at both the manager and specialist levels to effectively manage the data through its life cycle as well as to leverage it strategically.
These findings have significant implications for all companies seeking to gain competitive advantage through analytics. Firstly, the more a firm leverages DA across and up/down the enterprise the more it will reap in terms of greater efficiencies, improved customer focus and enhanced performance. Secondly, each company will define the DA path that best suits their competitive position, business requirements and available resources. Although this article identified guiding principles, there is no ‘best practice’ template. Finally, mutually reinforcing factors such as consistent leadership, cultural receptivity, silo-busting information management systems and analytics expertise are essential to exploit the full potential of analytics.
For more information on our services and work, please visit the Quanta Consulting Inc. web site.