Why business strategy matters

Measure and manage: the balanced scorecard metrics allow executives to make better decisions about the strategy and quantitatively assess its execution.

Measure and manage: the balanced scorecard metrics allow executives to make better decisions about the strategy and quantitatively assess its execution.

From my long years of business experience I have concluded that one of the most misunderstood roles of senior management is that of crafting and implementing strategy. Business leadership and strategy are intrinsically linked, and the failure of good leadership is often evidenced in a lack of strategic direction.

Strategy making is an ongoing process, not a one-time event

A lack of consciously shaped strategy is a sure way to organisational drift, competitive mediocrity, internal wheel-spinning and lacklustre results. When operational issues crowd the chief executive’s agenda, it is inevitable that strategy is given secondary importance. When a company is under pressure to meet short-term financial targets, operational items start to crowd strategy out of the agenda. Unless the strategy function is embedded in the management process of an organisation, operational failure will always remain a real risk.

While strategic planning is a key responsibility of every CEO, the whole organisation needs to be involved in the definition of strategies. The ideal situation is a team effort where each organisational unit strives to produce results in its area of responsibility that contribute to the achievement of the company’s performance targets and strategic vision.

Company strategies concern how to grow the business, how to satisfy customers, how to outcompete rivals, how to respond to changing market conditions, how to manage each functional piece of the business and develop needed organisational capabilities. Strategy making is a fundamentally market-driven and customer-driven entrepreneurial activity.

The essential qualities are a talent for capitalising on emerging market opportunities and evolving customer needs, a bias for innovation and creativity, an appetite for prudent risk taking, and a strong sense of what needs to be done to grow and strengthen the business.

Strategy entails studying market trends, listening to customers and anticipating their changing needs and expectations, scrutinising the business possibilities that spring from technological advancements, and pursuing ways to strengthen the firm’s competitive capabilities.

Strategy making is an ongoing process, not a one-time event. Managers are obliged to re-evaluate strategy regularly, refining and recasting it as often and as much as needed to match the organisation’s changing external and internal circumstances.

Strategy execution is fundamentally an action-oriented, make-it-happen process – the key tasks are developing competencies and capabilities and budgeting, policy making, motivating, culture-building and leadership. It is the most intensive and onerous element of a CEO’s function.

Deciding on strategy is entangled with whether the organisation has what it takes to execute the strategy with sufficient proficiency. It is generally foolhardy to pursue a strategic course ill-suited to the company’s competencies, capabilities and resources.

The strategic planning system can fail badly unless it is handled carefully. Often the breakdown occurs at the beginning. Some companies formulate grand strategies, often with the help of consultants, that they then fail to translate into goals and targets that their middle and lower management understand and strive to achieve.

What differentiates good strategic thinking from mere wishful thinking is the ability of senior managers to ask simple questions that need to be answered truthfully. Business leaders need to ask: Who are our customers? What is our value proposition? What are our key processes? What are our human capital capabilities?

Once managers have developed a strategy map for their organisation they have to link it to another tool: a balanced scorecard of performance metrics and targets for each strategic objective. If you don’t measure progress towards and objective, you cannot manage and improve it. The balanced scorecard metrics allow executives to make better decisions about the strategy and quantitatively assess its execution.

To execute their strategies, companies generally must also enhance the performance of their ongoing processes – measured by their responsiveness, speed, quality and cost. Companies will get the biggest bang for their buck when they focus business process management, total quality management, lean management and reengineering programmes on processes related to the objective of their strategy.

Once a company has finished the integrated planning and operation, it is up to the managers to execute, learn, and adapt. From time to time managers will discover that some of their assumptions underlying their strategy are flawed and obsolete. At this stage the strategic process begins a new cycle. This is why strategy matters.

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