Louis Carstens, Chief Strategy Officer, Capricorn Group
Previously we looked at what strategy is, its execution and implementation which is directly linked to the performance of a company. There are more elements to consider in strategy deliverance of which the key factors in determining whether or not the strategy of the company is being met is one.
An organisation needs two sets of strategy KPI's (Key Performance Indicators) - firstly, for the tracking execution progress of the strategy, and secondly, for managing daily operations. There must be a clear distinction between strategic measures and operational measures. Many companies confuse the two due to the relationship between strategy and operations. To add to the conversation, one cannot neglect the importance of culture or the way things get done. The best definition of culture is “that what we tolerate." One can have the best strategy with crystal-clear choices, differentiated KPIs and a Balanced Scorecard that links strategy and operations, but without a culture that is the outcome of engaged and committed employees, a company simply cannot lead in the marketplace.
One of the most damaging and often-quoted business statements is that “culture eats strategy for breakfast." This statement is dangerous, short-sighted, incorrect, value-destructive and most often used out of context. Most importantly, it is merely devoid of all truth as it assumes that corporate performance can be neatly stacked into silos –a silo of strategy and a silo of culture. This is untrue through. Instead of one eating the other one for breakfast, perhaps both should be sitting together at the lunch table.
Does organisational success depend on only monetary measures?
Many organisations fall into the trap of measuring only what is easy to measure or those areas where it conveniently has data to capture. We need to resist that temptation and spend time thinking about what measures are significant to the success of the organisation, and then proceed to try to capture that data. Where data does not exist, we need to create the data. Where data problems exist, we need to fix integrity. We need the right data to measure organisational performance and success. There is no easy way to do this. Convenience measures will detract from the narrative.
Organisations must track financial performance and other measures related to operations, e.g. productivity, business process cycle time, and so on. However, an organisation also need to have tests that address performance not only in financial aspects, but also in areas such as the marketplace, leadership and governance, customer, workforce, products and services. Tracking a balanced set of performance measures gives a more complete picture of overall organisational performance which will help to eliminate blind spots and help managements to understand the trade-offs and correlations between different types of organisational outcomes.
Are there set intervals in-between the specified timeframe for dipsticks or are performance against objectives only measured at the end of a particular period?
There are two types of metrics that an organisation should be tracking, namely leading (predictive) and lagging (outcome, output) metrics. These metrics are connected and when correctly measured, a powerful decision-making tool for management. Ongoing measurement of this strategy performance interplay between lead and lag indicators, applying the right level of insights to the data and then changing decisions to drive a different performance outcome will translate into a more strategically adept organisation. A useful measurement guideline is to measure strategy execution performance on a monthly basis, compile monthly strategy scorecards comprising data-driven insights to the right set of metrics and targets, and then for executive management teams to deliberate about what the data is telling them, why the performance trends exist, what to do to change performance outcomes and to develop data-driven action plans with precise levels of accountability and authority and decision rights to improve results.
The competitive environment is harsh. Previous plans, successes and methods will not withstand the current conditions. All that will work is a dynamic, data-driven process that anchors good strategy choices, formulation, and differentiated execution. This is what shareholders and customers want, and it is up to executives to improve and relentlessly drive execution to the benefit of all stakeholders.