9
STRATEGY IMPROVEMENT MODEL
The business environment is constantly changing. To survive and grow, organisations must continually adapt their business processes either by improving them or by trying out something new. This requires them to collect, assess, and choose initiatives by modelling how they impact existing structures.
Responding to Change
Strategic and operational planning is primarily concerned with assessing change to an organisation’s business processes. This change can include the outputs those processes generate, the workload that is employed, and the resources they consume. If an organisation’s business processes do not change, then either there is no competition and they will achieve their purpose, or they are on a path that will ultimately lead to their demise.
Imagine selling the same products and services as 20 years ago, or using the same production techniques, marketing campaigns, sales channels, or technology systems as in the past. Customers would almost certainly have moved to another supplier for more relevant products, and the potential operating efficiency gains by using the latest technologies would have been missed, resulting in higher costs relative to competitors.
The need for change comes from different sources, technology being one of them. Most companies are forced to change even if industry or organisation-specific factors do not naturally lend them to change. It is more about technology challenging strategy than strategy challenging technology. Over a decade ago during the dotcom era, technology companies with poor business models were trading at extremely high multiples compared to more established companies with a proven track record of profitable strategy execution. With the passage of time, the most enduring legacy of the dotcom boom is the impact technology has had on these established companies. This has not just been on the cost and ways of doing business, but in some cases on the very obsolescence of the organisation or industry itself.
But not all change is driven by market needs. Some are mandated through government regulation, such as Sarbanes Oxley, that requires a high degree of detail and justification around the use of resources and forecasting accuracy. Some are driven by public perception, as Nike and Starbucks found out when their business models came under the spotlight of social media sites.
Interestingly, one meaning of the word strategy is the adaptation important to evolutionary success. This definition captures the very essence of the planning model we are about to describe. Evolutionary means making small changes on a continuous basis in order to adapt the organisation to the ever-changing business environment. It also means learning from the past—what did not work and why—so that management has a complete picture for any reasons behind failure or success.
To properly assess change as opposed to having ‘gut-feel’ reactions, organisations will need to go through a process that typically reviews market forecasts, that looks at impending government regulation, gathers feedback from customers and staff on future prospects, analyses internal capabilities versus competitors, and makes informative views on social media trends. From this, organisations are in a solid position to gather initiative proposals and set priorities on what could be changed.
In some ways, this is still not enough. Many aspects of change cannot be modelled, which means no strategic initiative can ever be assured of success. The UK supermarket giant Tesco’s troubled venture into the US grocery market serves as a reminder of the practical challenges of implementing strategic improvement, as well as the financial and other costs of not succeeding. On the face of things, nobody could be critical of the move. They had the industry expertise, occupied a dominant position in their domestic UK market, and, most of all, had prior experience with overseas ventures. However, they came up against formidable opposition within the US grocery market that was already occupied by dominant competitors. Despite all of the planning and foresight, Tesco had to admit defeat and pull out after losing $1.86 billion injust a few years. The lesson here is that once chosen, all strategic initiatives have to be closely monitored, adjusted, and maybe withdrawn, as they may not work as originally planned.
Model Focus
The strategy improvement model (SIM) is used as part of a larger process that involves analysing market trends and the current business operation as depicted in the operational activity model (OAM) and other models. This analysis should provide an estimate of future performance that can be compared with stated objectives and the goals set by the target setting model (TSM). From this, decisions can be made on the changes required to existing business processes.
This paves the way for operational managers to propose initiatives to implement those changes. These initiatives are captured, assessed, and approved within the SIM. Initiatives could be improvements to current operations, such as replacing old machinery, or they could be something entirely new, such as developing a new range of services or entering new geographic markets. In both cases, initiatives typically represent a particular set of activities that are not part of current processes. The common factors between them are as follows:
• They all require a change of management focus (for example, improving productivity if the initiative is to introduce a new manufacturing process, or on generating sales if the initiative is a new product).
• They will almost certainly consume new resources that need to be found. These can come either from current operations or be provided as new investments.
• Proposed initiatives represent a wish list—things that the organisation could do if it had the resources. However, there are usually far too many options that can be done at any point in time, and so the planning process has to perform the following:
○ Determine which combinations of initiatives are to be implemented
○ Ensure consistency between chosen initiatives
○ Assess the necessary resources required for implementation
○ Define the timeframe for delivery
• Once committed, the performance of individual initiatives need to be monitored to ensure that the resources are being applied as planned, and that they are on track to achieve their intended goal.
• Finally, initiatives exist as a defined set of activities with related sets of measures that must be retained or moved in time as a single set. There is no point in performing part of an initiative, or supplying just some of the resources. It must be done entirely or effort will be wasted that could have been better used elsewhere.
Link to the OAM and CFM
From a logical point of view, the SIM consists of two sets of data linked to the OAM and the cash funding model (CFM). The relationship is shown in figure 9-1.
Figure 9-1: Schematic Showing the Relationship Between Operational Activity and Strategy Improvement Models
The first step is where managers can propose initiatives. These are linked to business process goals, departmental structures, and resource measures (hence the dotted line link between the OAM and proposed strategic initiatives). Here initiatives can be rev iewed, assessed, and gain approval.
When any approved initiative becomes live, its set of activ ities and associated data are transferred into the OAM, where it is kept separate from existing operational data. However, the OAM allows the accumulation of resources and other measures to give a total ‘business as usual’ plus a ‘strategy initiatives’ position.
This is achieved by defining a new dimension in the OAM for strategy, which is made up of the following members:
• Total strategy. This is a consolidation member that accumulates data within the business as usual and total initiatives members.
○ Business as usual. This member contains all of the data for current business processes, but without apply ing any strategic initiativ es.
○ Total initiatives. This is a consolidation member that contains the accumulation of data from its members; that is, the individual initiatives.
• Initiative 1. This contains the data for a selected initiative as transferred from the SIM.
• Initiative 2. This contains the data for a second selected initiative, and so on.
Keeping initiatives separate allows them to be monitored individually so management can keep a watchful eye on their implementation and res ource usage versus expected benefits. Too often, initiativ es are assumed to be res ponsible for an improvement in performance when no attempt has ev er been made to actually measure whether this was true or whether the costs inv olved were worthw hile.
Linking the SIM to the OAM helps organisations to do the following:
• Accurately define the ‘business as usual’ (or baseline) performance of the current organisational business processes.
• Capture plan versus actual cost of strategy implementation and the benefits being realised.
• Provide a transparent way of assessing priorities in the areas where performance improvement is most needed.
• Avoid vague claims or estimates for initiatives, as the SIM requires clarity.
As time passes, it should be possible to re-plan, suspend, delete, or select new initiatives as required. Should an initiative be suspended, it can be moved back to the proposed initiative data set until required at a later date.
Defining SIM Content
Initiative Content
Each initiative represents a complete set of activities that can be measured in terms of workload, outcomes, and resources. To manage the planning, selection, and monitoring process, a range of data should be collected with each initiative as it is set up. The following items are recommended and will be used in our case study:
• Initiative name. This is used to identify individual proposals.
• Initiative author. The name of the person and the department making the proposal.
• Why. The reason behind the creation of the initiative including what particular issue it addresses, the opportunity it supports, or the threat that it guards against.
• Business process. The business process goal or process activity that the initiative impacts the most. (This should already exist within the OAM.) The value to be improved should be clearly defined.
• Who. The person responsible for implementation and delivery of results. They may not necessarily be the same person.
• Departments involved. This identifies the departments involved in implementation or who are affected. (These should already be in the OAM.)
• When The timescales for which the initiative is to start and end. Also, the minimum duration required to achieve an impact on the target business process.
• Dependency. Other initiatives, if any, that are required to be implemented before this one.
• Resources. The money, people, and assets required for implementation and how they are split across the departments involved. This also includes resources that are externally sourced.
• Implementation activity. The completion milestones through which the status of implementation can be monitored.
• Risk. The risks being run and the potential impact on overall performance. For example, what other activities are injeopardy if this initiative fails? How can risks be measured?
• Supporting documentation Related documents that support the business case and information regarding implementation
• Approval process. The people who are to review and approve the initiative before it can be considered.
• Initiative status. This final piece of information informs the status of the initiative. For example, it may require several sessions to complete all of the information defined here, so this should indicate when it has been submitted for approval. Similarly, the status indicates when an initiative has been approved and when selected for implementation. The latter status is the trigger to move the initiative data into the OAM.
Obviously, quite a lot of this data is text and not numeric, so it could prove to be a challenge to many planning systems that are based solely on multi-dimensional technology. Newer software vendor planning products recognise the need for handling text, so the way in which this model is implemented depends on the technology being used.
It is worth commenting that planning technologies exist to support the organisation and not the other way around. If you are looking to invest in a software planning product, then make sure you evaluate the solution’s capabilities for handling the set-up, approval, and inclusion of strategic initiatives within a business as usual model. Appendix II has an overview of the capabilities required to implement the planning framework as described in this book.
Linking SIM Content to Management Methodologies
Given the popularity of strategy management methodologies, such as the balanced scorecard derived from a strategy map, it is likely that the terminology and other elements, such as cause and effect, business perspectives, and so on, should be retained. One way of doing this is through the use of attributes that were described in chapter 5, ‘Operational Activity Model’. Attributes allow each item that makes up a model to be named as a component part of a methodology. For example, a measure can be identified as a balanced scorecard strategic objective, and initiatives can be identified as belonging to a particular balanced scorecard theme. These attributes can be filtered within a report to produce reports that show cause and effect relationships.
In the case study outlined in chapter 4, ‘Business Planning Framework’, a schematic can be drawn (figure 9-2) that describes the relationships between initiatives and measures based on the balanced scorecard methodology.
In the diagram in figure 9-2, the hierarchy shown is built into the OAM strategy dimension. Each member has a number of attributes that relates it to the adopted methodology. In supporting the balanced scorecard, these attributes include the following:
• Object type. This describes whether the member is a theme or an initiative.
• Perspective. This identifies the balanced scorecard perspective that each initiative belongs to.
• Business process goal. This identifies the business process goal the initiative supports.
As this structure is built into the OAM, it will need to be updated as new initiatives are selected. Some of the modern planning technologies support this automatically, so maintenance should not be much of an issue.
Figure 9-2: Applying the Balanced Scorecard Methodology to the Operational Activity and Strategy Improvement Models
Planning Capabilities
For the SIM model to be of value, it should consist of a number of planning tasks that must occur in a specific sequence, supported by a range of data. At a general level, this includes the following sections.
Communicate Goals
Populating the SIM starts out by communicating the goals of the organisation along with an assessment of the perceived future business environment and the goals that senior managers believe can be achieved. This will include top-down goals that come from the TSM, the high-level strategies to be adopted, and any constraints under which the organisation operates. The aim of this information is to motivate operational managers to propose initiatives that are both relevant to the goals to be achieved and have a realistic chance of being adopted.
Propose and Validate Projects
Initiative proposals are submitted with the level of detail mentioned earlier in this chapter. When the proposer signifies that the proposal is complete, he or she is locked out from making changes, and those whose role is to review initiatives for relevance and completeness are notified. Once they are assured that the proposal is complete and in line with strategy, the initiative status is changed and becomes available to the next stage of the planning process.
Select and Approve Projects
The purpose of this stage is to assess completed initiatives in combinations and with different start and end dates. The aim is to maximise the impact on the organisation with the limited availability of resources.
This is achieved within the SIM either through reports that are able to combine resources across initiatives, or by introducing accumulation hierarchies into the initiative structure. Similarly, it should be possible to vary start dates. The method used for this analysis depends on the planning technology.
Once a particular combination has been approved for implementation, the data within these initiatives is transferred to the OAM where they will be tracked. It should be noted that the original proposed start date may have changed when approved, so any data transferred needs to take this into account.
Monitor and Forecast Projects
Once an initiative has become live, a number of questions will need to be answered by entering actual results and collecting forecasts:
• Did the project start on time?
• What is the status of implementation and is it behind or ahead of schedule?
• What resources have been consumed so far?
• What resources are needed in the future to complete the initiative?
• Will those resources be available at the right time?
• Will the intended impact on overall goals be realised?
• Which departments have missed the planned milestones?
• Have any of the risks involved changed?
• How accurate have previous forecasts been in predicting actual performance?
Assess Alternatives
Depending on the answers received in the preceding section, a number of re-planning activities may take place to answer the following questions:
• What initiatives need to be reconsidered?
• What changes should be made to overall resourcing?
• Is there another initiative we should consider that would make a greater impact on overall results?
This finishes describing the logical models within the planning framework. There is just one more aspect that needs careful consideration, and that is the management processes through which the models are accessed and used. This is the subject of the next chapter.