In today’s competitive world, business organisations are struggling with their inability to translate strategy into simple, clear day to day actions. Beyond communication, training and “indoctrination” of corporate strategy, what structural and procedural components must organisations equip themselves with to execute strategy? What links their Missions, Visions and Value Propositions to the day to day actions of each employee (figure 1)?
This problem can be decomposed into three more manageable problems:
1. What mechanisms link strategy to individual tasks? One must find a logical path that sets off from strategy and converts it into tangible, enabling actions. We will see that this will involve finding appropriate organisational structures, business processes and monitoring means.
2. How to make those mechanisms pave the way for value creation? What kind of organisational structures and processes should one adopt to maximise value creation and propagation, unhindered and free from individual interests and silo cultures?
3. How to measure the effectiveness of strategy execution? Once those mechanisms are in place, tight monitoring is necessary to maintain alignment with on strategy.
In other word, to execute strategy successfully we must link it to employees’ day to day activities in a way that does not obstruct value creation, and lends itself to continual performance monitoring.
Resolving these three problems amounts to taking a more radical approach than the usual partial initiatives of balance score cards, lean and 6 sigma, business process re-engineering, organisational re-design, KPIs, etc. Efforts like these are all intended to improve performance, but may not take a holistic and systemic view of the organisation.
Substantial business improvements cannot be realised without a deep look into the business architecture of an organisation, relationship of strategy to business processes as well as to its organisational structure and its performance management framework. Without this, tactical improvement initiatives, such as Lean lead to limited results.
Four steps to Operational Excellence and Strategy Execution
There are four steps to take to attain operational excellence and pave the way for effective strategy execution. While these steps may seem simple and logical they require full commitment from senior executives to ensure success and buy-in. Resistance to the implied changes will not be negligible and a robust change management programme must accompany the initiative.
It is critical to note (see figure 2) that deployment of effective strategy execution is performed top-down, but alignment monitoring through KPIs and value drivers must be done bottom-up to ensure proactive and early response to events.
The four steps can be summarized as follows:
1. Define your business’ value propositions
Whether an organisation is a start-up or mature, successful or in difficulty, defining clearly its value propositions is monumental. The fundamental question to ask is “what makes us unique?” The answer to this question aims to “pigeon hole” the organisation into the stream of business it knows best and believes it has a winning chance. One such value proposition could be: “We design and produce faster than anyone else in our market.” Value propositions are the compass of the organisation.
2. Develop the end-to-end processes that deliver the value propositions
In best cases, business processes are mapped and documented, people are trained and KPIs are measured. Lean culture is instilled and senior management buy-in is robust. However, what often gets overlooked is the link of those processes to the value propositions, and their correlation with the organisational structure. It is also the lack of verification whether they are core to the business and whether they lend themselves to unambiguous, full and focused end to end accountability. Unless organisations start from their value propositions, their processes may prove to be irrelevant, non-core or incomplete. The aim is to master and excel at processes that add real value.
Core end-to-end (E2E) processes are the vital few (typically 3 to 6) critical ones which are significant in terms of revenue generation and cost allocation.
They are complete processes cutting across departmental boundaries. They link to your customers and suppliers. For example, a true E2E process is Demand to Supply and not Inventory Management. E2E processes eliminate silo boundaries and preserve full accountability. E2E processes can exist independently. The skills in designing E2E processes is how to make them mutually exclusive and collectively exhaustive.
3. Adapt the organisational structure to empower the E2E processes
The next step is to “cut through” the organization with the E2E processes to move from a traditional departmental, hierarchical structure to a process based structure. In other words, you need to assign your people to the E2E processes rather than to a department. You must then designate a person accountable for that process who would become the equivalent of a department head. You have now established a line of accountability for an entire value adding process. For example, procurement activities will be re-organised under the Procure to Pay (P2P) process which also includes Accounts Payable (normally a finance function) to ensure full accountability from contract award to a supplier to the payment of their invoices. Full and single accountability, combined with the independence of the E2E process from other functions should eliminate silo behavior to a large extent.
The transformation of the organisation from a traditional departmental structure to a process focused one requires careful planning. It is important to adopt a gradual approach by addressing one process at a time, gain buy-in, show results and move to the next process.
4. Empower your people and measure performance
The final step is to enable your people to fit within the re-designed processes. Since you have clearly defined your core processes in step 2, it is easy to define required competencies for each process step. You will then assign one or more process steps to an individual. Training programmes can be more focused and relevant because the role of the individual is clearly defined by the process steps they cover.
Most importantly, you are now able to assign the right KPIs and value drivers to your people. More often than not, organisations tend to concentrate on lagging financial indicators. In addition to those indicators revealing the truth days, weeks or even months after the root cause problem appears, it may take a significant amount of time and effort to resolve the issue. As indicated in figure 2, performance measurement must start at the bottom of the pyramid. Ideally, to each process step a KPI is assigned which feeds into a bigger KPI at the process level, which in turn feeds into a higher KPI that measures strategic objectives. So, instead of monitoring Return on Investment (ROI) from financial considerations, one must link it to lower level KPIs and value drivers that provide early warnings. For example, one contributing factor to ROI is cost reduction, which is affected by scrap, which in turn is affected by equipment breakdowns. We need to monitor equipment breakdowns continually as a leading indicators of ROI performance.
We have described a structured approach that enables organisations link and align their competitive differentiators to core operational mechanisms (processes, organisational structures and performance measures), hence enabling them execute their strategies on a day to day basis, through the active participation of all their work force.
It is crucial to maintain focus on the three components of this approach, namely, Value Propositions-E2E Processes-KPIs, through a closed loop that is constantly monitored and updated. For example, if your value propositions change then your core E2E processes may need to change, and if your E2E processes change then your KPIs must change. This approach is a holistic view of the organisation’s performance which strives to resolve value creation mechanisms as well as cultural hurdles.
Value propositions are the compass of the organisation, the E2E processes are the engine, the organisational structure is the body of the ship and the KPIs are the visible dashboard through which you make decisions.