Strategy/Policy deployment

An Introduction

In many businesses, substantial focus is being placed on strategy and the definition thereof. However, few enterprises manage all key aspects of strategy and its application coherently, therefore are unable to align their organizations to achieve their set goals.

In this post, I am seeking to address the key issues of this dilemma. In the following conclusions arising from research and examples provided, I refer to own observations made in various large corporations.

The topic of strategy, respectively policy deployment, presents a complex web of questions. For reasons of simplicity, my investigation begins with a simple inspirational model of “the Golden Circle”. This model aids in explaining the most fundamental questions every organization must answer for itself: the definition of Vision, Mission and Strategies, conclusively leading to the core of any organization’s existence, the answers to the questions of “What”, “Why” and “How” (Sinek, 2018).

Taking the example of most larger organizations, the “What” is where an organization outlines in great detail its sales and product propositions, competitive advantages and financial-/operational goals.

The formulation of “Why” links directly to the definition of the purpose of an organization. This is the point where many strategies fail. A set of key statements, leads to the formulation of an inspiring vision or mission that most employees should be able to articulate and understand. Thus affecting the successful implementation of agreed upon objectives – the “How”.

It is the top-management’s task to clarify the “How” component for each unit or department and align it with the company’s strategies. Therefore, the answer to this question links to the deployment of strategy/policy directly.

The effectiveness of strategy deployment, however, is fundamentally influenced by the aspect of organizational alignment. The ultimate purpose of any formulated vision and mission and defined set of strategies is effective implementation, leading to transformation and success of the business.

Based on my experience many organizations malfunction when there is no effective interaction between set objectives/strategies and actual achievements. Typically, the remedy to this is the authoritative setting of financial goals or operational objective known as management by objectives (MBO), respectively management by results (MBR).

In recent years Management by Results – MBR, or Management by Objectives – MBO, have received increasing scrutiny due to recognized weaknesses in securing organizational alignment and reaching strategic objectives.

In the further text I will examine the context in which corporate culture relates to strategy alignment and policy (strategy) deployment. Furthermore, this post scrutinizes required leadership and management methods designed to aid in the deployment and alignment of strategy and policy deployment as an integral element to a lean journey of an organization.

The “Iceberg of Ignorance”

The below image aptly illustrates the key effects of non-alignment. Corporations with ever-increasing competition and rapidly changing influencing factors are typical examples of an environment facing alignment challenges. The adaptability of an organization to continuous changes is a key factor for success. However, layers of management focusing on individual target achievement create barriers in organizations.

Iceberg of Ignorance (Torben Rick, 2016)

Furthermore, it is the symptomatic lack of understanding by top management as to how the organization is operating, the mental models a corporation is working with – is it a command and control culture, or a participative corporate culture where questions are being asked and answered at all levels of the organization? Are people afraid to report their problems because of fear of punishment?

What is Strategy?

Michael E. Porter (Porter, 1996) reflects that corporations are too focused on the improvement of quality, lowering of costs, and acceleration of output. Porter argues that operational effectiveness, though unquestionably necessary, is insufficient because imitation is too simple.

Strategy is, in its essence, creating a fit of all company’s activities, choosing a unique and valuable proposition. The success of a strategy depends on doing several things well in a truly integrated fashion.

Importance of Strategy & Culture

“What we say is Strategy – What we do is Culture” – this wisdom ultimately stems from the recognition of these two forces to shape corporate activity: Strategy & Culture.

https://www.torbenrick.eu/blog/wp-content/uploads/2013/04/The-importance-of-organizational-alignment.png
Strategy & Culture (Torben Rick, 2013)

What needs to be done is typically defined in the strategy path. How things are normally done is recognized as culture in an organization. Both strategy and culture are essential elements of any organization. Successful strategies are rooted in the cultural strengths and cultural needs of an organization. A corporate culture is as difficult to change as strategy. It takes years to change mental models within an organization, thus disruptive changes in strategy will also require dramatic adjustments in culture.

The Lean Iceberg Model – the “visible” and the “non-visible” aspects of transformation

Lean Iceberg Model (Hines et al., 2011)

Sustainable business success is based on the recognition of “visible” and “enabling” attributes. In a sustainable lean transformation process, leaders need to be adept in seeing and acting above as well as below the waterline viz. the “visible” and “non-visible” aspects of business transformation.

In addition to the importance of Strategy & Alignment, it has been recognized that Leadership is one of the key elements of success. A true leader takes the helm and fosters change in a challenging situation by living and setting examples. Contrarily Managers act as stabilizers and implementers, administering change measures, described as “leadership is about establishing direction, developing a vision of the future, and setting strategies for making changes to achieve that vision. Leadership involves aligning people, communicating the direction by words and deeds to the entire workforce to get the cooperation that is needed” (Hines et al., 2011).

The Importance of Organizational Alignment

Having established through research findings only an aligned organization is truly capable to deliver results. Alignment is the true source of economic value. Kaplan and Norton in their publication “Alignment” enlighten us with their Balanced Scorecard approach as a path to correct organizational misalignment. Pointedly describing how many corporations’ efforts of individual businesses are uncoordinated, even though business units are managed by highly trained executives. At best, the units work independently from each other, making the corporate performance the sum of each business unit’s performance less the cost of the corporate headquarters (Kaplan and Norton, 2006).

Sadly in many corporations, the organizational alignment between strategy and culture is largely absent. The most critical element in any strategy is its adaption into reality. One of the key determinants of successful application is the effective relationship between strategy and culture, viz., organizational alignment. A further indicator of the state of internal strategy misalignment in any company is the inability of the majority of employees to identify with and demonstrate their commitment and contributions to achieve the set strategic goals.

Recognizing these deficiencies in many organization I have been pondering over this weakness for many years. I have come to the conclusion that such misalignment requires a new approach of internal adjustment. If this dilemma is recognized by the top executives (C-Level) it will help in producing a sense of awareness and greatly increased communication of strategic intent and objectives to a wider management team. However, communication only will not replace an orchestrated methodology to align strategic objectives with concrete measures in each department.

Through a well-structured alignment approach an entire organization could be propelled forward to achieve common goals. These achievements and experiences in turn would help to shape a new culture in the organization, true to the principle that success connects.

What is Strategy (Policy) Deployment?

As elaborated above, neither the basic co-existence of strategy and corporate culture guarantee entrepreneurial success, nor does pure focus on operational efficiency recognize the correct aspects of business transformation. Typical examples of disconnected initiatives are found almost everywhere, e.g. isolated focus on reducing cost, improving safety and quality, or inventory reduction. Such non-aligned initiatives assure that no combined benefit will accrue to the company at all.

Expounding on this, it becomes apparent that high-level business targets need to be broken down into specific business units or departmental targets. To ensure that each separate initiative will eventually add-up to complement the results of the organization, well aligned plans of action need to be designed.

This top-down direction setting leadership process, is augmented by an elaborate process of bottom-up leadership involvement of aligning these directions and objectives with coordinated goal and target settings, and the concrete plans how to reach them. This approach is commonly known as Hoshin Kanri (Liker and Convis, 2012). At Toyota the leadership is centered on the “True North” approach, where the ultimate direction, which is the coordinated aim of the company, is set by the board of directors for typically 5 years.

Is Hoshin Kanri just another form of MBO?

In many companies, MBO is widely accepted and applied. MBO is the target for increased scrutiny by leading business scientists, the most outspoken being Dr. W. Edwards Deming. In “Out of the Crisis” (Deming, 1986) he formulated the 14 points of management, in which he explains to eliminate all forms of Management by Objectives (point 11b) https://blog.deming.org/2013/04/demings-14-points-for-management/.

The manner MBO is applied in most corporations, reflects a managerial attitude that predates MBO, precisely speaking the Taylorism way of splitting thinking from doing. Spawning few winners and many losers, creating a climate where people resort to short-sighted actions to meet individual objectives instead of working for the greater good of the business (Craddock, 2011).

On the other hand, Peter Drucker repeatedly asserts in “The Practice of Management” (Drucker, 1954), that quantitative objectives are essential for managers. But Drucker does amplify as he expects managers to find answers themselves.

However, in MBO arbitrary motive is not directly related to business purpose and customer value creation. Deming perceived MBO as “an attempt to manage without knowledge of what to do”, ultimately leading to distortions when focusing only on outcomes instead of looking into the processes that produce them (Baudin, 2012) https://michelbaudin.com/2012/08/26/metrics-in-lean-deming-versus-drucker/.

At companies this misconception becomes obvious when several non-connected line functions are given the exact same objectives e.g. the same working capital reduction targets for Product Development and Purchasing.

Balanced Scorecard (BSC) and Hoshin Kanri (HK) – a balance?

No doubt that both methodologies encompass an approach to directional strategic management. Though similar in many aspects, they differ in fundamental ways rooted in Western / Eastern culture.

The BSC model regarded as a strategy implementation model, has an element of central strategy design. Recent BSC models cover the following five business perspectives: Financial, Customer, Process, Learning / Growth, Vision / Strategy.

HK on the other hand works from an already established philosophy, e.g. the “Toyota DNA” that established a belief system shared by all the senior managers and executive leaders, (Liker, 2004). HK does not succumb to the Western habit of setting logical KPIs, targets and drivers only. As opposed to BSC, it has no explicitly defined business perspectives. It sets objectives making progress measuring a key part. Despite being a reversal approach, it recognizes the issues and puts financial measures of performance at the end of the process. This is fundamentally different in that it compels management to focus on tangible measures that will lead to improved financial performance rather than focusing their minds on financial performance itself. Ultimately, HK results in corporate development initiatives that lead to financial performance improvements over time.

It should be noted that Balanced Scorecard and HK form an equilibrium. Balanced Scorecard is characterized as a mean to sustaining long term strategy of a corporation. On the other hand, HK is recognized as management of the longer-term strategy. This is achieved through shorter term implementation and execution cycles (Witcher and Sum Chau, 2007).

Hoshin Kanri – Aligning Vision, Goals, and Plans for Continuous Improvement

The Hoshin Kanri strategy deployment process seeks to establish and achieve:

  • The critical goals in an enterprise – defining the focus of an organization
  • Bottom-up involvement on all corporate levels – creating alignment in an organization
  • Improving the ability of an organization to respond to problems quickly – visualize problem-solving to foster continuous improvement

At the heart of Hoshin Kanri is PDCA – Plan, Do, Check and Act/Adjust, that supports structured problem solving and idea/solution creation.

Cascading strategy/policy into an organization

Recognizing the importance of “alignment” to gain commitment from all levels of management is key to sustainable success of strategy deployment. How does an organization tackle this huge task best?

The seven steps of Hoshin planning (Waldo, n.d.)

An organization has to sequence through and master each step above to implement it successfully. Ideally the cascading approach should start at corporate level, then across divisions/business units and only then into the individual operational departments. However, it is possible that an individual business unit could implement Hoshin Kanri throughout, without interference in its parent organization. This would be the approach I would recommended in most settings.

Scan – Developing the elements of strategic intent

This process starts by asking critical questions as to the direction the journey the business unit in question should take:

  • “Who are we?”
  • “Where are we going?”
  • “How do we get there”?

Using “journey” is an appropriate term as it involves the determination of “True North”, the strategic and philosophical purpose of an enterprise, the current-state, the future-state and all required improvements/measures are geared to achieve the set objectives. This ultimately leads to the definition of the formulated strategic intent of the organization by reviewing all core elements of mission, vision and strategy (Jackson, 2006).

This is attained by scanning environment, market conditions, product offerings and the financial situation of an enterprise. Most notable methodologies are facilitating this process are PEST/PESTEL analysis (Political, Economic, Social, Technological, Legal issues), Porter Matrix (product differentiation), SWOT or TOWS analysis, Value Stream and profit & loss statement (Jackson, 2006) and (Hines et al., 2011). Ultimately the purpose is to derive and identify Critical Success Factors (CSFs) of the organization needed to accomplish the overall strategy. These CFSs are then broken down into organizational and operational objectives (Hines et al., 2011).

Plan – Design strategic objectives and ways to address it in a complex system

The aim of planning is to devise concrete, purposeful objectives that the business unit is able to relate to. This plan has to be convincing, targeted at the engagement of managers and workforce. At the beginning, is the multidimensional cross-check of critical business factors and their alignment. The heart of this is the X-Matrix, which aligns the correlations between strategies, tactics, processes and results.

A close up of a map

Description generated with high confidence
X-Matrix (de Goede, 2013)

Crucial to the execution of this plan is the buy-in and engagement of work teams, engaged at tactical, operational and implementation aspects of strategy deployment. The engagement of work teams is achieved by discussion rounds called “catchball”. These rounds ensure that responsibilities and deliverables are communicated, discussed and agreed upon throughout the entire business unit.

Particularly useful tactics to achieve buy-in at this deployment stage is the use of a contribution matrix. A contribution matrix ensures that every function / department understands the individual gaps (by assessment) to targeted corporate objectives and is aware of the individual initiatives or projects importance to the achievement of the overall goal.

By going through this process, we are raising the awareness in any business of existing strategic gaps to business objectives or processes that enable it to move from the current state to the desired future situation.

Various visualization methods help to communicate this complex process in a digestible way. One commonly used is the A3 thinking process.

A screenshot of a cell phone

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A3 Thinking (Baxter, 2014)

A3 thinking is an aiding tool to visual management. The core aim is to mobilize all participants to understand and share all relevant information to an improvement process.

Do – Deploy the plan to the organization

At this stage individual improvement objectives divided into A3 guided realization/improvement strategies are extended to the organization. Ideally this process is started with a pilot deployment in a controlled environment helping to validate the underlying assumptions of the chosen approach.  Throughout this, process alignment around cross-functional goals is crucial. To ensure this, repeated “catchball” rounds are required.

As this process is resource intensive and time-consuming, deployment team leaders are a key success factor. These team leaders serve as “multipliers” in the organization, ensuring cross-organizational engagement of employees and training disciplined application of PDCA.

Check – Validate the progress & review

The check stage prime purpose is to validate the hypothesis of the plan – what should have happened versus what actually happened. This stage requires respect for the affected employees, as this should not be viewed as punishment. Checking should become a natural habit, a comparison of actual condition to target condition. Deviations should re-trigger a renewed scientific problem-solving approach, the PDCA cycle.

Visual Management triangle (Dennis, 2011)

Visual display of checking – target deviations, analysis, ideas, counter measures is the key. It is more immediate than any prepared reporting, available to larger groups of people and instantly creating engagement. Most crucial is up-to datedness of the information and simplicity of display.

Act/Adjust – Improve continually

At the heart of continuous improvement is curiosity, it is a journey of accepting failure or deviation, but still relentlessly seeking perfection. As Dennis (Dennis, 2006) points out “problem solving is organized common sense”. The ability to continuously seek improvements is a capability that requires encouragement and development in any organization. Essentially, it is to be considered as “detective work” requiring objectivity, curiosity and creativity.

Strategy Deployment – Conclusion

In any business transformation process the aspect of strategic alignment throughout the entire organization becomes a crucial factor for success. For achieving such success, well-managed strategy/policy deployment is the answer. This rationale should be the core of any organization. Central to this is lean thinking that begins with the definition to create value for the customer. If these core elements are not properly anchored at the highest levels of an organization, the transformation risks to remain peripheral and ultimately temporary.

Focus on Lean Management tools addressing improvement paradigms like Stabilize, Flow, Pull and Improve the System serve as key enablers for value creation to the customer. Nonetheless, the utilization of lean tools for long-term success can only be secured if they are embedded in a policy/strategy deployment approach in which all management and team leader levels are engaged in, aligned and focused on common objectives.

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