Strategy Survey: Strategic planning after the global financial crisis


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Strategy Survey: Strategic planning after the global financial crisis

  1. 1. Insight | Strategy Survey Strategy work after the global financial crisisAccording to a survey conducted by BearingPoint, the Contentsglobal financial crisis took the Finnish economy almost Changing operating environment 3completely by surprise in the early autumn of 2008. Practices of strategy work 4The financial crisis has been ruthless in revealing the Building competitive advantage 5weaknesses inherent in traditional strategic planning and Towards a new kind 7management. We are now at the eleventh hour in under- of strategy workstanding competitive advantage as a dynamic concept andchallenging the established concepts in strategy work. Implementation of the survey 10Insight | Strategy Survey
  2. 2. BearingPoint surveyed the views of senior and middle manage-ment in Finnish businesses and public organisations regarding,among other things, strategic planning, building competitiveadvantage as well as changes and uncertainties in the oper-ating environment. The objective was to find out what are themeans by which Finnish managers in the private and publicsectors intend to guide their organisations towards success.The survey was carried out in the spring of 2008, when theglobal financial crisis was right around the corner. The respon-dents’ views reflect a fairly optimistic outlook at the time. Thispublication now examines those views in light of what wehave come to know about the effects of the crisis on theFinnish economy one year later. The web-based surveyincluded a total of 327 respondents representing senior andmiddle management in Finland’s 500 largest companies andmajor public sector organisations.2 Insight | White Paper
  3. 3. Changing operating private enterprises. In March 2008, 50% of the total market value of the total market value of companies companies vanished as the stockenvironment listed on the Helsinki Stock Exchange index reached its lowest point forObjective: To survey the respon- was approximately 241 billion euros. about 10 years.dent’s views regarding the extent The market values of most companiesto which the operating environ- had considerable built-in expecta-ment can be anticipated and to tions of growth and the creation ofidentify key factors of uncertainty. added economic value. The effect of the unforeseen financial crisis on the market values of companies has beenIn the spring of 2008, public and hair-raising. In just one year, someprivate enterprises in Finland had aconfident view of the future. Table 183% of the private sector respon- Uncertainty in the operating environment (0-2 year period)dents surveyed assessed the oper- 13% Very Minor 3%ating environment to be no more 1% Minorthan fairly uncertain within the next 46% 5% Fairtwo years (Table 1). The respondents’ Significantviews regarding changes in the Very significantoperating environment were also 32% Can’t sayoptimistic. Some 51% felt thatuncertainty was more positive thannegative, while 24% considered the Table 2uncertainty to be more of a threat Attitude regarding uncertainty in the operating environmentthan an opportunity (Table 2). Significant threat 25%According to the respondents, the Threat 45%greatest factors of uncertainty in the Neutraloperating environment were compet- Opportunityitors’ actions and changes in 21% Significant opportunitycustomer needs (Table 3). Macroeco- 3% 6%nomic trends were seen as fairlyforeseeable. Only 4% of the respon-dents rated macroeconomic uncer-tainty as very significant over the Table 3 Factors of uncertainty in the operating environment (0-2 year period)next two years. An exception to thiswas constituted by respondents Politics and legislation 24% (2,72)representing the banking, finance Macroeconomy 33% (3,13)and insurance sectors. In their view, Customer needs 39% (3,25)macroeconomic factors were thesingle greatest source of uncertainty. Competition and industry structure 43% (3,34)The respondents rated political and Technology 24% (2,79)legislative factors and technological Environment and social responsibility 26% (2,88)change as the least significant Globalisation and internationalisation 31% (2,97)sources of uncertainty. Level of uncertainty, answered "significant" or "very significant" (% share)This optimism was also strongly Level of uncertainty, mean response (scale 1-5)reflected in the market values of Insight | Strategy Survey 3
  4. 4. Practices of strategy work planning is, on average, longer than in the private sector. 60% of the Objective: To survey the respon- public sector respondents indicated dent’s views regarding the that, in the organisation they practices of strategy work and the represent, strategy is defined less strengths and weaknesses associ- frequently than once per year. ated with them. Of the respondents, nearly 64% were satisfied with strategic planning in According to the survey strategy work their organisation on the whole. The remains, for a large part, an annual elements of strategy work that the planning process. 65% of the private respondents were most satisfied with sector respondents surveyed indi- were management participation, cated that, in the organisation they process logic and the phasing and represent, strategy is defined once scheduling of the strategy process per year (Table 4). In the public (Table 5). The elements of strategy sector the time frame of strategic work that the respondents were least Table 4 satisfied with were the tools used in Strategic planning cycle analyses and the speed of analyses. 7% 11% 2% Less frequently than once per year Strategy work was perceived as more Once per year challenging by public sector repre- 15% More often than once per year sentatives compared to private sector Varies representatives. The proportion of 65% No defined strategy public sector respondents dissatisfied with strategy work was 30%, while the same figure for the private sector was below 15%. The public sector Table 5 Strengths and weaknesses in strategic planning representatives were most dissatis- fied with process logic, phasing and Process logic 57% (3,54) scheduling as well as management Process phasing and scheduling 53% (3,43) participation. Based on Bearing- Point’s previous experience this Process management and assigning responsibilities 51% (3,34) result does not come as a surprise, as Managing information and documentation 36% (3,12) in the public sector strategic deci- Management participation 74% (3,93) sion-making and management is largely based on budgets and Employee participation 36% (3,15) performance agreements. Strategy Tools used in analyses 31% (3,02) work is often an administrative Information used in analyses 47% (3,28) process that is separate from budgets Speed of analyses 34% (3,10) and performance agreements and its (3,15) role as a management mechanism is, Quality of analyses 37% to date, unclear. Speed of decision-making 52% (3,38) Quality of decision-making 51% (3,40) Satisfaction, answers "satisfied" or "very satisfied" (% share) Satisfaction, mean response (scale 1-5)4 Insight | Strategy Survey
  5. 5. Building competitive solution as the key factor in building competitive advantage. Differentia-advantage tion and features of the offering wereObjective: To survey the respon- also considered fairly significant. Thedent’s views regarding their role of low prices, on the other hand,organisation’s competitive posi- was perceived as very insignificant intion and to determine what factors terms of competitive advantage. Onlythe organisations build their 3% of the respondents indicated thatcompetitive advantage upon. low price was a significant success factor. In BearingPoint’s view the low significance attributed to low priceThe managers who participated in the reflects, for its part, the small size ofsurvey indicated strong confidence in the domestic market and the oligopo-their companies’ competitive advan- listic structure of many industries.tage in the spring of 2008. Some 70% When the number of rivals on theassessed their competitive advantageto be strong or very strong (Table 6).In estimating the duration of their Table 6compe- titive advantage, approximately Strength of current competitive advantage 4%75% of the respondents indicated that 5% Very weakthey expected their competitive Weakadvantage over rivals to last more than 25% Neutraltwo years. StrongSuccess is, naturally, a consequence of 66% Very strongseveral factors working together.Factors contributing to competitiveadvantage can be roughly grouped Table 7into four categories: (1) Offering and Building competitive advantage: Summarybenefit to customer, (2) operatingmodel, (3) strategic resources and (4) Offering and benefit to customer 54% (3,49)position and barriers to entry. Of these Operating model 74% (3,98)categories, the respondents rated Strategic resources 65% (3,81)operating models and strategicresources as the most significant Position and barriers to entry 55% (3,54)(Table 7). In assessing the responses in Significance to competitive advantage, responses "significant" or "very significant" (% share)more detail, it’s important to keep in Significance to competitive advantage, mean response (scale 1-5)mind that each factor has a differenteffect on competitive advantage.Some factors can be identified and Table 8 Building competitive advantage: Offering and benefit to customerduplicated quite easily, which meansthat competitive advantage built on Lowest price 18% (2,59)them is not sustainable, even if it may Differentiation and features of offering 69% (3,82)result in strong profitability in theshort term. Broadest total offering 50% (3,44)Regarding the offering and benefit to Best total solution 80% (4,12)customer, the respondents perceived Significance to competitive advantage, answers "significant" or "very significant" (% share)the ability to deliver the best total Significance to competitive advantage, mean response (scale 1-5) Insight | Strategy Survey 5
  6. 6. market is fairly low, it is common advantage (Table 9). Approximately that businesses find it in their best 88% of the respondents indicated interest to maintain existing market customer focus was significant or positions and not jeopardise profit- very significant. Operational excel- ability by engaging in price competi- lence and the ability to produce tion. innovative products and services were perceived as fairly significant. Regarding operating models, the The ability to innovate with regards respondents perceived customer to the operating model was consid- focus as the clearly most important ered the least significant by the factor in building competitive respondents. With regards to strategic resources, the respondents indicated that Table 9 strong customer relationships are the Building competitive advantage: Operating model key factor in building competitive Operational excellence 76% (3,96) advantage (Table 10). Some 93% of the respondents indicated strong Customer focus 88% (4,33) customer relationships are significant Ability to innovate, products 75% (3,96) or very significant. In addition, the Ability to innovate, operating model 62% (3,68) respondents emphasised the signifi- cance of business partners as well as Significance to competitive advantage, answers "significant" or "very significant" (% share) Significance to competitive advantage, mean response (scale 1-5) organisational culture and values. The role of tangible and intangible resources, on the other hand, was Table 10 perceived as less significant in terms Building competitive advantage: Strategic resources of competitive advantage. Tangible resources 49% (3,48) According to BearingPoint, operating Intangible resources 56% (3,59) models and corporate culture and 56% values together form a strong base Brands (3,60) for building competitive advantage. Organisational culture and values 69% (3,78) When competitive advantage is built Customer relationships 93% (4,43) on the synergy of several factors, Business partners 74% (3,99) forming so-called systemic compe- tence, it is very difficult for competi- Significance to competitive advantage, answers "significant" or "very significant" (% share) Significance to competitive advantage, mean response (scale 1-5) tors to analyse or duplicate. A good example of this is Toyota, whose Table 11 operational excellence (including Building competitive advantage: Position and barriers to entry continuous improvement) is a characteristic that is deeply ingrained Required capital and investments 49% (3,47) in corporate culture. The significance Economies of scale 57% (3,54) of operating models is further Control over distribution channels 60% (3,61) supported by the fact that customer Strong customer relationships 89% (4,27) relationships and business partner- ships were perceived as the most Legislation 23% (2,82) significant strategic resources in Significance to competitive advantage, answers "significant" or "very significant" (% share) terms of competitive advantage. Significance to competitive advantage, mean response (scale 1-5)6 Insight | Strategy Survey
  7. 7. Both are specifically related to how other things, national debt in the adapted and fitted to the operatingthe organisation operates. U.S. economy, imprudent lending by environment - in other words, what is banks and insufficient supervision of required is strategic agility.With regards to competitive position the financial markets. With theand barriers to entry, the respondents The challenge of developing strategic benefit of hindsight, it can be saidconsidered strong customer relation- agility is one that is faced by organi- that the events that have taken placeships as the most significant factor in sations differently depending on, were actually rather inevitable andterms of competitive advantage (Table among other things, the industry that there were clear warning signs11), which is in line with the previous they operate in. Organisations are for quite some time. Before itanswers. In light of the results, it can increasingly, regardless of industry, happened, the financial crisis (atbe said that customer focus in faced with constant uncertainty and least in the extent since witnessed)organisational thinking and opera- rapid (systemic) changes. The was not, however, within the realmtions has a strong role in driving challenge of developing strategic of perceived possibilities.organisations forward. With regards agility is best met by those organisa-to other factors, the responses From a historical standpoint the tions which understand the dynamichighlighted differences between financial crisis is not a one of a kind nature of competitive advantage andindustries. In capital intensive event. Nevertheless, the current have the ability to adjust or revampindustries the factors contributing to crisis does have two special charac- their strategic decision-makingcompetitive advantage that were teristics compared to previous crises: correspondingly. We propose fourhighlighted included having the (1) its global reach and (2) the speed themes as a starting point fornecessary capital and investments as at which it happened. The various developing strategy work in thewell as economies of scale. In parts of the global economy are post-financial crisis business environ-responses from public sector represen- tightly linked through financial ment (Figure 1):tatives, the role of legislation was markets, regardless of geographic oremphasised. industrial border lines. Changes in • Competitive advantage as a different parts of the global economy dynamic concept are reflected at great speed and, • Strategy work as open dialogueTowards a new kind of from the perspective of traditional • Analytical decision-makingstrategy work analysis of industries, very surpris- • Management of strategy work ingly. In light of these circumstances,The financial crisis has been one might ask whether strategy workruthless in revealing the weak- or strategy as a concept has lost its 1. Competitive advantage as anesses inherent in traditional significance? dynamic conceptstrategic planning and manage- Competitive advantage has tradition- On the contrary. We argue that thement. We are now at the eleventh ally been perceived as a static ability of organisations to think andhour in understanding competitive concept, according to which the act strategically is now more impor-advantage as a dynamic concept success of an organisation is based tant than ever. Success in a dynamicand challenging the established on its correct positioning in the operating environment, however,concepts in strategy work. industry and operational excellence. calls for organisations to develop the In BearingPoint’s view, competitive ability to question traditional linear advantage should be seen, above all,The global financial crisis is a Black models of thinking used in strategy as a dynamic concept that changesSwan for the global economy, which work where strategies are seen as prevailing perceptions of e.g. thealso took the Finnish economy almost being created through detailed relationship between strategy andcompletely by surprise in the autumn planning systems. Strategy work in a the organisation as well as manage-of 2008. The development of the dynamic operating environment ment crisis has, in retrospect, requires that strategic choices andbeen described as a logical chain of the organisation are constantly Roughly simplified, the success of anevents that boils down to, among organisation can be said to be based Insight | Strategy Survey 7
  8. 8. on the fit between three elements: and revamping strategy work is that (1) The operating environment, (2) the management gives up its exclu- strategic choices and (3) the organisa- sive right to strategy work and finds a tional model. Under the prevailing way to build it into organisational paradigm strategies are seen as being dialogue to facilitate the formulation formed as a result of detailed planning of joint objectives. This results in two systems, with structure following important benefits: (1) Better stra- strategy. The management’s task is to tegic choices based on a broader view define a strategy for the organisation and (2) a higher level of under- and to adjust organisational structure standing and commitment among and management systems to facilitate employees, which is necessary for the implementation of that strategy. This effective implementation of strategy. approach emphasises organisational In developing and revamping strategy control and operational efficiency in the work it must further be ensured that the prevailing operating environment. organisation is seamlessly integrated with In an operating environment character- its operating environment and key ised by rapid change and uncertainty, stakeholder groups. In a network such a static view of competitive economy the success of an organisation is advantage is, however, misleading. The largely based on its ability to integrate pivotal risk is that success leads to the with its customers to create added value organisation specialising on too narrow together and to mobilise the resources of a front, which compromises its ability key actors in the value network in a to adapt to changes in the operating direction that supports the organisation’s environment. strategic objectives. Building dynamic competitive advan- tage calls for not only short term 3. Analytical decision-making profitability and efficiency, but also an In BearingPoint’s view strategic organisational ability to continuously decision-making and management can improve and reinvent itself and create form a basis for building competitive options for the future. Managing these advantage for the organisation. In a two conflicting perspectives highlights dynamic operating environment the the significance of organisational organisation must be able to planning as part of strategy and as a constantly make management management task. decisions and success will come to those organisations which consistently 2. Strategy work as open dialogue make better choices than their rivals. Strategy work has traditionally been In our experience a significant perceived as a task for the organisa- proportion of management’s time is tion’s senior management. In Bearing- currently spent on reviewing past Point’s view, success in a dynamic events and reports describing past operating environment calls for closer events. In this, the main challenges participation in strategy work by not are related to the reliability of only the organisation itself, but also information and the extent to which customers and key stakeholder groups information is up-to-date. Reports in the value network. often need to be fetched from various information systems, which tends to The point of departure for developing8 Insight | Strategy Survey
  9. 9. be slow and places a significant 4. Management of strategy workworkload on experts in the organisa- Strategy work in a dynamic operatingtion. Another problem is that different environment refers to continuousreports from different sources are strategic decision-making and actions,often difficult to compare as a result neither of which is tied to the calendarof e.g. deficiencies in master data. year. In BearingPoint’s view success inA central aspect of improving and strategy work calls for two key changesrevamping strategy work is building in how strategy work is managed: (1)organisational ability for analytical Revamping the work of the manage-decision-making. This starts from ment team to form a collective viewinformation management and having and facilitate the flexible use ofthe right analytical tools. In addition resources and (2) managing strategyto the organisation being able to work as a functional entity and anreport what has already occurred, it is organisational ability.important from the viewpoint of In terms of the latter, the point is notstrategic management to e.g. identify to institute traditional planning unitsproblems quickly, understand the which focus on the content of strategycauses of problems, create models and define guidelines and objectivesand forecasts of future developments for implementation by functionaland to optimise the organisation’s areas. On the contrary, what iscourses of action in alternative needed is a function that focusesscenarios. primarily on the practice of manage-Figure 1Strategy work after the financial crisis tegic choices Stra From planning Organisational planning to strategic agility as part of strategy Analytical decision-making Operating Management tion of strategy work isa env on an g ir me nt Or Strategy work to become open dialogue Operating environment Strategic choices Organisation High High Management Speed Effectiveness of change Low and focus Low Processes Values Linear Systemic Low High Nature of chance Growth and renewal Resources
  10. 10. ment work and supports the organisa- BearingPoint tion in management work and the BearingPoint is a leading global implementation of strategic choices. consulting company in the field of From an organisational standpoint, management and technology. the tasks of this function which can, BearingPoint Finland Oy currently employs for instance, be under the strategy some 60 experts at its Helsinki office, manager, include supporting strategic representing the following areas of specialty: thinking and strategy work, fitting • Business Strategy & Transformation strategies and strategic objectives • Operations Management together, the practices and tools of strategy work (including analytics), • Finance & Performance Management fitting strategy work to management • Applications & Technology systems (e.g. budgeting, development • Information Management discussions, rewards), managing We help our clients succeed in strategi- strategic communication and cally significant change situations and managing and developing the compe- build sustainable competitive advantage. tences related to strategy work. Our customers in Finland typically include companies ranked in the Top 100 of the Implementation of the list published by Talouselämä magazine as well as major public sector organisations. survey BearingPoint surveyed the views of References senior and middle management in Nassim Nicholas Taleb: The Black Swan, Finnish businesses and public organi- Penguin Books (2007). sations to find out by which means Finnish managers in the private and Speech by the Chairman of the Board of public sectors guide their organisa- the Bank of Finland, Pentti Hakkarainen, tions to success. The survey was at Jyväskylä University on 17 February implemented as a web-based question- 2009. naire using a standardised form Yvez Doz & Mikko Kosonen: Fast Strategy, consisting of 19 questions grouped in Wharton School Publishing (2008). five categories by subject. The respon- John Roberts: The Modern Firm, Oxford dents were also able to add comments University Press (2004). to further explain their views. The survey was carried out in March-April Thomas H. Davenport & Jeanne 2008 and there were a total of 327 G. Harris: Competing on Analytics, respondents representing senior and Harvard Business School Press (2007). middle management in Finland’s 500 Timothy S. Breene, Paul F. Nunes & largest companies and major public Walter E. Shill: The Chief Strategy Officer, sector organisations. The respondents Harvard Business Review (October 2007). represented a total of over ten different industries, with manufac- Robert S. Kaplan & David P. Norton: The turing, public administration and Office of Strategy Management, Harvard retail and wholesale trade being the Business Review (October 2005). best represented sectors. Henry Mintzberg: The Fall and Rise of Strategic Planning, Harvard Business Review (January-February 1994).10 Insight | Strategy Survey
  11. 11. DRAFTN0025_0409_WP_v4 Insight | Strategy Survey 11
  12. 12. We are BearingPoint, management For more information on the survey andand technology consultants. BearingPoint’s services, please contact: Riku SantalaPorkkalankatu 20 Managing DirectorHelsinki 00180 BearingPoint FinlandFINLANDT + 358 10 802 288 Hans Rosendahl Senior ManagerF + 358 9 321 4621 Business Strategy &© Copyright BearingPoint Finland Oy, Helsinki, 2009. All rights reserved. The content of this document is protected by copyright. The modification,abridgement, expansion and endorsement of the document require the prior written consent from BearingPoint Finland Oy, Helsinki. Every duplica-tion is permitted for personal use only and subject to the condition that the duplication contains this copyright notation. Every publication or everytranslation requires the prior written consent by BearingPoint Finland Oy, Helsinki. The commercial use or use for educational purpose by thirdparties requires the prior written consent by BearingPoint Finland Oy, Helsinki as well N-0025-0409-01-USNYThe study is based on limited primary research (web-survey) sources we believe to be reliable and trustworthy but neither accuracy norcompleteness can be guaranteed. BearingPoint has relied upon and assumed, without independent verification, the accuracy and completeness ofall information available from survey partners and public sources. The opinions expressed herein are subject to change without notice.BearingPoint takes no responsibility for decisions which are based on the information included in this analysis. BearingPoint does not accept anyliability, whatsoever, with respect to the use of this analysis. Neither the study nor any of its content may be used for other purposes than theabove mentioned, without prior written consent of BearingPoint.Insight | Strategy Survey