Strategy CMM

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Building strategy capability of the organization

Building strategy capability of the organization

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  • 1. Copyright 2008 by euseden euseden 2008 STR - CMM STRATEGY CAPABILITY MATURITY MODEL For government and public organizations STRATEGY 1 All rights reserved by euseden
  • 2. Copyright 2008 by euseden NOTES TO READER This paper introduces a new framework for executing strategy, STR- CMM. This is developed based on two widely adopted methodologies - Balanced scorecard and Capability Maturity Model (CMM). STR-CMM grew out of our consulting experience and knowledge in implementation of these two models in many of the leading organizations in India. The paper is divided into two parts. Part I establishes the current context for strategy as practiced, especially from the point of view of practitioners in government and public organizations. It discusses what strategy means, why it is relevant today, how it is practiced in few government organizations and what is the new strategy agenda. Part II explains the STR-CMM in detail. It explains essentially architecture and various parts of this framework, how it addresses the new role of strategy planning and conceptual foundations behind the STR-CMM framework. 2
  • 3. Copyright 2008 by euseden CONTENTS Part I STRATEGY IN GOVERNMENTS 7 Purpose of strategy making 9 What is strategy? 10 TWO REASONS, WHY GOVERNMENTS NEED STRATEGY 12 Manage the big-picture 12 Governments can learn to govern better 13 16 A case for strategy as learning tool NEW ROLE FOR STRATEGY IN GOVERNMENTS 18 Strategy to operationalize vision & Policies 18 Make strategy measurable 21 23 Strategy to integrate objectives 24 Strategy as management system Strategy to align 26 Part II STR-CMM BUILDING STRATEGY MATURITY 29 Background for STR-CMM 29 Is it a force fit? 29 STR-CMM PRIMER 31 SPA Strategy Process Area 34 Generic Goals & Generic Practices 39 Specific Goals & Specific Practices 39 3
  • 4. Copyright 2008 by euseden CONTENTS Part II …continued MASTER TEMPLATES 40 Strategy map 40 Perspectives 41 Stake holder perspective 41 Customer Perspective 42 Internal Perspective 43 Learning & Growth Perspective 44 Scorecard Measures & Targets 47 Strategic Initiatives 49 MATURITY LEVELS 50 Why start with level 2? 50 LEVEL 2 STRATEGY ACTION 52 Enterprise strategy map 52 Enterprise scorecard 52 Enterprise strategic initiatives 53 Strategy communication 54 Enterprise Strategy review 54 LEVEL 3 STRATEGY ALIGNMENT 54 Strategy alignment for all KOUs 54 KOU scorecards 55 Alignment of stake holders 55 KOU strategy reviews 56 Budgets linked to strategy 57 KOU Initiative alignment 58 Strategy competency development 58 4
  • 5. Copyright 2008 by euseden CONTENTS Part II …continued LEVEL 4 STRATEGY LEARNING 60 Strategy cascade 60 Strategy reporting system 60 Strategy review at all levels 61 IT enabled strategy management process 61 Enterprise wide Initiative management 62 LEVEL 5 STRATEGY INNOVATION 63 Align personal goals 63 Align personal incentive 63 Strategy awareness 64 Strategy process Innovation 64 EXHIBITS Queensland government strategy framework 9 Strategy trend 12 STR-CMM 31 Maturity levels 32 Strategy Process Areas 34 SPA architecture 35 Sample page of STR-CMM implementation guide 36 Flowchart for STR-CMM implementation 37 SPA- components 38 Strategy map 40 Strategy map – RCMP, government organization 45 Sample Scorecard in government organization 48 5
  • 6. Copyright 2008 by euseden Part I 6
  • 7. Copyright 2008 by euseden STRATEGY-CMM FOR GOVERNMENT & PUBLIC ORGANIZATIONS STARTEGY IN GOVERNMENT In 2003 government of India hired international strategy consulting This paper is written by Sheshagiri G Hegde of firm, Boston Consulting Group to study Indian IT industry and euseden. Sheshagiri is a founder director of euseden. suggest the role for the Government and CEOs of software He can be reached on companies. As one of its key recommendations, BCG suggested the sheshagiri@euseden.com Government to conduct benchmarking studies to see the penetration of e-commerce in industries like retail, financial services and banking and promote adoption of ecommerce in these industries. Government of India has not been able to implement this. This is despite the fact that government said it would act on these recommendations. As most of us know, this is not unique to Indian government alone. World over, Governments and private companies alike are facing this 7
  • 8. Copyright 2008 by euseden problem of advocating a strategy and not being able to execute it. A study by Ernst & Young found that roughly about 60% of the fortune 500 companies also failed to execute their strategies. Many independent researches, suggest that strategy planners have done quite well in formulating good strategy and advising on good strategies. But when it comes to implementation, their records are very poor. It does not matter if they were solely responsible for this. Fact remains, at organizational level, whether it is Government or private company, when it comes to executing the strategy it is not encouraging. Why so many good recommendations fail to get implemented? Problem, as research suggests, is not in the quality of the strategy but is in the quality of processes and tools the planners have adopted for implementing these strategies. Hence, a lot of private organizations and forward looking Governments, in the recent past, are shifting their focus on implementing strategies. Communities, public organizations, private companies and even individuals have been learning constantly how to interact with the world so as to make their life better. We used to ride horses now we have cars. Millions lost their lives to plague, now it is removed from the face of the earth. Point is, societies have been experimenting with this super-system and is learning to use it better. While it is obvious that we have learnt a lot on how to control certain systems, there are others which still are beyond our current knowledge. For instance, we still do not know how to feed every hungry mouth. We still do not know how to educate every child on earth. We still do not know how to build homes for all. Big question then is, would it be worth still researching or spending public money on how to feed every hungry mouth or topics such as how to govern a country for prosperity? This is exactly the question the strategy of the governments needs to address. Strategy as used in 8
  • 9. Copyright 2008 by euseden military is very well acknowledged and straight forward. Not many could question whether military needed a strategy or not. Same is not necessarily that self-evident when it comes to business organizations and hence when it comes to the governments and its departments, as their power seems to come from development now and not from war. Hence, it could be worth spending some time on understanding new contexts of strategy. Strategy framework adopted by Queensland Government, Australia Innovation Sound fiscal environment Research & development Capital infrastructure Commercialization Productive Economic SMART STATE Capacity fundamentals STRATEGY Industry efficiency Education & Training Regulatory reforms Employment programs Human Capital Purpose of strategy making In its most fundamental form, strategy as practiced by many governments and many large thought-leader private companies such as IBM, Mobil, ABB, GE, and Shell etc – is modeling for higher level of performance. (over a long time horizon). It is about finding the levers and trying to use them for advantage of the stake holders. As physicist have been trying to understand how to land on the moon, social scientists have been trying to unravel how to manage large 9
  • 10. Copyright 2008 by euseden corporations, how to manage municipalities, how to increase efficiency and effectiveness of public administration and so on. Harvard professor of Strategy, Michael E. Porter for instance, after studying some of the world’s leading economies, suggested a frame work for how to make better policies so that Nations can gain competitive advantage. This is one of the land-mark studies in trying to understand how economies gain competitive edge. Many governments world over, benefited from it. There have been many such efforts to understand functioning and behavior of- governments, parts of governments, societies, economies and large corporations. To put it succinctly, we can fairly say, Government’s strategy is about building hypotheses of higher performance for say next five, ten, twenty years from now. What is strategy? Strategy has wide range of meaning even among the strategy makers irrespective of whether the practitioner is from the government or private company. This makes it double difficult to know whether strategy practices can be useful beyond reasonable doubts for, we cannot be even sure if we are understood in a manner we wanted. For instance, when I asked one of the management team members of a private company whether they did any strategy planning, he explained in length about budgeting exercise they did. Strategy for him was useful because budgeting was useful. Such wide meaning to strategy has lead to a situation where ultimate usefulness of strategy making appears to be more a matter of faith, value bias than scientific and fact based. For instance, take simple strategic question. Should government privatize education? Question is not as simple as it appears at first glance. Answer depends on whether you are an 10
  • 11. Copyright 2008 by euseden executive in private company or chief of staff of a government department. Right or wrong depends upon the rules of the context. Should government spend public money to do strategy? Well, I belong to the strategy camp, no matter how unsatisfactory the mathematical proof for strategy planning is. However, it will not be fair to presume value-add of strategy without knowing nature of uncertainty that surrounds strategy planning practices. I wanted to start with rather honest canvass for strategy management as capacity that can add real value. In India, we have Planning Commission at the center which does the log-range plans. How effective these plans have been and to what extent they have influenced local governments, is some thing we need to understand beyond the fact that the government spends a lot on planning. For instance, did planning commission suggest Karnataka Government that it should set-up IT parks so that it can build IT cluster that can bring state the competitive edge? Wouldn’t it have been possible for government of Karnataka, otherwise? Strategy needs to be able to answer these tough questions. 11
  • 12. Copyright 2008 by euseden TWO REASONS, WHY GOVERNMENTS NEED STRATEGY Manage the big-picture Conceptual essence of having a strategy that gives holistic picture at “In any government you need the top, comes from the gestalt of it. Whole is larger than the sum to ensure there are ways of setting the overall strategy, total of its parts. At one level, whether we should have a top level , what you are trying to achieve, centralized, strategy management is akin to asking this question; why and what is a priority and what is not. A lot of things Does the center, add value? How effective would have been the set then need to follow that, including allocation of money, of independent federal states of USA, without the center at the top? Is legislation, political capital and so on.” US economically, socially, politically better-off without the central governance of the sort that exists today? In world of business, most of Dr.Milgan, Director the leading organizations have formal strategy Institute of community studies UK planning process. Many governments such as US, UK, Australia etc have well laid out strategy planning processes. We could have differences of opinion as to whether the Government has been effective or not. Or whether a particular government could have performed better. However, most of us agree to the fact that such 12
  • 13. Copyright 2008 by euseden central governance is definitely required despite the fact that world as a whole still functions without such top level central governance. Similarly, such top-down and integrated view of – opportunities, threats, emerging scenarios, internal capabilities, changes in demography, values and so on is definitely provides better perspectives to manage at a large scale. For instance, In India, we have states that have done very well when it comes to attracting private investors. These also are states that do well in attracting various social aids. So we have states where we have acute poverty and illiteracy and states that have progressed very well. This is more prominent if we look at cities like, Bangalore, Mumbai, and Delhi. Now, if we were to ask what strategy planning should do in such a scenario, there seems to be a good deal of opportunities for central thinking. For instance, a good strategy think-tank can learn from such experiences, research and understand how and why Karnataka attracted so much IT capital as against others and can proactively try to inject into the other states which are not doing so well. This definitely is a huge value for strategy to add. Governments can learn to govern better This in my opinion is by far the single largest reason why governments and its ministries should have a systematic, structured and well articulated strategy plan, no matter how uncertain we are about the outcomes. A properly constructed strategy plan facilitates powerful learning. Generally the straight forward reason for plans is that it helps implementation of the plan. While it is so, something underlying is more powerful than this, i.e. how it eventually shapes our understanding about the system as we follow the plan and hence our ability to create future eventually. 13
  • 14. Copyright 2008 by euseden Strategy helps us theorize, build set of hypotheses, make assumptions and above all “expect” certain results or outcomes. In a simple plan we have few hypotheses, few assumptions and few expectations. And in complex plans we have, many assumptions, causes, and expect many outcomes. In either case, how we set out our planned cause and effects and outcomes have significant bearing on how we eventually learn to master the system. I will illustrate this with examples later. First, let’s understand this learning process in some more detail. We as individuals and groups constantly learn about cause and effect relationships. From as simple as how to brush, to as complex as how to run an election campaign- discovering cause and effect, is key to success. Unless you got very lucky, I am sure, your first experiences behind the car steering did not go as expected. May be the car turned too sharply as you turned the steering. May be the car engine went- off as you tried changing gears. Moved too swiftly as you tried releasing the clutch. However, over a period we all learn what causes what effect while we drive a car. This is because of the feedback the car and the driving system gives us to all our actions such as steering, accelerating and applying the brakes. Without feedback it’s almost impossible to learn. Something very similar happens when we try to administer say a nation-wide campaign for controlling spread of AIDS if we plan what we should do, and hence what we expect- the realm of strategy. We make assumptions about the cause and effect relationships of this AIDS campaign system and see how to drive it towards the desired results. In simpler words, we decide what actions we should take in 14
  • 15. Copyright 2008 by euseden order to achieve the results that we want. For instance, we might say we want to first educate rural young men. This we believe will help us eventually control the spread of AIDS as we assume that they are the largest and the most vulnerable section. As you can see, it gets complex here due to the fact that we cannot be precise about neither the cause nor the effect unlike in the car driving. (That precisely is the reason we need to specially design the feedback system while in car it was very natural) For instance, how can we know that we can educate rural young men? Also, what we learn here is affected by how we define and articulate what actions to be taken and what results we expect. For instance, if we do not assume anything about rural young men, we will never learn about what actions to take about this important cause though we can learn about how to control the spread of AIDS. This can get wieldier by further articulation in the plan such as rural young of some geography etc. To keep it simple, we can say, what we learn significantly is influenced by how we articulated actions and outcomes. Albeit, outcome of actions are uncertain. Let me explain this further with a real time case. 15
  • 16. Copyright 2008 by euseden A case for strategy as learning tool Not long ago, as a consultant I worked with management team of a retail company in India. They had many products that were sold in small retail outlets across India and few countries outside India. Since, too many products were only crowding and adding to the complexity of manufacturing, scheduling, distribution etc, management wanted to see if they could retire few products as the overall profit margins for the company as a whole, was coming down. To get better understanding on which products to retire, we calculated profit for each product for different geographies. This information was a surprise in many ways for many in the management team. Few products which some thought highly profitable, were not actually so. They in fact, were draining significant resources of the company. Though looks rather simple, now let’s ask, •What did the company’s leaders learn in this context? •How did the strategy plan help leaders learning this? If we take a closer look at the case narrated above we realize that one of the key information which acted as a trigger was dwindling overall profit margin. Would the company management think of product profitability analysis without knowing overall profit margin? I doubt. Let’s ask much deeper question, what would company management do, if it had not even set strategic goal to related to profit margin? Would it come to know that its profit was dwindling? Probably not, as the company would not compute overall profit margin at all. (Such things happen on many strategic issues faced by the organizations today. Take for instance, energy level of companies key employees. Would company know? ) Company’s strategy plan made leaders expect certain profit margin. Then as the actual information was constructed this was short of the expectation. 16
  • 17. Copyright 2008 by euseden Hence, leaders could learn that the product’s profitability be further analyzed. Such a feedback is different from learning by haunch or intuition. I am not suggesting that intuitive learning is not important. Just that learning is very significantly enhanced through proper structuring and planning done in a holistic way. And planning helps us to structure information in more learnable way. As the above example shows this is exactly where and how a good strategy plan helps learning. Strategy plan is not only to execute but also to learn so that eventually we will have better chance in mastering the complex system. 17
  • 18. Copyright 2008 by euseden NEW ROLE FOR STRATEGY IN GOVERNMENT Strategy to operationalize, Vision and Policies Whether it is a Ministry of a government, a state council, or a large private company there are systems and processes that make people act. These are the systems which motivate people, assess people and prompt people to act. In an organizational context, especially in governments, people do not take actions because they heard an inspiring political speech. Or attended a seminar on how to adopt IT in governments. At best it can influence some level of thinking. There are systems and processes which make them act. Unless our policies become part of such actionable system no strategy or no policy gets implemented. Often we hear about lofty manifestos and promises by the political parties. Many of them even get elected based on the promises they made. Yet, just two years down the lane people realize that the governments fail to fulfill even the bare minimum. People blame political will, dirty politicking, corruption and the system. While there definitely is good share of all that, the lion share is of the system that actionates the strategies or policies. What are these systems and how do we change them to act? Of all the systems and processes, budgeting is single largest contributor of actions in government. Every government, municipality or private company has budgets. Such accounting system has been one of the most powerful inventions of organizing for large scale. For years, governments across the globe have measured their effectiveness on the basis of their budgets. In fact actions of governments are habit around these budgets. Even in companies competing in free market budgets are generally sacrosanct and people keep continuing to act as per these budgets. Markets might change, customers might change but budgets do not change. Even today, budgets command most of 18
  • 19. Copyright 2008 by euseden activities. Budgets, in its most fundamental form, are generally operation plans explained in terms of various items of expenses and revenues measured in money. Budget is useful and old powerful institution. It is so powerful that budgeting decides what strategy should be than strategy deciding what budget should be. Measuring effectiveness of actions based on expenditure, as many governments have realized now, is a dangerous thing. For one, it has got nothing to do with outcome as is the experience of most governments. For instance, every government in India has spent money on poverty alleviation but still there is large section of population which is acutely below poverty line. Problem is, we did measure the input not the output. In fact even today, we hear ministers saying “we have allocated so much money for rural development”. Why do then governments measure expenditure? Because that is one of the most meticulously tracked systems. One possible way for strategy to become more actionable is to find strategy a place in the budgets. (Other is to budget the strategy) And budgets of every one- every ministry, department, municipality, local bodies, NGOs and even if possible volunteers. This would be like creating total alignment. Generally, in most cases the linkage between budget and strategy is not very smooth and effective. Most lack proper process of building proper linkages. That does not fully explain how we make people take actions on strategy. To motivate people to take actions on strategy we need to create a rather budgeting-like parallel system of measurement which measures strategy not expenses and revenue alone. Not necessarily as large as budgeting though. Yet, a clear number driven system of budgeting and tracking strategy execution. There are powerful reasons behind this. As we saw in the earlier paragraph. Financial numbers cannot capture and measure strategic objectives and implementation very effectively. 19
  • 20. Copyright 2008 by euseden As we know financial numbers capture only monetary transactions. They do not capture non-monetary aspects, whether they are strategic or significant. For instance, consider a strategic objective such as “provide basic access to essential public services such as health, education, clean drinking water, sanitation, etc., to those who are deprived of them”. Limitation of accounting system is, it can provide us how much money we spent on it as against allocated money. (This too is practically not that simple. It requires modifications in accounting heads). But as we know, that does not solve our problem. This as we saw only is measurement of input. What we need possibly is some think like “percentage population who still does not have the access to these services and how we improve this number”. Such a thing cannot be tracked in budgets not at least the way they are now. Yet, it is far more effective indicator than money spent. Hence we need a new template and a process for setting strategic objectives that can measure non-financial objectives expressed in non-monetary numbers. Some might think that they already have such a system of setting targets in non-financial numbers. For instance, Planning commission of India has set clear targets in its 11th plan. For example, look at the following targets; - Increase forest and tree cover by 5 percentage points. - Attain WHO standards of air quality in all major cities by 2011-12. - Treat all urban waste water by 2011-12 to clean river waters. - Increase energy efficiency by 20 percentage points by 2016-17 Will it drive politicians and bureaucrats to act? Is it equal to operationalising strategy? Not really. 20
  • 21. Copyright 2008 by euseden While these are very clear than highly generic policies, these alone will not prompt actions at all levels. We need still budget like system for measuring and tracking such strategic objectives. It takes a detailed process cutting-across departments and levels. For instance, we need to now have a system where objectives such as “Increase energy efficiency by 20%” gets cascaded to say different state governments and State electricity boards. These in turn need to get cascaded to next levels. This is what happens in budgeting when it comes to money. We might even have situation where we ask industrial houses increase their energy efficiency. And this is not all, we need to get a system up for tracking these targets at various levels. This for sure will prompt action at all levels. At the least, a lot more action gets done than measuring how much money we spend under this budget. Make strategy measurable One of the significant drawbacks of the strategy planning practices adopted by the organizations of the past era was their ability to influence execution of the strategy they made. Strategy making had flawed strategy for strategy implementation! They formulated good strategies. Big problem was that they could not be implemented. This is true for most governments, their departments and civil organizations and even the best of private organizations. Key to this was strategies were highly generic and all encompassing and lacked measure. This in my opinion is one of the most significant developments of strategy planning practices of recent times. Strategy execution such as balanced scorecard- developed by Harvard professor and his colleague Dr Norton are remarkable contribution 21
  • 22. Copyright 2008 by euseden from this very important dimension. We now know that many agencies, departments of governments in US and UK have adopted one or the other version of such practices. When strategies are generic and have broad range of meanings it becomes not actionable. Worse, people do exactly opposite and interpret them to their advantage. Governments are lot more vulnerable to such practices than private companies. In such environments it becomes even difficult to know whether or not a strategy is executed. We regularly come across political parties claiming that their government made significant progress in terms reduction of poverty or providing rural employment or developing the backward section of the population while opposition claims the exact opposite. Key question is just how we know that their claims are right. Let’s looks at this deeper. Strategies need to be defined in more actionable way. For that it needs to have specific measures. A number that we can compute and measure which allows us to compare and know. Problem with most of the strategies of the past era was that they did not have proper way of measuring whether or not their strategy was executed. For instance, let’s say a State wants to pursue a strategy where its objective is to develop and promote SME sector and encourage entrepreneurs in this sector. Now, the strategy planners must set specific measure for measuring whether or not such strategy is executed. For instance, it can set percentage of contribution to the state’s GDP as a measure. It can also say how much of fresh funding goes into this sector as another measure. This way we can set clear targets to achieve. As you can see such a measure helps us to know whether the state is able to implement such a strategy. To illustrate, we can imagine that at the beginning of the strategy the state had 20% contribution coming from this sector and say state sets to achieve 30% contribution from this sector by the 22
  • 23. Copyright 2008 by euseden end of the plan period. This is very clearly measurable. Similarly, we can set targets for investment the state needs to attract for this sector and can clearly compute the number. Strategy to integrate objectives Government departments and private organizations alike tend to follow agenda and set long-term goals which are often not a pat of integrated whole. For instance Ministry of education may set following goals - Provide free education to all up to 10th grade - Increase literacy rates in all states - Establish vocational training institutes across the country - Invest heavily in higher education - Allow private players in higher education - Attract top talent to education Such goal setting systems are possibly the most prevalent and we see them in all forms of organizations- Government departments, public sector companies, private organizations and so on. While such systems have contributed their bit, it may not be sufficient for today’s complex and uncertain economic and social environments. Recently, many governments, governmental agencies such as EDA (Economic Development Authority of US under the US government), MoD UK (Ministry of Defense UK) have set Goals in a more logical, integrated and holistic way. They create strategy map. Strategy map as against the set of goals as we saw in the example above- are integrated and flow as chain of cause and effect. Unless we make conscious effort to integrate objectives they tend to run into conflicts. Such conflicts often fulfill one at the cost of the other. While it is impossible to eliminate conflicts it is important we keep it minimal. In most situations, upon some reflections it is 23
  • 24. Copyright 2008 by euseden possible to set policies and goals that are integrated and follow a logical cause and effect chain and hence make not disparate stand alone objectives but parts of an integrated whole. Some may argue that there could be few things then we may not be able to put in the plan. In my opinion, that is precisely what it is supposed to do. No matter how large and competent the government is, it is important to realize that achieving everything is not possible. It is best to achieve few goals thoroughly than try to achieve on all and end up doing not much. Strategy as a management system Many practices of strategy planning has been more like organizing an event where strategy planners present their insights on the business environment, emerging trends, competition, some new food for thoughts. This is true even in some best managed private companies. These are attended by high ranking ministers, secretaries and fellow planners at local level. Strategy needs to go beyond such events. Generally, set of professionals, leading academicians and some of the best brains in the country research, scan, consult local governments and boards, think-through and compile a quite insightful strategy plan or long-range plans. While all this is useful, history suggests that it is not enough and not possibly the most effective way to strategize, if we need these strategies to be executed. It is not about how useful insight the strategy provides. It is not even about how fine-tuned it is about local environments. It is about how effectively it can get translated into action at all levels of the government. Strategy to be more effective needs to be embedded into action- agenda of ministers and bureaucrats. This requires different perspective, different kind of planning process, different models of execution and different set of processes for “managing” strategy, a 24
  • 25. Copyright 2008 by euseden continuous process of tracking and measuring. This is not the same as planning department conducting evaluation study of the plan- implementation at the end of 3 years or something of that kind. For instance, planning commission of India, might conduct an evaluation study on how a particular scheme planned in the 5-year plan is implemented across the country. This could be small part of it but does not essentially cover managing of strategy. Managing strategy is significantly more and significantly different. Some what crude Indicator for judging whether or not we are managing strategy is answer to the following question; Are we managing strategy as we are managing regular operations? Recently, central government of UK merged two different planning departments and formed a single Strategy unit. Strategy Unit directly reports to Prime Minister, and is doing something very different from what the previous departments did not do. Apart form conducting planning; co-developing papers on issues which are strategic in nature, it also participates in the regular review of implementation of such strategies that would have got in-built into plans of different ministries and departments. ABB, a large private company has a formal and elaborate process of incorporating strategic insights developed by its strategy planning team to its budgeting. Its annual budgeting follows the strategy plan and they have separate strategy- budget component built into it. This budget of ABB is not the same as old budgeting. Clearly, this is managing strategy as this makes sure that there are processes that manage strategy on continual basis across the organization and across all levels of the organization. For this purpose some clarity on what is operations and what is strategic can be useful. Strategy as practiced by the balanced scorecard organizations and some of the leading organizations is set of objectives that are critical for achieving our Vision and Mission. 25
  • 26. Copyright 2008 by euseden For instance, A particular state government might realize that it has certain natural advantage in terms of promoting bioscience. Hence, it might want to pursue a human development program where it would develop bioscience competencies among the people in the state. Obviously now, state needs to have plans and allocate resources and organize for action. State cannot possibly set a separate ministry and then have departments and kinsmen and troops etc (In some cases they do). Most likely, it will need to ask the existing ministry and departments to do that. Now, these departments have many other things to do. They will still need to manage law and order, education, provide electricity and build roads and so on. In this illustration, these are regular operational activities and activities connected with bioscience are strategic activities. Ordinarily, by the time it reaches third to forth level of hierarchy, priority on strategic activities get lost. Hence, we need a parallel system that continuously prioritizes strategic actions at all levels. Strategy to align Barring small number of strategic objectives, most of strategies require contribution from departments, teams and individuals at local level. For instance, for country like India, where large chunk of development comes from IT and IT enabled industry, it could be important to lobby for VISA issue with US government. This could be strategic priority for India. This might not require large participation and could be handled by small number of senior officials at the center. However, large majority of strategic objectives require larger participation for effective execution. Take for instance, issue like population control. 26
  • 27. Copyright 2008 by euseden This means people at village level be educated and be provided proper incentives and amenities to implement such a strategy. This requires almost that whole nation gets organized around it. Similarly, strategy like educating people for employability and giving them skills that can find them employment also requires such a wide participation from people across the country and at various levels to do their bit to execute such strategy. Ordinarily most strategies fall under such category. And require greater alignment at front level. In such cases we need an effective strategy alignment process. How do we cascade strategy to the frontiers? This is the most critical question a strategy management system needs to address. 27
  • 28. Copyright 2008 by euseden Part-II 28
  • 29. Copyright 2008 by euseden STR-CMM - BULDING STRATEGY MATURITY Background for STR-CMM STRATEGY-CMM (STR-CMM) is a model based on balanced scorecard methodology and CMM (Capability Maturity Model developed by Carnegie Mellon University). It draws lessons from the two widely adopted management practices of recent times. Balanced Scorecard is a powerful methodology developed by Dr Robert Kaplan and Dr. David Norton. This was published in their book The balanced scorecard. According to many published sources, majority of the fortune 100 companies have implemented one or the other variations of balanced scorecard. CMM, on the other hand, is developed by SEI of Carnegie Mellon University of USA. This model was essentially developed for helping software companies in developing processes so that they could develop more effective software. Since its development, thousands of organizations across the globe have adopted CMM. CMM’s large scale adoption is due to its practical insights on implementation of the model. Is it a force fit? Well, it is not. Balanced scorecard offers rich methodology for strategy execution. But how do you execute (implement) the balanced scorecard itself? Especially when an organization is doing it the first time? On this, I felt, CMM had better insight. STR-CMM, in my opinion is a logical sequence of improvement over balanced scorecard. STR-CMM makes the entire implementation more manageable and easier to communicate to practitioners. Scorecard methodology provides frame-work for strategy articulation and measurement. Its strength is the template it provides in terms of articulating the strategy in actionable terms. 29
  • 30. Copyright 2008 by euseden However, with regards to making it a management system, it provides not much implementation guidance. And this becomes important in a large organization. This is exactly where we found CMM models more insightful and hence, we felt it would be better if we come essentially the CMM route for implementation and add scorecard as master templates that can cut across the entire system. In my opinion, it is pragmatic and still leaves the model highly practicable for following reasons; -One, we have already adopted STR-CMM approach in implementing the balanced scorecard based strategy management system in fairly large organizations. -Two, SEI, itself has, since its first version, extended the CMM model to many areas like, Product development, large software acquisitions, people management etc. Another important point is, we have kept the basic and high level architecture of the CMM as it is, though in some places there could have been better way to generalize and organize the concepts without boxing it in CMM. For instance, balanced scorecard’s four perspectives based strategy articulation frame work has more weightage than it appears on the STR-CMM at first sight. This is mainly because we did not want to modify CMM too much if it muffled the execution dimension, the very positioning the balanced scorecard took for strategy. This we thought outweighed the advantage than the disadvantage of not representing the scorecard template at the generic model level. However, in essence, this we have taken care at the detail level where it matters the most. SPA (Strategy Process Area) level as these are the key building blocks of STR-CMM. In short, force-fit ? No, because, it is highly reorganized at the granular level and still emerges the CMM way at higher generalized level. 30
  • 31. Copyright 2008 by euseden STRATEGY-CMM, PRIMER STR-CMM has two dimensions; strategy maturity levels and strategy master templates. Maturity levels provide a detailed, proven frame work for process implementation around strategy process areas (SPA). Strategy CMM helps organizations in building their capacity to execute their strategy. Following figure gives high level architecture of the STR-CMM. Organization achieves strategy maturity by achieving maturity in all levels as shown in the figure, viz, Strategy action, strategy alignment, strategy learning and strategy innovation. STRATEGY-CAPABILITY MATURITY MODEL 5 LEVEL INNVOVATION 4 LEARNING LEVEL MASTER TEMPLATES 3 ALIGNMENT LEVEL 2 ACTION LEVEL Levels represent the organizational capacity to execute their strategy. Higher the maturity levels higher the strategy capacity. Organization’s strategy maturity is progression on maturity levels. 31
  • 32. Copyright 2008 by euseden Maturity levels are group of SPAs (Strategy Process Areas), which in turn are cluster of related strategy practices. Maturity levels, as in other CMM, represent certain level of capability of the organization in executing strategy. There are four maturity levels as follows Strategy action- Organization is capable of taking significant amount of action on its stated strategy Strategy alignment- Organization has capability to align its key SPA stake holders and other organizational units to its stated strategy Specific Goals Generic Goals Purpose statement Intro.Notes Strategy learning- Organization has capability to know what is the Specific Practices Specific Practices Generic Practices Specific Practices Generic Practices Specific Practices right & wrong about its strategy and which of its strategies are Generic Practices Specific Practices Sub Practices Sub Practices Sub Practices working Sub Practices Sub Practices Sub Practices Sub Practices Sub Practices Strategy Innovation- Organization adopts innovative practices in managing strategy Maturity Levels 5 Organization has capability to implement STRATEGY INNOVATION innovative strategy management practices LEVEL 4 Organization has capability to know right STRATEGY LEARNING & wrong about its strategy LEVEL Organization has capability to align its 3 stake holders and key organization units STRATEGY ALIGNMENT LEVEL to strategy 2 Organization has capability to take action in its stated strategy STRATEGY ACTION LEVEL 32
  • 33. Copyright 2008 by euseden Master templates, the second dimension of STR-CMM, provide architecture for articulating and translating strategy. Master templates- strategy map, scorecard and initiatives; are based on balanced scorecard methodology. Master templates are like special tools that cut across many maturity levels and have important bearing on the most of the SPAs. (Refer page for more on master templates). To understand it better we can draw parallel to financial statements of accounting system. Financial statements; Balance sheet, Profit & Loss Account and Cash-flow are like master templates of accounting system. These templates have significant bearing on all the accounting that goes on in the system. (But, by themselves, balance sheets etc do not provide enough insight into how to build an accounting system in a large organization. This might be difficult to imagine in today’s context because we cannot imagine an organization without an accounting system) 33
  • 34. Copyright 2008 by euseden SPA (Strategy Process Area) SPA (Strategy Process Area) is a cluster of related practices. For example, Enterprise strategy map as SPA is achieved by following many practices such as – Strategy map is created after a detailed dialogue and discussion among the senior management team members. There is documentation available on the enterprise strategy map, and so on. 5 STRATEGY-CMM Innovation LEVEL 4 Learning Strategy awareness LEVEL Strategy Process innovation 3 Alignment Scorecard cascade LEVEL Personal goal alignment Strategy Reporting system 2 Align personal incentive Action Strategy alignment of KOUs Organization strategy review LEVEL Alignment of stake-holders Strategy competency development Enterprise strategy map KOU strategy review Organization-wide Initiatives Enterprise scorecard MASTER TEMPLATES Budgets linked to strategy Enterprise strategy initiatives KOU Initiative management Enterprise strategy review 34
  • 35. Copyright 2008 by euseden Each maturity level consists of 4-5 SPAs (Strategy Process Areas). SPAs are the basic building blocks of the STR-CMM. SPAs, in turn consist of following components • Purpose statements • Generic goals • Generic practices • Specific goals • Specific practices • Typical work products • Suggested tools • Introductory notes • Examples and illustrations Strategy-CMM Level-5 Strategy Innovation Level-4 Strategy Learning Level-3 Strategy alignment Level-2 Strategy action Strategic Strategic Strategic Process Area Process Area Process Area (SPA-1) (SPA-2) (SPA-n) Specific Specific Generic Generic Goals Goals Goals Goals Specific Specific Specific Specific Specific Specific Specific Specific Practices Practices Practices Practices Practices Practices Practices Practices Sub Sub Sub Sub Sub Sub Sub Sub Sub Sub Sub Sub Practices Practices Practices Practices Practices Practices Practices Practices Practices Practices Practices Practices 35
  • 36. Copyright 2008 by euseden Summary of specific goals & practices SG 1 Identify all Key Organizational units for scorecard development Summary of specific goals & SP 1.1 Adequate planning is done for identifying all the KOUs practices Need for scorecard development is discussed with KOUs SP 1.2 SG 2 Develop scorecards for all KOUs SP 2.1 For all identified KOU the scorecards are developed Completeness and adequacy of the KOU scorecard are verified SP 2.2 There is adequate documentation available on all KOU scorecards SP 2.3 Specific Practices by Goals SG 1 Identify all Key Organizational units for scorecard development Identify all key organizational units for scorecard development SP 1.1 Specific Goals Sub Practices Examples 1. Prepare list of organizational units who have direct reporting relations • Strategic Business units under a corporate Specific • SBUs under a division Practices • Corporate support functions • Key suppliers/ vendors Explanatory notes Explanatory Notes 1. One of the best ways to find out where the next immediate scorecards need to be developed is to find the direct reportees to the CEO, if the scorecard is developed at company level or corporate level. If the highest level scorecard is at division level, then it could be his direct reportees who typically head various independent business Typical units. There are times when the first scorecard is prepared first by the Work product support functions such as HR, IT or Finance etc. In such cases the next cascade from the scorecard possibly is best identified by portfolio of his direct reportees Typical work product List prepared for next level strategy map and scorecard development Sample page of STR-CMM guide 36
  • 37. Copyright 2008 by euseden Flowchart for implementing STR-CMM 37
  • 38. Copyright 2008 by euseden Strategy Process Areas and its Components SPA Specific Goals Generic Goals Purpose statement Intro.Notes Specific Practices Specific Practices Generic Practices Specific Practices Generic Practices Specific Practices Generic Practices Specific Practices Sub Practices Sub Practices Sub Practices Sub Practices Sub Practices Sub Practices Sub Practices Sub Practices 38
  • 39. Copyright 2008 by euseden Generic Goals (GG) & Generic Practices (GP) Generic Goals are essentially the goals that are part of the most of the SPA. Most important idea behind the generic goals and practices is that they help institutionalizing the processes and practices. Degree of institutionalization differs in different practices, even in same organization. Highly institutionalized (mature) practices are likely to be practiced even under great stress. Specific Goals (SG) & Specific Practices (SP) Each SPA has Specific Goals attached to it. Goals are essential components of any SPA. They help in terms of understanding the direction of the practices. This way we will also be able to build standard vocabulary which powerfully helps in terms of implementation. Specific Goals can have many specific practices. Specific practices in turn can have few sub practices. Practices and goals together build-up an SPA. To implement STR-CMM, we start with learning the balanced scorecard master templates- the strategy map, scorecard and initiatives. Then we learn about the maturity levels and SPAs. STR-CMM guides us through to build strategy capacity by building the enterprise wide system of managing and executing strategy. The following gives simple steps in adopting STR-CMM Understand the balanced scorecard master templates Select level-2 and implement all the SPAs in the this maturity level Move on to level-3 strategic alignment and implement the SPAs Repeat this process up to level-5 39
  • 40. Copyright 2008 by euseden MASTER TEMPLATES Master templates constitute the second dimension of STR-CMM. They provide tools and templates to articulate and translate strategy into action. Strategy Map Strategy map is one of the key templates for building strategy maturity of the organization. Strategy map is simple to construct and provide quick view of strategy. Strategy map helps us to map strategic objectives across 4-5 perspectives stacked one above the other. Vision & Mission Who are our stake holders ? STAKE HOLDER What are their needs ? PERSPECTIVE How do we satisfy their needs ? Who are our customers ? CUSTOMRE What are their needs ? PERSPECTIVE How do we satisfy their needs ? To satisfy our stake holders and customers, what processes we need to excel ? INTERNAL What kind of IT systems should we deploy? PERSPECTIVE What should be our financial goals? To excel at these processes, what Competencies our people need to develop ? LEARNING & GROWTH PERSPECTIVE What kind of culture and values do we promote? In constructing the strategy map, we start from the top perspective and come downwards in a logical fashion. To enable this, we need to define the perspectives. Let’s understand this with the figure given here. 40
  • 41. Copyright 2008 by euseden As we can see, the strategy template shown here is a generic template in a Government organization. Top most perspective is Stake-holders perspective. It is followed by customer perspective, internal perspective and learning and growth perspective. These perspectives themselves are integrated by the following logic; Our strategy needs to help us achieve our mission. This we can do by satisfying our key stake holders. Our key stake holders can be satisfied if we can identify our key customers and provide them value. This in turn is possible if we have capable processes, capable IT systems and capable financial management. Again, this in turn is possible if we have competent set of employees who can consistently execute these processes. In the strategy map, we try to bring focus to our strategy and try to build strategy in an integrated and logical way. Strategy map is a set of objectives across the defined perspectives in a cause and effect chain. We need to articulate our strategy in a proper cause and effect chain so that we can achieve clear focus. This will help us execute the strategy better. This is because, strategy, instead of being disparate set of stand-alone objectives, now becomes an integrated system of objectives that support one another. Perspectives Perspectives are broad dimensions of the strategy map. They provide first level scoping for our strategy thinking. They are the fundamental architecture of the strategy map and facilitate setting and organizing the strategic objectives. Stake holder perspective For any Government organization it is important to understand the needs of stake holders and its key constituents. This 41
  • 42. Copyright 2008 by euseden perspective guides the planners to set strategic objectives that help in terms of satisfying the important needs and requirements of the stake holders. For instance, for ministry of education, State Government itself can be a key stake holder. Central Government can be another key stake holder. Various industry bodies also could be other important stake holders. An important aspect of strategy is to satisfy the stake holders. In this example for instance, education ministry can set objectives like- provide free education for all children up to 7th grade. This might be an important need of the state Government. Customer Perspective Some practioners do not mention this as separate perspective. They ordinarily club it with the stake holder perspective and show it as part of the stake holder perspective. This is acceptable practice because remember, the strategy map is only a template not a mathematical model. In the customer perspective, we ask who are the important segments of our services and what can we offer them? In short, what value do we create and deliver to our customers? In the above example of education ministry, we can ask for instance, keeping in mind the fact that we want to provide free education to all children up to 7th standard, what can we propose to children further in order to achieve that? This might lead to thinking “provide free text books”. Such an objective then, can be part of the customer perspective. This objective “provide free text books” is not stand alone. This is connected to the objective set above in the stake holder perspective. Perspectives facilitate setting strategic objectives in cause and effect chain. And such, top-down logically linked set of objectives will be easier to implement as against stand alone objectives. 42
  • 43. Copyright 2008 by euseden Internal perspective This is one of the important dimensions added by the balanced scorecard methodology for strategy management. Strategy so far, was essentially externally oriented. It was more about scanning the market, business environment, important changes in the economy, technology and competitors etc and predicting how it all would shape up. Balanced scorecard brought powerful internal dimension to strategy. From the point of view of government and public organizations, internal perspective can be summarized as explained below. Process To consistently deliver value to customers it is important that organizations have capable and highly mature processes. For instance, if Government is intending to provide free text books to students, to fulfill this proposition, it needs to have a well organized procurement of such books, distribution of these books to various schools, and make sure such books reach the students in-time and so on. Capability in such processes becomes critical for executing this strategy. Government’s strategy management must make sure this process of all, is especially capable. IT This is another important strategic dimension today. Every organization, large and small, public and private, is affected by IT today. We have seen that e-governance and ecommerce are spreading quickly. Every aspect of life is affected by IT. IT is a powerful dimension of economy, business, society and culture today. Key questions we need to ask in this perspective are; - How can we use IT to achieve the objectives we have set in process perspective and customer perspective? - How can we use IT to deliver value to stake holders? For instance, in the above example the Government can set 43
  • 44. Copyright 2008 by euseden objectives such as- adopt cutting-edge supply chain software, Set online portal that allows students/schools to log complaints. Key is that IT objective here needs to be aligned with objectives we have already set in other perspectives above. That way we increase the strategy implementability. Finance For Government this may not be as critical as it is for private organization. However, it is still important enough to be strategic. Cost of executing the processes and activities are important considerations for every organization. Continuing the example above, in the finance perspective, Government can set objectives such as- keep the average cost per book as per the approved budget or keep total cost per servicing a student under USD 50 per annum etc. It can also be set as productivity of people who would be part of the process, and or speed of the process cycle. Key is, the strategy should have financial angle to it. Learning & Growth perspective This again is an important dimension to strategy added by balanced scorecard methodology. In this perspective while mapping the strategic objectives we ask following questions; To achieve objectives set in process perspectives what competencies, skills and knowledge our people need to have? To adopt IT the way envisaged in IT perspective what kind of competencies our people need to have? Which of the above competencies are most critical? How can we train our people to get it? To illustrate, continuing with our education ministry examples, Government can ask if we need to achieve the process and IT objectives what kind of competencies we require? In this case Government needs to possibly train people on supply-chain software. Also, such a large-scale adoption might require powerful project management skills hence, people might have to be trained 44 in project management skills.
  • 45. Copyright 2008 by euseden As we can see, this way by coming top-down in logical way, perspective by perspective, Government can narrow down the scope and can be laser focused about its strategy. Following is example of strategy map. Royal Canadian Mounted Police( RCMP) Mission STAKE HOLDER PERSPECTIVE Be the best managed organization in Government INTERNAL PERSPECTIVE Exemplify Build strategic modern alliances management Accountability at All levels LEARNING PERSPECTIVE Provide enabling technology Source-Strategy Map Robert Kaplan & David Norton Above map shows the partial strategy map of one of the premier government organizations of Canada. RCMP (Royal Canadian Mounted Police) is an agency under ministry of the solicitor general of Canada. As you can see, the strategic objectives are mapped across three perspectives. One of the important objectives for RCMP in stake holder perspective is to become one of the best managed organizations for the Government of Canada. This, 45
  • 46. Copyright 2008 by euseden RCMP wants to achieve by building strategic alliances. Alliances with various communities, people, other government agencies etc. And RCMP also believes, to be the best organization, it needs to adopt best in class management practices (exemplify modern management). As per RCMP management, this is one of the key processes of its strategy. RCMP also believes, to achieve the objective exemplify modern management it has to establish accountability (accountability at all levels). And this in turn, is achieved by enabling its officers with required necessary technology. (Provide enabling technology). RCMP thinks that it is strategic to adopt technology to improve accountability. As I mentioned earlier, this is only a partial strategy map of RCMP. However, the above map shows clearly how a properly constructed strategy map can tell the strategy story. 46
  • 47. Copyright 2008 by euseden Scorecard- Measures and Targets As we know strategic objectives can get very abstract and can lead to wide interpretations. For effective implementation we need to make it measurable to lessen conflicting interpretations. For instance, one of the strategic objectives in stake holder perspective for a particular state government could be “Provide employment for rural youth”. This objective might appear to be fairly specific. Nevertheless, there can be conflicting interpretations To avoid this we can say this objective will be “measured by Number of unemployed persons per village”. Such measures help officials know how well they are able to execute their strategy. One of the most important practices of the STR-CMM is to assign one or two key specific measures for the strategic objectives. To do that we simply need to ask, how can we know that the stated strategic objective is achieved? What, if we measure, we will know whether we have achieved the strategic objective? Once we have defined the measures, we need to also set specific targets in terms of the defined measures. For example, in the above example, Government can set target of say 3 unemployed people. This means that for every village only 3 people can remain unemployed. As you can see, we can also compare this number with the previous period and find out how well the strategy was executed. Targets help us make the strategic objectives more specific. Some of the best practice organizations, specify clearly, how exactly such measures are computed. 47
  • 48. Copyright 2008 by euseden Following is an example of a properly constructed scorecard of a government organization In our practice, we have observed that many executives tend to set too many objectives and measures. Energy Department, Federal procurement (USA) - Scorecard OBJECTIVES MEASURES TARGETS 2002 Timeliness: Extent of customer Customer Satisfaction satisfaction with timeliness of 85% CUSTOMER procurement processing; planning activities; and on- going communications. Effective Service/Partnership Extent of customer satisfaction with the 88% responsiveness, cooperation, and level of communication with the procurement office. Extent to which internal quality control Achieve acquisition excellence 80% systems are effective, particularly with respect to compliance with laws and regs, No protests INTERNAL vendor selection and performance, contract admin., and subcontractor oversight Most Effective Use of Contracting Percent of purchase and delivery 33% Approaches to Maximize Efficiency orders issued through electronic and Cost Effectiveness commerce 10% Percent of RFPs over $100,000 issued electronically Streamline processes for speed Average time from issuance of solicitation 123 days for to date of award. contracts between $ 10M to 25M LEARNING Provide access to strategic information The extent to which reliable procurement Information system to management information systems are in be 100% timely and place. accurate Superior Executive Leadership: Employee satisfaction Employee’s perception of the organization’s 84% professionalism, culture, values, and empowerment Quality Of work environment- Employee’s degree of satisfaction with tools available 85% to perform job, with mechanisms in place to ensure effective communications to accomplish job requirements, and with current benefits and job security. 48
  • 49. Copyright 2008 by euseden This may not be a good practice. Ordinarily, about 18-20 strategic objectives cutting across all the perspectives should be enough to start with. Also, we need to define in all, about 25-30 measures. It is best we start with such numbers and gradually increase it later as the leaders and officials become familiar with the system. Strategic Initiatives Initiatives are integral part of strategy execution. As we have observed, many organizations who implement balanced scorecard or KPI based management system, rationalize their existing enterprise level initiatives and start many new initiatives in light of the newly formulated strategy. This also prompts generally, chain of initiatives being taken at lower levels of the organization. The central organizing thread for such initiatives is, the newly articulated strategy with clear measures and targets. In one of the large FMCG companies that we worked with, management set strategic objective to be the least cost producer in India. This required that many of their 50 odd manufacturing plants across India are upgraded, productivity be watched closely, and certain quality management practices adhered to more rigorously. What exactly a plant needed to do could not be generalized though there were few things which many plants could follow and hence could be centrally managed. Hence, plants after taking stock of how they could contribute to the corporate level strategic objectives assessed their situation and started their own set of initiatives at their level. These were apart from supporting few of the corporate wide initiatives. This way there were hundreds of initiatives across the organization at different levels. Initiatives are integral part of new way of managing strategy. Lets now look at Maturity levels and associated SPAs in some more detail 49
  • 50. Copyright 2008 by euseden MATURITY LEVELS Maturity levels constitute the first dimension of the STR-CMM. They provide a detailed step by step guidance for implementing the strategy management system. Then, we might ask, what is the system to be implemented? In part, the system is not separate from the maturity levels. Maturity levels also constitute one dimension of the system itself, other being the master templates. This becomes clearer as we understand the master templates. Maturity levels provide high level architecture of how SPAs are grouped and hence to be managed. Maturity levels are like distinct stages in implementation of strategy management system. Their progression is based on logical and natural sequence we need to follow for effective implementation. Why start with Level 2 Strategy CMM is more about strategy execution than strategy analysis and strategy formulation. As we saw earlier, strategy planning could not fulfill its promise essentially because they focused on strategy thinking and analysis. Many of them built powerful tools and did good deal of forecasting into far future. But, what they lacked was a process of infusing such thinking into organization’s execution machinery and hence, translate all such analysis into concrete set of actions. In STR-CMM we have taken an approach, where we start from where the traditional strategy planning left off. This part of strategy analysis- SWOT, environment scanning, industry analysis, dialogue etc – is taken as level one and we move on to level 2 of the STR-CMM where we build on such analysis and translate this into integrated set of strategic objectives across the four perspectives as explained the master templates. 50
  • 51. Copyright 2008 by euseden It could be important to note here that master templates force us to do some degree of strategy thinking also. Templates require planners and executives to do structured thinking on their strategy. But the degree and intensity of such thinking is limited as compared to the rigor used by the strategy analysis level. 51
  • 52. Copyright 2008 by euseden LEVEL-2 STRATEGIC ACTION Practices in this maturity level, is a must for concrete action on strategy. Without such practices the strategy remains just a powerful analysis but does not get translated into actions. Following are the SPAs in this level. Enterprise strategy map Main purpose of this process area is to create an integrated view of the strategy. Generally, even in some of the best organizations, strategy means many things to many people. This is true even with people at the top of the management structure. What is strategic to success of Government as perceived by the say education minister may not be the same as that of the chief bureaucrat of the education department. This often leads to delay in decisions and ineffective execution. Hence, it is important to create a shared understanding of strategy. Strategy map constructed, as explained in the master template section earlier is a powerful practice to create an integrated and common view of strategy. In this SPA, we implement practices to create Enterprise level strategy map. Enterprise scorecard What gets measured gets done. In this process area, executives create enterprise level scorecard- set of measures for measuring the execution of strategic objectives. Scorecard brings a further clarity to strategy. Scorecard generally, is set of 25-30 measures. It assigns a mathematical number to each of the strategic objective. Measures help us understand how we would know that strategy is being executed. For instance, if Government sets strategic objective- Reduce crime on women, then possible measure for this objective can be percentage of decrease in crime against woman. Such measures help in building focus. 52
  • 53. Copyright 2008 by euseden Enterprise strategic initiatives Based on the strategic objectives set and measures identified, strategy planners now need to identify certain key strategic initiatives to achieve the targets set. Initiatives generally, are projects that can cut across the ministries and departments. For instance, Queensland government, has set objective to “Compete based on knowledge and Innovation”. To achieve this government needs to identify certain key initiatives. For instance, Queensland government can initiate a program to strengthen the research in their technical universities. Generally Enterprise level strategy needs to have about 25-30 such clearly identified initiatives at enterprise level. In this SPA, we implement practices to manage initiatives. Strategy communication Strategy communication, in our opinion, is one of the most neglected SPAs. Communicating strategy goes a long way in proper execution. IT, today, allows significant opportunity to communicate without really spending much. Generally, organizations are not particularly good at things which they have not done in the past, no matter, how easy and how little it takes to execute. Communication of strategy provides one of the high leverage points where relative return on the effort is very huge. Following are some of the practices in communicating strategy -Strategy seminars -Doing round table briefings -Documenting strategy clearly and giving printed copies -Publishing the same in in-house magazines -Making a podcast/webcasting available on the intranet -Starting an online community 53
  • 54. Copyright 2008 by euseden Enterprise strategy review Main purpose of this SPA is to have well-organized processes to do regular and periodic review of enterprise strategy execution. Again, this is one of the high leverage points of strategy management. Strategy is not a one time event. Strategy to be executed needs to be a continuous process. We need to go beyond just the annual strategy seminar. Review, gives sense of continuity to the activities that are undertaken to achieve strategic objectives and targets. In many cases that we have come across, people wait endlessly for complete data, reports and analysis for conducting strategy review meetings. This need not be. Thumb rule is, within 60-70 days of preparing enterprise strategy-map and enterprise strategy scorecard, we need to do the first round of review meeting on strategy execution. LEVEL 3 - STRATEGY ALIGNMENT Strategy alignment for all KOUs Organization needs to align all its Key Organizational Units (KOU) to the enterprise strategy as established at the higher level. We have set the enterprise strategy, scorecard, and targets and communicated. Can’t we simply now leave it to the management of the KOUs to set their objectives? As far as the past experiences of strategy execution go, we cannot do that. We need a consciously thought of process to do that. We need to have practices in place to ensure that it happens. Based on enterprise strategy, KOUs need to draw their strategy maps scorecards. This ensures more organizational focus on strategy. In STR-CMM enterprise level strategy is not just an abstract, generic statement. It is followed by measures and also has clear targets attached to it. KOUs can, like they do in the budgeting process, take these objectives, measures and targets 54
  • 55. Copyright 2008 by euseden and set their targets in a similar way so that they can contribute in part, to achieve targets set at enterprise level. KOU Scorecards Scorecard is a template for action. Keeping enterprise level scorecard as a guiding template, KOUs need to prepare their own scorecards. They are free to adopt their own if they feel necessary. However, in many cases, they can possibly adopt many of the measures as identified in the enterprise scorecard and change only the target to contribute to the overall target. For instance, Government level Scorecard can say provide free books to all children up to 7th grade. Now, in particular case, district level administration can set target that they will cover 95% of the schools. In certain others, such a steep target may not be possible due to their current conditions. In such cases the local district administration may adopt a lesser target. Alignment of Key Stake holders Aligning stake-holders to enterprise strategy is very important practice in creating focus on strategy. This becomes more prominent in case of Government organizations. Many objectives of the government depends on stake holder participation for effective execution e.g. Government of Karnataka, partnered with some of the leading IT organizations in Bangalore to promote IT industry for powerful economic development of Karnataka. In such cases, it could be very important to align such partners to enterprise level government strategy. Many large car manufacturers in India, such as Tata Motors and Maruti are adopting such practices to strategically align their vendors. Purpose of this SPA, hence, is to create string of practices that ensure that stake-holders are aligned to strategy. 55
  • 56. Copyright 2008 by euseden Strategy Reviews - KOU Purpose of this strategic practice is to establish proper review mechanisms for reviewing strategy execution at KOU levels. As noted earlier, review helps in building continuity in strategy execution. Such practices need to be properly planned and institutionalized. In our experience with our clients, we have found that proper review mechanisms are one of the most powerful indicators of how well strategy is being executed. This is not the same as operations review. Operations review, are generally ingrained well in most of the organizations, and they essentially review the financial numbers planned out in the annual budgeting process, few non-financial numbers withstanding. But they essentially remain review of budgeting numbers. Strategy review, on the other hand, is review of strategy execution, as spelled out in the strategy map and scorecard. For this purpose, strategy coordinators should plan, preferably separate review meetings. It could also be a good practice to ask for a 2-3 page summary analysis of strategy execution by responsible officers for such purposes. The purpose of this SPA is to implement practices to review strategy execution at KOU levels and institutionalize these practices so that people do not evade these practices. People generally show-up for the first such review. But we need to make it much more than that. To make it a lasting process, there has to be a proper process. 56
  • 57. Copyright 2008 by euseden Budgets linked to Strategy As mentioned earlier, budgeting as a practice, whether in government / private companies, has been there for a long and is deeply wired into the organization. Situation is more like budgets running the organization than organizations running the budget. We need to keep in mind however, that it is almost impossible to start strategy making process in total integration with the budgeting process from the very start. At the same time, this is critical for eventual success of strategy execution, as some of the key resource allocation happens essentially through budgeting process and do not change easily even if the needs are clearly known outside the budgeting system. It does not matter at what level the needs become known. In one company that we know, CEO decided to start a new business initiative. It could not make progress as the young executive who was given this new assignment could not meet the prospective clients as he did not have enough travel budget! Eventually the CEO got tired of vetoing for young executive’s travel expenses. Some of the main goals of this strategy process area are – review budgeting process for proper integration with strategy, integrate strategy with budgeting at enterprise level, and draw up proper process for building clear linkages between these two processes at every level of the organization. If strategy is not linked to budget, strategy execution management will stop getting the required resources. Also, budget drives lot of activities at lower levels of the organization. If there is no proper linkage between budget and strategy, people at lower levels will totally ignore strategy, as 57
  • 58. Copyright 2008 by euseden they are generally driven by the budgetary plan alone. To illustrate, consider the education ministry setting strategic objective such as free books for children up to 7th grade. Now, the government not only needs to make available the money for the books, but also for the distribution of the same and administration of the same. Without which, officials will eventually run into budget conflicts about resource allocation. KOU initiatives Implementation of such comprehensive strategy execution management prompts lot of projects at many levels down the organization. It is like series of inter-connected projects all focused towards achievement of strategic goals. These are generally, cross- cutting projects. Focus of this SPA will be to have proper practices in place so as to enable effective management of initiatives undertaken at KOU level. This is in some sense similar to that of enterprise level initiatives except that these are undertaken at KOU level and are not specifically covered by enterprise initiatives. But these are initiatives KOU-level management considers important, to achieve their share of target for executing strategy. Strategy competency development Simply put, strategy competencies are those competencies which are critical for executing the strategy. Not all competencies are critical for strategy execution. For instance, if as a state, we are looking for becoming “best outsourcing destination”, English speaking skills become strategic competency for the state. The State might still need to do agriculture and train agriculturists. However, that is not strategic for the state which is pursuing strategy of becoming outsourcing destination”. 58
  • 59. Copyright 2008 by euseden Main purpose of this SPA is to develop competencies that are critical for strategy execution. How different is it from training and development that organizations generally do? There is a significant difference between the ordinary training and development and strategy competency development. In strategy competency development the focus is on those competencies which have significant impact on the strategic objectives of the organization. Consider another example, government of Orissa, a state in India is trying to develop its capacity to take help from external agencies like QFID, World Bank etc for economic development. This requires that certain officers in the government develop skills for making a proposition, understanding how these agencies fund, how to manage relationship with the agency officials and so on. These competencies become strategic to Orissa government as state has declared that economic development is one of its strategic objectives. 59
  • 60. Copyright 2008 by euseden LEVEL 4 - STRATEGY LEARNING Strategy Cascade Entire effort of STR-CMM is to build organization’s capacity to execute strategy more effectively. It is a set of processes and practices when followed help a government or a ministry in executing their strategy effectively. As we know, while strategy may be planned at the top, execution requires tremendous support and action at various levels of the organization. For instance, in our example of ministry of education- “providing free books” require that even some one, who is involved at school level which is possibly the point of collection, be aware and be motivated to act on this objective. If say, school principal is also very aware that this is very strategic to government, he might do it on highest level of priority. So the objective needs to get cascaded even to the last point. Similarly, in most cases, the strategic objectives, measures and targets need to be cascaded successively downward up to the frontest level of action. Some of the practices in this area are as follows; -Design of formats and templates for cascading -Identify micro level organizational units to create the scorecard -Identify key cross-ministry scorecards that need to be developed -Cascade to team level -Train people on STR-CMM methodology -Create personal scorecards Strategy reporting system Main purpose of this process area is to develop practices that enable the organization to get information about strategic measures and achievement of targets established in enterprise scorecard and scorecards at other levels. 60
  • 61. Copyright 2008 by euseden Though it is not an absolute essential in the early stages of implementing STR- CMM, it is important that organization gradually develops such a system. Without which, STR-CMM is not likely to get deeply institutionalized. We need to establish integrity of data and need to develop systems and processes to collect data enterprise wide, collate it, and report at appropriate levels for taking action, doing the reviews and learning. Accounting, budgeting, process-management etc have developed sophisticated reporting systems over a period of time. Strategy management needs to have comprehensive and reliable system for collecting and reporting data on strategy execution. Needless to mention, this will help, in terms of establishing accountability as well as proper review at all levels of the organization. Some of the practices in this area are – development of reporting system plan, estimating for developing system, prioritization of reporting areas, roles to be designed, templates and reporting formats developed etc. IT enabled strategy management process Purpose of this SPA is to deploy IT-systems –software, hardware and other communication systems for strategy management. As we know, IT transforms everything and can bring tremendous advantage. For instance, entire reporting of scorecard can be made easy if we can adopt software like Microsoft-business Scorecard. Similarly, we might do well if we can adopt software for cascading the Scorecard to the frontest level. Initially, organizations might choose to do the reporting may be part manually and part IT enabled. Over a period of time, we may want to gradually develop software systems. Certain processes need to be IT enabled on priority. For instance, enterprise level strategy dash-board. 61
  • 62. Copyright 2008 by euseden Dash boards provide quick view on whether strategy is being executed. And if not, where in the chain is the problem, as many of them provide excellent drill-down options. Strategy review at all levels This is possibly the most important process areas which can hard- wire the strategy management of the entire organization. We do review of enterprise level strategy, start reviewing strategy at KOU level and now it is about time to review progress on strategy execution at all other levels downwards till we almost go to team and individual contributor level. Such reviews will make sure that top-to- bottom, entire organization is aligned and attuned to strategy execution. This may not be as hard as it sounds to achieve this. In few cases, we have seen organizations could achieve, at least in part, personal alignment soon after creating enterprise level scorecard. Enterprise wide Initiative Management STR-CMM prompts enterprise-wide initiatives across the organization and at all levels. Main purpose of this SPA is to develop practices and sub-practices that enable effective management and execution of these strategic initiatives. For instance, government can set objective to “Control spread of AIDS” as one of its strategic objective. Now, as a step towards strategic alignment - all state governments might adopt this objective in their strategy and 62
  • 63. Copyright 2008 by euseden scorecards as well. District administration in turn can adopt this also as an important strategic objective. As a result, they may think of local level AIDS awareness campaign such as conducting road- shows every quarter. This way, the entire nation can get organized around Control AIDS and organizations, groups, communities, companies, NGOs, individuals might be taking various such initiatives. All such identified initiatives can be organized effectively if we can deploy proper and effective practices for management of hundreds of these initiatives. Some of the practices in this area are as follows: -Define processes for collecting data on initiatives. -Identify roles and assign roles for managing initiatives at different levels -Collect & report initiative data -Develop a Centralized project management system LEVEL -5 STRATEGY INNOVATION Align Personal goals In this process area we implement practices that align goals of frontline people and individual members to the strategy. For instance, in our “control spread of AIDS” example, some one at the level of post-man can set goals at his personal level to contribute to the achievement of this goal. For example he can set a goal to educate certain number of young men in rural areas on the AIDS. This way, even the frontline people can get aligned to strategy. Main purpose of this SPA is to have practices that ensure alignment of personal level goals to strategy. Align personal incentives Incentives motivate people to act. Here the goal is to provide proper incentives for people to act on strategy. Many strategy 63
  • 64. Copyright 2008 by euseden focused private companies have innovative incentive schemes to align their people at all levels to act on strategy. Many organizations are putting in place, schemes to motivate their top management team members to act in accordance with the organization’s strategy. A large pizza chain has a system of publishing the scorecard performance of each pizza outlet on their intranet. Teams of the best performing outlets are given various prizes. Certain other organizations have started providing monetary incentives for contributing to strategic objectives Strategy awareness In this SPA, the goal is to create awareness on organization’s strategy. Organizations needs to implement practices to continuously communicate strategy and also communicate progress made on strategy execution. Researchers have found that there is a strong correlation between strategy awareness and strategy execution. Best practice organizations generally have about 60-65% strategy awareness as against only about 20-25% among the other organizations. Strategy process Innovation Innovation in product development is a known phenomenon. Gradually, managers in private companies are realizing that innovation can have powerful impact on the performance and it need not be restricted to products alone. Innovation can be anywhere- in technology, in processes, in organizing, and so on. Main purpose of this SPA is to put in practices that foster innovation in management of strategy. For instance, government of Karnataka involved school children in its drive to eliminate Polio. This was clear innovation in organizing as compared its old ways. Also, take a look at case of innovation in governance 64
  • 65. Copyright 2008 by euseden infrastructure. Recently government of Karnataka formed a high powered task force for improving the infrastructure development in Bangalore. It constituted a Board which had eminent industrialists and ministers and bureaucrats. The board reviewed all key developmental projects and gave their recommendations for speeding up. This helped speedier development of roads and flyovers in Bangalore. In another example a private organization we know, distributed printed strategy map and scorecard to all its employees, which increased strategy awareness significantly. 65
  • 66. Copyright 2008 by euseden ABOUT EUSEDEN Euseden is a strategy consulting boutique based in Bangalore, India. Over the years, we have helped several senior leaders, managers and management teams of some of the leading brands in improving their business performance. Just to mention few, recently, we helped a large retail company in achieving phenomenal business performance by revamping their strategic goal setting and management processes. Couple of years ago we helped a large software house in deploying a process based approach in improving their people management practices. In another case, we helped a management team of an international retail chain in building 3-year strategic roadmap and action plan for the launch of their brands in India. Also, we helped several semi-large organizations in building integrated multi- media learning solutions and competency building. Some of our clients include- United Breweries, QAI, HP-India, Cafecoffeeday, Newby of London, Satyam, Vogue, PlanetM , and so on. 66
  • 67. Copyright 2008 by euseden Euseden Consulting 78 6th cross 19th main Banashankari-II Bangalore – 560070 INDIA www.euseden.com STRATEGY 67