Strategy Dynamics Briefing 67: Steering strategy and performance

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Although it is common to distinguish strategy development from strategy implementation, it is not generally advisable to develop strategy first, then switch to implementing it. Not only is it impossible to know everything in advance but conditions continue to change as events unfold. Our strategy will also cause competitors and customers to respond, giving rise to new challenges and opportunities, so the chosen strategy will inevitably need constant review.

This steering and adjustment of strategy should be handled with care, though. Whilst it is good to keep alert to the possible need for revisions, most strategy frameworks provide guidance at too general a level to assist in this adjustment process. It is rarely advisable to make different choices next year on where to compete, and how, from those you made last year. It is certainly unlikely that altering those choices from quarter to quarter would be advisable. Similarly, having identified a set of benefits for target customers that should win substantial, profitable business, it is not likely that a repeat of that analysis next quarter will come up with different answers from those it came up with last quarter. Indeed, contrary to popular wisdom, strongly performing organizations do not constantly reinvent themselves. Rather they relentlessly pursue broad strategic choices that have been proved to work, with incremental extensions and adjustments that are modest relative to the scale of their overall operations. The recommended “continual updating” of strategy therefore needs an approach that supports policy and decision-making at a more detailed level than standard strategy frameworks allow.

Strategic decision-making’ thus encompasses the entire stream of decisions that follow after the initial high-level choices have been made. Indeed, it is entirely possible for a promising set of initial choices to be entirely destroyed by poor choice of the subsequent strategy implementation. Throughout previous chapters it has been rather taken for granted that management makes decisions to keep an organization working well and pursuing its purpose. Strategic decision-making is no simple matter, however. Various examples in previous briefings have shown the substantial improvements that are possible from better decisions and the damage that poor decisions can inflict.

A number of observations emerge from these examples.

Potentially large impacts on performance. As in the consumer brand example in Briefing 66, the differences in performance between alternative streams of decisions are often vast. This should not really be so surprising. Since decisions affect resource-building, their effects must be cumulative, small differences will likely build up considerable strengths or problems as time passes. Big changes to decisions may be valuable. This contrasts strongly with common practice, where management rarely makes large scale changes in decision factors, and competitors often match each others’ policies closely.

Delays between decisions and outcomes. We have observed before that resources’ accumulating behavior can result in long periods elapsing between decisions that are made and the consequences of those decisions being evident. This is a real problem for decision-making for two reasons.

  • It can seem that a decision is not working when in fact it is, so management reverses the decision before its benefit is apparent.
  • Alternatively, management can press on with policies that are seriously wrong because they cannot see problems building up.

Counter-intuitive recommendations. Sometimes the interaction of resources has implications for decision-making that are quite opposite to what seems best. Poor sales growth may be reversed by lower sales effort, if it allows existing customers to be better served, and thus retained, rather than being badly served and then lost.

Changing decisions over time. Unless the organization and its environment are both very stable, it is highly unlikely that management’s best policy option will be to pursue a stable set of decisions from period to period. Care is needed with this principle, however. Well-informed, programmatic changes in decisions are not the same as constant reaction to short-term results.

Satisficing decision-making. Incremental decision-making often leads to performance that, whilst not too bad, could be substantially better. We try to achieve 10 % annual profit growth because it already looks tough to hit 5 %, and 5 % looks tough because that is the best we get by pursuing more or less what we did last year. Decision rules that allocate fixed proportions of revenue to certain costs and spending budgets that are set at last year’s rate plus or minus a small fraction lock in this kind of satisficing behavior and condemn organizations to under-performing their potential, often by a wide margin.

Until next time…

 

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Where strategy is managed

The path that strategy takes is not, as might be expected, determined by big decisions made by the most senior people. Gone are the days when, for example, the CEO of a major hotel chain reserved the authority for every decision, right down to the choice of carpet for his hotels. Modern business life is just too complex and fast-moving for organizations to accept the delays caused be such command-and-control decision systems. Consequently, many organizations have devolved authority to people at lower levels.

Strategic Management Dynamics book coverWhilst devolved decision-making should be quicker and more responsive than hierarchical command-and-control, it clearly poses risks. Decisions may not be consistent, so one person makes an apparently reasonable decision in ignorance of other decisions that make her own inappropriate. And there is the risk that decision authority may be granted that is beyond their skills or experience. Organizations try to reduce the risk of devolved decision-making by providing guidelines. Essentially, they are saying to individuals “Yes, we want you to make your own decisions, provided they conform to the following principles.”

This briefing summarises material from chapter 8 of Strategic Management Dynamics, pages 527-532.

Read more about the book on our website

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