CategoryStrategy Management

The Basics of Strategic Planning and Strategy Execution

Effective strategic planning and strategy execution are key to driving business success and growth. Unfortunately, leaders tend to focus more on the planning process and less on doing or executing.

Strategic planning is the process of articulating the vision of what the organization wants to be, defining its strategy, setting strategic initiatives, making decisions on allocating its resources to pursue this strategy, and aligning the organization to ensure that employees and other stakeholders collaborate toward common objectives.

The focus is on the future direction and performance of the organization. Through strategic planning exercises, organizations tend to produce 3-5 year rigid strategic plans documenting the organization’s strategic goals as well as action plans to achieve those goals.

Rigid strategic plans work best in a stable environment. However, times have changed. Today’s business environment is awash with substantial volatility, uncertainty, complexity and ambiguity. The abnormal is now normal and uncertainty is now certain.

As a result, enormous doubt has been cast on the effectiveness of strategic planning in the current environment, leading some to claim that strategic planning is dead.

I don’t buy this view. Strategic planning is not dead.

Yes, the environment is constantly evolving, and the organization needs to be flexible, adaptive and responsive. But, how can you address and navigate the future without a well laid plan and strategy?

In their book Sun Tzu: The Art of War for Managers, Gerald A. Michaelson and Steven Michaelson cite that:

A common mistake is to consider planning as only a mental process, an idea in our head that simply looks at the past and adjusts for the future. If your plan is not in writing, you do not have a plan at all. Instead, you have only a dream, a vision, or perhaps even a nightmare.

This is not about producing long strategy documents that very few read. Rather, it is about a producing a simple written plan that is easy to understand, such as a strategy map.

Strategy maps helps leaders define and communicate the strategy of the organization by creating a visual representation of the key business objectives on a single page. Strategy maps also outline the strategic aims and priorities of the organization and help to ensure everyone is working towards common goals.

The organization’s plan must not be rigid in nature, but flexible enough to accommodate changes in the environment or business requirements.

As a football fanatic and an avid Arsenal FC fan, I have experienced a fair share of exciting and disappointing matches. But, over the past few years, I have come to appreciate the fact that rigidity does not win matches.

Within the same match, I have watched Arsenal quickly switch from a 4-3-3 formation to a 4-2-3-1 and make substitutions depending on the realities of the match. Even though the manager had a 90 minutes’ game plan before kick-off, he also had other plans that allowed for flexibility in formations to adapt to reality.

The same approach should be adopted in business. Rather than stick to rigid planning systems that convey a message that obedience to the plan is key to business success and growth, leaders need to implement plans that allow the assessment of business performance under different scenarios.

Defining strategy and tactics

Put simply, strategy is about doing the right thing. It is about how an organization will move forward and figuring out how to advance its interests. In war terms, it is seeking victory before the battle.

On the other hand, tactics is doing things right. It is the implementation. The battle or action of the war.

However, often times there is confusion on whether strategy determines tactics or it is tactics that determine strategy.

Seeing that strategy definition is part of the planning process, and tactics is about implementation, it is safe to conclude that strategy always comes before tactics.

It is therefore important for leaders to understand that for tactics to effectively support the strategy by doing things right, the strategy itself must be right first. You must be doing the right thing. A bad strategy underpinned by good tactics can be a fast route to failure.

To do the right thing, leaders need to primarily stop focusing more on or reacting to competitors. Great strategies do not arise from reacting to competitors.

Instead, they are a product of intense discussion and deliberation that take into consideration the organization’s internal strengths and weaknesses including external threats and opportunities.

The focus should be on identifying unfulfilled customer needs or Jobs to Be Done, then devising solutions to meet those needs and ultimately assessing competitive realities to determine the viability of your strategy.

Oftentimes, the decision sequence is wrong. Leaders initially focus on profit requirements, and the decision on the needs of the market is secondary. First, you must satisfy the needs of the market. Then, and only then, can you profit from your actions.

Separating planning from execution

Innovation, profitability, and growth all depend on having strategy and execution fit together seamlessly. However, spending too much time in planning can breed indecisiveness and error.

The important thing is to get started. Unfortunately, many of us are good at thinking and bad at doing. With the right strategy, the battle is only half won. The strategy succeeds only with informed and intelligent execution of tactics.

Issues arise when planning is separated from execution. Majority of good strategies fail due to poor execution. Well thought-out plans are not followed through properly because of limited resources, managerial talent or operational skills. In some cases, it is because people are focusing on the wrong things, products or services.

To avoid poor execution of good strategies, leaders must have the ability to clearly define and communicate the strategy to employees in a format that is easy to comprehend. This is necessary for ensuring that everyone has an idea of what the key priorities of the organization are and their role in accomplishing these.

It is also important to measure, track and report on the progress of the strategy against the critical success factors of the business. This is essential for determining what is working and what is not working and make immediate adjustments to prevent further deterioration.

I welcome your thoughts and comments.

Risk-Based Decision Making

Risk is an inherent element of the business. Given that every business activity or decision has a risk consequence, a business should not expect to operate and progress by making risk an afterthought.

Technological advances, evolving customer expectations, volatile markets, global political instabilities, shifting demographics and natural disasters are impacting business models and forcing organizations in every sector to rethink the way they operate.

Left unaddressed, these forces of change have a huge potential of derailing the strategic plan of the business and accelerate the organization towards failure. In order to survive in this VUCA world, the business should make a paradigm shift from reactive to proactive mode. This helps prepare and plan for the future rather than respond to it  after it has arrived.

The challenge today in many companies is that risk-based decision making is an afterthought. Only after going through a turmoil do people start asking where is risk management and why did the risk experts fail to anticipate the events in advance. In financial services companies where there are dedicated risk management teams, it is easier to point the finger of blame.

However, not all companies have a dedicated risk management function.

Risk is everyone’s responsibility

What exactly is the meaning of this statement?

Is making risk everyone’s responsibility part and parcel of risk culture?

What is the best approach of making everyone embrace risk-based decision making?

If some employees within the organization have never received training or guidance towards risk decision making, are they still held responsible?

By making risk everyone’s responsibility are we increasing confusion and blurring the lines between accountability and responsibility?

In the event that a business fails as a result of activities or decisions that could have been avoided, who is held accountable and responsible?

The CFO as the champion of risk-based decision making

In companies lacking a dedicated risk management function with a CRO at the helm, overseeing of risk management is normally under the purview of the CFO. The CFO is better positioned to champion meaningful risk conversations across the organization and drive better decision making processes.

Many people connect risk management with the negatives, hence the desire to avoid risk at all costs. Risk-based decision making is not about managing or avoiding risk. Effective risk management involves looking at the upside of risk and making informed risk decisions that help the organization achieve its stated objectives.

Driving a risk-based decision making culture therefore goes beyond lip service. It is not about merely saying everyone is responsible for risk. It is about raising risk management awareness and developing risk competencies across all staff levels through training, discussion and sharing of risk information.

Risk doesn’t start to happen once the strategy has been set. With the world always changing, risk is a constant present both before and after strategy setting. That is why it is important to understand the risks of your strategy including risks to the execution of the strategy.

Once every employee has a better understanding of risk, how it applies to their individual area of responsibility and align with the overall strategy of the business, risk-based decision making ultimately becomes part of the culture.

Given that finance has a unique end-to-end view of an organization the CFO plays a critical role in helping business partners understand the strategic plan of the business, identify, quantify, and mitigate any risk that affects or is inherent in the company’s business strategy, strategic objectives, and strategy execution.

The CFO is capable of leading the risk conversation and ensuring that the focus is more on taking advantage of opportunities and achieving strategic objectives and less on the downside, in turn ensuring that more value is created than is preserved.

Although the CFO has the bird’s eye view of the organization and an understanding of where the risks are coming from including the mitigation strategies, s/he cannot do it alone. Risk management requires an holistic approach across the company, and different risks are the problem of the function that they most impact.

It is therefore imperative that the CFO co-ordinates efforts and works alongside other C-suite executives to identify and assess emerging risks and best understand how to mitigate them.

Having the ability to partner with the business and speak their language is key to leading and engaging C-suite executives in meaningful risk conversations that help mitigate risks to the execution of the strategy.

Relationship between risk and performance

Risk conversations have to keep pace with the complexity of the business. Elevate the conversation to include a discussion around sources of potential disruption, their impact on the day-to-day execution of your strategy and the creation of value, and what your organization should do to increase the possibility of success.

Risk and performance are two sides of the same coin. A business cannot manage risk in isolation of performance. At the same time, the business cannot manage performance without consideration of risk. It is therefore imperative to integrate risk into your strategy and performance management decision making processes.

One way of embedding risk in the strategic planning process involves connecting your risk reporting and your strategy execution. Unfortunately, companies spend a significant amount of time compiling risk registers that do not inform strategic decision making. I have come across risk registers that list hundreds of risk events with very few of the events connected to the achievement of strategic objectives.

Risk assessment exercises should not be performed in isolation to strategic decision making. It is therefore important for the team responsible for performing risk assessments and compiling risk reports to understand what the strategy of the organization is, including what the strategy colleagues are doing on a day-to-day basis.

Not only will this help understand the business environment but also key assumptions. Instead of churning out the same report with the same list of risks on a monthly or quarterly basis, your report should be a reflection of key risk management changes overtime and help influence business decisions.

Conclusion

Risk-based decision making should be integrated into the overall management system of the organization. Given the constantly changing business environment, the business should always be ready for the unthinkable.

Business leaders should therefore focus on continuously improving the organization’s risk management framework and employee risk competencies to ensure both are capable of withstanding the test of times.

CFOs Beware: Don’t Get Caught Up In the Hype of New Technologies

In one of my articles, Finance Transformation: From Efficiency to Effectiveness, I recommended CFOs to first identify a business problem before investing in a new shiny piece of technology.  Today, there is so much talk about digital transformation and the immense potential of new technologies to drive business performance.

With a plethora of tools available on the market and all promising to deliver better results, one of the biggest challenges faced by many CFOs and finance executives  is identifying, evaluating and selecting the right tool for the business.

Compounding the problem are a myriad of  articles and blogs on finance digitization portraying messages such as,  “If you are not yet invested in digital, you have already missed the train or if  you are not using the cloud, be aware that everyone else is moving forward and moving faster than you are.”

For fear of missing out, some finance executives are leading their organizations on digital transformation initiatives without a clearly defined and articulated plan.

Too Many Unconnected Systems

Due to the lack of having a clearly mapped business strategy to address digitization, some finance executives are getting caught up in the hype that inevitably comes with every new piece of technology or software on the market. Instead of investing in technology or software that serves the business, they are investing in new tools that the consultants or software sellers recommend irrespective of whether the decision is rational or not. So often the end product is a disintegrated technological infrastructure.

New technology, combined with streamlined processes and talented people is supposed to transform finance from an inefficient function into an effective team player in the business. Unfortunately, this is not always the case. Technology is acting as a hindrance. Businesses are superimposing automation on broken or marginally improved processes in turn expecting magical results. In other instances, finance teams are spending a significant amount of time reconciling and aggregating data from different systems.

Today there is an increasing call on finance to play the role of a strategic advisor to business teams yet when it comes to answering basic performance questions, most finance teams are hard pressed to do so.  One of the reasons being that the information required to answer such important questions is housed in different systems all over the organization.

Further, the individuals responsible for partnering with the business to support decision making lack access to some of the systems. They have to rely on information on spreadsheets or reports produced by those with access and most of the time this information is not readily available.

Imagine the frustration of having to wait on someone for days or weeks to send you information and when the information finally arrives you realize that it is not what you expected. For example, the report is not for the business unit you are reviewing or the period selected for the report is incorrect. Because you don’t have access to the system you have to go back to the report compiler and explain again your information requirements.

This back and forth process slows down decision making at a time when accuracy, speed and agility are increasingly important.

Looking at the same information

One of the keys to have meaningful performance conversations is have everyone look at the same information. For example, if the business wants to review the level and nature of capital investments for a given period it is imperative to ensure that the source of this information is common across the organization.

I have come across situations whereby more than one system is used to record capital expenditures often with major record differences between the systems in use. Time and resources are then redirected to focus on reconciling and resolving the reporting differences. It is therefore imperative for CFOs and finance executives to understand that technology alone will not drive transformation.

The data you input into a system will determine the output of that system. That’s why it is important to make sure that everyone is working from a central data repository. Having multiple copies of solutions is inefficient and counterproductive.

As an organization, you do not need too many systems to look at the same information. Thus, before acquiring that new piece of technology always ask yourself, “What is the problem that this new technology will resolve and also how will the investment enhance or strengthen your existing technological capabilities?” Many at times, we are quick to point out the limitations of the current system and use that as the reason for investing in an alternative solution.

Instead of taking a holistic view of the technological needs of the business, we take a piecemeal approach. For example, if AP is not happy with the current system we invest in another AP-focused system. If another team identifies system deficiencies, we look around on the market for a specific tool that addresses that function. This cycle continues over a period of time and ultimately the organization is left with a handful of siloed pieces of systems not completely integrated into the overall technological infrastructure of the business.

As the business and its information needs evolve, sometimes a reconfiguration of the current system(s) as compared to implementing a new one is what is needed. That is why it is important, from the onset, to evaluate the suitability of each piece of technology against the various growth phases of the business. Ask the software seller, “If our business continues to grow, will your product still be able to support our business needs and help us deliver our unique value proposition?”

Considering all the plausible scenarios and options available will help you determine if the technology will serve you for the short or long-term future.

Fear of missing out

Studies have revealed that as individuals we are prone to mimicking people’s actions and their product choices instead of applying our own independent assessment and best judgement. This not only happens at a personal level but also at a professional level.

For example, imagine as a CFO you recently attended an industry conference and the majority of finance executives you met spoke about investing in AI capabilities. Some have already implemented pilot projects and others are at an advanced planning stage. Since your organization hasn’t made plans yet, you make a hasty decision to invest in AI to avoid missing out and keep pace with what others are doing.

The problem with this simple approach is that rather than initially evaluate AI investment from an internal point of view and your business’s strategy perspective, you are now investing in AI from an external point of view based on what other businesses are doing.

I am not saying it is wrong to collaborate and get ideas from industry peers. In fact, this is one of the key reasons for attending conferences. To get informed about emerging trends and disruptive technologies and prepare for an uncertain future.

What is important is that you don’t allow competitor behaviours to drive technology investments in your business. Rather, clarify your business questions first, fix any broken processes before looking into technology and assess how the investment aligns with your overall business strategy.

Finance Transformation: From Efficiency to Effectiveness

Transforming finance into an effective function capable of helping business teams execute strategy more effectively, make informed risk decisions and drive business performance isn’t just about new technology, shared services centres and centres of excellence.

As much as anything else, it is about changing old habits and behaviours. Redefining the role of finance in the business and transforming not only what the function does on a daily basis but also how it does it.

This also involves finance professionals developing an appetite for improvement, constantly self-assessing their modus operandi and establishing how they can perform their work better.

When embarking on a finance transformation journey, it is very important for the CFO to clearly define the core vision, communicate the purpose and goals of the transformation, and articulate the road map for the journey.

Following this approach helps keep the team and key stakeholders focused on the benefits the transformation will deliver.

Identify the Problem First Before Technology

In today’s fast-evolving environment where CFOs are inundated with new technologies to drive their company’s ambitions, it easier to follow the herd without first building a solid investment case.

The thinking is that if we implement a new ERP platform we have successfully transformed our finance function. This not always the case.

Although technology empowers the finance function to evolve to a modern global finance function your focus should extend beyond standardizing and streamlining workflow. New technology should enable you do what hasn’t been done before.

For example, your transactional processes (AP, AR, Journal Entries, Bank Reconciliations, Reporting and General Accounting) are all heavily manual which is causing you to close your books at least 20 days into the new month leaving little room for FP&A and business partnering.

In this instance, you would want to take advantage of a new cloud-based ERP solution that provides you with a standardized IT infrastructure and help you streamline existing decentralized and highly fragmented reporting processes.

Instead of investing in the new ERP platform just for the sake of investing, you first focus on the end-to-end processes, identify the problem(s) that need solving and look at the expected benefits beyond cost reduction.

As a result, you are now able to close your books earlier and free up finance to focus more closely on business partnering and deliver performance insights and decision support to assist in achieving the company’s growth objectives.

Headcount Reduction versus Productivity Increase

Reducing headcount, achieving transactional efficiency or improving control and governance processes should not act as the sole focus of your transformation journey. Many companies make the mistake of believing that finance transformation is all about reducing FTE costs.

Subsequently, after reducing finance headcount and making the function leaner, the workload remains the same, at worst increases, making it difficult for the remaining teams to manage the heavy workload. Ultimately, productivity deteriorates.

As much as it is important to benchmark the size and cost of your finance function, what is also key is that you clearly define finance staff roles and requirements as per your function’s vision and how it fits into the broader vision of the company.

This will help you eliminate or combine specific roles where there is duplication of effort. It also helps develop the right talent mix and capabilities.

Think Broad and Analytically

Today, companies are privy to large amounts of data (economic, customer, social media, production, market, competitor etc.) and cannot look at business performance from purely a transactional view anymore.

Rather, they must use such data to interpret strategic performance, benchmark against competitors and craft a more holistic experience for stakeholders. Instead of spending ample time discussing small variances, the focus should be on the big picture. Identifying and discussing key business drivers and big trends.

This requires investing in the finance function’s operational and commercial acumen as this is key to supporting the business across the entire value chain, from product design and development to manufacturing and from brand management to distribution, sales and after-sales.

Thus, one of the goals of your finance transformation should be to develop well-rounded professionals who are able to connect the dots, contribute alternative perspective to strategic conversations and help the business break into new markets and diversify revenue streams.

One of the challenges in many organizations is that business unit managers are self-serving and focus only on their own markets, ignoring the impact of their decisions on other business units. Finance business partners are better positioned to unite these teams.

They are analytical, broad thinkers and understand the cause-and-effect relationship of disparate business unit decisions, including the role of finance in cross-functional collaboration to improve the performance of these operating units.

Leveraging their extensive functional knowledge, business acumen, experience and relationships built from partnering with various stakeholders, FBPs are able to engage business unit leaders into more value-adding conversations.

Rather than act as a barrier and tell them what they can and cannot do, FBPs first seek to understand what is it business unit leaders want to achieve, how and why it is important and then provide informed decision support taking into account the impact on the broader strategic performance.

Change Management

Stakeholder engagement, or lack of it, can signal the difference between success and failure of any finance transformation agenda. Challenges will abound. Targets will be missed. Teams will resist change and prefer to continuously focus on what they know best.

You therefore need to keep all invested stakeholders engaged, aligned and informed of progress. Offering coaching and insight, rotating employees through a wide range of operations, exposing them to challenging projects and allowing them to experiment with new ideas and learn from mistakes all help in this front.

As long as the mistakes are within acceptable limits you want your team to feel empowered to make key performance decisions and at the same time become trusted business advisors.

Although habits and behaviours are not something that can be changed overnight, they are still key ingredients for an effective transformation. A cultural shift and buy-in is therefore imperative.

 

CFOs and Strategic Decision Making

These days there is an increasing number of articles, reports, podcasts, vblogs, eBooks etc. being churned out on the evolving role of the CFO. Though these publications and postings are worded differently, they all share one common message – Today’s and future CFO should be less of a number cruncher and more of a strategic advisor. In other words, spend more time partnering the with business helping create, preserve and sustain value.

One of the forces behind this call for change in the CFOs role is the onslaught of new technologies on the market. These new tools are helping finance chiefs to automate and streamline certain areas of their work, in turn improving the amount of time spent partnering with the business versus closing the books.

However, Are CFOs contributing enough around the strategy discussion table to merit the strategic advisor badge? Are they helping their companies execute effectively? Execution is the key factor of success yet statistics reveal that between 70%-90% of companies are failing to execute their strategy. How then is this possible if the CEO and the Board have smart, intelligent CFOs in their corner to advise them on strategic issues of the business? Have CFOs just become glorified accountants (since the majority of them are CPA, CMA, CA, ACCA, or CIMA designated) who lack a deeper understanding of the business and its value drivers?

I believe no matter how much we scream and shout about this new evolving, expansive and collaborative role of the CFO, if the results continue unconvincing then we should get off our high horses. We cannot afford to remain on this path of sameness, repeatedly claim that finance teams have a bird’s eye view of the organization and are better placed to influence results yet strategic failures continue to soar.

In today’s information age, it is much easier for finance executives to succumb to the misguided belief that the keys to strategic success is investing in more data and new technology. On the contrary, people drive strategic success. I am not against data and analytics. However, how you apply both to your business will determine whether you will succeed or not.

Unfortunately, many finance teams are still suffering from information overload and struggling to make sense of the data they are presented with. Rather than spend a greater proportion of their time increasing business acumen and providing meaningful analysis for their businesses, more time is being spent on gathering, cleansing and aggregating data from multiple sources. As a result, effective finance business partnering is faltering.

If the CFO is to meaningfully contribute around the strategy discussion table (s)he needs to improve finance’s approach to performance analysis. A bottom-up approach to data analytics will not help you reap the fruits you want. This is where most CFOs are getting it wrong. They embark on a data collection agenda without first identifying and defining the problem to be solved. Data management and analytics efforts should be tied back to strategy and the key drivers of the business.

Start by asking the right key performance questions. For example; Which components of our strategic decision making are currently not being supported by digital technologies? What is the worst that can happen to us should we fail to embrace data analytics? What is the best way to align internal and external data sources to strengthen analytics and insights? Which business functions or areas would benefit from digital technologies and newer analytical capabilities to support strategic decision making?

Asking more of these questions will help you recognize areas of the business that are problematic which in turn helps you to focus your analysis in these areas, identify critical drivers of value and provide fresh insights that support strategic decision making. The organization is then able to develop new capabilities and competences needed in relation to changing circumstances, environmental factors and trends and ultimately execute its strategy effectively.

What decision makers want from finance are real-time, reliable and actionable insights that help them make better decisions. In fact, valuable strategic decision support goes beyond calculating the profit and loss and then presenting the financial statements to C-Suite members and the board. The CFO has to be able to tell the full story behind the numbers, know how the organization arrived at those results and provide actionable recommendations from the analysis of the results.

The expectation now is for the CFO to wear many hats. IT, Procurement, Investor Relations, Risk Management, HR, Sustainability are now under the purview of the CFO in many organizations. However, I don’t think a CFO can be an expert in all of these areas at once. This therefore requires her/him to be surrounded by a great team since s(he) is only as good as the team that is behind him.

If the team performs well, the CFO performs well too. But for the team to perform well, training and development is important. Although the CFO remains accountable for overall performance of the function, when the finance team is talented and skilled (s)he will be confident enough to delegate certain tasks, free up enough time to partner with the business and contribute positively towards the achievement of strategic objectives.

Going forward, understanding the business across all lines, not just the financial aspects, and getting a holistic view of organizational performance will help CFOs play a crucial role in strategic decision support, close the gap between strategy formulation and execution and influence strategic performance.

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