THE ACADEMY OF BUSINESS STRATEGY
VALUE CHAIN BLOG
Pitfalls in strategy implementation
Mikko Henttonen (CBS) MSc BSc
Because Value Chain as concept is an integral part of strategy implementation, I do not write at this time separately about it but instead use word strategy implementation as a synonym.
Having worked with organizations which have extensive global operations and having also discussed with colleagues I have found several reasons for planned strategy implementations to fail or not to proceed as planned or as expected to. In addition to previous sources of information I also have had a change to discuss in numerous forums with like minded people (consultants, executives and managers) which has given me more or less subjective perception of reasons for pitfalls in planned strategy implementation.
Personally I have been able to find only very limited scientific sources on this matter or published surveys by major global consulting organizations. Therefore it is up to the reader to form his/her own opinion on this subject. This means that following findings are more or less subjective pragmatic opinions with some empirical evidence behind them needing in future a bit more comprehensive fact based scientific research to find the real root causes for failures.
Planned Strategy Is Not Feasible
This is perhaps the most self evident reason for the failure of implementation, e.g. the planned strategy is based on wrong assumptions of how the industry will develop over the next 5-10 years. However, this is not a very uncommon mistake, for example back in few years ago Finnish pulp and paper manufacturer Metsa Group made a strategic choice which turned out to be completely wrong. In this case management was changed and new management’s decisive actions within a last few years have brought company back on track to be able to answer future challenges. Still anyhow some precious years were lost in this adventure.
The best way to avoid mistakes like this is through well structured strategy analysis with deep industry knowledge a must. The political, economical, sociological and technological forces should be analyzed very carefully to find the industry megatrends which then should be taken into account in future action plans. Porter’s five forces model provide further understanding of the industry dynamics and on how to prepare for the upcoming changes by focusing on certain customer groups or segments with various product features, services etc.
Planned Strategy is Feasible but Implementation is Unsuccessful
Within the last 10-20 years this has obviously gained quite lot of recognition in various management publications, e.g. the issue of cascading down to operative levels the visions of organization’s top management. Various methodologies have been developed to deal with this issue but still anyhow the efficient planned strategy execution appears to be problematic in many organizations.
Alignment is the heart and soul in any strategy execution efforts, i.e. process, technology, organization and people components should be aligned with new requirements. In addition to that your employees must know your strategy, as well as your suppliers and customers, even though this traditionally has been kept as a matter of secrecy which should kept in safety deposit box and be known only by very few selected people. Basically it’s all about communication, once again life is simple either you understand it or not.
Management of Project Portfolio
Even though organizations have learnt to analyze their project portfolios to support strategy derived ‘must win battles’, i.e. battles critical for strategy execution it seems to be so that time and time again organizations fail on this. The issue here is that it is extremely important to find those projects which really support your strategy from those projects which are just nice to have. The reason for this is often quite human, nobody is very eager to kill projects which have already started even though business case does not exist anymore.
Basically it is program office’s job to get rid of non-value added projects and allocate needed support and resources to those which enable organization’s efficient strategy execution. Program office in charge of strategy implementation should take ownership of project portfolio and based on a big game plan (common yardstick for all projects) to choose those which must be implemented to provide needed support and resources for efficient planned strategy execution.
Measures and Incentive Systems
Usually measurement – and personnel incentive systems are related to high level financial results which might not support at the best possible way the development of new business process, technology, organization and people components.
So what is basically needed is some sort of modification in these systems to support more optimally the strategic targets. If this is not done the new promising solutions do not get the needed resources while their resources are consumed by the existing ones threatening the long term profitability of organization.
Reaction Time to Changes
Generally in Industries where product life cycles are long the reaction time to strategic change is usually not that critical, but on the other hand in industries where it is vice versa like in telecom -, technology – and media industries, reaction time to strategic change is critical and this must be taken into account appropriately at the executive level work processes.
There is no simple answer or solution to this dilemma, rolling budgeting processes, balanced scorecards etc. may provide answer or help on this but in the end it is always up to the organization decision makers to make final decision what’s the best solution for them. Additionally, in listed companies Corporate Governance requirements set tight requirements for executive management in the form of Board of Governors who control the benefits of stockholders and want to have some assurance of strategy direction and execution.
Life is simple, either you are qualified or not.
ABOUT THE AUTHOR
Mikko Henttonen (CBS) MSc BSc is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is value chain. He has achieved an MSc in Business Economics, a BSc in Information Technology and BSc in Production Economics from the University of Jyvaskyla. He has been employed as an Internal Auditor, Manager, Financial Auditor and Consultant for various companies and has experience within the mechanical manufacturing, paper and telecommunications industries His clients or employers have included KONE Corporation, PricewaterhouseCoopers, KPMG and TietoEnator. He has geographical working experience in Finland, the United Kingdom and the United States of America. He speaks Swedish, English and German. His service skills incorporate accounting, finance, operations, strategy and value chain.