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April 22, 2005

Managing Strategy versus managing Performance

For the most part, recent consensus on the state of business health includes two interesting headlines. One is that business competitiveness now requires "growth", which in turn requires moves that go beyond cost-cutting. Another is that effectiveness requires "alignment", which in turn requires moves that go beyond efficiency.

In the new era of growth and alignment, the old business platform of economy and efficiency is now mainly a staging area in which processes are designed, or repaired, or re-designed. There can be no doubt that every business must design there, but as we also see in the current consensus, the new criterion thrown into the mix is change. This ingredient pushes all resource management (whether of processes, people or technology) up against the challenges of agility and renewal -- both challenges pressed upon the business by operating environments that are increasingly independent of any given business.

In fact, to secure the business's ability to be responsive to the right things at the right times and thereby consistently exchange value offered for more value gained, the business now must concentrate more than ever on relationship management. Through collaborations and partnerships (both internal and external to the company), relationships bring the business earlier alerts, economies of scope, and a broader range of available resources -- on demand. Thus the business has greater means to assure itself the right positions, on time.

However, exploiting the positions is what causes a payoff -- and another current general consensus is that companies do not so much fail to have viable positions as they do fail to execute from them.

This notion, which argues that most companies have a strategy but fail to execute it well, points us at the idea that performance should be seen mainly as successful execution of strategy.

Ironically, the other big story that managers are hearing is about how companies that successfully execute poor strategies would actually "outperform" companies that have great strategies poorly executed. This story clearly equates performance with results. But it does not usually drill down into whether the sustainability of that output is likely or is even relevant to the foreseable future. In effect, it is a disposal definition of performance.

As a kind of advice, the story is appealing in a comforting, common sense way, as if to say "perfect is the enemy of good enough!" This advice is just great, as long as whatever strategy is being used really will likely tap into significant levels of opportunity even if it is poorly conceived. Executives who are betting your careers on that, please raise your hands.

So how does the idea of "successful execution" of strategy actually net out? Is the point of strategy simply to get organizations on a productive path but then step aside? Or does strategy just "pan filter" the range of execution's results for the results that it wants? Or is it that the competitors that really matter are just not different enough to require a strategy above and beyond superior execution?

Our problem is to understand what strategy really has to do with results, and how that connection works. The underwhelming answers just described above can be reached by at least three paths of confusion, each of which should be avoided...

#1 - "Execution" is thought of as just a synonym for operation (i.e., thought of as procedure, instead of as actions continuously negotiated between options and risks).
#2 - No distinction is understood between tactics (securing opportunity)and strategy (creating opportunity).
#3 - Short term results are not examined in the context of long-term value, so they are not asked to contribute to it.

The Management Framework
To dispel this confusion, a couple of "management" definitions of strategy and performance allow a better perspective on the issue and provide consistent connections of strategy and performance to growth and alignment.

- Strategy is about the value of the direction chosen. Essentially, strategy selects positions oriented towards a selected goal.
- Performance is about the quality of the effort made to go that direction. Essentially, performance selects ways to get and use the positions established by strategy.

The key to this vocabulary and point of view is recognition that both strategy and performance start out in management's mind as projections, as models of possible futures, not as assessments of the past. From the models, plans are developed to link the models to the specific organization. Then the plans are used to both steer and evaluate the ongoing "actuals" versus the models.

Again, strategy and performance are both aspects on a planning axis; typically, given the usual level of internal and external business complexities, most organizations will not approach projected strategy or performance targets except by working to realize the plan.

On another axis, growth and alignment are both aspects of execution.
- How is growth pertinent? Primarily, growth is meaningful when it is increased capacity that is effectively applied to opportunity.
- How is alignment pertinent? Alignment is meaningful when it is increased coordination that raises the certainty of operations meeting requirements.

Given that, it's fair to assume that all companies want to enhance growth and alignment -- in other words, they want to accomplish both growth and alignment in a way that makes the two things valuable. But even if they don't immediately accompish those things, they want valuable results from their ongoing efforts, which means organizing activity for meaningful, incremental deliveries of value.

This brings us to a clarified distinction of what it means to manage strategy and to manage performance.

By understanding that execution must be concerned with supporting growth and alignment as success factors and not just with outputs, we see that the manager's primary responsibility is not simple procedural adherence to plans, but rather that "realizing" the plan should be continuously pursued in terms of whether intermittent activity and outcomes are consistent with the goal of growth and alignment.

In both the cases of strategy and performance, managers need to bring execution capabilities to the plans. Synchronizing those capabilities with the needs of the current plan is a manager's highest priority. By making change more manageable and therefore increasing the organization's accommodation of new plans, capacity and coordination (respectively, elements of growth and alignment) characterize the key approach to optimizing the potential of strategies and performance. Because capacity and coordination are literally provided through the makeup of the organization, this point of view explains the connection between organizational development and results.

Consistent with the working definitions established so far, we can now use typical management terms to map out the synchronization described above...

STRATEGY:
- growth intersects strategy in objectives.
- Similarly, alignment intersects strategy in priorities.

Strategy management primarily attends to objectives and priorities -- conceiving, communicating, tracking, supporting, evaluating and adjusting them -- such that they nurture and leverage growth and alignment, respectively.

Applying that same cycle of attention (i.e.,conception through adjustment), performance management addresses performance's intersection points with growth and alignment.

PERFORMANCE:
- initiatives nurture and leverage growth; while
- tactics nurture and leverage alignment.

Thereafter, with initiatives and tactics supporting objectives and priorities, management negotiates results. This understanding replaces the ambiguous notion of "executing strategy" with something that all managers can directly and rationally engage.

Posted by Malcolm Ryder at April 22, 2005 1:45 PM

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