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June 27, 2005

More on "Great Management versus Great Strategy"

Recently, in so many words, I posed the question, "what good is strategy without great management?" However, my not-at-all ulterior motive was also to question whether management knows what it is doing if it is operating without a strategy.

Results rule, we can usually assume -- and they come with or without strategy. But whose results count? Certainly, there are stakeholders and shareholders whose view of things is all about their own respective benefits; their stubbornly dominant perspective on management is quite tolerant of "collateral damage" (namely, to other stakeholders) in pursuit of what is called "performance". The question of delivering gains gets strategic for these stakeholders mainly when they wonder if they should stick around for a while, exposing themselves to the same risk they ask of others. "Can management deliver gains twice in a row? Will management sacrifice me twice in a row? Somebody show me the plan!"

That triggers scrutiny of management. Plan the Work and Work the Plan has been a "performance" mantra for decades, and managers are hired to make sure that it is followed. Inside the company, their efforts are rolled up into an idea of "performance", but often not until after their impacts have been rolled up in a different way outside of the company.

The external focus on impacts is unavoidable, but ironically it can readily make internal performance an avoidable topic or make its evaluation arbitrary. To counter this, we keep internal management in the foreground by asking:
- what is the importance of managing internal performance?
- what are the critical factors of the manageability of internal performance?

These are not new questions, but now there is "buzz" around the idea that "execution is more important than strategy", and performance management is exploding into view as the biggest new "must-have" since CRM. This makes it feel like the labels management, performance, and execution are all the same thing.

Well, look at life from the manager's point of view: with a modern business's relentless pursuit of cross-functional operations, too many managers can't really say that they had enough control of either execution or strategy to be held accountable for it. Sitting in the hot seat of being evaluated, managers want to know how to protect themselves, and now they have the solution for that -- performance management.

Arguing and establishing the A-to-B connection, between (a.)internal compliance to plan and (b.) external compliance to impact targets, is certainly not a new activity. A quick run through Google Scholar picked up "performance management" references from 1988 and real enthusiasm by 1999. But perhaps what really is new is the idea that the effort-to-impacts connection would be continuously attended and continuously evaluated, rather than just occasionally or incidentally. In effect, the change of attention is from being reactive to being proactive -- even moreso as a mentality than as an activity.

So what does this have to do with strategy? The main point worth making is that the suspicion or proof of a performance connection is not the same thing as the preference for or value of that connection. For example, what does it mean to be really good at doing the wrong thing, or doing the right thing badly? Comprehensive management makes for doing the right things right. A judgement call backed by action.

Strategy is a management discipline that attends to the responsibility for formulating a logical vision of deriving benefit from conditions carrying risks. Managing strategy is about ensuring that this vision is logically strong instead of weak, and highly usable instead of irrelevant. A strategy is an input to operations. It might even be enforced in a way that makes it a cause.

Then comes management's responsibility for effects. The "opposition" to clarify is therefore not about strategy versus execution, but instead between two aspects of results: performance and value.

This is not a complicated distinction. In a situation of multiple stakeholders, where benefits are not equal for all, a given performance has a different value for one stakeholder versus another. Even when there is only one stakeholder, a given performance at one time may have a different value than the same performance has at another time.

Strategy helps set terms in value management. By making the relationship of multiple values explicit in a variety of ways (priority, timing, context, etc.) strategy helps to establish the criteria and points of view that will be used to manage values with and against each other for designated stakeholders. (For example, an obvious manifestation of this is a portfolio derived from a strategy, with the portfolio being the main instrument for ongoing value management.) As a result, typical signs of strategy's influence are policies and initiatives. Imagine trying to manage without those!

As opposed to value management, performance management focusses on the means and modes of progress. The accountability for progress is defined in a model of progress -- different from a model of value. Because a model is made available, it can be used both prescriptively and descriptively. The progress model -- usually a scorecard -- presupposes that values have been determined, and it does not attempt to change them. However, it provides the opportunity to examine how the means and modes in use are most associated with the paths towards the value. The stepping stones of the path are usually "key" conditions expected to be necessary for the value to be obtained. The typical manifestations of managing the means and modes are operational processes and practices, but what is the primary influencer from which the scorecard is derived and which processes and practices manifest?

Probably half of the time or more, real-world testimonials answer that strategy, again, is the influence. Count on two-thirds or more cases citing either "strategy" or "mission". But understanding the difference between value and performance gives a strong clue that such cases, examined carefully, would actually show evidence of a difference influence found common to all scorecarding instances: a competency framework.

The company's idea of its competency is equally important as strategy because it brings the notion of what the company should be able to do, while strategy brings the notion of what the company needs to get done. Understanding that strategy is about management engaging values, while performance is about management engaging competency, the semantic confusions of management-vs.-strategy or execution-vs.-strategy dissolve.

For many companies, perhaps the excitement of the "execution" problem is that the business environment has brought the challenge of constant change deep into the organization, changing competency from something like trained muscle memory into something a lot more like the nervous system. Learning to do the right things, on time, renews competency as the frontier of performance.

Posted by Malcolm Ryder at June 27, 2005 9:33 AM

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