Please enable JavaScript.
Coggle requires JavaScript to display documents.
HBR Turning Great Strategy into Great Performance (Reasons for strategy-to…
HBR Turning Great Strategy into Great Performance
Reasons for strategy-to-performance (STP) gap
fail to track performance against long-term plans
explain why companies continue funding strategies rather than searching for new and better options
multiyear results rarely meet projections
created a number of problems
(1) bc financial forecasts are unreliable, senior mgt cannot confidently tie capital approval to strategic planning
annual oper. plan (or budget) ends up driving the company's long-term investments & strategy
(2) portfolio mgt gets derailed
biz stay in the portfolio too long hoping performance will eventually turn around
value-creating biz are starved for capital and other resources
(3) complicate communication with investment community
risk company's reputation with analysts & investors
a lot of value is lost in translation
fail to track performance = fail to realize their strategies' potential value
attributed to a combination of factors
(1) poorly formulated plans
(2) misapplied resources
(3) breakdowns in comm.
(4) limited accountability for results
performance bottlenecks are invisible to mgt
w/o clear info on how & why performance is falling short, it's virtually impossible for mgt to take corrective actions
critical actions were carried out as expected?
resources were deployed on schedule?
competitors responded as anticipated, etc
STP gap fosters a culture of underperformance
commitments cease to be binding promises with real consequences
managers, expecting failure, seek to protect themselves from the eventual fallout rather than stretching to ensure that commitments are kept
org becomes less self-critical & less intellectually honest abt its shortcomings --> lose its capacity to perform
Closing the STP
Principle
work both sides of the equation, raising standards for both planning and execution simultaneously and creating clear links between them
assess performance shortfall & determine whether it stems from the strategy, the plan, the execution, or ee's capabilities
Rules
Rule 1: keep it simple. make it concrete
strategy is not to be confused with vision or aspiration
strategy must be easy to communicate and translate into action
be clear abt what the strategy is and isn't
Rule 2: debate assumptions, not forecasts
political concerns - hockey-stick charts
Near-term: unit managers argue for lower near-term profit projections --> secure higher annual bonuses --> near-term forecasts UNDERSTATED
Long-term: top mgt presses for more long-term stretch --> satisfy BoD and external constituents --> long term forecasts OVERSTATED
built in biases
financial forecasting takes place in complete isolation from the mkt or strategy functions
revenue forecast: based on estimates abt avg pricing, mkt growth, & market share
projections of long-term costs & Working Capital requirements: based on an assumption about annual productivity gains, ties to some companywide efficiency program
RESULT: each line item may be completely defensible, but the overall plan and projections embed a clear upward bias - rendering them useless for driving strategy exxecution
what do successful biz do?
let forecast drive the work they actually do
ensure that assumptions underlying their long-term plans reflect both the real economics of market & performance experience of the biz relative to competitors
understand the fundamentals & performance drivers in a detailed way (INSTEAD OF RELYING ON ANNUAL PRODUCTIVITY GAINS, ETC --> forecast can't push for unrealistic goals
Rule 3: use a rigorous framework, speak a common language