Before we get to the 4 key questions, the following are the ones over the last 30 years I’ve asked almost as often.
The starting point for developing or reviewing any strategy, should always be:
‘What outcome are we seeking to achieve?’ Coupled with, ‘How will we know we have achieved it?’ If you have just thought £’s and financial measures you’d be advised to read on. Not suggesting that you are wrong in your thinking, but it is a bit like trying to fly a plane focusing on air speed. Direction, fuel, and altitude must be on your dashboard as well – just as critical as air speed.
We use a similar approach when establishing a project team – ‘What is the real problem we are seeking to solve?’
Both questions ground our thinking, one with the pull or end point we desire, the other with the push factor. Both are simple questions that prompt a team to do the most important part of any planning process which is to THINK. Research into executive behaviours (Saville & Holdsworth (as they were at the time)) identified a prevalence in most of ‘us’ to leap to ACTION. Restraining this natural urge to ‘do something’ delivers real benefit to the output of this process. This is where ‘sleeping on it’ can be considered as real work.
Effective collective thinking requires preparation and three things, two of which are easily assembled: an airy space (I’ve done gardens and even a forest glade complete with fire pit (recently with great results) and a flip chart. Undoubtedly the hardest of the three, is totally uninterrupted time. Nothing devalues the thinking process (for everyone) more than having to interrupt the helicopter flight with distraction into operational issues. The aim of this process is to deliver outcomes agreed by key stakeholders. Failure to establish an appropriate destination, one that motivates people is one of the most common reasons that strategies fail.
The next key question introduces an essential stage to the thinking process. How do we deliver the outcomes? (and here we are talking Customer and Financial outcomes). Sustainability is starting to appear more often in corporate strategies, not just in terms of business sustainability but in terms of environmental sustainability. Likely to become a statutory requirement inside of the next 5 years. There is profit to be made for the thoughtful in this emerging requirement.
Many that know me have heard (many times – with no apology) ‘you can’t select an option you’ve not thought of’ and this is the key thing to remember. More options provide more choice be it for problem solving or for identifying how to disrupt an existing or new market for your business. This question for me is the powerhouse of strategic thinking and done well can be the difference in the race for competitive advantage.
The four questions, not mine, Kaplan & Norton’s
Those familiar with the Balanced Scorecard will know that it prompts leaders to ask the 4 cause-and-effect questions that drive the strategic hypothesis:
• What outcomes would be seen as success by our shareholders?
• To deliver the desired outcomes for our shareholders, what must our proposition be for customers?
• To deliver the value proposition for customers? what key processes must we excel at?
• To drive the key processes which enablers (people, culture, tech, assets, R&D) must we invest in?
The scorecard concept comes from making sure that you are measuring indicators that align with the answers to those questions – and that linkage is crucial.
Consider the strategy deployed by an US banking technology company that sought to boost is valuation on the NY stock exchange by promising market beating profit growth (more than 30% over competitors). Share price rose accordingly. The strategy was purely cost reduction, initially intended to be short term but ultimately fatal. The cost reductions were achieved through dramatic reductions in marketing, R&D and training spend. For tech companies – indeed for most companies these functions are enablers of growth, the result was a reduction in new product development, higher turnover of staff and for the first-year higher profits and higher share price. In the second year the result was loss of market share as competitors launched new products (some developed by employees who had left the ‘old market leader’), loss of revenue, collapse in profits and for the CEO and Exec Chair a class action brought by the shareholders. CEO and Exec Chair has cashed in shares at the peak. The class action was successful.
They hit their target in year 1. Year 2 demonstrated they had missed the point. Yes this is an extreme case and an another example of corporate governance failing – but I’ve seen other organisations failing to consider unintended consequences – simply because of a lack of thought.
Personally, I was saddened at the outcome but happy at having disengaged this client having seen (and this was not difficult for anyone to see) where their strategy was taking the business.
The process of cause and effect does not guarantee success, the quality of thinking that drives the process does however improve the probability of desired outcomes being achieved. Of course, no business exists in a void so to returning to the metaphor is why when flying a plane, the pilot has a dashboard providing the critical indicators he or she must focus on to arrive at the destination. In the same way, to make sure your business delivers on the outcomes check your outcomes, then check your dashboard to make sure the two are connected. It also helps determine if what has been planned is being done but that is another set of questions altogether.