Most organisations are very good at crafting s t r a t e g i c documents but fail to link them to business functions, resulting in poor execution of strategy. Ninety percent of the times, organisational strategies are focused on sales or revenue only, and other functions are divorced from such a plan, creating future problems between the marketing and sales function and other business functions. Even in instances where functional plans are crafted, they are overtaken by marketing and sales, and they are easily forgotten as the business tackles its day to day operations in a ‘firefighting’ mode. Consequently, the strategic plan alone will not move the organisation to achieve the targeted market share, product improvement, improved revenue and any other intended achievements. In support, there must be people by-in of the plan and methodical plans and processes, to ensure that the organisation is focused on the right issues. This means that, all functions of the organisation should be driving towards the same goal in a way that makes meaningful business improvement performance, by actions and not by mere talk. Business success is centred on the whole system, and when one unit fails to Linking strategy, business functions function the whole business is affected. Together, every function of the organisation is of great importance to the achievement of the business strategy and should not be left out when crafting the strategic plan. The writings of Apostle Paul in 1 Corinthians 12 summarises how important all the business functions are. Therefore, when strategising, never fail to link the usefulness of other functions to the whole business, for its success is dependent on the functions of all its parts. The apostle Paul says, “…If the whole body were an eye, where would the sense of hearing be? If the whole body were an ear, where would the sense of smell be?…so that there should be no division in the body, but that its parts should have equal concern for each other. If one part suffers, every part suffers with it; if one part is honoured, every part rejoices with it.” By the same token, no one function should be more important than the other, but they should have equal concern for strategic achievement. Gatherings by business executives during the normal course of business should not only be devoted to fixing emanating problems and fire fight but should also concentrate on strategic issues to be certain that the business is being driven in the right direction. Let resources be also committed to advancing strategic issues, and not be limited to covering today’s gap, for ignoring strategic issues today will result in gaps tomorrow which the organisation will be firefighting – and the firefighting cycle becomes normal business. Any organisation that is serious about improvement and advancement should have monthly strategic meetings and not limit strategy meetings to yearly!
Every function in the business should aim towards creating value or protecting the value that the business would have created. Mostly, the ball is dropped by support functions in achieving the strategic objectives – Finance, Human Resources, Information Systems etc. These support functions are struggling to find their role in crafting and executing strategy. As a result, finger pointing originates from these support functions and ignore how they can assist the value creating functions to become better and satisfy the customer. For example, the HR function will be concerned about reducing head count and ignore the total effect to the performance of the business when other functions are understaffed. Customers might not receive the expected customer experience as some employees might be overwhelmed with work that requires an additional head. Value based business cases are likely to be built on synergy between business functions.
When the functions put the organisation first and concentrate on achieving the same objectives, then the business will improve and highly perform on all measurements. Instead of treating performance metrics as support to justify finger pointing, performance metrics become performance oriented and produce better value for the business.To bring all functions in line with the business strategy, the Balanced Scorecard by Kaplan should be implemented by almost every organisation that is serious about good performance. The balanced scorecard ensures that there is unit within the business functions, as no function operate in isolation if the strategic objectives of the business are to be achieved. This model was developed to enable organisations to measure both financial and nonfinancial business performance that support effective business management. It incorporated all the functions, so that no function would be highly ranked than the other – as they are functions of the same system and the absence of the other function will cause disorder in other functions. The balanced scorecard model functions on four main segments, namely the financial perspective, the customer perspective, the internal processes perspective and the innovation perspective.
These perspectives should be the beginning and the end of strategy. No strategy will be executed successfully if it ignores any of the perspectives, hence strategy should be approached from the balanced scorecard point of view. Not to say that’s the only way to a better strategy, but strategic objectives that ignore the suggested perspectives is mostly half-baked.
Under the financial perspective, the company’s strategic objectives should focus on metrics like percentage revenue growth, operating income, return on assets, costs containment or reduction and cashflows. These financial performance metrics are the common language that investors heavily depend on when deciding to invest funds or not, as they simplify analysis and comparison of companies. Nevertheless, only focusing on the financial perspective metrics and ignoring metrics of other business functions when crafting strategic plans will make it very difficult for strategy to be executed effectively. Sadly, many strategic plans are started and concluded on the financial perspective, hence the reason finance people are ‘highly respected’ in organisations.
The weakness of financial reports is that they are backward looking, and they do not provide good future performance guidance in creating value for the organisation. For forward looking performance, organisations should have sharp management accountants, who know how to read current performance to guide the organisation in future performance. An organisation that is future looking should employ well trained and equipped management accountants, as they are instrumental in guiding management decision making processes.
The customer perspective links to strategic objectives as it helps managers to categorise the customers and market segments in which the business have competitive advantage. Once the customers and the market segments are identified, the managers can easily execute the market-based and customer strategy that will deliver better financial gains to the business.
Metrics to focus on under this pillar include customer satisfaction, new customers, targeted market share, customer retention and customer profitability.
Internal business processes perspective should never be ignored when crafting the business strategic plan. Half the success of the organisation is centred on the excellence of its processes control, to produce reliable and consistent products and services. Because this pillar is mainly ignored when crafting strategic plans, many organisations have failed to master processes – hence providing sub-standard products and services to the dissatisfaction of customers, eventually affecting the financial metrics! To achieve high performance, the organisation should take control of its processes, and monitor them continuously. Some of the metrics to monitor include reworks, cycle times and returns due to quality issues.
The innovation or learning and growth perspective ensures that the organisation has the right people who are running the operations. It is the responsibility of every manager to ensure that his or her people capabilities are developed continually, for the organisation to maintain high standards of performance and have pride in its performance. Some metrics to consider when crafting the strategic objectives include employee retention, employee productivity and employee satisfaction.
Organisations that divorce other functions from strategy except marketing and sales, and finance to some extent, are doomed to fail. Profits are made and squandered in other functions if their linkage to the main business strategy is ignored. Whatever the business aims to achieve, it needs human capital to drive the agenda, therefore the HR function is also key in shaping the strategic plan. When the hired people are skilled and experienced to execute, the organisation have a reasonable chance of being profitable.
In the words of Lynne Doughtie, “Strategy is the starting point for a transformation that needs to occur and how that company must change to win.” Therefore, having a very good strategic document alone is not enough to bring good performance. Link all functions of the business to the strategic plan and execute well if you aim to achieve good results.