How to Deploy Great Strategy that Compounds Your Growth
Many companies treat their strategic planning more like a tactical objective setting exercise, missing an enormous opportunity to change the trajectory of their organizations. However, certain companies have cracked the code on managing strategy and transformation as a systematic discipline for compound enterprise growth. They do this through methodical value creation versus linear operations expansion.
Usually referred to in their circles as “strategy deployment,” these companies outperform their peers and the S&P 500 on a compound basis. The results are staggering. We equate this stark difference to starting from a “future state of ideality” versus a “current state of constraint.” The point is that the deployment investment throughout the year leads to very different outcomes for the compound growth companies.
So, are you deploying great strategy?
The key bottleneck relative to strategy deployment is the focus, time and knowledge of those responsible for carrying out strategic transformation. Why not optimize on your people constraint to increase enterprise value growth? The value created will compound over time.
Great strategy connects market needs to value propositions through channel frameworks. Putting customers’ needs first, think reverse flow, and then value propositions. This is the responsibility of the business unit leader and chief strategy officer.
But how do you align strategy against the annual financial pro forma?
They are inextricably connected. The first and main decision in strategy design is determining where the organization will provide customer value growth over the planning horizon. The outcome is a market, channel, product growth cube. The point here is that the language of discussion is finance but aligned with strategic intent.
Strategy Formulation, the place to start
Start with an understanding of your core business and the environment you operate within. One of the most important inputs into the Strategy Formulation process is insight from your environment or a situation insight synthesis™ (SIS). This is a very inexpensive and easy to implement technique:
- On a real-time basis, people closest to different business influences record mindful observations of meaningful trends that may impact your business.
- Then, prior to executive quarterly control meetings, they synthesize the impactful trends for review by the executive team.
Research validates that companies garnering and acting on better insight outperform their competition. Assuming you conduct your strategic planning in Q4, you can launch an SIS initiative for immense benefit/cost in Q1. This is a very simple lever to get people thinking as well as connecting your organization vertically and horizontally.
In an innovation workshop we conducted at Oxford University, 23 of the 25 companies that attended had either no or very weak and incoherent core strategy elements. Even if a company has good core strategy, the real challenge is executing on it to drive financial performance year after year.
Contrary to an investing strategy where risk diversification is the norm because the investor doesn’t have situational knowledge, it’s been demonstrated that those companies that do focus on systematic strategy deployment consistently outperform their peers and the S&P 500.
For example, according to Capital IQ, since 1980, Danaher shares returned an average of 17.9% a year, compared with 11.1% a year for the S&P. The earnings-growth dynamic has also led to superior valuations. Danaher has traded for an average of 25 times earnings since 1980, compared with 21.3 times for the S&P. And this is where it gets interesting because the value compounds.
Danaher is not unique in this growth. Other companies that practice systematic strategy deployment include IDEX Corporation, Roper, Honeywell, Fortive and many others. The difference is purposeful focus, cohesion of strategy, and balanced transformation, all coordinated through a systematic discipline, which we have automated.
What about your organization? Are you organized to transform your company based on the strategy you are formulating? Many organizations don’t have a qualified strategy leader or a strategic policy, and are not organized to fulfill on their plans. This is not the case for the companies that create value that compounds.
Strategic Planning Deficiencies
Many companies muddle their external and internal goals. This low-quality approach causes several business gaps and deficiencies:
- Goals lack cohesion. The goals are not strategically aligned towards customer value because they are a hodgepodge and lack alignment between strategic intent and value flow. In other words, they don’t answer the question, “towards what strategic and financial targets?” Here lies a missed opportunity to connect transformation to the purpose of the organization through its strategies.
- Goals are owned by the wrong team. The executive team members still own the goals even though they may not recognize it. The function/process leaders are not given the directive and tools to work with their teams to develop, prioritize and transform value, process or capability towards the strategies. This is another missed opportunity for learning and people growth.
- Employees are not engaged properly. Employees have a tough time engaging toward meeting goals that are twice removed from their environments. Strategies must be translated into goals within the respective functions/processes. Only then can leaders empower the employees to drive transformation.
- Key Performance Indicators are not aligned. By leveraging strategies to create value, process, and organization transformation, key performance indicators naturally align with macro processes and functions. This creates a common language for leadership to discuss transformation that is actionable and at the point where people may engage.
- Employees don’t understand the goals. Perhaps the biggest benefit in translating customer-facing strategies into operational transformation objectives is that employees can now gear their own career development plans towards goals they understand.
Low quality strategic planning sets up for low quality disjointed execution. At best, it produces annual improvement projects. At worst, the organization remains “frozen in time” while its value commoditizes, then declines, relative to its changing external environment. It is very easy to evaluate a strategic plan for tune-up by looking at the collection of initiatives.
Using the same process framework used in the Strategy Formulation, each function/process leader can conduct a strategic planning session with their respective teams. The value is immense because it engages and empowers the team towards the greater purpose and supporting strategies.
Strategic Transformation Initiatives
Business is a delicate balancing act between operations that drives current revenue/profitability and strategic transformation that drives tomorrow’s revenue/profitability. We have a saying at Pivotal Innovation, “today’s urgency eclipses tomorrow’s importance every time, unless you control the balance.”
So, how do you ensure your organization executes on a bold strategic plan while delivering profitability today?
It boils down to where the collective focus, time, and knowledge of the organization is being invested.
If you want to rebalance and prioritize strategic transformation performance, you need to change your outcomes through one of the following levers:
- Create different and more strategic initiatives
- Improve activity quality for better initiative execution performance
- Shift time that is currently deployed on current operations to transformation
- Align people development with transformation objectives
While simple in theory, it can be difficult in practice to accomplish without automation.
Once you decide to reprioritize, here are actions to drive higher strategic transformation outcome:
- Assign employees’ time to the transformation process. Invoke company policy that specifies that every employee spend four hours per week minimum working on transforming the value they produce, relative to the needs of their downstream customer or colleague; the process that produces the value; interfacing with their upstream provider of input value; or the development of their own capability to produce value. We call this working on VPICTM (value, process, input, capabilities that include personal development).
- Introduce and promote Time Blocks and Quiet Time. This will reinforce the four-hour weekly minimum dedication to strategic transformation and minimize disruption, which is costly.
- Get rid of Slack and other messaging platforms, or change how you use them. Studies have shown that productivity declined 10% in companies using Slack.
- Use the SMART goal model. When managing strategic Agile initiatives, strictly adhere to the SMART goal model by ensuring your Initiatives are Specific, Measurable, Actionable, Relevant, and Time-based.
- Incorporate a Control Rhythm. Run your Rhythms within a Performance framework that is effective and efficient. Qualify every team member to lead a Rhythm meeting. It’s elementary but does require short training and a checklist.
Following these five suggestions will significantly improve your strategy deployment results. The great news is that the 10% of time dedicated to transformation will be more than offset by the gained benefit due to employee engagement. Gallop Poll studies consistently show that 69% of US employees are not engaged at work.
Also, unlike 20 years ago, employee development costs are practically free today. All your team members need is direction towards the company’s objectives, a sense of belonging, and motivation to grow in their career.
Executives have an incredible opportunity to incorporate a transformation model that compounds enterprise value creation. We have empirical evidence from “strategy deployment” type companies that systematic strategic transformation creates immense value for these few companies.
If you would like to discuss some of your challenges and how we have automated the strategic design process, contact: email@example.com.
Kevin Fallon is President and CEO of Pivotal Innovation. He has 35 years of business experience beginning at General Electric and RCA Space, and subsequently as a founder of five technology ventures and as COO with two publicly traded corporations. Kevin holds an MBA from The Wharton School, University of Pennsylvania and a BS in Electrical Engineering from Drexel University.
Kevin is a founder and past Chair of the Entrepreneurship and Innovation Network, consisting of 4,000 CEOs within the 25,000 member YPO organization. YPO is the premier organization of chief executives in the world. For his leadership, in 2019 he was awarded the coveted Best of the Best Network Award out of 44 YPO Networks. Connect with him on LinkedIn or at firstname.lastname@example.org