Strategy and Change

Over the last three years, I’ve had the opportunity to work with leaders at several companies to express their strategy more completely and clearly, creating more confidence among investors and board members, but also helping to accelerate change within their organizations.  

I haven’t seen a strategy yet that says, “Everything is fine. We’re just going to keep doing what we’ve been doing.” Nope – doesn’t work that way.

Strategy mandates change. It clarifies the potential future state of the company and creates tension with the current state. What will be different when we realize our strategy, and how are we going to make that change happen?

When business leaders talk about strategy that just sits on a bookshelf gathering dust, they’re saying that strategy isn’t driving change in the organization. So what’s missing?

Strategy needs to drive goal-setting in the organization over a multi-year time horizon, laying out not only the destination state, but defining milestones along the way. It’s important to have goals that look beyond the current year to keep the organization focused on the longer-term change that needs to occur. In-year goals should be defined in a way that demonstrates progress against the multi-year goals, often taking the form of milestones toward those goals.

In turn, goal-setting drives performance management for both teams and individuals, and finally the allocation of resources in service to the strategy. The allocation of resources – i.e. the budget – needs to reflect the priorities that are established in the strategy.

One of the most common obstacles to establishing the direct downstream connection between strategy, goal setting, performance management and resource allocation is a finance-led budgeting process. This nearly always emphasizes continuity over change, with insufficient consideration for strategic reallocation and the desired future state, particularly beyond the upcoming budget period.

So “Practicing Strategy,” as I like to call it, goes well beyond just creating, ratifying, and publishing a strategy. It requires ensuring the diffusion of the strategy into the organization through defining long-term and supporting short-term goals, aligning performance management against those goals, and creating budgets to support the achievement of the goals. It’s a system that needs to be intentionally designed and executed by the leadership team, with the support of functional groups like IT, finance, and HR.

Of course, the world will not unfold as we plan it. The minute the strategy is ratified, it starts to become obsolete. Our understanding of the current state and/or the desired state changes, and so our plans may need to change. Practicing strategy includes this recalibration and providing direction for changes to course and/or speed. Minor adjustments can be handled within the existing strategy framework, but leaders must also judge when their view of the business has changed to such an extent that the strategy should be expressed in an entirely new way – so that the change mandate remains clear for the organization, and it can build momentum toward the destination. If significant and unforeseen developments (e.g. M&A activity, new entrant with disruptive business model) are not accounted for in the strategy, then team members can find it difficult to buy into. That would be an appropriate time to reframe the strategy – and the need to change.

Does this resonate with what you have observed? How does change happen at your company? Is Strategy a driver of change? I would love to hear your comments and ideas.