Making Strategy Happen….in spite of the crisis!

Aside Posted on Updated on

During times of crisis, organisations often set aside their strategy to focus on short-term actions. Such is the case amid the current “perfect storm”—the environment created in the aftermath of the global financial crisis, and the fragile economic situation plaguing much of the world- affecting organisations all over the world. In this article I analyse the reasons why some organisations become paralysed during a crisis, offering a set of pragmatic recommendations that can provide shelter from the storm. Those organisations that take the necessary steps to integrate their planning and budgeting processes will not only survive the crisis, but will also emerge stronger once the global economy stabilizes.

The creation of the perfect storm

Although difficult to put the finger in one particular date, today most experts agree that one of the most notorious incidents that triggered the financial crisis happened on August 9 2007 when BNP Paribas ceased trading activity on a couple of hedge funds that specialized on US mortgage debt. One year later the US government allowed the investment bank Lehman Brothers to go bankrupt and from then on, we all know the story.

History has taught us that no one escapes a crisis unscathed. But there are always winners and losers. At some point, this perfect-storm crisis will come to an end. Those organisations that are able to adapt to the uncertainties of turbulent times—those that reshuffle their priorities and realign their resources quickly—will emerge strengthened. The rest will have to sit back and learn from them—the hard way.

Getting out of the storm: four imperatives for integrating planning and budgeting

When long-term sustainability is jeopardized by tactical, sometimes short-sighted decisions, skilled leaders realize the importance of linking performance management to budgeting. What do best-practice organisations do to make these two processes “talk” to each other? Consider these four practices, used successfully in both private- and public-sector organisations.

1. Make your strategy talk to your budget.

In the current environment, CFOs are increasingly called on to weigh in on strategy—as strategy heads are called on to offer more than their usual input into budgeting. In other words, the strategy and budget conversation is more essential now than ever before.

Accepted management theory says strategy planning should precede budgeting. That’s not always true, especially during a crisis, when change is the norm. Organisations need to look more closely at where they plan to spend their money and why. This is where the CFO’s role as a strategy adviser becomes critical.

2. Improve cost/benefit analysis and project management capabilities.

Don’t take your current project management system for granted. In times of crisis, when cash flow is unpredictable, it’s crucial that your project expenditure system balances short- and long-term priorities. Conducting a rigorous cost-benefit analysis of each initiative should be on your action-item list for the next project meeting. Merely claiming that a particular initiative will have a big impact on a given strategic objective is not enough.

Every initiative must be staffed with the right people, and the leadership team must be confident that the project manager has the necessary skills to avoid the risk that a poorly executed project will consume valuable resources. Once any initiative is launched, its associated expenditures should be scrutinized and its assumptions constantly challenged against the original business case.

3. Link employees’ individual goals to your performance and rewards system.

Regardless of the operating environment, there are three critical pieces of information that your people must be aware of: (1) your organisation’s purpose, (2) how it plans to achieve it, and (3) each individual’s role in contributing to it. As Dick Clark, the former CEO of Merck, once said, “Culture eats strategy for lunch every day.” To that I would add, “and crisis eats it for breakfast.” If your people are not engaged, the most perfectly formulated strategy and the most rigorously defined processes will fail.

First, your management team must be able to define a clear set of objectives that can be cascaded all the way down to the individual level. Having your employees aligned to the strategy is the best way to ensure that budgetary realities don’t undermine your HR goals—in other words, that your HR planning process is integrated with your budgeting process.

During a crisis it’s common practice for organisations to institute across-the-board headcount reductions. They do so because they have no way to differentiate between employees that they can afford to let go and those they cannot. If instead these organisations had in place a system that showed which employees were most critical to strategy execution, they wouldn’t engage in such an arbitrary, if not foolhardy, practice.

Engaging and motivating employees to foster an execution spirit is no easy task. Approach engagement as a marathon, not as a sprint.

4. Monitor what matters—and do it more often.

Don’t expect your old reporting system to tell you what you need to know during a crisis. Who needs those hundreds of pages of reports that provide nothing but unnecessary details during a crisis? Monitor your progress against strategic objectives and the financial plan in one unified reporting system.

During a crisis, you should focus your attention on answering four questions: (1) Which projects are performing well? (2) Which areas of the organisation are not adding sufficient value? (3) Which activities are you performing today that you could do without? and, conversely, (4) Are there any activities that you are not carrying out today that you should be? Your reporting system should answer these questions.

Flexibility in the ability to shift priorities and to report more frequently is vital. During crisis periods, monitoring cycles should be shortened. In normal times, performance results can remain stable for three months, whereas in crisis, results can fluctuate on a monthly, even weekly, basis. Create multidisciplinary task forces to prepare what-if scenarios and analyse possible outcomes, and distribute this information to managers so that everybody can see what is happening—and will be on the same page.

Concluding…

Not every organisation will survive the crisis. But those that take the necessary steps to support sound, proactive decision making—decision making that doesn’t compromise long-term strategy—will not only survive the crisis, but will also emerge stronger as the economy stabilizes. As master Sun Tzu wrote, “In peace prepare for war; in war prepare for peace.”

Download this article here: http://www.shiftinpartners.net/index.php/ct-menu-item-61

LinkedIN page: https://www.linkedin.com/company/shiftin-partners?trk=biz-companies-cym

Carlos Guevara – Partner at ShiftIN Partners and Triber

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s