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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.
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.”
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The 4 common pitfalls 90% of organizations make, and what you can do to avoid them
By Fares Hillo – Consulting Manager – at ShiftIN Partners.
This article is an abstract from the whitepaper ‘How to bring HR to the Strategy Table’ co-authored with Carlos Guevara, Partner at ShiftIN Partners that will be published in June 2014.
We’ve all either heard this complaint before, or said it ourselves; “HR isn’t supporting the strategic growth of our organisation”.
In fact, the very first line on Wikipedia’s page for Human Resource Management is: “…a function in organizations designed to maximize employee performance in service of their employer’s strategic objectives”! Isn’t it strange then that so many organizations and the people within them feel the same about their HR function? We’ve all become accustomed to playing our role and almost working in silos. Your average employee rarely gets a chance to see the bigger picture, even if they ARE part of the ‘core business’. Imagine this problem in a government entity where bureaucracy rules supreme…
HR is no different. Actually, it may be worse. As a support function, they are expected to deal with ‘managing’ the employees and not interfere with their ability to carry out their responsibilities. But in the dynamic landscape of 21st century business, a function – certainly one as critical as HR – can’t afford to turn its cogs without realizing that the machine it’s turning is an uncoordinated mess.
Yet HR doesn’t sit on the strategy table.
Your typical well rounded strategy includes a neat section about ‘organisational enablers’ – nice and clear somewhere at the bottom of your strategy, ‘driving’ the core business above it. The problem with this is that it still keeps HR at arm’s length. The organisation see’s that HR has its part to play, and HR sees the same thing, and everyone understands what they have to achieve.
But what about truly embedding HR in the heart of executing the strategy?
This has been a common failure in most organizations, and while many have mature and ‘evolved’ strategy know-how and capabilities – they still struggle with bringing HR onto the strategy table. Many of the fixes require a deep analysis into the culture and operations of the organisation in question, but there are some pitfalls that can be easily avoided with a little careful planning and approach. So consider the following:
PITFALL # 1: Is your HR planning calendar synchronised with the Strategy Calendar?
The other day when I was discussing the strategy with one of our clients, we finished the discussion agreeing that we needed to invest in growing the sales force in order to tackle some of the untapped opportunities. After reaching this conclusion we felt relaxed, until somebody raised her hand and said: ‘but we have already defined our manpower plan for next year, 2 months ago!!
How do you know that something is not working well? Look for the following symptoms:
HR asks departments to define their manpower needs for next year before these departments have had the chance to review their departmental strategies.
The strategy department doesn’t involve HR during the strategy formulation process.
Similarly, HR doesn’t involve Strategy Department when updating their HR plans.
PITFALL #.2: Competency management is not aligned towards the strategic outcomes
Let’s say that you have a successful restaurant and, after a strategy session with your shareholders, you have envisioned transforming your restaurant into a franchise that offers a brand new value proposition to its customers. Do you think your future company will require the same competencies that you see now in your staff, or will different capabilities be needed to deliver this value?
You know that you have this problem if you perceive the following symptoms:
You have a competency framework but it reflects the competencies needed in the past but not those needed in the future.
You have a competency framework but you lack the tools to measure the proficiency levels and accurately identify the competency gaps.
You are able to measure the competency gaps but your training plan is unable to address them.
Or, you don’t know which competencies your strategy will need at all!
PITFALL # 3: Personal Objectives not connected to Organizational Objectives
Research shows that the vast majority of managers believe that individual objectives are helpful to determine task importance, yet how many times have we heard managers complain about the bureaucratic, template-filling exercise that objectives setting has become? Their solution is to simply recreate the basic core responsibilities of their employees, based on the job descriptions, as their personal objectives without any kind of alignment with the corporate and function strategies.
How do you know if you have this problem? Look for the following symptoms:
Personal goals are not aligned, and sometimes contradictory, to the organisational strategy.
Managers are not required to provide justification (in the form of strategic contribution) when setting personal objectives.
There is low level of engagement from managers while setting objectives and providing coaching and appraisal. They don’t seem to see the value in doing it…
PITFALL #4. Rewards system doesn’t incentivise the right behaviours
Last but not least. HC frameworks should foster the right organisational culture to enable the strategy. One of the key aspects of shaping the right culture is the incentives. The way an organisation rewards its employees has a tremendous effect on driving behaviors, and ultimately performance.
How do you know you have a misalignment between culture and strategy?
You strategy says one thing but your culture says another (Nokia disease).
HR doesn’t have a proactive process to incentivise the right behaviors.
Culture is an intangible that nobody actually manage.
The Values in my organisation are nice words on a wall but I don’t feel that the majority actually.
So what can you do differently tomorrow? Where should you begin?
Start by breaking down the walls separating HR from the rest of the business, and bring them closer to the heart of your strategy planning. Don’t let them be the afterthought, which you expect to ‘react’ to solve the business’ challenges once all has been said and done… Instead make them a proactive part of your core team of strategic thinkers.
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There are words in management that appear from time to time that most people tend to agree with and many times pursue. Concepts such as: customer loyalty, strategic alignment, value-added, process redesign, innovation and Employee Engagement, are considered “no brainers” that appear in most organizations’ strategies. However, many times when you dig deeper and ask people what those concepts mean to them, you hear all kinds of different definitions. This means that in theory people “agree” with the headline, “Customer Loyalty” for example, but not what it means in practical terms nor how to go about to actually obtain it!
This is the case with Employee Engagement. Everyone wants it, but no one can really describe it in an objective manner. This video contributes exactly in that way, in helping define in specific terms what Employee Engagement really means!
Now that you have a clear definition, you are ready to face the really hard challenge, which is how to actually have people engaged with their work. Good luck!!