One reason many executives resist strategic activity is their concern over the activity’s wasted effort. They feel strategy setting requires the company’s most expensive employees to step away from operational activity and sit for hours reviewing fancy PowerPoint presentations developed over countless hours by analyst drones. These business executives are bombarded with so many versions of slideshow graffiti that it is difficult to discern the facts, or even stay awake. As a result, many meetings dissolve into disagreements driven by opinions rather than facts. After this scenario happens a few times, no executive would willingly initiate a strategic planning project.
In my experience, the chief reason that strategic planning can be frustrating is our belief that a complex business problem, like business strategy, needs a complex process to solve it. Why would we think this is true when most other business functions overcome complex problems by using tools to simplify their task – think engineering and PERT or Gantt charts.
If forcing executives into complicated analysis impedes the strategy process, the question arises, “Do executive need complex data to form successful strategies, or can more simple metrics drive an equally successful strategic outcome?”
A real-life example
A few years ago, a university asked me to teach an on-line entrepreneurship training class. I decided that grades would be determined not by tests, but by completion of 3 tasks that I felt every budding entrepreneur needed to master: a market assessment, a marketing plan and an investor pitch.
To make sure the students were prepared to successfully complete the projects, I included an outline of the requirements for each assignment and made sure the students knew they could contact me with any questions. None did. The first sign of trouble occurred when almost half of the first assignments arrived late. And when I graded them I was appalled at the quality of the submissions.
They say there is no such thing as dumb students, only dumb teachers. And my experience was testament to that maxim. For the last two assignments I designed a simple rubric that outlined in specific detail the types of information required and the number of points they would be awarded if the student provided the correct information. I’m sure you’re not surprised to hear that scores improved dramatically.
How is this example relevant to optimizing strategies in business?
In today’s business world many executives confront strategic growth challenges like my students performed their first assignment. These executives dive in to solve the problem without first identifying a rubric that will lead to the selection of an optimized strategy. They don’t think about how results will be judged acceptable or unacceptable? These executives fail to develop what I call a strategic decision metric.
When strategies are evaluated without pre-set metrics many of the frustrating things about strategic activity occur. The company collects information that may not be relevant; or forgets to include critical data. Often, it collects data to a level of detail that is not required for a good decision. Or the team may be assembled before the information they need for the decision has been collected. Any of these situations frustrate executives; we all detest wasting our time and resources.
Finally, just as my students provided useless data, or worse, data that led to erroneous conclusions, the absence of a simple decision metric leads to equally poor strategic planning by executives.
A strategic decision metric is simply a ranking scale that helps executives assess which solution is best. In the rubric below I have established a 5-point metric designed to assess revenue potential. In this example executives would rate any opportunity that generates less than $800 M per year very negatively. Any opportunity generating over $5 B would be rated very positively.
This simple approach is easy to construct. Notice that, while financial figures are used to define each rank in the table above, the rank itself is not a number. This is purposeful. You see, these rankings are meant to generate discussion among the executive team. However, when presented with numbers, most executive focus their discussion on the number’s value. But when it comes to strategy, the numbers are less important than the concepts behind the numbers. In the example above, we don’t want executives discussing scores; we want them to explain why they think a certain revenue is realistic for each strategy under consideration.
This table contains only one decision factor. In practice, executives set up a table consisting of as many factors as they feel are important to the decision, typically 8 – 15. This expanded table is used to rate all of the strategy options against all of the criteria, which generates a table of pluses, minuses and zeroes. A completed table easily guides executives to select the best strategy. Simple, but effective. And, because the data is so easily presented, executives can make higher quality decisions.
If you would like to learn more about creating strategic decision metrics, my book, an international best-seller, “Stratification: How strategic decision processes will create a sustainable competitive advantage,” is available on Amazon http://www.amazon.com/dp/1532875533