Matthew Siegel
One of the most important shifts in many companies today is the move toward a capabilities-driven strategy. Companies that define a “way to play,” lined up with a handful of key differentiating capabilities that deliver on that value proposition, have a definite competitive advantage. Your own company may have redesigned your strategy accordingly. Now it’s time to execute.
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| English: Capabilities value contribution to strategy (Photo credit: Wikipedia) |
A truly relevant planning and performance management system will help you instill the discipline and accountability to make hard choices. It will make it easier, not harder, to assign the lion’s share of investment to your differentiating capabilities. And it will keep things on track with clearly articulated objectives and performance metrics. Here are seven guiding principles that will help you put such a system into place:
1. Emphasize key capabilities in your strategic plan. Look beyond short-term marketplace opportunities and challenges. Articulate what you need to do, different from what any other company can do, to deliver on the company’s unique value proposition. Tie strategic objectives to those capabilities. ...
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| English: A diagram of the (strategic) planning cycle showing the key stages in the loop (Photo credit: Wikipedia) |
3. Manage discretionary and non-discretionary spending separately. A successful strategy concentrates investment dollars where they are needed most: the company’s distinctive capabilities. Traditional budgeting can undermine this goal by allowing individual units to spend discretionary dollars as they see fit—often favoring pet projects, even if they have no strategic relevance. To prevent this, use zero-based budgeting to determine the amount of non-discretionary expenditures needed to “keep the lights on” throughout the company. The rest of your spending should go through a management process, connected directly to the strategic plan.
4. Use cross-functional governance to balance company priorities against the priorities of individual business areas. Governance forums should use a set of clearly defined decision rights on a regular basis to steer the business. ...
5. Create guidelines for evaluating investment demands. Your company is subject to a range of investment demands with varying degrees of relevance to strategic priorities. Detailed investment guidelines will help assess these requests, especially when you’re balancing “apples and oranges” demands (such as regulatory compliance expenditures versus capital spending proposals). ...
6. Give leaders cross-functional authority to build capabilities and hold them accountable. Capability-building efforts fail when nobody has the authority to carry them out. Help individual leaders build capability systems across functional lines by making sure others can see that they have the requisite decision rights and position. ...
7. Measure and reward progress. Building a strategic capability can often take months or years. Explain clearly how each initiative bolsters a critical capability. Establish objectives and milestones for each initiative. Use these benchmarks to measure and reward progress toward the ultimate goal: a market-leading capability.
A more relevant planning and performance management system yields significant long-term benefits, because it continuously evaluates your company’s performance against strategic goals. The performance benchmarks tell you where and how external changes are affecting your progress. This provides a real-time snapshot of your capabilities at work in the marketplace. Strengths and weaknesses become clear, informing your investment decisions for the next strategic planning cycle. After a few years, this virtuous feedback loop can become second nature, paving the way for real collective mastery of the capabilities that distinguish your company.
Matthew Siegel is a principal with the organizational change and leadership practice at Booz & Company in New York.
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