Defining strategy key to making it work

By VICKI JAYNE

One reason organisations underperform is that management lacks a common language, says Australian consultant and author Graham Kenny.

Take the concept of strategy, for instance: "People can't talk to each other about such topics because there is no agreed definition.

"It's like having accountants sitting down to discuss financial issues and not having the same definition of an asset or a liability, or depreciation.

"Accounting would be chaos - and quite frankly, a lot of management is chaotic, because there is no clear understanding of what strategy is."

Which is what Kenny's recently published book, Strategic Factors: develop and measure winning strategy (President Press, distributed by Southern Publishers Group, $79.95), sets out to fix.

An extension of the strategic planning seminars he has been running in Australia and New Zealand for the past 12 years, his book provides a clear recipe for defining strategy, then implementing it and measuring its effects on performance.

An essential step is to shift perspective from inside out to outside in, or in the words of Robbie Burns, "to see ourselves as others see us".

In Auckland last week, Kenny said most businesses were internally focused.

They make the mistake of filling strategic plans with proposed improvements for internal activities and processes - better training for staff, or a more efficient computer system.

But these are not, in themselves things that give the company an edge on its competition.

What's needed, says Kenny, is an external focus.

"Customers aren't interested in the training, but whether your staff can efficiently answer queries; they don't care about new computers, but they'd be interested in improved delivery times.

"These are the sorts of things that keep them coming to your company rather than going elsewhere."

It's all to do with competitive advantage, another phrase that needs to be understood, says Kenny.

"If you don't understand what competitive advantage is, you can't do a strategic plan. It's as fundamental as that."

The "fatal flaw" most organisations make is thinking that the standard of its internal processes or capabilities represents its competitive advantage, says Kenny.

But companies claiming the best and most efficient internal practices merit only a big "so what" in his view if the competitive advantage these deliver hasn't been identified.

"If you can't disentangle your day-to-day activities from the outcomes of these as far as the customer is concerned, then it is very difficult to objectively understand where your competitive advantages lie."

This external viewpoint is emphasised throughout the book that presents its "strategic factors system" as a series of building blocks.

The first step is identifying key stakeholders. Customers are an obvious first choice, but there are also employees, suppliers, owners and shareholders, depending on the type of organisation.

For instance, a community services organisation's key stakeholder list includes owners, fund-providers, employees, donors, government as regulator and government as service provider, as well as customers.

The next step is to decide what are the strategic factors relevant to each of those groups.

While the term runs the risk of a high EGO - "eyes glaze over" - rating, it relates to what its stakeholders want from the organisation, and the organisation from them.

For a convenience store, location is likely to be a strategic factor for customers.

Strategic factors are those that have to be handled well for the business to succeed, says Kenny. There are relevant sets for every stakeholder group. They are externally focused and relate to the expectations of stakeholders who use them to assess an organisation's business performance.

And while driven by internal processes and capabilities, they should not be confused with them.

High-quality manufacture, for instance, is an internal capability; the strategic factor involved is product quality because it is what customers care about.

Assessing your performance on these factors requires a structured approach to analysing markets - which strategic factors will put your nose in front of the competition. In the case of the convenience store, location probably rates above price.

Kenny's next step is to link objectives with stakeholders.

The best way to do that is look at what you want them to do. You probably want customers to buy more stuff or more expensive stuff.

The objective is to increase sales of high-margin products.

Though this sounds a bit obvious, it provides a logical linkage that ties the "what" of organisational performance into the "why" of organisational strategy. This provides a basis on which targets can be set, and performance measured.

Organisations find it hard to make relevant links between market analysis, strategic plans and performance measurement, says Kenny.

His company, Strategic Factors, is out to make the process a lot simpler by developing software tools that not only help to build a strategic plan but provide the relevant links to performance at both organisational and individual level if required.

One strategic plan he recently looked at had 12 items under the heading strategy - but only one dealt with those factors the company has to get right to be competitive.

The rest were internal issues.

Surveys of those attending his seminars suggest this is common.

"I think there is an underperformance crisis in organisations, and it starts with a language problem because organisations are unable to explain to staff what strategy is all about."

* vjayne@iconz.co.nz