5 Reasons Why Your Strategy is Failing and What to Do About It

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CAPTURING VALUE IS TOUGHER THAN IT LOOKS

Peter Drucker, one of the founding fathers of modern management theory, said, "The greatest waste of organizational resources is doing really well the things that shouldn't be done at all." This is an incredibly important concept. It highlights just how much of what we direct our people to do doesn't add any real value to the company's performance.

Why would any sane manager allow this situation to persist?

You've no doubt heard me talk about value in the past – it's the centerpiece of the No Bullsh!t Leadership framework and, if you’re a leader, it should be front of mind every single day… if you want to achieve superior performance, that is!

But making this happen in practice is a lot harder than it might seem, and it starts way back at the strategic planning process. Illogical leaps between steps, emotional attachment to the status quo, and misaligned incentives are a recipe for value destruction. And virtually every organization on the planet suffers from these ailments.

I start this newsletter by exploring why planning is so hard. I then ask the question, “Why is it so easy to find ourselves working on the wrong things?”, and I finish with my five hot tips for focusing your team on higher-value outcomes.

WHAT’S WRONG WITH THE PLANNING PROCESS?

There are a number of structural and process factors that put us behind the eight-ball, right from the get-go. It's almost like there's an accepted level of inconsistency and misalignment that's baked into the process.

Just think about where it all starts – at the strategic planning level. Let me explain why this is hard, and why it may seem as though it doesn't make much sense. I'm going to give you the five main reasons why the strategic planning process rarely succeeds, and you may want to check these off in your head as we go…

1. Most people don't actually understand strategy. Or, at best, they don't share a common language for strategy. Executives with a decent business school education may have learned some stuff about strategy during their MBA studies, but their application of the strategic planning tools and models is incredibly inconsistent.

I don't think I've ever seen Porter's Five Forces model, the BCG Matrix, or even a simple SWOT analysis used the same way twice.

I want you to just try a small experiment. Run a quick straw poll with the people around you and ask them what they understand by the following common strategy terms:

• Competitive advantage;
• Value proposition;
• Market segmentation;
• Core competencies;
• Long-term value; and
• Privileged assets.

You're going to notice quickly that there's very little common ground upon which this strategy conversation is built. So, what happens is that everyone pretends they're all speaking the same language.

No one wants to seem as though they don't know what they're doing, and this is a deeply entrenched corporate pantomime. To bring credibility and to save any embarrassment, the CEO lets the consultants drive the process.

This is the classic case of paying a consultant to borrow your watch, so that they can tell you the time.

2. In most companies, strategy is treated as an event, not an ongoing discipline and focus. Companies, particularly larger, more mature ones, go through an annual planning cycle. Strategy is the first step in the broader process.

Typically, the CEO and her executives provide the input. They back it up with some data analysis of historical results, and they might look at industry trends and anecdotal market feedback. This, in itself, is okay, but there's one big problem here.

The purpose of strategy is to lay out a future path for the company.

Much of strategy is built on past experience and data, which undoubtedly should be analyzed and considered… but it can also be a poor predictor of future performance. Just pause for a minute to think about how many industries and markets are going to be radically affected by AI in the next three to five years (which of course is the typical strategy development window).

Strategy can't be something you do for a month or two each year, at a time when it fits in with your annual planning process, and then put it back on the shelf. It has to be a constant mindset, focus, and discipline for every leader.

Your strategic plan forms the basis for developing your work program. But, look at it this way – your competitors aren't going to make their decisions on pricing, marketing, and investment to fit in neatly with your annual planning cycle timeframe.

This is why you need to have your strategic radar constantly activated and scanning the horizon.

3. Many companies develop their strategy at the wrong level. They focus their strategic planning around their business units rather than their products.

This is an insight from my trusted colleague and resident strategy genius, Andrew MacDonald. Since we've been working together to develop Strategy Beyond the Theory, which we're going to be launching in 2025, Andrew has managed to articulate some of the most intractable strategy problems in very simple terms.

This has really helped me to develop my understanding of what strategy is, and how to best extract value from the strategic planning process. It's also opened my eyes as to why it's so hard to get right.

The product is the unit of value that aligns most closely with your customer's drivers, and it's also where competition plays out.

That makes sense. But the temptation is to align your strategic plans to your executive accountabilities. That way, you can just send people off to achieve the strategic outcomes without really worrying about the organizational complexity that goes along with it… and you just expect collaboration and synergy to magically occur. Well, not in any company that I've ever worked in!

Product is king. Just to be clear, the term “product” refers to any offering you take to market, whether it's goods, or services, or a combination of both.

4. There’s a tension between value creation objectives. With any product, you have to make trade-offs between two types of competing value sources: customer value and product value.

Customers want the best product for the lowest price. So, to ensure they get this they compare your product with other similar offerings in the market. You have to make sure that your product is competitive, by offering the right combination of benefits for price.

Product value, on the other hand, is the type of value that determines company profitability and optimizes investor returns. You have to make decisions about which features to build into your products at minimal cost.

Of course, this feeds into the view of investor value, which is that investors want a certain return for the level of risk that they're taking.

Using your judgment to balance these (often competing) objectives is really tricky, and companies don't often get them right for sustained periods.

5. There’s a tension between owners and management. And of course, boards are the owner's proxies. They want to maximize growth and profitability. They want to increase the valuation of the company. And, as a non-executive director, it's really easy to conveniently divorce yourself from the annoying realities of market factors.

So, boards and owners often want to shoot for targets that are completely unrealistic. Management teams, on the other hand, want their targets to be easily achievable because that's the basis that's used to determine their performance bonuses.

This Mexican standoff ensures only one thing: that the strategic targets that you end up with are going to be a negotiated compromise, rather than a well-thought-out and robust go-to-market strategy that delivers the optimal balance of value drivers.

WHY DO WE WORK ON THE WRONG THINGS?

With these fundamental issues in the strategic planning process? It's no wonder that we can't seem to maximize the value in our work programs. Back to the Peter Drucker quote: we simply do too many of the wrong things. But why?

The links between strategic and operational planning are poor. Just picture how this works:

• The CEO announces to the organization that the new strategy has been developed and it's ready to be unveiled;
• It's communicated in a form that's easy to digest, which is generally at too high a level to make any sense to the leaders below; AND
• Each layer you go down, there's less and less understanding of the strategic imperatives, and less and less buy-in and commitment to them from the teams.

Is this ringing true for anyone?

Let's just suspend our disbelief for a minute, and assume that the board and executive team have absolutely nailed the strategy.

Now what?

Each leader has to build a work program for their team that aligns with the strategic goals of the company. This is where we see real creativity! Every leader looks for ways to justify the things that they want to work on – so they find a link, no matter how tenuous, between that work and the strategic objectives.

One of the most common problems is that teams undertake their planning in isolation. Each executive breaks away to develop their own work programs. More often than not, there are conflicts and inconsistencies in the KPIs that are set in different teams. Some of these are just suboptimization, but others are completely at odds with each other.

For leaders, the allocation of resources can determine your level of influence in the company… and your pay packet. That's why very few leaders are going to willingly make changes to those types of parameters without some very strong encouragement from above.

That might explain the difficulty in planning new initiatives, but there's also a huge volume of ‘work in progress’ to deal with – the things that are already underway, and that people are allocated to, which often cross over financial year planning boundaries.

Many of these are just rusted-on activities – the things that people habitually do. But once these jobs have funding and resources allocated, they're almost impossible to stop regardless of whether or not they serve the strategic direction of the company.

There are a number of psychological and cultural factors that make these types of work tasks so hard to identify and to stop.

The first is that people love predictability and consistency. They like to know that their workday is going to be filled with familiar tasks that they can perform without being overly stretched.

They also like to have comfortable targets for delivering the things that determine their performance ratings and bonuses, and the best way to make the targets comfortable is to be completely familiar with what's required to meet them.

Finally, there's the well-founded concern that if a particular piece of work disappears, then maybe their job does too, which explains why people will often protect their work program with surprising ferocity.

5 WAYS TO GET YOUR TEAM VALUE-FOCUSED!

I probably didn't mean this to sound as bleak as it does, but then again, if you can truly feel the sense of desperation and futility about your company's planning process, it's likely to strengthen your resolve to change things – even if you're not right at the top yet.

?I have five ways to lead a more successful planning process that are going to increase the likelihood that your team ends up working on the right things.

1. Use a zero-base approach. Zero-base budgeting says that you start with a blank sheet of paper. Nothing is a given, and the work program's built from the bottom up.

It can be hard to manage resource allocations this way, and it's sometimes really tricky to work out what to do with the business-as-usual work. But it fundamentally makes you question the value. Are you really delivering the greatest value with the resources that you've been gifted by the organization?

The annual planning process is your first best bet for eliminating non-valuating work. After that, it becomes exponentially harder.

2. Stop the ‘shoehorning’. You have to be aware of people's tendency to try to force fit the work items they want to do with the intent of the strategic plan.

If you've managed to use a zero-base approach, this is infinitely easier. Just be aware of the fact that people are people, and they'll build a logical, rational case for work that they are emotionally attached to.

But this isn't always the highest-value work. Often, it's the most fun work… the most predictable work… or the work that best suits their skill set… or the work that’s most likely to result in bonus payments. There are lots of reasons why people go after it.

3. Push your people really hard to justify the value. You have to make sure that you are ruthless around value traceability. I chose the word ruthless here very deliberately.

You have to be so fixated on value creation that it's the only lens you look through when you're building your work program.

Just remember, though, that value can be way more than just financial value. Investing in better safety outcomes, reducing key risks, or boosting compliance to protect your license to operate, all of these things can add value. Some are just harder to measure than others.

Regardless of this, you have to be able to answer one key question: “If I invest resources into this piece of work, I want to know specifically— how, where, and when will that value be delivered?”

Strategy is about the allocation of scarce resources as much as anything else. So, if you want to make really good decisions about the relative merits of deploying your resources onto one thing or another, value traceability is essential.

4. Don't just talk about simplicity and focus – you have to live it. Get your people into the habit of stopping things. Once you understand the highest-value objectives for your team, you have to give your people permission to stop everything else. This means directing them to put certain tasks on the back burner or possibly to abandon low-value projects altogether. This only happens when you have a constant drive towards simplicity and focus.

I used to say frequently to my direct reports, things like:

• "What can I do to help you clear your desk?”
• “How can I help you to get rid of the noise?”
• “What can I take away from you so that you can focus on delivering the stuff that really matters?”
• “How can I help you to get rid of all the distractions and just focus on the main game?"

Don't just pay lip service to simplicity and focus. You have to drive it.

5. Ask the most important value question. I stumbled upon this killer question several years ago when I was presenting my pre-budget instructions to my senior leadership team –the top 50 or so leaders in CS Energy.

I found myself struggling to articulate my expectations around value creation in the planning process in a way that would make it tangible to them. So, I randomly latched onto this concept:

"Imagine that you only had 12 months left in this job. What would you want to have on your resume at the end of this year that would make you a no-brainer to be hired for your next job?"

Interestingly, the things that would make their resume look unassailable, in terms of quantifiable achievement, have an incredibly close alignment with the things that would also deliver the greatest value for the business. If you can identify, measure, and deliver that value, it's the absolute essence of a win-win.

ALIGNING ORGANIZATIONAL VALUE WITH TEAM CAPABILITY

There are many places where the strategy and planning process can go awry, or produce suboptimal results. Your job, at whatever level you operate, is to create the strongest possible alignment between the things that represent the greatest value for the company and the unique talents and capabilities of your team.

If you can focus your people on the work that really drives value, that alone will forgive a lot of other sins. The last thing you want to do is to let your people flounder by wasting their energy on sh!t that ultimately doesn't matter.

This is from Episode 318 of the No Bullsh!t Leadership podcast. Each week, I share the secrets of high performance leadership; the career accelerators that you can’t learn in business school, and your boss is unlikely to share with you. Listen now on Apple Podcasts, Spotify, or on your favorite podcast player.