How do you execute a strategy
Leading with functional strategies
Why do companies so rarely get strategies down to earth?
There is a popular belief that strategy is only a top management job. If you study the literature on strategy, there is only talk of how top management can develop a strategy. What happens at the next level hardly ever occurs - in literature, but also in many companies. At most, there is talk of the strategy developed above "having to be broken down further". In practice it usually looks like this: The board of directors or management develops a strategy and this is then "announced" to the next level or to several levels at the next large management meeting. It is usually "discussed" in such a way that the managers ask a few questions and then finally it is: "And now break it down to your area and implement it!" That was it with the strategy development and now, so many believe, the implementation follows "with a little good will". I think that is a big mistake.
What exactly is the mistake?
Several things. On the one hand, the idea that strategy development is only a top management task. Second, the non-observance of a different understanding of strategy among top management and workforce. And third, the mistaken idea that strategy can be communicated.
Regarding the first aspect: So you are talking about the need to develop strategies at lower levels too?
Yes, only with a narrower focus and often under a different name. I call this "leadership using functional strategies". At the lower levels, the executives usually speak of concept work or business plan, but they do not call it strategy in this form. Strategy is such a buzzword, a mysticism, that makes top management and it has to do with the high art of consulting or it is their "supreme discipline". The term strategy is enormously charged. But if you strip away the whole myth, then strategy is nothing more than a concept, conceptual thinking. Even as a small team leader, I make sensible ideas about the future. But that alone is not yet leadership in the sense I intended, because concept work or strategy can also be something that I do for myself in a quiet little room and then I tell my team where to go. The topic becomes interesting when I understand and use the topic of strategy development as a management tool with which my employees can then also get clarity in which direction it is going.
So the overall strategy is created in top management and at the next level the question arises, what does that mean for my area?
The way you are describing it is the theory, but the fact that there is a corporate strategy that is then broken down, as the saying goes, is something that managers at the next level often do not experience at all. They are often never worked on what the divisional strategies and what the what for, why, why are. Rather, you are given goals and then it's: eat or die. In practice, they often have great difficulty breaking it down because they don't even know what the higher-level strategies are because nobody tells them that. This creates enormous frustration on the second and third levels, because they are supposed to argue, implement and promote something that they cannot understand themselves.
Where do these executives then set up their strategies if they have no clear message from above or do not know the history of the development?
They build on what they think they have to achieve as a division or department, what they think the goals should say. The majority thinks: "I define my goals myself, present them to my superior and see what he says about them". They usually have a rough orientation and actually operate a kind of expectation management by reformulating the assumed expectations as a starting point for themselves. But this experience that strategies are really broken down, this experience is not that common. My experience is that leadership based on strategies actually only works if those who also have to implement strategies, the key players, are involved in the strategy process. For the following reason: If a strategy is only "communicated" from the upper level and you can only ask a few questions to people at the next level, all the problems and doubts that you have with regard to its correctness and implementation options are not dealt with . Then at most they can believe the strategy. In order to be convinced of something, people first have to penetrate the content and really work on their questions. Only in this way can they make the strategy their own, "appropriate" it themselves. This is exactly what most companies do not do. For this reason I have started to develop a form for the levels below the board of directors, the division and department heads, through which they can really make strategies usable as a management tool. By management instrument I mean in this context that they consciously use the examination of the strategy in order to create orientation, shared convictions, enthusiasm and commitment, to establish a common direction and thus to fill the whole thing with life.
And what did you mean by "different understandings of strategy"
The board of directors is asked to say how they believe the company can be successful in the future. With what he believes, he then approaches the employees and communicates the corporate strategy to them. But if you ask the employees about the communicated strategy a few weeks later, they ask exactly the same questions again. What was communicated by the board members was either communicated in a form that made no sense to the audience or the information that was given there was not the information that the employees needed. So what I observe in many companies is that employees keep asking: what is our strategy now, what is the future direction of the company, what are the priorities? Will everything stay the same as before or what changes are in store for us now that may also affect me? You believe that when you recognize an overarching strategy, such as a growth strategy, you also know whether your own job is at risk or not. If, for example, more is to be produced abroad, the conclusion is: Our production site may be at risk. All these questions and fears are, so to speak, what drives employees to ask what the strategy is.
And with different understandings, do you mean that the strategy from above is on a level that is too abstract and that the employees cannot put an end to their own area and workplace?
When board members think in the direction of competition, in the direction of market shares and growth, there are usually investment considerations behind them and such strategies are usually very number-oriented. This is important for someone who makes investment decisions and therefore needs to know whether a business case will pay off or not, but that is the world of numbers. But other things are important for employees. For them it is important: What does this mean for our form of cooperation? Will the new production line be made here or in China? Then it says: "We still have to look. We will do it where it is most convenient for us." This opens up the whole space of possibilities, that could be Turkey, but that could also be Germany, because one comes to the conclusion, for example, that the necessary know-how is more likely to be available in Germany. It is actually the case that everything has not yet been thought through down to the last detail. That's what management is there for, too, to develop ideas for such problems or challenges. These are then steps two, three, four, which top management has not yet penetrated at this point.
And what did you mean by the fact that strategy cannot be communicated?
By this I mean that people have doubts and worries, and those doubts cannot be resolved from a pulpit through the sermon. In order for doubts to be resolved, they have to be raised, discussed and heard. If the individual with his worries and doubts only hears the answers of others, he will never achieve an inner security. Doubts can only be minimized or completely dispelled by dealing with the topic yourself. I don't think that pure information at this point, no matter how intensely you do it, can do that. Proclaiming a strategy is always a sermon from the pulpit. As an employee, you have to believe enormously, and today that belief is already extremely shaken. As a consultant, I have repeatedly experienced the phenomenon that top management says: "We have clearly communicated our corporate strategy to everyone!" When I talk to employees, they say: "No, we are not sufficiently informed! We did not get the strategy clearly communicated." So the problem is that "communicating strategies" does not work as a management tool. In this respect, it would be worthwhile not to continue doing more of the same at this point, to turn a loop and, in other words, to communicate the same thing again, but instead to consider whether something is fundamentally wrong.
The main question for employees is actually: What can I expect? And the idea of top management is that the answer to the how is the task of the individual areas.
Exactly. In our culture it is the case that middle management then ideally goes there and either develops divisional strategies for the corporate strategy, assuming strategic business areas as the starting point, or functional strategies with a functional structure of the organization. That is, considerations as to how the corporate strategy can be implemented specifically in this function. If your own executives and employees are involved in the development of the functional strategies, motivation, commitment and enthusiasm can arise through active processing, because this is how worries and doubts are dealt with and only then hope and confidence arise. That is why I believe that the concept of strategy development as a joint management performance is important at this time when the search for orientation has increased enormously. You can't just give it a sermon from the pulpit.
When developing a strategy, the question arises: Can we even do that? Do we have the right structures, processes, resources, and competencies? Is that even affordable? These questions should already be checked by top management. Otherwise a strategy comes from above where everyone thinks: That is completely unrealistic. That then creates the frustration.
Strategies deal with the topic of the future. And the future is always uncertain. For this reason, top management will not be able to describe exactly what it looks like in many areas. That would also be completely overwhelming. Basically you can only make assumptions and say that we will manage that, but the concrete solutions will only emerge when those responsible for them deal intensively with the issues. The question is, do they do this kind of strategic work in their area or are they only commissioned from above and the board of directors disengages itself with that. One important point must not be overlooked, namely that the next levels, the functional units, always have room for maneuver. This is often downplayed, but basically you always have freedom to decide on overarching goals in which of the many possible ways you want to achieve this task. That brings you to the question: So what is our functional strategy? One problem here is the often existing split into: Strategy is brain work and is the responsibility of the board of directors, implementation across the next levels is people management and is the responsibility of the next levels. They have to "mobilize their employees". This division, which one thinks and the other should actually only induce people to do so, is a design flaw. That might have worked when the complexity was still relatively low. But with the increasing complexity and the corresponding differentiation of organizational units, the functional units have to think about how they proceed like the upper levels, based on their respective parts, not on the whole. The old separation still has an effect in many companies.
Another problem is that the factual persuasiveness of strategies is overestimated. By that I mean: "If we develop this product in eight months, we can gain x% market share with it." That is a factual statement. Such factual statements are not convincing, however, they do not address the doubts and the emotional issues that preoccupy people. And if a strategy is just sober, it cannot touch people's hearts. That is to put it a bit prosaically, but we are much more emotionally controlled than that which is ascribed to the homo economist and this emotionality is touched far too little by the classic form of strategy development. A strategy process is a good strategy process if there has been friction in this process and you have dealt with it in a lively manner. Then people were touched by it and then what was strategically developed also has a meaning. If this has not happened then the strategies have no meaning for the individual and if they are meaningless they do not give the person any orientation either. If time is not invested in this at the beginning, those responsible have to build up a lot of pressure afterwards to implement it and usually fail anyway. This is overlooked by many who concentrate too much on the content dimension of a strategy - is it plausible? - instead of also thinking: How does it get strength? Do employees have the opportunity to relate themselves to this?
Don't middle managers often say that corporate strategy is nonsense in terms of content?
I hardly hear that. What I hear is: "We are getting far too few content-related strategies." Then I say, "Ok, let's say what are the five most important metrics by which you will be measured at the end of the year? Ok, if those are the issues by which you will be measured, what is your strategy now to achieve these goals? What can you achieve in your creative space, in your own area of responsibility? " Either the managers talk to their own superiors again and question them, or they take the criteria as given guard rails and consider what you can do best within the given framework.
What methods do you use to develop functional strategies? Certain methods only make sense at the top management level.
That's true. The methods are different. 70% of the classic methods relate to corporate strategies. For example, classic market analyzes are not relevant for functional or departmental strategies, since the company context is the market from which the specifications come. What I specifically use is, for example, a stakeholder analysis. What do the stakeholders want? Then the method already mentioned: What are the goals that my department is supposed to have? The expectation, so to speak, that is directed from above onto a department or functional area. What are they supposed to achieve? Then the department thinks about these goals with the corresponding strategies and then comes to concrete goals at the end of the deliberations. So you work your way from target expectations to concrete goals. The environment analysis is another method to come from outside, only that in this case the entire company is the environment: What are trends and developments in the company? What's going on there? Furthermore, I use the analysis tool Core Competencies and the classic SWOT analysis, in which one asks: If these are the strengths and opportunities of the area and we combine them with the trends and developments in the company, what are the possible courses of action? And if you combine the weaknesses with the threats and expectations, what are the necessities?
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