Two key elements of successful strategy implementation are: clear articulation of a strategy, and the efficient communication about what the strategy is, and how it needs to affect team and employee behaviours within the organisation.
In this case study we show how the leadership team of a large Asian financial services company worked with 2GC to both align the organisation behind a new corporate strategy, and then to strengthen their ability to manage the organisation’s activities to implement the strategy. Although the project was undertaken against a backdrop of major external change both within the country and the industry, the approach adopted was shown to be highly effective.
This case study describes the work by a large Asian financial services company, here called AFC, to both align the organisation behind the corporate strategy and to strengthen its strategic control abilities. The case is structured as follows:
- Background to AFC, explaining why and how the CEO sought to make these changes to the firm’s strategic management capabilities;
- Process used to define AFC’s corporate strategy;
- Aligning the entire company with the corporate strategy;
- Structuring and resourcing the project; and
- Implementation of the strategy.
Registered in the 1980s, AFC was established to provide insurance services within its home country. As a monopoly provider for the first years of its existence, AFC generated excellent returns for its government owners.
In the early 2000‘s the country joined the World Trade Organisation, and the national government began to liberalise various industries including the financial services industry, passing legislation that would allow new entrants to compete with AFC. At the same time AFC was partially privatised, with the majority of its share capital sold through an Initial Public Offering (IPO) and subsequently traded on the national stock exchange.
In 2005 a new CEO was appointed to lead AFC during this period of transition in the country’s financial services industry. The new CEO realised the urgency of the need to prepare AFC for the coming competitive environment, but before taking proactive action the CEO wanted to make informed choices about where and how to apply his team’s management talent and resources. Put simply, he sought to apply the management model (illustrated on the right) within AFC.
To this end, AFC commissioned an international strategy consultancy to analyse the national financial services market and to recommend changes that AFC should make (the ‘informing’ activity in the diagram above). Deciding which changes would be implemented (‘choosing’) remained the responsibility of AFC management. The consultancy study predicted rapid growth for the financial services market (a tripling in size by the end of the decade), and advised AFC to restructure – moving from a functional to a market segment orientation.
The CEO understood the challenge of implementing strategic choices effectively, and he also knew that poor strategy implementation was the major reason why CEOs were replaced. To avoid these issues, the CEO identified three objectives that he believed if achieved would make it much more likely that the strategy would be implemented effectively:
- First, he wanted to actively involve his senior management team in the strategy definition process, with the team becoming the shared owners of a clearly articulated and strongly supported corporate strategy. He felt this was important because AFC had previously suffered from ‘strategic ambiguity’.
“At times it seemed that the strategy was changing or was misunderstood, or even ignored. This was because senior management decisions and actions often appeared to be inconsistent with what had been inferred previously as being the strategy. For most of the middle managers this was a confusing situation, and there is a cultural pressure to do nothing if the situation is ambiguous. So how could these managers in turn decide on the priorities and business actions in their own area of responsibility if there were contradictory signals from the top?”
Senior Manager - AFC
- Second, the CEO wanted the organisation to become fully aligned with the corporate strategy. As per the consultancy recommendations, AFC was restructured to introduce Strategic Business Units (SBUs) that were focused on key lines of business, each with its own product development and service delivery capabilities. The CEO wanted the corporate strategy to influence the behaviour of not only the top 10 or 12 managers, but the entire organisation. He wanted the managers of the new SBUs to be clear on what their organisational units would need to do to support successful implementation of the new corporate strategy, and be sure that these SBU level interpretations of the corporate strategy were clearly and efficiently communicated to the staff of each SBU.
- Third, he wanted to be able to track how the organisation was proceeding with work to implement the strategy, primarily to allow interventions where ever progress was faltering. The CEO understood that implementation rarely goes to plan – the world is too unpredictable for this to happen consistently – and strategic success would rely upon the organisation’s ability to quickly identify implementation issues and respond, reconfiguring the plan and redirecting resources, in light of experience. The CEO sought to extend the inform-choose-do cycle he used with his senior team to cover the whole organisation’s approach to strategy implementation; regular feedback on strategy implementation progress (‘informing’) would trigger changes in the plan where required (‘choosing’), and so enable the organisation to continue working most effectively towards AFC strategic goals (‘doing’).
Articulating the corporate strategy
The CEO selected the 3rd Generation Balanced Scorecard approach to support his strategy implementation programme. The 3rd Generation Balanced Scorecard approach was an evolution of the original Balanced Scorecard (as proposed a decade before by Robert Kaplan and David Norton) that was focused specifically on the need to support strategy implementation in large organisations. The approach involved bringing together the entire senior management team (SMT) to participate in a linked series of four full-day workshops spread over an eight-week period. The aim of the workshops was to generate consensus within the SMT (comprising the CEO, the heads of the market-facing strategic business units, key accounts, marketing & sales, finance, human resources and information technology) concerning the nature of the strategic outcomes being sought, the key high level actions that would be required within AFC to achieve these outcomes, and to agree a new management process for the SMT to interactively advocate and manage the implementation of these strategic plans within the organisation.
The four workshops are described in more detail in the sections that follow.
Agreeing AFC’s medium term goals
In the first workshop, the managers discussed and came to an agreement on what a highly successful AFC would ‘look like’ in five years’ time, 2010. They documented their agreement in the form of a Destination Statement – a one-page document describing the sought after future across four separate perspectives.
- The Stakeholder Expectations perspective described the SMT’s understanding of what financial performance (for example, the revenues and profits) would be expected of AFC a few years in to the future (specifically, 2010 - five years into their future), if the stock market and other investor requirements were achieved.
- The Relationships perspective described the SMT’s understanding of how key external groups (e.g. customers, partners, regulators, competitors, potential employees) would need to perceive AFC in 2010 if the financial results detailed in the Stakeholder Expectations perspective were to be realised.
- The Processes and Activities perspective described the SMT’s understanding of the critical processes and capabilities AFC would require in 2010 in order to support the realisation of the outcomes articulated in the previous two perspectives.
- Finally, the Organisation and Culture perspective described the SMT’s understanding of how AFC would need to be structured and the values that would be shared across the firm in 2010 to enable it to carry out the processes described in the previous perspective.
The Destination Statement sits somewhere between a Vision Statement (which is typically too short and vaguely worded to provide much strategic direction) and a full strategic plan (which is typically too detailed to communicate widely and efficiently). Executed well, a Destination Statement aligns managers around a realistic, shared and specific future. A popular idea within AFC at the time was for managers to ‘start with the end in mind’ - being clear on the ‘end’ allowed AFC managers to better decide the shorter-term priorities to deliver these goals, even if this demanded frank discussions and tough decision-making.
Selecting AFC’s short term priorities
With a shared and clearly documented description of the ‘end’ in place, during the second workshop the SMT began to decide what changes would be needed within the organisation to achieve their destination. Some of these actions had been identified by the consultancy within the initial strategic analysis report, others were identified by the SMT in the light of their awareness of the difference of the current organisation from that described in the Destination Statement.
Specifically, they discussed and agreed a small number of high level strategic activities that they as the SMT could directly lead and engage in. To match these, a set of activities and the interim outcomes were also selected - these chosen to provide short-term feedback on whether the future conditions described in the Destination were likely to be realised. These objectives were documented in detail, but summarised using a special diagram called a Strategic Linkage Model (SLM) – a one page representation illustrating the SMT’s thoughts about the main causal linkages between the Strategic Objectives chosen.
An example of a Strategic Linkage Model is provided above. The diagram is the one developed by the Motor Business SBU (each SBU developed its own interpretation of the corporate strategy later in the programme). In the diagram, ovals in the lower half relate to strategic change objectives (“activities”) that will need to be carried out, and ovals in the top half describe interim outcomes that would give guidance on how well the changes were working. Each of the Strategic Objectives making up the SLM was assigned an ‘owner’ from amongst the strategic management team, charged with ensuring focus was maintained.
Choosing the measures of strategic progress
In the third workshop, the SMT reviewed, revised and finalised the Strategic Objectives identified previously before working to identify measures and key performance indicators that could be used to monitor progress for each objective. Typically, strategic outcomes (top half of the Strategic Linkage Model diagram) are tracked using standard measures (for example policy renewal rates, fraud rates, etc.), and activity-type Strategic Objectives (the bottom half of the Strategic Linkage Model diagram) are tracked using milestones linked to activity plans.
Deciding the pace of implementation
In the fourth and final workshop, the SMT discussed and agreed short term targets (i.e. for the next few quarters after the meeting) for each of the objectives they had identified, based on the previously agreed tracking measures. Again, the owner of each objective led this work, although his colleagues needed to agree to the proposed targets.
Finally, the managers discussed and agreed how they would track strategic implementation progress. The SMT decided that this would be done through quarterly strategy review meetings, to be held a few weeks after the end of the quarter, so as to allow the previous quarter’s financial data to be included in the review session.
Aligning the organisation behind the corporate strategy
With the corporate level strategy clear and agreed, the next step in achieving the CEO’s ambition was to ensure that the organisation was fully aligned behind the new strategy. This alignment process began with the SBUs - each was encouraged to develop its own 3rd Generation Balanced Scorecard, focused entirely on how the SBU would most effectively contribute to the Corporate Strategy.
Two things made this work possible:
- the AFC corporate strategy could be easily communicated to the subsidiary management teams using the Destination Statement, SLM, measures and targets; and,
- the head of the strategic business units had actively participated in the corporate strategy workshops, and so could relay the details of the strategy to their own teams. The SBUs thus had both the content and the process to enable rapid alignment with the corporate strategy.
The SBU teams used a similar process to the one applied at the corporate level. They too followed a series of four workshops to define their SBU level interpretation of the corporate Destination Statement, build an SLM, and choose measures and targets. As indicated above, the important advantage enjoyed by the SBUs was having the corporate strategy to provide context for their strategic decision-making. For example, knowing that the corporate team saw tackling money laundering as vitally important to AFC sent the clear message that the SBU needed to include activities that would reduce money laundering.
Once the SBUs had ‘cascaded’ from the corporate Destination Statement to develop their own Destination, and subsequently created their SBU SLM and measures and targets, the organisational units supporting the SBUs – for example Marketing & Sales and Information Technology – followed the same process. Again, they used the corporate-level and market-facing SBU-level Destination Statements to provide the context for choosing the support units’ Destination, SLM, measures and targets. This model is illustrated below.
The Strategy Alignment Approach used at AFC
This approach to strategy cascading was attractive to AFC managers because it clearly emphasised the need to align with corporate objectives, whilst allowing each SBU and subsidiary unit to incorporate essential work to address other strategic factors, within a single integrated strategy document.
Three types of strategic objective were developed during this work:
- Superior Only: Objectives that could not be delegated from the SMT level, for example ‘good asset management’: maximising returns on funds under management was a responsibility of the corporate team, could not be delegated, and therefore was not present in the SBU Balanced Scorecards.
- Superior-Subsidiary: Objectives present at two or more levels. For example ‘high quality financial risk assessment’ is present on both the corporate and SBU Balanced Scorecards.
- Subsidiary Only: Objectives present only at a subsidiary level (i.e. below corporate) and that are not derived from a superior objective. An example might be ‘channel partner quality’ – relevant to the Retail SBU but not to the corporate team.
Resourcing and project responsibilities
The work described above – articulating the corporate strategy and aligning the rest of the business behind it using a 3rd Generation Balanced Scorecard methodology – demanded concerted effort by senior managers. To make the most of these managers’ valuable time, a project team was established, supported by consultants from 2GC Active Management.
The team involved in this work are described in the text that follows.
Senior Management Team
- Deciding (collectively) the Destination, Strategic Objectives, Measures and Targets for their portion of the business
- Coordinating (individually) delivery of the Strategic Objective(s) they ‘owner’ of.
- Championing and quality assuring the process to articulate and cascade the corporate strategy.
Balanced Scorecard Project Manager
- Designing, scheduling and managing the project, including automation of the performance data collection and reporting system
- Managing the internal Balanced Scorecard consultants.
Internal Balanced Scorecard Consultants
- Designing, facilitating and documenting the SBU strategy workshops
- Supporting the AFC managers to define their strategic objectives and measures, and to establish the process for collecting performance data.
- Compiling SBU performance data for inclusion in monthly and quarterly performance reports
- Preparing and facilitating the quarterly performance review meetings.
- Training the strategic management and project teams in the strategy articulation and cascade principles and process
- Facilitating the corporate level strategy articulation process
- Training internal consultants to facilitate the SBU-level strategy workshops
- Training internal consultants and SBU coordinators to prepare and run performance review meetings.
Rationale for the resourcing model used
The resourcing model described had several advantages.
- First, having the managers themselves select their strategic objectives, measures and targets maximised manager engagement with and ownership of the activities and outcomes. This had the pleasing result of increasing accountability and ultimately the chances of successful strategy implementation.
- Second, the leveraged consulting model - AFC internal consultants were trained and initially supported by external consultants and then went on to conduct later stages of the project working unaided. This model reduced overall project costs without compromising project quality, and provided strong skill and knowledge transfer to the organisation.
- Third, this resourcing model maximised the sustainability of AFC’s strategic alignment and control system. By building up a team of managers and staff who knew how and why the strategies, measures and targets had been selected, AFC gained the internal confidence needed to be able to update the designs that underpinned the new strategic control system as required (e.g. to reflect changes in market conditions, or corporate policies), without needing further external support.
Controlling strategy implementation
So far, this case study has described the work by AFC managers to collaborate on and choose their strategic options and then make choices about what to actually do. The hard work is, of course, in the implementation of the strategic choices.
Upon completing the process to choose and define their objectives, measures and targets, AFC managers set to work on implementation. Naturally, not all managers were fully successful – some activities fell behind schedule and some outcomes were not achieved to the previously agreed targets. Fortunately, the balanced scorecard and strategic control system that had been developed allowed issues to be quickly spotted and to trigger timely interventions at the appropriate level to keep the project on track.
Intervention decision-making was centred on quarterly review meetings, during which each management team met to review strategic progress and to agree upon how they would respond to any underperformance identified. The key inputs to this meeting were three pieces of information on each strategic objective:
- Progress to date: what the manager had done over the previous period in support of the strategic objective he/she ‘owned’
- Performance: how actual performance for this strategic objective compared with planned or targeted performance (this was colour-coded in a simple traffic light system: objectives were ‘green’ if actual performance met or exceeded target, ‘yellow’ if close to but not on target, and ‘red’ if demonstrably failing to achieve the set target)
- Actions required: what the manager recommended to be done to get a failing objective back on track.
This information was assembled in the days prior to the quarterly review through one-on-one meetings between each strategic objective manager and the consultant (initially external, later internal). The information was then compiled into a summary report that was distributed to the members of each management team.
The agenda for this two-hour review meeting was determined by the performance of the various strategic objectives held by that management team. Under-performing (‘red’) objectives were discussed first, one at a time, for approximately ten minutes each. These ten minutes were structured as follows:
- The manager presenting his progress to date (1 minute)
- The manager explaining actual performance v targets (1 minute)
- The manager proposing the actions required to remedy (2 minute)
- The management team discussing the best response to underperformance (4 minutes)
- The team deciding what to do next and documenting these actions (2 minutes)
Once the ‘red’ objectives had been processed, with clear action points agreed, then the agenda moved to the ‘yellow’ objectives, where a similar ten-minute sub-agenda was followed. Finally, and with time allowing, the group reviewed the ‘green’ objectives, both to learn any lessons that were apparent and to recognise the managers who where successfully delivering and achieving their objectives.
In this way, each management team was able to efficiently communicate amongst themselves on the team’s strategic performance and were able to collaboratively decide how best to respond to strategic setbacks.
The scheduling of these meetings was also carefully considered, with the SBUs holding their review meetings in the days prior to the corporate review meeting. This allowed the head of each SBU and support unit to develop a full and up-to-date understanding of the unit’s strategic performance that they could communicate as required to their peers in the corporate review meeting. Whilst strategic objective setting was cascaded down from the corporate level, strategic achievement was ‘rolled up’ from the SBUs to the corporate level as illustrated on the right.
AFC’s financial results were extremely impressive during the first year of applying the strategic control system described in this case study: revenues and profits were up more than 40% over the previous year, easily exceeding targets that were initially thought to be overly-ambitious. So, while it would be inappropriate to attribute all of this performance to the new strategic control system, feedback from AFC managers confirmed that in their view it was a powerful contributory factor.
With these positive results, it is perhaps useful to summarise which particular aspects of AFC’s work were most important to this success:
- Corporate strategy was decided first, then used to guide subsidiary strategy definition, so that all SBU strategies were fully ‘aligned’ with the end goal;
- The responsible managers decided the contents of their strategy, measures and targets, not external parties or internal ‘specialists’, so maximising relevancy and ownership;
- Strategic objectives were assigned to individual managers to ‘own’, so maximising management accountability for strategic results;
- The project made careful use of external consultants, so allowing international ‘best practices’ to be applied and internal skills to be built, whilst minimising project costs;
- Review meetings were facilitated to be positive and forward-looking; while valuable management time was indeed focused on under-performing strategic objectives, the discussions centred on what to do in the future to improve performance, not on criticising the manager for ‘their’ under-performing objective.