Tuesday, August 12, 2014

How to Develop the Performance Measures for Strategy?

 A good strategy tells you not only what specifically needs to accomplish, but WHY.

The strategy will start being more and more dynamic, so the consistency and "perennial" guide of the organization will be better represented by company’s identity. Leadership, strategy, and management will build, develop and make that proposed (desired) identity. Going further, the metrics should also be immersed in a sustainable development way of thinking. However, what’s systematic thinking and which approach should you apply to develop the performance measures for your strategy?

The strategy has two components: Strategy has one component envisioned and a second component being an evolving strategy (the corrections, fine tuning, and adjustments). Your vision should be broken into the major goals and measurements required to realize the vision and then broken down to the specific order and time frames. These should be validated as much as possible and well debated. 

The strategy has four tests: First and foremost strategy must be measurable! The four parts or test of a good strategy are: (1) can it be validated; (2) is it easily communicated and understood to a level where it is ingrained into the workings of the operation, (3) can it be clearly identified what problem is to be overcome or capability created; (4) and does it have a high probability of actually solving it. 

The strategy has four-step cycles: (1) Part one is clearly identifying what needs to be done; (2) secondly how it will be done -the operational tactics and timeframes; (3) thirdly what specific results/ outcomes are expected when and (4) finally the vital evaluation and feedback loop. If the results are not what was expected, then you can look at if the strategy needs adjustment or revision or did the implementation execute to plan and finally were the results achievable. Laser focus on the details and utilizing key leading indicators to identify as early as possible if the planned results are likely to be achieved so adjustments are made timely is key.

Three key questions to clarify strategy: It is important that complete consistency is kept between the goals of the strategy process and the targets that are set in an operational annual plan. Using three key questions in rolling out a strategy to minimize misunderstandings, as expecting that people fully understand what is in your head is the dangerous and usually detrimental assumption. These questions go a long way to open up the dialogue and ensure everyone is on the right path. Don't be surprised if at first people can’t answer the questions. This is an excellent indicator of future issues and allows you to provide the appropriate level of support and guidance early in the project. Here are the three questions which can be asked to eliminate a lot of the confusion: 
1)Tell me how you will define success? This question requests the individual to tell you what they think needs to be accomplished in these words and can be used to validate they have a good handle on what needs to be done. 
2) What will your strategies and tactics be used to achieve the outcome? This provides a roadmap that can be used to evaluate approach and progress as the project unfolds. 
3). What issues, concerns, assistance do you think you will need or encounter?

Measures varying based on different objectives. Depends on whether it is a corporate strategy or a business unit strategy. When you define goals and objectives, resulting from a strategic thinking/ implementation process, these goals should have a mid to long term time horizon with intermediate checkpoints. If you make those checkpoint reviews annually, they can coincide with the annual planning process. Objectives are different, hence the measures will also vary. A strategy sets goals and directions - and must include steps on the ladder of activities, leading to the goals. These "steps" or milestones must be quantified and on a timeline. And specific leaders in the organization must take ownership for each of the "steps" - and it must be part of their performance measurement. At a corporate level, financial measures will help the organization to choose between alternative strategies and make it organization)profitable. For example, NPV (Net Present Value) and Discounted Cash Flow (DCF) as some of the parameters. You can also aim for a targeted market share and penetration rate. May be targeted ROE for the company as compared to the industry. 

If you don't know where you are going any road will get you there. A good strategy tells you not only what specifically needs to accomplished, but why, and in many cases what is at risk in doing or not doing the goal. Strategy steers the enterprise ship by providing the navigation through the risks and obstacles to successfully reach your desired positions. At a high level, it is critically important, to first understand the "waterfall' relationship that follows strategy. The strategy should dictate the supporting business processes and these business processes, in turn, drive the supporting organizational structures required. Therefore, to have a "complete" picture of how effective your strategy is, you must have relevant metrics that measure not only financial and market performance, but operational and organizational performance as well.


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