Friday, May 13, 2011

Strategic Planning Analogy #392: Sunday Best, Part 2

In our last blog, we talked about some of the problems which occur when companies label a function as either an “everyday task” or a “strategic task.” By labeling a particular task as either one or the other we end up sub-optimizing because there tends to be both a strategic and everyday aspect to everything we do. If strategic thinking doesn’t impact the everyday activities of what a company does (and how it does it), then the strategy is rather irrelevant. Conversely, if we cannot translate great strategic, transformational thinking into a future everyday activity, then the great ideas provide no financial benefit.

By labeling an area as only being one or the other (strategic or everyday), we make the everyday less strategic and the strategic less relevant to the everyday. This is the opposite of what is needed. It is only when we see tasks as requiring both a strategic as well as an everyday approach that we get the best of both worlds.

In the last blog, we focused on the problems which occur when a task is labeled as “strategic,” where we used the example of growth. In this blog, we will look at the problems which occur when we label a task as “everyday.” We will use the example of cost reduction.

Controlling costs is a key part of nearly every business. When annual budgets and compensation measures are put into place, it is very common to see some emphasis placed on lowering costs versus the prior year. It is so common, in fact, that cost control is seen as being a part of “everyday” business. It no longer feels like a separate strategic activity. It is just a part of the daily grind.

However, by labeling cost reduction as an “everyday” task, we are severely limiting how much we can really reduce.

Efficiency vs. Effectiveness
The big problem with placing cost reductions in the “everyday” category is that the process becomes siloed. Every department acts independently on their own span of control. As part of a particular department’s everyday work, the task of cutting department costs becomes nobody else’s work but that particular department’s.

For example, the annual goal may be to cut 10% of your controllable costs. With this goal, you are not responsible for cutting the costs outside your control, since that is not a part of your everyday work.

At first, this seems logical…only hold people responsible for that which they can control. And because they can control it, and because action in this area can directly impact their bonus, they are both motivated and capable (empowered) to make the cost reductions a reality. What more could you ask for?

Actually, you could ask for a lot more. The problem with this approach is that the task of cost reduction becomes little more than doing basically what you have always done, only a little more efficiently. In other words, the idea is to keep doing your same old everyday work, but with a little less waste and a little more productivity. This approach may make you a little more efficient. However, it may not make your company any more effective. And you may be missing out on the really big, game-changing cost reduction opportunities.

Radical improvements in costs typically require radical changes in the ways things are done. These radical changes usually transcend any particular department. Total reengineering may be necessary—requiring significant cross-departmental reorganization. In the end, entire departments and entire tasks might no longer exist. The product mix may be altered. What becomes the new “everyday” may look nothing at all like the former “everyday.”

These types of changes will never occur in an environment where each department separately works on their own cost problems as part of their everyday activities. Instead, these solutions only occur when cost control is approached from a more global, strategic basis.

I recently witnessed this situation first hand. This company changed its approach to cost-cutting, to take a broader, more strategic approach. A cross-functional team was put in place that was not bounded by the way things used to be done. Nothing was sacred—any everyday task could be radically reinvented. As a result, departments were eliminated, tasks changed, and big reductions in costs were produced—more than what would have otherwise occurred.

Selfish vs. Selfless
And then there is the problem of the multiple hats. Sometimes we need to wear our “department hat” and look out for the best interests of our department. Other times, we need to wear our “corporate hat” and look out for the best interests of the entire company. If cost cutting is labeled as being just an “everyday” activity, then we will only be wearing our department hat when approaching cost reductions.

This can lead to less than optimal results. For example, one way to lower a department’s costs is by pushing those costs onto another department. This may make your department look better, but it doesn’t help the overall company. Another way to lower costs is by reducing the service you provide. But if your lowered service hurts the effectiveness of other departments, then you really haven’t improved the company.

And of course, it is difficult in such an environment for someone to volunteer that his or her area gets eliminated or outsourced for the sake of the whole. Who wants to volunteer to lose their job? Who wants to volunteer to weaken their base of power? Unless there are shared risks across the entire company, nobody will want to take any risk which jeopardizes their individual area.

As a result, an everyday-only approach to problems tends to only nibble at the situation. If you want to make more monumental change, you need to add a strategic component. This is something which needs to transcend what any individual department can accomplish on its own.

When we label particular activities as being solely either “everyday” or “strategic,” we are short-changing our ability to succeed. All activities have both a strategic and an everyday aspect to them. To ignore one of these aspects is to miss many of the benefits available to us. For example, when the strategic aspect is ignored, we miss all of the benefits which lie outside the complete control of particular department. The cross-functional, non-traditional options are missed. One ends up with small, incremental improvements instead of large, transformational change.

Just because all tasks require both an everyday and a strategic approach, this does not mean that the approaches should be intermingled and done together. Each approach is very different and requires a different type of mindset. Therefore, it is usually more productive to rotate one’s focus—to take a strategic approach for awhile and then switch to an everyday approach for awhile.

1 comment:

  1. Gerald Nanninga,

    This post makes a lot of sense. An added example to my previous example of my dual eye-glasses, I find the tent example quite relevant. The strategic part where to place the tent, what functions it should handle and other issues are obvious concerns for all stakeholders. However; dividing the tent into departments with isolated sections might risk the lives of all. For cutting costs, some occupants might decide to use cheaper fuel. However; other occupants will be affected by smoke or toxic burnt materials, or even setting the tent on fire. Isolating individual interests from the shared ones is a recipe for death.