Thursday, December 8, 2011

Strategic Planning Analogy #426: The Gotcha Guys (Part 2)

There’s an old saying that “absence makes the heart grow fonder.” That may be true, but absence certainly does not make the relationship easier.

My son works the day shift. His fiancée works the night shift. As a result, they do not see as much of each other as they would like and that adds difficulty to the relationship.

I can empathize with that. When I first moved to Columbus, my wife stayed back in Minneapolis for awhile (about 750 miles away). That was tough.

For a relationship to thrive, there needs to be interaction. This is not only true with marriage. It is also true with the various aspects of one’s business. In particular, I am thinking about the people in charge of long range strategic goals and the people in charge of monitoring near-term financial targets (like annual budget and bonus targets).

If these two groups are not interacting together on a regular basis, they can get out of sync with each other. It can get as dysfunctional as when married couples drift apart and no longer interact on a regular basis.

If the near-term monitors and the long-term strategists are not in regular communication, their agendas may no longer be compatible. Achieving the near-term targets may no longer move the company towards the long-term goals. They might even do the opposite and move the company further away from the long term intent.

As we saw in the previous blog, many problems can occur when the near-term monitoring of the “Gotcha Guys” loses the context of the long-term goals. The Gotcha Guys can end up rewarding bad behavior and punishing good behavior. They can also stifle the creativity needed to achieve ambitious long term goals.

In this blog, we will look at some suggestions to help avoid these problems (and keep that context in place).

The principle here is that long-term goals are only achieved if they are part of the daily discussion when near-term targets are being decided and monitored. Therefore, it is essential to have frequent interaction between the near-term Gotcha Guys and the long-term strategists. Here are some ideas to help make this a reality.

Suggestion #1: Set More Strategic Targets
Most of the near-term targets used by companies are simple financial metrics, like “sales” or “expenses.” As we saw in the last blog, it can be easy for people to “game the system” and use tricks to achieve these types of simple metrics in ways that have nothing to do with achieving strategic goals.

Some try to avoid this problem by trying to make the metrics more complex by using ratios. Then you might have metrics like “Sales per Labor Hour” or “Expenses as a Percent of Sales.” But, as we saw in an earlier blog, even ratios can be abused and lose their link to the bigger strategic picture.

Therefore, I suggest that some of the near-term targets avoid numbers altogether. Instead create some monitoring questions which are more subjective—requiring more of a yes or no type of answer.

In its roughest form, the question would be “Did this area take the desired steps to move the company closer to its strategic objectives?” Now this is probably too vague to use in this form. But if you have a well thought out strategy, you should be able to figure out what types of key activities need to take place to make it a reality. Then you can determine which areas of the business need to participate in each activity and how they can impact it. Some examples of key activities might be:

a) Adding some specific capacity where it is lacking.
b) Adding some specific capability where expertise is lacking.
c) Convincing consumers to believe in the claims of your positioning.
d) Creating superiority in a particular attribute essential to winning in the marketplace.
e) Properly resolving a key strategic issue.

By holding people accountable in the near-term for specific activities directly linked to the long-term strategy, one is more likely to get the long term strategy achieved. These types of questions are more difficult to “game” because you are more directly measuring actual long-term activities.

Now some people will take this one step further and try to create fine-tuned metrics around these activities. This is usually referred to as a balanced scorecard. Although having a balanced scorecard is better than just the simple metrics mentioned earlier, it may still be less ideal than the more vague and abstract version of the question “Did you move us closer to our goal?”

I have two reasons for saying this. First, if you keep the question more vague, it requires more interaction between the long-term folks and the Gotcha Guys in order to interpret the target and the performance. And as we said at the beginning of the blog, more interaction is a good thing.

Second, the more we try to push this into a metric rather than a question, the easier it is to sever the linkage between near- and long-term. The temptation is there to focus on just “hitting the number” rather than “doing what’s right.” Why provide that type of temptation?

Now I’m not saying that all the targets should be in this format. Just do enough so that the near-term and long-term people are forced to work together to ensure that people are rewarded on their activities in a long-term context.

Suggestion #2: Use Scenario Planning
As we said in the last blog, near-term targets can get out of sync with long-term goals when the environment changes (or we learn of a need to adjust our assumptions). One way to get around this problem is to analyze various scenarios in the beginning and think through their ramifications to the desired metrics.

Then, if the situation changes, the long-term people can tell the short-term people to shift the program to the alternative scenario and its alternative metrics. By using this process, it gives more opportunities for the two groups to work together (when setting up the scenarios and when changing scenarios). In addition, it is a quick way to keep everyone in sync when times change.

Suggestion #3: Force Interaction
Finally, if these other suggestions do not create enough interaction, then mandate it through policy.
Mandate periodic cross-functional meetings. Rotate people between the two departments. Put them on project teams together. Make increased interaction one of their goals. Have them sign-off on some of each other’s work. Do whatever it takes to ensure that the short-term Gotcha Guys are confronted with the long-term context.

It is easy for near-term targets to get out of sync with long-term goals. To help prevent this from happening, it is a good idea for the groups responsible for near-term and long-term to interact on a regular basis. Three suggestions to do this are:

1) Add some abstract action-oriented questions to the near term criteria (“Did you do what was required to get us closer to our goal?”);

2) Use Scenario Planning;

3) Force interaction through policy decisions.

If couples stop communicating altogether, they can end up getting a divorce. Let’s keep our communications frequent between the near-termers and the long-termers to prevent an ugly divorce in our business.

No comments:

Post a Comment