Last Updated Nov 7, 2007 3:31 PM EST
The Idea in Brief
Top leaders' formal strategies determine how business gets done in your firm—right? Wrong, say authors Joseph Bower and Clark Gilbert: It's other managers' decisions about where to commit resources that really drive strategy. Sometimes these choices support corporate plans. Other times, they don't.
Take Toyota: It launched the Ech— a no-frills, inexpensive vehicle—to fight low-cost rivals. But salespeople, seeking higher commissions, steered customers to higher-priced models.
How to avoid such scenarios? Understand who's driving resource-allocation decisions. For example, is a division manager only sending you proposals for projects that will expand his turf? Is an R&D manager giving a large customer too much say over product development decisions?
Then step in as needed: Prompt unit managers to ask, "What's best for the company?" (not their divisions). Form cross-divisional teams to discuss strategic options.
By managing your company's resource-allocation process, you align bottom-up actions with top-down objectives. And you drive your company in the right direction.
The Idea in Practice
To regain control of your company's strategic process:
Understand Who's Driving Key Decisions
Bower and Gilbert identify four key players in resource-allocation choices:
General managers translate broad corporate objectives (such as earnings and growth goals) into specifics that operating managers execute. They also define plans, programs, and activities they believe are essential for their division's performance. Then they decide which proposals to send upward for corporate review. The way they translate strategy—and the proposals they choose to present—may or may not align behind the enterprise-level strategy.
Operational managers make choices that either support the company's high-level plans or contradict them—as the Toyota Echo example reveals. Senior executives overlook these managers' impact at their peril.
Customers can powerfully affect strategy. Newspaper company Knight Ridder redirected its corporate strategy to focus on the Internet. But existing advertising customers in the newspaper business shaped how actual strategy was carried out. These advertisers weren't interested in online ads, so sales reps kept selling them traditional print ads. Result? Knight Ridder had difficulty tapping into the new revenue stream.
Capital markets can dramatically reshape corporate strategy. For instance, earnings pressure causes a company to exit a new market too soon. Or a dip in stock price compels a firm to sacrifice long-term strategy for short-term fixes that improve immediate performance.
Actively Manage Resource Allocation
The authors suggest ways to direct your firm's strategy by better managing resource allocation:
Understand the people whose names are on the proposals you read. When you read a proposal to commit scarce resources, calibrate what you're reading against the track record of the proposal's sponsor. If he or she has a near-perfect record of proposals implemented, there's probably little downside to approving the request.
Make sure managers address the strategic issues. In evaluating requests for resources, spend more time discussing the question "Should we support this business idea?" with managers than examining the question "Is this proposal the best way to implement the idea?"
Connect the dots for managers. Frame questions about resource allocation in ways that reflect the corporate perspective. Meet with division managers together and ask, "What's best for the company?" This is especially important when large sums are involved, conditions are highly uncertain, and multiple divisions are (or should be) involved in the strategy question under consideration.
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Copyright 2007 Harvard Business School Publishing Corporation. All rights reserved.
Harvard Business Review
by Michael Beer and Russell A. Eisenstat
Lower-level managers obstruct corporate strategy in other ways than Bower and Gilbert suggest. For example, they don't always tell top leaders about obstacles preventing implementation of high-level strategy. Result? Even well-thought-out strategies fail. Beer and Eisenstat offer suggestions for effective implementation. For instance, ask your senior managers to prepare individual answers to questions about strategy, such as "What are our company's objectives? What are the market threats and opportunities?" Then have them provide insights on how to execute the strategy. Develop an implementation plan and reality-test it with managers. Revise as appropriate to include their input. Honest dialogue pays off when you act on what you've heard.
Harvard Business Review
by W. Chan Kim and Renee A. Mauborgne
This article offers a four-step approach to strategy formulation. 1) Draw a strategy canvas
depicting the various factors that affect competition in your industry, including how you and rival organizations compete. Based on this picture, determine where your strategy may need to change. 2) Have managers conduct field research on customers and alternative offerings. 3) Formulate new strategies based on the field research, and get feedback on them from customers and peers. Select the best strategy based on the feedback. 4) Communicate the strategy by distributing "before" and "after" versions throughout your company. Let managers know that only those projects that will help move the company closer to the "after" version will be supported.