Strategy Driven Enterprise and Business Organization Performance
The success of business organizations depend on the strategic and operational decisions made by management and individual key personnel in the organization. The recursive logic of thought and actions embedded in the management process is common to different levels of decisions, each of which deals with different problems and relies on different sources of knowledge. Strategic and operational decisions address different aspects of the organization. Strategic decisions affect the overall direction of the organization, whereas operational decisions affect day-to-day activities in operations.
Strategic Management - Strategic Decisions and Decision-Making Process
Strategic decision-making is an ongoing cognitive process whose outcomes are usually contingent on the behavior of other actors (individuals or organizations) affected by the decision’s outcomes. These recursive relationships between decisions, decision outcomes, and effects of other actors' behavior make strategic decisions messier and complex. Strategic decision-making involves "issue" comprehension, concepts structuring, and concepts formulation into cause-effect relations model. While the cause-effect relations model is a deductive reasoning model, the issues comprehension involves choice of assumptions which is to some extent arbitrary and inductive in nature.
Strategic decision-making processes can be identified by the strategic 'issues', events or factors that trigger them. These triggers may include observed issues such as decrease in sales or sales growth, a new product entry by competitor(s); and events such as request for action from executive management, or simply a regular planning cycle.
Examples of strategic decisions include:
The complexity of the situation demands that we take ‘short cuts’ that we can identify only if we have experience dealing with similar problems. Decision makers need then to engage in a cognitive process that demands them to create new solutions based on old experiences in the form of heuristics (rules of thumb, common sense, intuition or educated guesses). In the absence of certain cause-effect relationships or experience in how these dialectical processes between organizations will unfold, the firm can only hypothesize about the implications of different possible initiatives and learn more about them through interaction with other actors such as competitors, regulators, customers, suppliers, and partners in its competitive landscape. In these situations, managers face the extremely difficult problem in making decisions that demand a long-term perspective, committing the firm in the long run within a competitive landscape that is unlikely to stand still.
Strategic decisions are a form of managerial decisions that deal with situations for which the desirability of the range of possible alternative courses of action cannot be assessed exhaustively relying on ‘packaged’ knowledge (at least in a reasonable time frame). Strategic decisions are among the main means through which management choices are actually realized. Strategic decisions are difficult or expensive to reverse because they substantially alter (and irrevocably so in the short run) the relationships between the decision makers' organization and customers, competitors, etc. Strategic decisions concern situations characterized by their high complexity, as they relate to problems with multiple and related dimensions and their high uncertainty; as they are characterized by the independent behavior of different actors, making it very difficult to choose the best course of action analytically.
Strategic decision's outcomes are usually contingent on effects - the behavior of other actors affected by the decisions and outcomes. These recursive relationships between decisions, decision outcomes, and effects on other actors' behavior make strategic decisions messier and more complex than operations decisions. Strategic decisions, when compared to operations decisions (e.g., which jobs to schedule into production, etc.), or mundane managerial decisions (e.g., where to hold a company's picnic, etc.), or customer choice decisions (e.g., selecting a particular brand of tooth paste, etc.) are indeed 'messes' (Ackoff, 1974); they are typically more complex, novel and open-ended (Mintzberg, Raisinghani and Theoret, 1976) and are characterized by independent elements 'that by definition cannot be formulated, let alone solved, independently of one another.' (Mitroff and Emshoff, 1979:1).
Strategic decisions are long-term in their impact; they affect and change the direction of the whole business/organization. They are difficult or expensive to reverse because they substantially alter (and irrevocably so in the short run) the relationships between the decision makers' organization and customers, competitors, etc. Strategic decisions always represent risk because they deal with the future and changes in behavior of organizations and institutions which cannot be predicted with any degree of certainty.
Strategic risks arise from executive decisions concerning the organization’s objectives, and the potential risks of failing to achieve those objectives. These risks are categorized as follows:
Operational Management - Operations Decisions and Decision-Making Process
Operations management focuses on carefully managing the processes to produce and distribute products and services. Operations Management decisions are concerned with the running of the day-to-day operations of a business or other organization as effectively and efficiently as possible. Operations decisions are based on ideas with very precise and established relationships between them enabling the firm to find, given certain premises, programmed, algorithmic solutions through formal analysis or computational methods.
The countless interactions that take place in the organization on a daily basis represent the result of operational decisions. These decisions can therefore bog down an organization and make it ineffective. To provide a context for operational decisions, they should be consistent with strategic decisions. Operational decisions because of their frequency and the time constraints can be expressed as a firm’s standard operating procedures (SOP) such as:
In all these cases, problems are simple enough to enable us to find “one best” solution, given certain premises, out of the exhaustive exploration of all the space of possible solutions. These decisions result in the countless interactions that take place daily in the creations and delivery of value to customers.
Operational decisions relate to the daily operations of an organization. Operational decisions should have measurable results such as higher revenues, increased profits, increased productivity and customer satisfaction. Operational decisions help move organizations towards their strategic goals.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or external events. Operational risk can arise from technology failures, human and technical errors in financial models and reporting or other internal control systems deficiencies. Operational risk can also arise from fraud perpetrated by internal employees or by external sources.
Strategic decisions when compared to operational decisions (e.g., which jobs to schedule into production, etc.) or mundane management decisions (e.g., where to hold a company's picnic), or customer choices decisions (e.g., selecting a particular brand of tooth paste, etc.) are indeed messier (Ackoff, 1974). They are more complex, novel, and open-ended (Mintzberg, Raisinghani and Theoret, 1976) and are characterized by independent elements that cannot be formulated independently of one another, let alone solved. Strategic decisions typically involve high degree of uncertainty, high stakes, complex situations, major resource implications, and long-term consequences.
Strategic decisions and decision-making can be improved and made to work most effectively through analytic decision models and visualization to enable systematic integration of each decisive strategic decision (with connected network of actions) with others in the context of the organization as system. This provides the support for enabling managers and decision makers to:
:Imagine a situation where the owner/CEO of a new barbershop business - a year old barber shop for the airport markets in the US - at O'Hare airport is faced with flat sales and revenue, high employee turnover and high customer attrition rate. The management wants to address these strategic issues and transform the organization into a winning one in two years. There are many things the owner can do; but s/he has to first take stock i.e., assess the current state of the organization in terms of its current capacity development level, and its strengths and weaknesses.
Current State Assessment
The owner may begin the assessment at the organizational level by assessing the current state of talent in the organization. This involves making assessments of the following factors:
Talent alone, however, is not enough to win in this business; because from the organization's chosen business strateggy and strategic positioning there are a number of other key factors that have to be in place to create a winning organization. It is of vital importance that the owners understand their organization's existing strengths as measured by the level of influence on capacity development in other core issues areas in addition to human resource/talent such as:
Existing Capacity - Current State
By airport services and concession standards, such as accessibility (opening hours), ambiance, environment, customer service (reliability and consistency), etc., it is an average or below average specialty retail service. The owner, a master barber, is skilled at cutting both male/female hair, as well as providing straight razor beard shaves. The barbers employed in the shop are young and skilled in cutting the various types of hair, and knowledgeable about the basic techniques in cutting male/female hair. The company lacks the organization Operating Model to develop the capacity to scale and grow the company.
In general, the organization's behavior is inconsistent with the organization goals because the culture is not supportive of the organization's strategy and its successful execution. The organization is constantly In violation of its airport concession contractual obligations, and its own published operating hours. The shop constantly opens late in the mornings; fails to have liners in the thrash bins and waste baskets at the barbers' stations; and fails to maintain clean and tidy workstations and shop, another clear violation of airport concession rules as well as general sanitary norms. The owner and employed barbers are constantly late or not showing up for booked appointments and keeping the customers waiting for long hours.
The company doesn't have well defined and documented roles and responsibilities for the executive and management positions such as CEO/President, Owners/Board Members, as well as functional areas such as marketing, human resources, and operations. This is manifested in poor leadership (lack of clearly defined and communicated vision, mission, values, etc.), ineffective hiring practices, lack of planning (budgeting, action plans, operations plans, etc.) adversely affecting the successful implementation and execution of the company's strategies.
Capacity Development - Institutional Arrangement Core Issues Story
The owner can build on existing skills, knowledge and expertise of the barbers in the shop. Expand capacity through training and workshops for the barbers, as well as developing organization's culture by involving them in daily drills and practices to improve the shops ability to deliver consistently high quality services in addition to products to win. The owner for example, must ensure the barbers in the shop and other workers in the relevant functional areas in the company have well defined roles (optionally documented), and are happy with their respective assigned roles and responsibilities. The owner must also ensure the employees are accountable and have a sense of ownership for their work. The owner must have well defined and articulated organizational values, and ensure the organization's rules including the shop practices derive from these organizational values which are lucid and fairly implemented. The owner must also focus on whether the right incentives are in place. This could be a system of awards and bonuses connected to shop results - and not individual performance, transparent and commonly agreed upon principles dictating how barbers join and leave the shop, access to ongoing education and training, etc. Furthermore, it is vital to develop and agree on an operations plan and strategy for engaging different classes of customers (i.e., customers that have preference for a particular barber, customers that want some social interaction, customers that are on a schedule or in a rush, etc.), which includes clearly defined playbook, expectations of shop employees, etc. Combined, these constitute the institutional arrangement which ultimately determines the shop's (team's) performance and ability to win.
Capacity Development - Leadership Core Issues Story
Apart from the institution arrangements, the owner/shop manager must analyze the leadership structure of the shop. A winning workforce in the shop needs a focused and motivated team lead or shop manager who not only inspires when the shop loses one or two customers, but who also maintains the momentum and continues to fight even when the shop is gaining customers. In addition to the manager/lead it is important that other barbers assume leadership roles as needed. For instance, when facing losing a customer because long waiting time for a particular barber, can that barber position others who have less workload, to alleviate the problem and win the customer? Are there clear lines of communication between the owner and manager, the manager and the lead as well as other barbers on the shop floor? And what if the manager or one of the barbers is suddenly injured/ill?
Capacity Development - Accountability Core Issues Story
Accountability is yet another critical element in building a winning team/workforce. Are feedback mechanisms in place among the barbers, management and customers and partners/supporters? Do they all have voice in the major decisions that affect the team, such as resource allocation, picking new barbers, developing younger barbers, and supporting community events? Within the team itself it is imperative that the owner/coach establish a system to gather feedback and suggestions from the barbers and act on those.
This brief scenario outlines some of the core issues that impact the success of the barber shop team. Of course, beyond the control of the owner and barbers or customers are contextual issues such as injuries/illness, weather, airport conditions, etc., that might affect the outcome of a given customer episode. However, within a reasonable time frame that enables these basic changes to take root, the owner has a better chance to see his business bend the revenue curve.
Strategy execution represents a disciplined and systematic process of directing and controlling actionable/decisive decisions and activities that make an implemented strategy work resulting in the transformation of the organization and its institutions to strengthen it, and lead to sustainable growth and improved performance. Strategy execution requires the effective interplay of cooperation between strategic management and operations management in combining deliberate and purposeful actions demanded by the intended strategy from the strategic plan, and emergent strategy - as-needed reactions to unanticipated developments and fresh competitive pressures to realize the actual strategy.
Factors Influencing Execution Success/Failure
Strategies may fail at execution for a myriad of factors including the following:
All these factors are interdependent and their influences are non-deterministic, this typically, makes it very difficult for managers to comprehend the contribution of these factors to successful outcomes of strategy execution. If an organization fails to pay proper attention to one of these factors, it can result in execution failure, therefore an organization needs a system and approach to support management in successful execution.
How The Factors Influence Execution
Each of the factors influences execution success/failure in a different way; the following describes the myriad of ways these factors influence execution:
Complexity in the context of strategy execution refers to challenges/obstacles to understanding an issue due to lack of information and lack of insight into the problem domain due to:
Poor Leadership Style
Poor leadership is manifested in the failure of leadership to clearly communicate the reasons for the new strategy and garner the appropriate support to create consensus and enthusiasm/motivation in order to overcome any pockets of doubt and resistance to change resulting from successful strategy execution. In addition, poor leadership can be manifested in failure of leadership to orchestrate the processes and major initiatives as well as coordination of management and staff in properly performing their tasks to accomplish work.
A strategy may be defined variously as an approach to overcoming an obstacle; or a response to a challenge. A bad strategy is a strategy that does not define an approach/means to respond to a challenge (opportunity/threat) or solve a known problem. It reflects an organization's failure to face the problem. A good strategy is a mixture of policy and action designed to surmount a challenge/problem.
Poor implementation may result in weak strategic assets that do not close the strategic gap, and since execution takes place within the context of the implemented strategy, successful execution is unlikely.
Bad Strategic Decisions
Bad strategic decisions are strategic decisions whose outcomes result in business failure/decline. Bad decisions may result from incomplete or short-circuited decision processes.
Strategic decisions are among the main means through which management choices are actually realized. They are difficult or expensive to reverse because they substantially alter (and irrevocably so in the short run) the relationships between the decision makers' organization and customers, competitors, etc. The decision's outcomes are usually contingent on effects - the behavior of other actors affected by the decisions and outcomes. These recursive relationships between decisions, decision outcomes, and effects on other actors' behavior make strategic decisions messier and more complex than operations decisions.
Poor planning may lead to strategy execution failure resulting from: bad or unrealistic schedules for project team members resulting in waste of time and poor time management; lack of clear definition of strategy and project objectives; lack of budgetary controls leading to misuse of funds, etc.
Strategy Execution Model
The actual strategy of an organization is realized through combined execution of the intended strategy - what managers have set out in advance and intend to do - as part of some important strategic plan, and as-needed reactions to unanticipated developments and fresh competitive pressures to realize the actual strategy New circumstances always emerge, whether important technological developments, rivals successful new products introductions, newly enacted government regulations and policies, etc., that create enough uncertainty about the future that makes it impossible for managers to plan every strategic action in advance and pursue their intended strategy without alteration. Organizations need a system to support managers in influencing the effectiveness of planned actions (top-down) and as-needed adaptive reactions to unforeseen conditions ("unplanned" bottom-up strategy responses) in order to improve the likelihood of successful execution:
Strategy implementation is the responsibility of top, middle and lower/line managers focused on the creation of new strategic assets (capabilities and core competencies) and/or enhancing and strengthen existing strategic assets in order for the organization to maintain its ability to achieve future outcomes. The strategy implementation process involves the translation of chosen strategy (from the set of options resulting from strategy formulation) into organizational methods and actions so as to achieve strategic goals and objectives. Strategy implementation provides the connecting loop between formulation and execution and control.
Factors Influencing Strategy Implementation Success/Failure
Strategy implementation is key to any organization's survival. Strategy implementation requires the collaboration of everyone inside the organization, and on many occasions parties outside the organization. Strategy implementation is the responsibility of middle and lower level managers, however the role of top management is vital in preparing a workable strategy and communicating it clearly so that middle and lower level managers can easily implement it Strategy implementation consists of all the decisions and activities/actions required to turn strategic choices into reality, and requires an organization model that enables effective strategic decision-making, and competencies in strategic management such as:
All these factors are interdependent and influence each other and, to varying degrees, the success/failure of strategy implementation.
Challenges to Successful Strategy Implementation
An organization must develop the capacity to effectively meet the challenges of successfully implementing a strategy due to influencing factors such as:
Failure of to properly perform leadership functions can lead to poor leadership which results in obstacles to successful implementation such as:
Information Availability and Accuracy
Inadequate information systems capacity leading to poor Information Flows and availability of accurate information to support fast and accurate progress tracking, timely intervention, and corrective action at the right time and place.may result in obstacles to successful implementation because of the degradation in certain management functions such as:
Uncertainty - Effects of Uncertainty
Uncertainty creates obstacles such as limited knowledge in current conditions and gaps in future outcomes, to decision-making such as:
The structure and operating principles as well as governance of the organization becomes more complex and critical to manage. Structure Alignment problems - the overall strategy not properly aligned (i.e., working) with the current structure; the way people and tasks/work are organized, and roles and responsibilities are assigned to people not aligned with strategy would lead to implementation problems.
The structure enables strategic alignment which enables effective cascading of objectives, goals, and decision rights to the appropriate people (actors) in the organization with the capability and capacity to perform the actions at the right time and place to accomplish the requisite goals and objectives. Weak structure can create obstacles to successful implementation manifested in the following ways::
Organization culture defines the particular way the organization solves problems of survival through adaptation to external environment and internal integration which is supportive of the strategy. Organizational culture can be supportive of the following: Learning and Development (Growth), Participatory Decision-Making, Power Sharing, Support and Collaboration, Tolerance for risk and conflicts. Weak culture is by definition not supportive of the new strategy and leads to organizational behavior and performance problems that present obstacles and challenges leading to implementation failure manifested in the following ways:
Strategic Human Resource Management is particularly focused on the alignment of human resources as a means of gaining competitive advantage in terms of the adequacy of their knowledge competencies, and skills. Poor Human Resource Management is manifested in the following ways:
Technological trends include not only the glamorous invention that revolutionizes the lives of the actors in the organization and its environments, but also the gradual painstaking improvements in methods, in materials, in design, in application, unemployment, and the transportation and commercial base nd their diffusion into new industries and efficiency. The rate of technological change varies considerably from one industry to another.
Changing technology can offer major opportunities for improving goal achievement, or threaten the existence of the firm. Lack of organizational capability to adapt to technology changes is reflected in the conditions and gaps:
The factors discussed above that influence the successful implementation of a strategy are interdependent and their influences are non-deterministic it is typically very difficult for managers to comprehend the contribution of these factors to the successful outcomes of strategy implementation making strategy implementation very hard.
A strategic issue is a fundamental policy question or critical challenge affecting an organization's mandates, mission, values, stakeholders, resources, structure, processes, management, or product or service level and mix. Strategic issues diagnosis is a problem formulation process involving strategic decisions and decision-making processes to identify problems of strategic relevance and deciding on potential courses of action to pursue.
Strategic Issues Diagnosis Modeling
Identifying problems of strategic relevance and formulating appropriate strategies to respond to these problems is difficult. It often requires you to build a model of the problem, collect some data and information to test your hypotheses and assumptions underlying the problem to even discover what the real problems are to solve. The process is akin to an “empirical discovery loop” that enables systematic discovery and formulation of problems in complex real world situations such as strategy and policy making. The substantive outputs of the strategic issues diagnosis processes including assumptions, cause-effect understandings, and predictive judgments can constrain or facilitate decision-making during the issues diagnosis and subsequent strategy formulation stages of strategic management.
Analytical models of the diagnosis substantive outputs include elements such as assumptions, cause-effect understandings, and predictive judgments as well as symbolic output of elements such as domain language and labels. Assumptions and cause-effect understandings, tacitly accepted or consciously explicated, are materialized in the form of predictive judgments. Some examples of predictive judgments include:
Solving The Problem - Strategy Formulation
Deciding how to solve the problem, i.e., strategy development, creates the need for more information and analysis, and simulation. In most organizations and enterprises strategy development involves the identification and formulation of strategies at three levels i.e., corporate, business/competitive, and functional levels. and the implementation and execution of selected strategies from the formulated options/alternatives. Strategy formulation is a problem solving process that results in a set of strategic alternatives/options – a set of hypothetical solutions to the problems identified from strategic issues diagnosis.
In order to deliver value, a strategy has to enable change and adaptation of the organization to a problem; this requires that there are known problems to be solved. Yet identifying these problems is hard, partly because of complexity induced by the complicated structures (composed of many interrelated sub-problems, possibly from different domains, e.g., such as expressed through business architecture domains, etc.) of these problems, uncertainty due to incomplete information, and turbulence in the environment.
The Value of Modeling Strategic Issues Diagnosis
Modeling strategic issues diagnosis has a number of benefits including:
What is an Organization?
A model of the organization can be defined as a 4-tuple, composed by a set of goals and objectives, a set of (direct internal) sub-organizations, a set of institutional relationships, and a set of external organizations.
An organization as a system is a set of interacting or interdependent functional entities and individuals/groups of individuals forming an integrated whole. It can be one organization, a set of organizations, population groups or individuals. Organization systems are “open”, social systems. Open systems are systems that continuously interact with their environments through acquisition of input, production of output, and exchange of information; they survive and grow by continuously adapting to their environment. An organization is a system in that it is greater than the sum of its parts. How it performs cannot be calculated by adding up all the work arrangements - like departments - with the resources and processes that connect it all together.
Organizations are social systems that depend on norms and rules - policies. Policies are recognized descriptions which act as enforcement mechanisms to restrain individual behavior and regulate all sorts of organizational interactions such as delegation, dependency relationships with internal/external organizational entities as well as defining concepts within the organizational setting.
Organization as Social Systems
Organizations as social systems are configurations of "actors" (human systems or people) connected to each other to compose a system with a common purpose and a set of objectives. The central conceptual modeling construct in modeling social systems in real world situations is the "actor". It is an abstraction which is used to refer to people (the active elements/entity) that is capable of independent action. In creating social network models of real world situations, we adopt as a premise that the social world is unknowable and uncontrollable with respect to the behavior of "actors" (human agents, individual or groups of individuals). Social systems are essentially goal-seeking, information feedback systems.
Organization System Sructures
The organization structure defines the arrangement of accountability, authority and responsibility of a group of people in a hierarchy, and network of functional and business units, and the governance relations between these units. The organization structure is designed to enhance communication and information flow among organization system elements (people or groups of people) that comprise the organization social system. Within the structure, rules, policies, and procedures are uniformly and impersonally applied to exert control over members’ behaviors.
Organizational structures are the manifestation of strategic orientations and regulate information flows, decision making, and patterns of behavior, that is, the “internal allocation of tasks, decisions, rules, and procedures for appraisal and reward, selected for the best pursuit of a strategy. Structures develop due to the need to organize behavior in a meaningful way and provide orientation for organizational members to set actions that comply with organizational strategy, organizational culture, and, as a result, accepted patterns of behavior. The structure is comprised of organization units that organize activity within these units (business units, bureaus, teams, or departments) in which people perform specialized functions such as manufacturing, sales, IT, human resource management, accounting/finance, etc. People who perform similar functions (tasks) are clustered together.
Actors represent the perspectives and objectives of the individuals themselves responsible and accountable for implementing the organization design and strategy through their behavior. Actors are taken to be inherently autonomous, i.e., their behaviors are not fully controllable, or are they perfectly knowable. Although the behavior of actors is not perfectly knowable or fully controllable, they are nonetheless not completely random. The behavior of actors can be explained and rationalized through the motivations and intentions attributed to actors.
Organization System Behavior
The behavior of an organization is usually guided by its strategic and tactical goals. The performance of the organization can be expressed through goal-based performance indicators and measures. Behavior and performance unfolds as observable manifestations (phenomena) of predefined strategies as regulated by organizational structures. This domain puts into effect patterns of behavior, derived from strategies and structures. It makes an organization’s existence as a market player visible.
Organizational System Dynamics
Organizations are dynamic social systems which are a collection of people with a common purpose. The dynamics of social systems are expressed in terms of the intentional properties of the actors that comprise the system, and the interaction relationships between these actors rather than the actual behavior of the actors. An intentional description of actors' behavior offers a way of characterizing actors that respects the autonomy premise underlying the actor concept.
Organization System Interactions
Interactions between actors can occur to satisfy goals that are either common to actors or global goals which pertain to the society (organization) as a whole and lay outside the scope of any one individual actor. Considering sub-organizations as a kind of structured logical actor, interactions among the sub-organization units can be viewed as a way of realizing society goals.
What is a Strategy?
The term “strategy” is an overloaded in everyday conversations because most people including professional practitioners do not bother to explicitly establish their point of view into what is essentially a layered concept. Essentially, when people use the word “strategy”, they are expressing concerns/interest in one of the layers of a layered concept; strategic intent, competitive strategy operational strategy, or “functional” strategy.
Levels of Strategy
Conceptually, a strategy in any of its myriad interpretation and manifestations in any of these layers is about decision making, Regardless of the person using the term, and the “type” of strategy being pursued the fundamental meaning of the word with respect to strategy type remains the same.
A company's strategy can be deduced from the pattern of actions and approaches taken by the company. These may include:
I am a serial technology entrepreneur and computer scientist interested in model-driven analysis and evaluation of strategy, its formulation, implementation and execution, to better inform strategic decision-making, and improve organization performance and ensure sustainable growth.