(I write of Haiti and U.S. politics together only to illustrate a point, and not to imply any comparison between these events. I hope that you will join me and millions of others who have already contributed to one of the many organizations leading Haiti’s earthquake relief efforts.)

In my experience, organizational preparedness for major, unexpected changes varies widely. Most organizations pay lip service, with little more than rueful acknowledgement of the possibility of disruption. Some develop ‘business continuity’ plans, which are targeted at sustaining key assets and processes, like computer systems and networks, in the event of catastrophe. Far fewer have a comprehensive, robust capability to weather the literal and figurative storms of unknown and unexpected events. The most effective organizations prepare not for specific disasters, but with a well-tested process for making effective strategic and tactical decisions in the face of sudden, significant, unexpected change.

Every organization’s strategy is the result of its mission, its internal capabilities, and its external environment. Over time, mission and capability are likely to evolve to reflect the changing realities of the external environment. The normal strategic planning process, when properly executed, entails continuous monitoring of environment and management of capability and strategy itself. Sudden change in the external environment requires rapid and confident recalibration of the strategy. The decision making process is the same, only the time scale is different.

The difficulty with which most organizations mange and execute strategy means that they are ill-equipped to handle the inevitable lurches. Fingers are pointed, emotions flare, poor decisions are made, and must be made again, efforts are wasted, and chaos reigns. By contrast, healthy organizations quickly pick themselves up, look around to understand the new realities, quickly make well-informed decisions, and get on with the urgent tasks at hand.

How will your organization handle the next lurch?

share or save this post

I am a big fan of public radio

This week, Mike Miner wrote about WBEZ and the new “Chicago Public Media” strategic plan. It’s a plan that charts our direction for the next few years. Torey, staff and the board have been working on the plan since March 2008. It got leaked to the Chicago Reader and subsequently picked apart. So I thought I would ask Daniel Ash, our VP of Strategic Communications, to set the record straight.

Our strategic plan is a work in progress. Most staff and board members have participated in at least one meeting since March 2008. I’m one of the lucky ones, having participated in at least five discussions. In each meeting the discussion was wrapped around this question: How do we continue to accomplish our public service mission? The good news is that lunch was usually provided.

I did not plan to release this plan this way, but since it’s been posted without permission on another site I figure why not ask you directly what you think. Warning: when you put creative people in a room and ask them to imagine the future, you get BIG—sometimes wild—ideas. Hint: we’re still working on the practical translation of what we’re actually going to do over the next three years.

Here’s the deal: if Chicago Public Radio is not relevant to our audience—our community—we’re not doing the right thing. This document provides a broad framework for us to ask even more questions about what we’ll do and how we’ll do it. If you’ve got a moment, please read it and tell us what you think. This is just the beginning.

And without any more stalling, here’s the Strategic Plan 2010-2013.

If you choose not to read the horror story that is their plan document, I’ll give you my quick take: if the consulting firm that produced it could be held liable for professional malpractice, the plan document and the process that created it would be strong evidence in support of a claim. If nothing else, you should look to this example as a reminder of what not to do in your organization’s strategic planning process.

The most obvious problem with the plan is its authorship. Despite the fact that it carries the logo of a legitimate consulting firm, the plan’s content is seen as coming only from the WBEZ’s president. According to Miner’s research (emphasis added):

The new plan claims that this mission was arrived at by “strategic consensus.” But my soundings of people within or close to the organization suggest that the plan is generally regarded as an expression of the will, vision, and rhetorical flourishes of its president, Torey Malatia. Though the plan is written in the third-person plural, there are occasional lapses into ‘I’ and ‘my.’

The role of a strategic planning consultant is to expertly guide the process, and protect the interests of the organization, not to simply echo the will of its leader. What value did the consulting firm add to this process?

There is strong evidence that the process that WBEZ used to get to this point is flawed. As noted in the blog post, WBEZ has been working for over 18 months on the plan so far, and participation in the process by even the director of strategic communication has been spotty: “Most staff and board members have participated in at least one meeting since March 2008. I’m one of the lucky ones, having participated in at least five discussions.” So exactly who has been part of the process?

With most staff and board members having participated in ‘at least’ one meeting, is there any continuity, or executive commitment to the process? Even the most challenged organization I’ve worked with is able to agree to an enterprise wide strategy map within the first two months of focused effort. The fifteen page document, produced at an average rate of less than one page per month, fails to identify and clarify the strategy in actionable terms. As stated in the blog post: “Hint: we’re still working on the practical translation of what we’re actually going to do over the next three years.”This is a candid admission of the failure of WBEZ’s planning process.

Leaking the self-described “work in progress” to the public was no less than an act of organizational insurrection. The innocent sounding invitation to “tell us what you think” is an open invitation to discredit both the content and the process that has been used. There is little evidence of an understanding of how stakeholders value WBEZ, and their judgement of this weak, amateurish effort will be swift and sure.

share or save this post

Outcomes at PrimeCorp

As a result of the risk-adjusted forecasts, both the baseline and with leadership expectation of the impact of the proposed strategic management system, PrimeCorp had satisfactorily completed its cost-benefit analysis and projected payback. Curtis (PrimeCorp’s CEO) soon thereafter approved the project as proposed, and our work was underway. Working closely with Jim (PrimeCorp’s head of strategic planning), we undertook to transform the way in which PrimeCorp managed its strategy. The transformation took about two years.

During the first year, we used the discipline of balanced scorecard strategy maps and measuresto capture and refine a vision of strategy for the PrimeCorp enterprise, as well as its several divisions. The process revealed cultural tensions; resistance to change (even though no one on the management team really liked the existing strategic management process), and tension between corporate-level governance and a tradition of division-level autonomy. Both in one-on-one discussions and leadership meetings, the appropriate role of the corporation was portrayed variously as simply that of a holding company and a bank providing capital, to a necessary facilitator of innovation, synergy, and simple scale economies between division accustomed to operating with limited oversight. While neither extreme was realized, there was a perceptible shift towards more robust corporate governance, with integrated strategic planning and financial forecasting at its core.

Our comprehensive program of strategy communication brought the message of strategy and personal participation in execution to hundreds of middle-level managers across the organization; a population to whom the content of corporate and divisional strategy had previously been opaque.

While our effort to justify the initial investment introduced the dimension of risk into financial forecasting, the idea of risk did not become part of the everyday vocabulary of forecasting. Our mandate was to transform strategic planning; budgeting and forecasting was outside of our scope. Exposure to the idea of risk management was simply not enough motivation to re-design PrimeCorp’s tradition financial forecasting.

Over the following years, the improvement in PrimeCorp’s financial performance well exceeded even the most liberal of the scenarios used to justify the effort in the first place.It wasn’t our work that created the improvement; it was the tenacious effort of hundreds of executives, senior and middle managers, front-line supervisors and employees; armed with a clear vision of PrimeCorp’s strategy that made it happen.

The Offer to You

I have developed a spreadsheet-based model of the risk-adjusted forecast approach to share with you, in the hope that you too will make a better business case for enhanced strategic management. As promised in the first post, the first five people to send a note to me describing your situation at info@tenacioustortoise.com will receive a copy of the tool, and an hour of guidance in its use by telephone at no charge. I am looking forward to hearing from you.

Needless to say, this series of posts has been much lengthier and detailed than most posts here. Was this useful? Too much? I need your feedback. Please offer your questions and comments below.

share or save this post

Putting the Model to Work

The first revelation of PrimeCorp’s risk-adjusted forecast was that it was lower than the original forecast.

To illustrate how this happened, imagine forecasting your personal income for next year. Let’s say that your salary is X dollars per year, so that is your original forecast. But with a risk-adjusted view of your future earnings, you might also acknowledge a 15% chance of getting a bonus equal to 10% of your salary, and you might also acknowledge a 20% chance of losing your job and not finding another one for the rest of the year. So 15% of the time your expected income would be X / 2 (this reflects an assumption that you have an equal chance of losing your job on any day of the year, in which case your expected income would be the same as losing your job halfway through the year). 60% of the time your income would simply be X, and 25% of the time your income would be 1.1 * X.

By combining these possible outcomes with their odds of taking place, we get:

( .15 * 1.1 * X) + ( .65 * X) + (.20 * .5 * X) = .915 * X

In other words, the risk-adjusted forecast for your income is 91.5% of your salary.  

In capturing the characteristics of ‘below plan’ and above plan years at PrimeCorp, we learned that given an equal chance of each, there was more downside potential in the ‘below plan’ years than upside potential in the ‘above plan’ years. As a result, their risk-adjusted forecast was below the original forecast. This was a bit of a revelation to PrimeCorp’s leadership team.   

Changing the Odds

To then forecast the prospective impact of a strategy management program, we asked PrimeCorp’s leaders to adjust the odds of having a ‘below’ ‘above’, and ‘as planned’ year given successful execution of their strategy. The responses ranged from no or very modest impact from the skeptics, to a cautiously larger impact from those who supported the idea of implementing our proposed strategic management process.

After some discussion, their sense of the impact was consolidated into three scenarios:

• ‘Low’ impact, with a small avoidance of the ‘below plan’ outcome, the same odds of an ‘as planned’ outcome, and no improvement in the likelihood of the ‘above plan’ outcome, with respective odds of 20%, 55% and 25%;
• ‘Moderate’ impact, shifting the curve, with respective odds of 20%, 49%, and 31%;
• ‘Improved’ impact, with respective odds of 15%, 55%, and 30%.

Running the model with PrimeCorp’s own expectations yielded definitive results. Even under the most conservative scenario, the investment in the strategic management system would be paid back in under three years. And the forecast was based entirely on inputs from PrimeCorp.

Next: Outcomes at PrimeCorp, and the case summary.

share or save this post

The Different Approach

We already knew that a key element of PrimeCorp’s existing strategic planning process was its financial forecasts. The annual planning book (hundreds of pages, highly confidential, and not shared beyond the executive team), contained page after page of spreadsheets describing past and expected future performance of each of PrimeCorp’s several divisions, as well as an enterprise-wide roll-up of the numbers. The executive team, which consisted of the heads of each division (as well as such corporate functions as HR Finance, and IT) annually created their individual division forecasts as a function of past performance, and their own expectations of the next five years of future results. This process was time-consuming and filled with understandable tension – between division leaders’ desire to soft-peddle the numbers, and CEO and board pressure to raise revenue and manage costs to achieve year-over-year improvement in profitability.

What was evident in the forecast numbers was their inability to capture the uncertainty in establishing them. This was our opening to capture the value of our improving PrimeCorp’s strategic planning process. From Part I, you’ll recall that I challenged Curtis and Jim to pay us $25,000 for a couple of weeks of effort to make the case for our proposal. I said, “Instead of just looking at your forecasts as a set of fixed numbers, we’ll consider the likelihood of the forecasts playing out. Our firm won’t introduce any numbers into the calculation – we’ll just use your and your team’s own expectations.” Curtis accepted the approach, and on a handshake, we got started that day.

Choosing the Levers

Like any business, PrimeCorp’s profitability is the result of inputs. Looking at the forecasts, it became clear that for each division, profit was the result of revenue, cost of goods sold, operating expense, and the cost of invested capital. To improve profit, a division had to accomplish some combination of increasing revenue, managing the cost of inputs and transforming them to outputs (the cost of goods sold, or COGS), manage its overhead costs (such as corporate overhead and IT), or reduce the cost of invested capital (primarily in each division’s necessary and sizable inventory). Of course, each of these four inputs were themselves the result of a multitude of contributing factors. But to manage complexity, we chose only these four inputs for each division as the appropriate level of detail for the exercise.

Capturing Uncertainty

Having both forecast and actual results for each division in several prior years, it was easy to judge the quality of PrimeCorp’s forecasting process. Revenue and capital cost were easier to forecast than COGS and operating expense, and variation in all resulted in years with significant over- and under-performance to the forecast, as well as years near forecast. There was no apparent bias in the forecasts; performance had been significantly above or below plan about the same number of times over the past ten years.

To quantify the uncertainty in the forecast for the next fiscal year, we imagined repeatedly ‘rolling the dice’ on the outcomes of the upcoming year. Sometimes the outcomes would be below the forecast, sometimes above. Ranking all of these hypothetical outcomes from poorest to best, we could then put these outcomes in three buckets; the bucket for the poorest 25% of them would be called ‘below plan,’ the middle 50% of them would be in a bucket called ‘as planned,’ and bucket for the best 25% would be called ‘above plan.’ Note that this was not an exercise in predicting the likelihood of any of these outcomes – by fixing the probabilities for each bucket, we could then ask a different pair of questions, “how bad would a ‘below plan’ year look, and how good would an ‘above plan’ year look? We assigned the original forecast values of revenue, COGS, operating and capital costs to the ‘as planned’ scenario. The first key input to the model were answers to the question, “what would the four inputs look like in the ‘below’ and ‘above’ plan year scenarios?”

To capture these inputs, my hope was to interview each division head and capture their own expectations for next year. But Curtis was less comfortable with the subjectivity of that approach, and instead we turned to past history. By comparing the forecast vs. actual outcomes for the four inputs in each of the last ten years of history, we could come up with reasonable estimates of the inputs parameters for the ‘above’ and ‘below’ scenarios (for those with statistics backgrounds: we actually determined the standard deviation for each of the four inputs, and used the forecast plus or minus one standard deviation for the parameters). Historically, above plan years happened when revenue increased and costs, especially operating costs, were held in check. Below plan years were more likely to be the result of higher COGS, not significantly reduced revenue. Although the likelihood of a below and above plan year were equal in the model, we learned that above plan years were only modestly above plan, while below plan years could be significantly below plan.

Rolling Up to a Revelation

Pulling all the input parameters together made it possible to create a risk-adjusted forecast for the upcoming year (and years beyond). The first revelation was that the risk-adjusted forecast was lower than the original forecast.

Next: Putting the Model to Work

share or save this post

A few years ago, I was faced with a unprecedented challenge by a client, to attach a dollar value to the benefit of a proposed consulting engagement. The details of the organization are not important to the concepts in the case, but suffice to say I was hungry for the opportunity to consult to this large organization.

A Bit More Background

The organization in question was (and still is) a large, for-profit business with a national presence across the U.S. (let’s call it PrimeCorp), and a decades-long track record as either the largest or second largest player among the few occupying a unique industry niche. Two of my colleagues had been engaged in attempting to sell PrimeCorp on the idea of revising and enhancing its strategic planning process, a process that would take at least two years of design, facilitation, and coaching on our part. Our firm was up to the task we were proposing, but my two colleagues hadn’t yet made the case.

Competing with a few other consulting firms, we had successfully qualified ourselves as PrimeCorp’s preferred consultant. Jim, PrimeCorp’s head of strategic planning, was familiar with our firm and our approach, and had invested much of his energy in paving the way for us. But Jim couldn’t award us the work – the decision lay exclusively with Curtis, the firm’s forceful and charismatic CEO. And he wasn’t buying, yet. The question wasn’t whether we would do the work – it was whether PrimeCorp would make the investment at all.

The Fly in the Ointment

Curtis was secure in his position as CEO, having occupied the job for many years prior to our arrival. He had close ties to members of PrimeCorp’s board, and the loyal support of his executive team. But his firm was suffering from declining profitability, relatively flat sales, and an emerging threat of technology-based competition from outside the industry. Curtis was frustrated with PrimeCorp’s lack of strategic clarity, and poor track record of executing on past strategic intent. With margins becoming thinner, PrimeCorp’s overall management style was a continuation of its long history of risk-aversion.

Determined to better manage rising costs, Curtis had recently imposed a rigorous capital planning discipline on his executive team. All requested capital investments over a low threshold would require sponsors to submit a comprehensive cost-benefit analysis, including projected payback periods. The CBAs would go to PrimeCorp’s board of directors for approval. No CBA, no investment. Since Curtis himself would by necessity be the sponsor of the proposed revamp of strategic planning, he wasn’t about to make an exception for himself from his own policy. So  Jim’s challenge to us was to help him and Curtis make the case for the investment. My colleagues tried to present anecdotal evidence of the benefits of improved strategic planning in other organizations, but Curtis and Jim weren’t convinced. To them, our anecdotes were just marketing hype.

A Different Approach

I had joined the PrimeCorp team quite late in the process, when it appeared that we wouldn’t be winning the business. My task was to scour our firm’s scant data on past client performance, and develop a more compelling set of data describing the benefits they had received. But there simply wasn’t enough data, and what little there was couldn’t be assembled into anything convincing. After some head-scratching, I came up with a different approach. But I needed to pitch it directly to Jim and Curtis. With little to lose, we scheduled the meeting.

Our Challenge to PrimeCorp

Jim and Curtis really wanted to do the work, but needed proof. In what could have been our final presentation at PrimeCorp, I apologized to Curtis for our failure to make the case. “Let’s approach this differently. Instead of using other companies’ data, we’ll only use PrimeCorp’s. Give us two weeks, complete access to both your existing strategic planning documents and your executive team, and $25,000 (for our time), and we’ll make the case.If we’re successful, we’ll credit you the $25k against our overall proposal. If we’re not, we’ll part company.” So PrimeCorp’s downside risk was only $25,000. Curtis was intrigued. “Tell me more,” he said.

Next: The Different Approach

share or save this post

We have all grown up in an era in which computing technology has had an increasing influence on the way we think about pretty much everything. In my first year of high school, slide rules were required for those taking physics classes. By the time I took the physics class (in my senior year), we were able to instead share the one calculator the school had bought for each classroom in the physics department. I suspect that some of today’s technologies will someday be as outdated as slide rules are today. If you don’t even know what a slide rule is, don’t worry (but you can read more about it here).

One of the ways in which we’ve been influenced is our tendency to represent uncertainty as single numbers. If you’re filling out a form in which you’re asked to estimate your household income for next year, you likely wouldn’t be able to enter anything but a single number. But a single number simply can’t capture any of the uncertainty of the estimate. To try to help most people understand even the most basic concepts of statistics is an extreme challenge. One cell in a spreadsheet only holds one number.

If you don't know what this is, don't worry.

The concepts of “uncertainty” and “risk” are so poorly understood in organizational settings that they may even be used interchangably. As a result, conversations about risk are difficult, because people understand the concept of risk in different ways. As I hope to cover in the coming weeks and months, one of our biggest challenges today is to introduce the concepts of risk and uncertainty into the strategic planning process. But thanks to Professor Savage, we can enhance our understanding with some plain language examples.

Uncertainty is simply the state of not being able to know an outcome. We don’t know for certain about the outcome of a coin flip, a dice roll, or tomorrow’s stock market performance. By contrast, risk is the probability of a loss or injury.

Suppose I offer you either $100 or nothing based only on the outcome of an uncertain event, a coin flip. Heads, you win, tails you get nothing. But I also offer you a choice; to skip the coin toss in exchange for a guaranteed $30. What would you do?

Of course, the average result of the coin flip is $50, but we’re only going to flip the coin once. So this average outcome (the expected value for those with a statistics background) is a bit of a red herring here. If you’re poor and looking for your next meal, you’d probably take the sure $30. But you might otherwise be willing to accept the risk of getting nothing in exchange for the possibility of $100.

Now imagine the same offer, but instead, the offer is $1 million riding on the coin flip, with an alternative of a sure $300,000. I suspect that you would take the sure $300,000. Unless you’re as wealthy as Bill Gates.

Uncertainty is unavoidable – it is a feature of the universe we live in. No one knows how the coin will flip. Risk is in the eye of the beholder, and a reflection of the impact of the loss or injury to an individual or group. Giving up a sure $300,000 in exchange for an uncertain outcome means something different to you or me than to Bill Gates. Our attitudes towards risk (utility, if you’ve taken the economics class) is different.

Every assumption and decision that goes into the strategic planning process has a degree of uncertainty, and (typically) a level of risk that is poorly understood. By improving our understanding of risk and our attitude toward risk, we can improve the quality and outcome of our strategic decisions. More to come.

share or save this post

Many years ago, there was a bit of a surge in the management buzzword stream of an idea called Management by Walking Around (MBWA). Although the idea is traced to early days at Hewlett Packard, where managers were encouraged to spend their time visiting employees, customers, and suppliers, the idea was popularized in an 1985 book by Tom Peters and Nancy Austin entitled “A Passion for Excellence.” Don’t feel bad if you haven’t heard of the book or MBWA; my sense is that the idea has been out of the mainstream for a while. Perhaps the walking around concept became obsolete around the time that telecommuting became possible and popular.

I think that walking around can be effectively applied in the arena of strategic management. Few executives that I’ve interviewed in the course of developing organizational strategy have disagreed with the prediction that I’d get many different answers if I were to separately ask managers and employees to describe their organization’s strategy. So walking around and asking the strategy question is a useful diagnostic; a way of creating a sense of urgency around formulating and communicating strategy across the enterprise.

Wise executives can take the walking around idea a step further. By asking managers, supervisors, and employees to describe the strategy as they see it, and the crucial follow-up question: “How has your understanding of the strategy changed the way you work?”, it seems that executives can gain valuable insight about the practicality of the strategic intent. If rank-and-file and middle managers in the organization are unable to articulate how to make strategy happen, it is pretty safe to conclude that any success in strategic change will happen by accident, or in spite of employee intent. If, on the other hand, folks are able to describe the strategy and their individual roles, executives will be better equipped to make the right decisions, allocate resources, and remove the roadblocks to strategy execution.

I’ve put a great deal of emphasis on the idea of formal communication of strategy, and my passion for this idea is undiminished. But I also believe that executives maintain too much distance between themselves and the day-to-day work of running and changing the organization. When was the last time you were part of a substantive two-way discussion between senior management and employees about the job of strategy? Maybe it’s time to start walking around.

share or save this post

Amazon is shaking up retailers, both big rivals and small independent stores, as it speeds its way beyond books toward its goal of becoming a Web-sized general store. Jim Wilson/The New York Times

Try to imagine the largest bookstore in the world. Aisle after aisle, floor after floor of books, maps, audio books, music, video, you name it (if you’ve ever had the unique and wonderful experience of visiting Powell’s Bookstore in Portland, Oregon, you’ve got a great visual image to begin with). But this bookstore isn’t limited by physical size, or shelf space or inventory cost; it carries nearly every title in print, and a huge back catalog of used and out-of-print books. And in the unusual case where they don’t have the book you want in stock, they can try to get it for you from other stores or the publisher. Every time you enter this store, you’re immediately recognized and greeted by name at the door, and your personal guide stands ready to recommend books and other goods you might be interested in. Of course, you don’t have to get in your car to visit this store, it is as near as your computer. Of course, the largest bookstore in the world is Amazon.com.

But as you prepare to leave your mental image of the largest bookstore in the world, you notice a door with a sign on it that says, “More inside!” And when you peek through the door, you find yourself at the entrance to an even bigger store; one that carries more goods and services than you’ve ever seen in one place. A shoppers’ paradise?

That’s the image that Amazon.com has been aiming for since its inception. And as reported yesterday in the New York Times, Amazon.com is poised to cross an important milestone later this year. Its global sales of media products will be surpassed by its online sales of non-media products. That milestone has already been reached in North America. And while Amazon.com may retain its image as a bookstore in many of our minds, it seems well on its way to becoming the Wal-Mart of the Web.

After Wal-Mart, Amazon.com may be the most carefully dissected retailer in academic and popular writing, and it would be foolish for me to try to add to that canon here. But reading the New York Times article, I was reminded of my frequently-referenced theme of value proposition evolution. Amazon’s value proposition is evolving, and so is the value proposition of many other firms.

In its simplest guise, a firm’s value proposition is simply what a customer gets in exchange for value given up. The value proposition can be both absolute (e.g. ‘the world’s largest bookstore’), and relative to a competitor (e.g. “Have it your way” at Burger King). The value proposition can be emanate deliberately from the firm’s marketing efforts, or can be simply be result of the individual perceptions of consumers and non-consumers alike. A discussion of the value proposition of, say, The New York Times would be both lively and contentious.

I contend that value proposition evolution is the necessary business of any organization (not just for-profit firms) to ensure its long-term survival. The value proposition of the FBI evolved after 9/11. Intel used to be primarily a manufacturer of memory chips, but is now known for its microprocessors (two very different kinds of businesses). And even though Intel rarely sells is products directly to its consumers, it is one of the most recognizable brands in consumer electronics. The March of Dimes fights birth defects, but was founded to combat polio. When polio was brought under control by medical advances, the March of Dimes evolved its value proposition. MTV got its start as the definitive source for music videos, but shows almost none of them today. The world changes, and each of these organizations has changed its value proposition in order to defend against threats, seize opportunity, and simply to remain relevant.

Strategy planning and execution is the deliberate process by which an organization chooses to and evolves its value proposition. Failing to plan this evolution is tantamount to planning to fail as an organization, at least in the long run. Do you have a clear understanding of your organization’s value proposition as it exists today? As it is expected to be in three years or longer?

share or save this post

A crucial step in driving alignment with strategy after the strategy itself has been established is to capture the activities (projects, initiatives, call them what you will) that are already underway. A matrix of the strategic initiatives against the strategic objectives almost always reveals opportunities to improve alignment; initiatives that don’t map well to objectives, objectives with no initiatives, and in some cases, objectives with too many initiatives.

Unfortunately, many organizations struggle to even create the alignment matrix. With neither a centralized project management office (PMO) to capture and track the status of discretionary activity, nor any understanding of the labor actually being allocated to each initiative, leaders have little more than capital and expense budgets as a weak indicator of actual strategic initiative activity.Discretionary projects often have significant labor expense, but little or no capital budget. Labor is treated as a sunk cost that is allocated to business units and departments on the basis of full-time equivalent employees (FTEs), not to specific projects and initiatives. Middle managers have discretion to undertake operational improvement projects and strategic initiatives with limited senior level oversight beyond the capital budget process.

Managerial discretion is biased towards operational improvements, which tend to have more tangible benefits delivered sooner than strategic initiatives whose benefits are less tangible in the near term. The pool of labor available for discretionary efforts is the difference between total labor available, and the necessary effort to run the business everyday. Keeping the lights on always takes precedence. Whatever is left over is given over to discretionary activity, divided between operational improvement and strategic initiatives. It is generally the same people whose time can be allocated to each.

Large organizations become especially adept at optimizing the status quo; making current business processes as efficient as possible. Strategic change represents the unknown, and a greater risk of an individual manager being seen as mis-allocating his or her labor resources. So in the aggregate, little labor is left to devote to strategic change.

A more enlightened approach requires a comprehensive understanding of discretionary activity across the enterprise, captured and administered by a robust PMO function.Workforce time reporting enables executives to understand not just what projects are underway, but to manage the set of projects as an investment portfolio. When viewed this way, executives are able to reduce the total number of projects (many of which may consume resources with little progress to show for it), better balance FTEs between strategic and operational change, and drive a higher share of projects to deliver their intended value on time and on budget. In the absence of this more enlightened approach, it comes as no surprise when there is a failure to execute strategy.

share or save this post