Strategic Planning and Process Redesign

Posted by 22 September, 2008 Comments Off on Strategic Planning and Process Redesign

STRATEGIC PLANNING AND PROCESS REDESIGN

So what does GE do now? Its circuit breaker business provides a good example. This stagnant SBU in a mature industry would have flunked all the screening tests, but with a billion in yearly revenues, it hardly seemed appropriate to divest it and leave the market to competitors Seimens and Westinghouse. Besides, if any lesson had come out of the old planning models, it was that profits did not necessarily come from high-share, high-growth SBUs. (As Stephen Hardis, Eaton Corpora­tion’s vice president of planning, put it, “It’s great to say, ‘Why don’t we all go into growth businesses?’ But those are not all highly profitable. If there’s a hell for plan­ners, over the portal will be carved the term cash cow.”)33 Instead of divesting, GE consolidated operations-from six circuit breaker plants to only one (in Salisbury, North Carolina).34 Solving this problem in just one location seemed like enough of a challenge.
Then management assessed the problem, but not in the conventional way, by asking planning staff and consultants for a report. Instead they formed an interdisci­plinary team with specialists from manufacturing, marketing, and design, and asked them to figure out how to make the manufacturing process profitable. The group de­cided to compete on the basis of speed, and adopted the goal of reducing manufac­turing time from three weeks to three days.
This radical change could not be accomplished given the existing process, in which GE engineers designed a unique box for each customer using a selection from GE’s 28,000 parts, then factory workers assembled the boxes by hand. So the team re­designed the product line, paring parts to 1,275 while still allowing customers the ability to customize their boxes. Next the team developed an expert computer system that could automatically convert customer requirements into instructions for the fac­tory machines. This eliminated the engineers and the delay needed for custom design­ing. The team also added more machines, increasing the automation of the production process.
Finally, the team tackled personnel problems on the factory floor. The key issue was delays associated with decision making. According to a Fortune reporter:

The solution was to get rid of all line supervisors and quality inspectors, reducing the organizational layers between worker and plant manager from three to one. Everything those middle managers used to handle-vacation scheduling, quality, work rules-be­came the responsibility of the 129 workers on the floor, who are divided into teams of 15 to 20. And what do you know: The more responsibility GE gave its workers, the faster problems got solved and decisions made.
Because of these changes at GE, costs dropped, quality improved, and cus­tomers believed they had more features from which to choose. Delivery was made in three days, as hoped; the backlog shrunk from two months to two days; employee morale was up; and market share was growing despite the flat market. The 1989 sta­tistics, for example, were quite amazing: Productivity was up 20 percent, and ROI was above 20 percent. But it was not easy to turn this dog into a star; the project began in 1985, four eventful years before the stunning results we report. Everything had to change, from product line through production process to corporate structure and cul­ture. Not every line manager is capable of leading such a transformation, but it defi­nitely takes a line manager to do it. No central planning staff would undertake such goals, or succeed if it did. Still, the new planning approaches are tougher on manage­ment. Managers must champion change; they must be willing to push authority down into the organization; and they must learn to use, and work in, teams. As GE’s Roger Schipke puts it, “Now it’s a question of ‘Can they develop a strategy for their busi­ness?’ Some will make that cut, some won’t.” When he took over the major appliance group, only one of the four top managers reporting to him made that cut. The others were fired.
Success with the new planning approach also requires reducing the barriers be­tween company and customer-touching customers and listening in the proactive sense described in lesson 1. For example, GE now promotes an answer center in TV ads and on product packaging. Staffed 24 hours a day, the center may be reached via a toll-free call. Several million calls are logged annually. Frank Sonenberg of Ernst & Young’s Consulting Group says that, “By making information easily available to con­sumers f General Electric] builds brand loyalty in a tough competitive field.”

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Strategy as a Focus Rather Than a Plan

Posted by 21 September, 2008 Comments Off on Strategy as a Focus Rather Than a Plan

One reason strategic planning will never die is that without a strategy of some sort, there can be no clear focus. Many organizations are resuscitating strategic planning, in spite of their inability to see very far into their futures. But the role of strategic planning is fundamentally different. Let’s look at this interesting transition.
In most industries today, events are so fast-paced and unpredictable that no­body can write a plan or create a forecast worth the paper its printed on. H. Igor Ansoff has documented this change in an extensive series of studies. Ansoff’s formal title is Distinguished Professor of Strategic Management at the United States Univer­sity in San Diego-but many people in the marketing field refer to him as “the father of strategic planning” because of his important work in the development of this field. In recent years, his work has provided perhaps the strongest documentation that many of the conventional planning methods are antiquated. Most striking is his mea­surement of what he terms the turbulence level of a business’s external environment. Here is Ansoff’s turbulence scale:

Turbulence Level Name Description
1 Repetitive No change
2 Expanding Slow incremental change
3 Changing Fast incremental change
4 Discontinuous Discontinuous, predictable change
5 Surprising Discontinuous, unpredictable change

Further, he has demonstrated in a range of studies that “a company’s profitability is optimized when a company’s strategy and management capability both match the tur­bulence in the company’s environment.”iS This means, for example, that if your orga­nization used to face a turbulence level of 3 but now faces a level 4.5 environment-a transition typical of most industries over the last two decades-then the old strategies and management approaches will lead to failure today just as surely as they led to suc­cess yesterday. In the high-turbulence environments most businesses now face, Ansoff finds that entrepreneurial and creative strategies work, while reactive and anticipa­tory strategies do not. Yet conventional planning cycles, in which data is gathered, numbers crunched, forecasts generated, and long-term strategies formulated, are gen­erally reactive or at best anticipatory. Not entrepreneurial, and rarely creative.
Which is why, as we observed earlier, formal planning processes were downsized almost out of existence in many companies. And why Tom Peters, that most popular of management gurus, wrote that “madness is afoot” and advised managers that, in order to thrive on the chaos around them, they should abandon their long-range strategic plan in exchange for “a strategic mind-set” so as to be able to foster “internal stability in order to encourage the pursuit of constant change.”i9 In other words, strategic plan­ning as usual is dead.
But strategic planning is experiencing something of a rebirth in the late 1990s. (As Mark Twain once said, “The reports of my death are greatly exaggerated.”) Per­haps the most striking symbol of this rebirth is the rising stature of strategic planning in what was supposed to be its replacement-total quality management. And this is seen nowhere more clearly than in the annual judging criteria for the Malcolm Baldrige National Quality Award. These criteria are modified every year in an effort to provide a better standard for the management processes of U.S. firms, and lately strategic planning has emerged as a key component of the criteria. According to Vicki Spagnol, a member of the award’s board of examiners, “In recent years, Category 2, Strategic Planning, has undergone significant evolution, which has expanded its scope and made it more central to the overall criteria.” She summarizes the change as follows, “The scope of planning was broadened from planning for quality and op­erational improvements to developing an overall business strategy. Greater emphasis was also placed on translating strategy into action-oriented ‘key business drivers,’ which could be used to deploy strategy throughout the organization.” Why bring strategic planning out of moth balls, especially when many people argue it is what led to the need for new approaches like total quality management and reengineering in the first place? Because, in Spagnol’s words, “The faster the rate of change, the more important it is to understand the dynamics of the marketplace and to have a strategy that will enable an organization to outperform its competition over the long haul.” Fast change makes a good strategy more essential than ever. But-and here is the paradox-fast change (and the high turbulence with which it is typically associ­ated) makes coming up with a good long-term strategy almost impossible. Whatever knowledge base the strategy rests on will be antiquated by new events before the im­plementation is half-way complete. How do you resolve this paradox-this great need for good strategy in conditions which make it terribly hard to design good strategy?
The most successful answer-and the key to strategic planning’s rebirth- seems to be to use strategy as a source of focus and direction, not as a blueprint. Lis­ten to Steve Roemereman, vice president and strategy manager of Texas Instruments’ Defense Systems & Electronics business (which won the Baldridge Award in 1992):

Most of those companies that had a great decade did it not by planning out forty great quarters. They had a strategic plan, and then they executed forty great quarters more or less along the lines of the plan. Their people knew where the company was going, and the shared knowledge made it easier to get good quarterly performance.
In other words, the strategic plan gave everyone a common focus, a vision of where the company wanted to go. And then everyone did whatever seemed necessary to get there. The role of this plan, then, is to provide focus rather than direction, to give a common purpose rather than to give specific instructions. The entrepreneur­ial, creative elements aren’t in the plan. They have to be provided by the people who implement it. Nobody can forecast those. But without some agreement on where the entrepreneurship and creativity is supposed to take you, everyone would pull in dif­ferent directions.
In order for strategic plans to perform this focusing role effectively, everyone must have what is coming to he called a line of sight, which is a clear view of the con­nections between their own work and the big picture of the organization’s strategy. Without it, they cannot improvise without losing the tune. The American Society for Training and Development reported that the goal alignment provided by such lines of sight “has a significant impact on employee performance” because it “enables em­ployees to see how their work helps the company succeed.”22 Thus strategy still has a vital role-perhaps an even more vital role-because in turbulent markets it may be the only constant, the only clear beacon to aim for, amid the chaos.

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