What enables some companies to develop and implement winning strategies time and again? Why do other companies get little or no return on their significant investment in strategic planning? Is it that some companies have smarter people, more agreeable customers, and better market opportunities?

Today the challenge for all companies is to find a winning strategy that will deliver profitable growth. Restructuring, cost cutting and operational efficiencies, the focus of the 80's and early 90's, have proven not to give lasting competitive differentiation. Companies today are turning back to strategic planning to find their direction. Once again, it is imperative that they succeed at strategic planning.

Kendall Consulting Group has learned that a company succeeds when it makes mobilization of their organization an explicit and important part for its strategic planning process. From our work with our clients, we have developed an effective way to help companies mobilize their organizations to implement their chosen strategy.

In this issue of Innovations, we will trace the rise, fall and resurgence of strategic planning, and share what companies do today to successfully implement their winning strategies.

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Streamlining business operations, paring costs, outsourcing business processes, and winnowing down headcount can contribute to operational efficiency, but cannot help a company sustain profitable growth. Neither will embracing new technologies, shortening the time to market, or reducing the number of defects. Multiplying the number of new product introductions, expanding sales channels, and forming new alliances all may help a company achieve greater revenue for the short-term. But none of these activities, taken alone, can ensure competitive advantage in the future.

Making just incremental changes to the existing business, in the absence of rethinking the fundamental strategy, will only forestall failure in the future. And that "future" is likely to be here far sooner than we'd like to think. Just a few years ago, companies had the luxury to wait to develop new strategies until failure seemed imminent. Today's companies must have bold strategies in place that anticipate changes long before they become a reality.

Even the companies whose market capitalization and share prices are envied by their competitors and adored by shareholders today must work hard to position themselves to remain market leaders tomorrow. And this takes a lot more than good timing, efficient operations, a great product set or a rich tradition of success in years past. It also requires something that so many of today's popular management methods and tools, such as TQM, benchmarking or business reengineering, fail to provide.

To build a foundation for success, one must have a clearly-articulated business strategy and an organization that is mobilized to implement it. Even the most provocative and innovative strategy in the world cannot propel a company ahead without the engagement, agreement, and commitment of the people whose passion, ideas and hard work will bring the strategy to life. A strategy without corresponding movement and change is just as worthless as movement and change with no particular direction or focus.

The Diminishing Returns of Restructuring and Operational Efficiencies

By the early 1980s, after decades of unabated and largely uninterrupted growth, even the companies that enjoyed unchallenged market leadership were suddenly facing threats that demanded quick action, lest they face almost certain demise. These threats emanated from many places: the advent of rapid globalization, new technological innovations, rising labor costs, new sources of competition, and more demanding customers. Many companies were blind-sided by change that came far too fast: During the 80s, 230 companies disappeared from the Fortune 500.

Most companies knew they had to get help, because they were not capable of meeting the competitive challenges by themselves. Enter the legions of management consulting authors and practitioners who eagerly led corporate America down the path of business process reengineering, total quality management, downsizing, rightsizing, continual improvement, and business transformation. Operating costs plummeted; business process reengineering cut out multiple layers of "fat" (in terms of time, people and avoidable expenses); non-core competencies were outsourced; products made it to market faster; and new alliances were formed.

The result: operating efficiencies that rivaled even the most nimble competitor, and helped to buy much-needed time to keep companies afloat in the new world of hypercompetition. The promise of narrowing profit margins prompted even the healthiest companies to become streamlining zealots. Owing in large part to the gains realized by new operating efficiencies, many companies were lulled into complacency by the spike in profits - albeit temporary in many instances - they now enjoyed.

Throughout the late 80s and early 90s, massive downsizing and restructuring efforts were in full swing. Of 131 companies that conducted intensive cost-cutting drives between 1985 and 1990, 37% were shrunken versions of their former selves; 26% were growing unprofitably; 10% were still hacking away at costs; and only 27% emerged as growing profitably.1

The Rise, Fall and Resurgence of Strategic Planning

During this period of restructuring and cost cutting, the very same "strategic planning" efforts that were considered so vital just a few years before were shunted aside in favor of the more immediate gratification of restructuring. The strategy consultants who once courted favor among CEOs around the world were displaced by those who espoused the radical restructuring of entire organizations for profits now. Entire planning organizations, which once acted as the company's periscope and compass, were dismantled. At General Electric, Chairman Jack Welch dissolved the entire 200-person strategic planning organization. He believed the group had become too isolated from the daily operations of the company and was overly focused on operational effectiveness, and not enough on how the company could create future markets. Setting strategic direction would now become an integral part of each manager's job.

By the mid-90s, profit margins had slimmed, fast-paced competition was growing, and customers clamored for additional services, even lower costs, more variety, and faster response. Operational effectiveness alone, while the salvation for many a decade earlier, had since ceased to be the hoped-for panacea. Companies began to realize that continual cutting and restructuring would never lead to profitable growth, and simply standing still would not lead to the creation of new wealth. To grow successfully, companies had to become less obsessed with how they could correct the past, and instead focus on how they can create an enduring and profitable future.

Creating a mindset predisposed toward strategic growth has not been easy for organizations that have for many years been preoccupied with the antithesis of growth. Where before, managers were congratulated for cost savings and staffing reduction, today's managers have become accountable for creating visions, setting strategic direction, and demonstrating leadership to help their organizations to create new value for their organizations. Management tools, methodologies and consultants abound, but many managers don't have the basic management skills so vital for developing strategy and mobilizing the organization toward positive change, which is a critical part of their jobs.

Strategy Defined

A strategy consists of more than a well-articulated plan to get from point A to point B. Strategy contains equal parts vision, direction, positioning, and - perhaps the largest part -the blueprint of activities that will deliver the results intended by the strategy.

Competitive strategy is about being different. Creating a strategy means deliberately choosing a different set of activities to deliver a unique mix of value. The essence of a successful strategy lies in an organization's ability to perform a combination of activities better than anyone else or to perform an altogether different sum of activities from anyone else.2 Put another way, strategy innovation is the ability to reinvent the basis of competition within existing industries or to invent entirely new industries. Overall competitive advantage comes from how well a company performs all of its activities, and how well aligned those activities are toward implementing its overall business strategy.

Microsoft, Dell, and Intel are well-known for their brilliant strategies that catapulted them into leadership positions in the high-growth technology marketplace. Starbucks, Wal-Mart, and Home Depot are stellar examples of companies that transformed the retail industry. Virgin Airlines and Southwest Airlines rewrote the rules of the once-struggling airline industry. Auto-by-Tel and Amazon Books envisioned the Internet as a whole new way to sell and distribute existing products. What these companies have in common is a great strategy and the organizations to deliver on it. Their organizations and business processes are legendary and much studied.

One example of a company that performs a combination of activities extremely well, and in total alignment with the business strategy, is Amgen, a biopharmaceutical company whose average annual return of 68% for the past decade leads the Fortune 1000. Amgen has only two drugs on the market: one helps dialysis patients, and the other is an immune system booster. Each brings in a billion dollars each year. Rather than starting with a disease and then finding a cure, Amgen starts with a bold new science, and then finds a use for it. To do this, CEO Gordon Binder has organized the company in a unique way.

When a particular molecule presents the possibility of becoming a drug that will cure a disease in one of the company's targeted categories, that molecule becomes the basis for a business unit, and the focus of a large-scale team effort. Functional departments such as marketing or R&D exist only to support that team. At most biotech firms, the development process consists of a series of hand-offs from department to department. At Amgen, a single process manager has complete responsibility for all stages of product development from conception to launch. Organizational structure, compensation, resource allocation and the company's culture support a strategy of growth through new products.3

Activities themselves are not a guarantee of long-term success. A company must also have a bold vision. Take Nike, which performs many of same basic activities as competitors Reebok and Adidas. Nike's stunning growth rate was slowed in 1993-1994, when its product line was severely limiting its ability to grow. CEO Phil Knight acknowledges that it was a change in vision, and a resulting bold strategy, that reinvented Nike and turned the company around: "We decided we are a sports company, not just a shoe company."4 Nike quickly refocused product development and marketing efforts on apparel, such as basketball shirts and golf hats. As Knight points out, those watching a televised basketball game can see the players' shoes about 10% of the time, but shirts can be seen about 75% of the time. Nike's total return to investors: An annual rate of close to 50% over the last 10 years.

Great Expectations but Few Significant Results

Companies have developed strategic plans for decades, and some of the plans have represented an opportunity for a company to achieve a competitive breakthrough. Often the plans are based on a rigorous planning process that includes:

• In-depth surveys of past and present prospective customersÕ business situations, service and product needs, and perceptions of relative supplier capabilities

• Industry research of market trends and competitors' strategies and relative capabilities

• Assessment of alternative strategy scenarios including the cost and benefit, and feasibility and risk of each scenario

Most strategic plans are developed by a senior management team assisted by a staff planner with experience in developing strategic plans. Often the senior management team is very enthusiastic about the plan and its direction, and occasionally, the plan represents the only way to save the company.

However, despite the inspiring examples of the market leaders, few companies have achieved the results outlined in their strategic plans. They have not developed the capabilities and implemented a differentiating set of activities that will deliver the unique mix of value which is the basis of their strategy.

Many companies have run into stiff resistance from their organization before they even begun to implement their strategic plans. Others have started implementation but can't engage their organization sufficiently to move into action. After a very short time, these companies abandon their plans, and revert to business as usual. Sometimes the incomplete implementation of a plan, and the resulting misalignment of organization, systems and culture, leave the organization in worse shape than when they began.

Moving from Strategy to Action

Winning strategies are built on a few critical elements, including a realistic understanding of customers, competitors and relative capabilities; a rigorous analysis of alternative strategic scenarios; and a sound decision-making and planning process.

Winning results are achieved when an organization is able to successfully implement a winning strategy. Implementing new strategies demands big changes to an organization, including:

• Redesign of business processes, such as order fulfillment and product development

• Building of capabilities, jobs and skills needed to realize the promised benefits of its strategy

• Encouragement of the appropriate attitudes, norms and values in its workforce through performance management systems

• Creation of information systems that deliver unique value to the organization and its customers

• Alignment of all areas of the business system (organization, systems and culture)

For older, larger companies with a track record of past success, change can be a Herculean task. Such companies have developed structures, systems and cultures to handle the increased complexity of their work. Change is costly, and time consuming to implement, especially if the strategy requires revolutionary and not evolutionary change. Cultural inertia is the biggest obstacle to change. The older, larger or more successful an organization has been, the more ingrained the norms, values, and lessons have become, and the bigger the mobilization effort must be.

When Lou Gerstner joined IBM as CEO in the early 90s, he knew that creating a new strategy would not in and of itself solve the company's massive problems. Said Gerstner: "Fixing the culture is the most critical, and most difficult, part of a corporate transformation."5 It is this cultural inertia, because it is so intangible and difficult to attack directly, that causes so many managers to fail when mobilizing an organization to implement a winning strategy.

Such difficult change requires the organization to be fully mobilized for action. How have some of the best companies succeeded in mobilizing their organizations to implement strategies? They have made mobilization and enrollment an explicit and important agenda of the strategic planning process. In addition to developing a strategic plan, the planning process ensures that they also get:

• The broad participation of the organization in the planning

• The contribution and acceptance of the organization to the case for action

• The alignment of the organization around the vision of the future

Broadening the Strategy Development Process

Mobilization begins in the strategy development process, and is an explicit objective of that process. Today's market leaders recognize that the responsibility for strategic innovation cannot be confined to the upper echelons of the organization. That responsibility is delegated to teams of line and staff managers from a variety of disciplines, backgrounds, and levels of seniority. Planning also frequently involves customers and suppliers who help to keep strategies focused on the external realities of the marketplace. It is this diversity of perspectives and the wide spread participation in the fact finding and analysis that helps shape the most innovative strategies and gains consensus across a broad section of constituents.

At Electronic Data Systems (EDS), a major strategy initiative was launched in the mid-90s with 2,500 employees, including a full-time core group of 150 staffers from around the world. The group ranged from a systems engineer in his mid-20s who had been with EDS for two years to a 60-something corporate vice president with more than 25 years' experience. The group crafted a statement of "strategic intent" about the future, which called for the company to provide complete solutions beyond the IT operational services they provided then. The eventual result: EDS created a new management consulting practice, and acquired the highly-regarded management consulting firm of A.T. Kearney in 1995 for $600M.

J.M. Smucker Co., venerable maker of jams and jellies, recently enlisted 140 employees to devote 50% of their time to a major strategy exercise that spanned six months. Team members acted as ambassadors to solicit input from all 2,000 employees. Struggling to grow in a mature market, the company emerged from the strategy planning exercise with a dozen viable alternatives that could double revenues within five years. One result: An alliance with Brach and Brock Confections, Inc. to make Smucker's jellybeans, the first of several co-branded products in development.

Finland's Nokia Group reached out to 250 employees to be part of a strategic review in early 1995. This telecommunications company wanted to ensure that its 70% annual growth rate could be maintained in the future. "By engaging more people, the ability to implement strategy becomes more viable," explains Chris Jackson, who heads Nokia's strategy development activities. "We won a high degree of commitment by the process and we ended up with lots of options we hadn't looked at in the past."6 One result has been the creation in 1996 of a new "smart car" unit to develop integrated navigation and road guidance systems for the auto industry.

By involving a large number of people in the strategy development, many in the organization are prepared and mobilized to undertake the organizational and process changes that the strategy requires. They have a better understanding of the marketplace, including customers, competitors and relative capabilities. They understand the alternatives and have had a say as to which strategy is chosen. They understand the case for action. The strategy is theirs - not just top management's.

Building a Convincing Case for Action

Even when a broad cross-section of employees are involved with creating strategies, an organization will not mobilize around a strategy unless a compelling case for action is communicated to, and accepted by, employees throughout the organization.

When done correctly, building and enrolling people to the case for action is an explicit agenda of the strategic planning process. As part of the fact finding and analysis of the marketplace, customers and competitors, people internal to the company and from each of the business functions are interviewed to get their experiences and perceptions about the current situations and need for change. Their comments, stories and experiences are documented, and shared as the internal view of the case for action. The external data gathering and industry research contribute hard facts to make the case for action more credible and convincing.

Most often, the strongest case for action comes from customers or competitors themselves. For example, a company whose most profitable customers are leaping to the competition can show that a company's very existence is predicated on its ability to implement a new strategy now.

Peter Lewis, President of Progressive Insurance, a successful auto insurer that sells policies to high-risk drivers, realized that unless Progressive could make major inroads in the area of service delivery, its competitors would soon overtake them. Lewis knew that his people took pride in their customer relationships, so he told them simply: "Our customers hate us." That captured their attention and mobilized the organization in ways that profitability projections or marketshare data never could, and eventually moved his team to action. Today, Progressive is setting new standards for customer service, efficient operations, and profitability levels.

The toughest challenge comes when a company is leading the market today and, on the surface, has no reason to change. PepsiCoÕs divisional president Craig Weatherup faced this dilemma in the early 90s, when earnings were up 10%, and the business was profitable. How could he mobilize 30,000 people to make massive changes needed to stay ahead of the competition? He created a crisis. He gathered his 11 top managers and explained that they must achieve a 15% growth rate if they were to position the company for future growth. He handed each manager a model train, with "15%" emblazoned on its side, and a cluster of 11 frightened figures facing the oncoming train. His managers got the message.

Over the next two years, Weatherup held a number of three-day meetings, which eventually included all 30,000 employees. His mobilization objectives were two-fold: to keep reminding people that a crisis was at hand, and to fill every employee with a vision of a new customer-focused organization. During this time, Weatherup and his team restructured the organization, breaking the division into 107 customer-focused units. In addition to saving tens of millions of dollars, the division was on track to make 15% earnings growth by the end of 1993. 7

Creating and Communicating the Vision

To mobilize an organization to implement a strategy, members need a shared vision of the future. Mobilization happens naturally when the members participate in creating the vision for the future. Rather than delegate the development to a few people, representatives from all the business functions participate in the development of the future vision and the blueprint of the required activities. They define the "ideal" and assess the gap between ideal and current capabilities. They plan the tactics needed to close the gap and implement the strategy. They understand what it will take to succeed.

William Weiss, CEO of Ameritech, one of the most profitable Baby Bells, knew that the convergence of phone, entertainment, and computer companies would give Ameritech an opportunity to establish itself as a major player competing for new services such as electronic banking and on-line shopping. He envisioned Ameritech as a leader on the then-emerging information superhighway, but knew this would require massive changes, fast. Ameritech employees were skeptical that this new "su-perhighway" would have a big impact on their business; after all, hadn't AT&T claimed in the 60s that the videophone would transform the industry?

Weiss built upon the passion and commitment of a few of his top executives who shared his vision and realized that radical change must be invoked, however painful it might be. Weiss shared his vision with all 70,000 employees, showing them through real-life examples how the company was losing customers to new competitors that had barely existed just a year before. Employees became convinced that without dramatic change, the company would no longer be a viable contender in the explosive field of networked communications. The result: In the first full year after the company's restructuring into 12 businesses, each focusing on a particular customer, Ameritech's stock provided a 23% return. Without gaining a strong commitment from a few senior managers who could help him preach the benefits of the new vision, Weiss would never have mobilized his organization to implement its winning strategy.

When a vision statement is not clear and credible or is imposed from above, employees will not mobilize for change. A clear and inspiring vision, when developed and owned by members of the organization, serves as a powerful way to galvanize employees into action. The need for change is far easier to instill when the strategic vision is one that generates excitement, enthusiasm and sometimes even a healthy dose of fear.

Summary

The ability to implement a winning strategy is essential for profitable growth. Many companies develop strategies that are impressive on paper, but don't become reality. Many un-implemented strategic plans sit on shelves gathering dust as records of a company's unrealized opportunities and dreams. One of the reasons for the lack of interest in strategic planning during the 80s and early 90s was the track record of failed strategic plan implementations.

Companies that successfully implement winning strategies are those that make enrollment and mobilization of their organization an explicit and important part for their strategy development process. They involve a broad cross-section of their employees in the development of the strategy. People throughout their organizations help develop and substantiate the case for action, and as a result, understand and personally accept the need for change. Representatives from the business functions collaboratively develop the vision, blueprint and plan for change. The collaborators then own the vision, and actively communicate and sell it to the organization.

Mobilization may make the strategic planning process longer in time and more costly in people's effort. However, when the winning strategy is decided, the organization is ready and willing to undertake its implementation. An organization that doesn't involve its people until after the strategy has been developed, will spend far more in time and effort to mobilize its organization for change - time in which the company's competition can launch a competitive strike.

Case Study: Tendo Corporation* (* The company name has been changed)

For over two decades, Tendo, an international manufacturer of electrical safety devices for industrial companies, was renowned for its core technology that had revolutionized the industry. As a result, throughout the late 1970s and 80s Tendo had led its market in sales, profitability and marketshare.

Success, however, bread complacency. In the early 90s, Tendo discounted the importance of a market shift to a new, higher performance, yet more costly technology. Tendo did not believe that its customers would adopt the new technology due to its unit cost. The company instead continued to focus its R&D efforts on improving its existing technology.

By 1996, Tendo had lost significant market share, and found itself under extreme competitive pressure. Although Tendo salespeople were offering deep discounts for their products, increasingly they were losing sales to the new technology. Tendo management knew it faced a crisis. It had lost touch with its customers.

Tendo's president launched a strategic planning process with two objectives in mind. First, Tendo had to realign its product and service offerings to what customers really valued, and how they made purchase decisions. Second, he felt that the Tendo management team needed to improve their ability to listen to and think strategically about their markets, customers and competitors. In short, they needed to change the way they managed their business.

Tendo's strategic planning had historically been done by the President. However, the President knew that this type of approach would not achieve his second objective. He asked KCG to coach his managers through a process that would involve and mobilize them as part of the development of a strategic plan.

Managers from across the company were actively involved in the planning process. Their perspectives and hypotheses about the market formed the basis of a customer questionnaire. They analyzed questionnaire responses and industry research to understand what their customers were saying. They studied computer-generated customer segmentations and confirmed them with examples from their own experiences. To understand the relative potential of the segments, the managers determined the potential revenue and competitive positioning for each segment. As a result of their participation, the managers put aside many long-standing misperceptions and achieved a new understanding of their markets, customers and competitors.

As the final step to the planning and mobilization process, the managers identified the capabilities and operations that Tendo would need to compete in each of its chosen segments. A "gap" analysis revealed the tactics and investments required to build sustainable competitive advantage. Armed with the benefits and costs of each segment, the management team as a whole identified target segments and developed an implementation plan. Because of their heavy involvement in its formulation, the managers were highly committed and eager to begin the implementation of the strategy. Just as importantly to the President, they were newly prepared to assume leadership of Tendo into the 21st century.

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Please see other change and planning related articles at the KCG articles page.

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