Hopefully you will have picked-up on the mention of ‘Growth’ in the title. That’s not surprising, just about every organisation wants to grow – start-ups want to get to scale, small firms want to get big, big firms want to get bigger. However, despite proclamations of ‘double-digit growth’ littering the pages of annual reports and investor presentations, pronouncements of ‘growth through innovation’ and aspirations to ‘grow faster than the market’, the track record is shocking.
Those of you who picked-up on ‘forgetting S&OP/IBP’*, bear with me. It’s not that ‘S&OP’ or ‘IBP’ have to be incompatible with growth, quite the opposite; it’s just that many applications have not been consciously and deliberately designed around the cross-functional decisions required to deliver growth – or for that matter, decision-making full-stop.
(* If you don’t know what ‘S&OP’ or ‘IBP’ are – Sales & Operations Planning and Integrated Business Planning, btw – don’t worry. In fact, it’s probably an advantage. Forget about three-letter-acronyms and just think about the joined-up decisions, coherent actions, and adaptive capabilities you’re going to need to deliver your growth objectives).
By starting with an outcome, I’m looking to sidestep the tendency to jump into the ‘mechanics’ too soon and instead explore the very real challenges of translating strategic choices into sustainable results. By better understanding these challenges, and some of the underlying causes, we can shed new light on potential leverage points and innovative ways to overcome them.
Looking Through A ‘Growth Lens’
In this little series of posts, I’ve picked on growth as one of many potential desired outcomes. I’m not advocating growth, as in simply size or measured purely by financial metrics, for growth’s sake. But rather, a growth mindset and the reinforcing organisational capabilities to enable learning; the ability to adapt, to navigate and create a way through uncertain conditions. In pursuit of a positive purpose, the ability to ‘have an impact’ – on your chosen stakeholders, customers, consumers, users, patients, communities… the world – growth is a positive thing.
Growth of this type is not just a function of ‘more’, but also a function of ‘different’. Overcoming many of the challenges requires the capability to make this distinction, hold both these drivers in mind, and make nuanced choices about how and when to harness these. ‘More’ and ‘different’ exercise very different muscles. Companies that build these deeper capabilities, in support of a purpose, are able to position themselves for growth in the short, medium and long-term, which is reflected in the ‘hard metrics’.
I’m looking through a growth lens first – and then considering the consequences for decision-making, e.g. ‘S&OP/IBP’ – partly as this is a ubiquitous goal that eludes many, partly because it clearly emphasises and hinges on cross-functional coherence and collaboration, and partly because delivering growth in increasingly unpredictable circumstances is stressing many long-established planning and decision-making processes to breaking point.
Pursuing growth, particularly in the face of increasing unpredictability, is a ‘wicked problem’ – the class of problems that resist mechanical, linear problem-solving (or calendared-ised, template-ised ‘strategic planning’ processes); are subject to multiple often uncontrollable variables; have many interconnected and evolving causes and consequences; and no ‘one right answer’. Wicked problems like this can’t be ‘solved’ and the ideas in this short series of articles aim to pose some questions and provide some ‘lenses’ for you to look at your business through. Provocative more than prescriptive, these aim to stimulate your discussions about how you can adapt your decision-making processes (for example, S&OP, IBP, et al, and getting beyond the three-letter acronyms) to position yourself for growth, create a sustainable advantage and have an impact.
Each of these articles leads with a growth theme, explores some different aspects of that theme, followed by some “So What? Considerations for ‘S&OP/IBP’’, as provocation. Each theme is a ‘bite-sized chunk’ that should stimulate some ideas in isolation – not trying to dictate what to see, but offering some different ‘lenses’; you know the routine; “blurrier, sharper, brighter, clearer?” These become more powerful when combined with others to provide new viewpoints and adapted to the nuances of your company, context and culture.
With this in mind, let’s dig a little deeper into the first perspective – the disconnect between a ‘growth strategy’ (or any strategy for that matter) and ‘execution’, the common problem that S&OP/IBP doesn’t really get used to execute strategy, and some ideas for what to do about it…
Growth, and the ‘Strategy-Execution’ Gap
Growth has always been hard to come by. While every organisation wants it, few deliver it consistently. In research throughout the 2000’s, variants of the headline ‘9 Out Of 10 Companies Fail To Deliver Strategy’ have been commonplace. One study, by Prof. Rita McGrath of Columbia Business School, captures the stark contrast between growth aspirations and reality, showing that only 8% of publically traded companies with a market cap of at least $1bn grew their revenues by at least 5% year-after-year over a five year period, and only 4% also achieved a net income growth of at least 5% in each of the same five years. Combine this widespread track record with conditions that are getting increasingly volatile and unpredictable, and growth isn’t going to get any easier.
This gap between objectives and results manifests in many ways and is the result of myriad factors. Bridging this gap and delivering sustainable growth is not a straightforward, mechanical exercise and is fraught with traps and pitfalls that can’t all be planned for ahead of time, as borne-out by the long odds of success.
This is not typically due to a lack of intent or desire alone. Too often in fact, there is an overdependence on the ‘desire’; all ambition, motivational rallying cries ‘to grow’, but no focus on the leverage points or coordinated decisions that translate that energy into a competitive punch or source of advantage.
In some cases, not possessing, and not building, the ‘capabilities’ to capitalise on growth are the issue. But not always, as it strikes companies with successful existing businesses, and all of the pieces of the puzzle, but who still miss out on new waves of growth; Clay Christensen’s ‘innovator’s dilemma’. High profile examples are well publicised – RIM (BlackBerry) not leading the smartphone wave; Sony not building on their portable music franchise despite having both the technology and music industry presence way ahead of the iPod and iTunes; any one of the incumbent airlines who lost-out to the Southwest low-cost model; the now folklore examples of Kodak and Blockbuster, and the list goes on – and there will be plenty of other, possibly less publicised, examples closer to home in your industry too…
Another trap is ‘strategy envy’, looking at other growing companies and trying to copy what’s made them successful. This results in declarations that we’re going to be more ‘Apple-like’, ‘Amazon-like’ or ‘_________-like’ (fill in the blank for the envy of your industry) and is often followed by various disconnected initiatives pursuing spurious versions of ‘best practice’. Fundamentally, copying someone else is a risky approach. Firstly, the various elements that constitute a growing firm are all interconnected parts of reinforcing choices, policies, and often-unseen behaviours, capabilities and interdependencies – the ‘eco-system’ that works in totality. Taking individual aspects out of that context is like taking that proverbial fish out of the water it swims in. The notion that “Google is innovative, and they’ve got beanbags all around the office; we need to get beanbags” is clearly a tenuous causal link and should not cut-it as the basis of your ‘innovation strategy’ (witness the many companies that have tried this and just ended-up with beanbags as a result). While this is a ridiculously trivial example, with little downside risk – a small cost and a potential interior decor faux pas – companies spend hundreds of thousands of dollars on ‘best practice’ programmes founded on the same logic. Secondly, any approaches that have already been codified, packaged as ‘best practice’ and available to all, offer no real advantage, certainly not sustainably. Thirdly, if different parts of the organisation respond to the ‘strategic goals’ by pursuing ‘best practice’ from a functional perspective, the result is a Frankenstein’s Monster of different pieces that – even ignoring the first two points above – individually ‘make sense on paper’, but have no cohesion or coherence in-line with our strategy or culture.
While the causes in any given situation are multifaceted and complex, a common problem we see is falling into the ‘Strategy-Execution’ Gap – the cognitive trap that sets strategy in opposition to execution, and a form of binary thinking that also sets-up various other false dichotomies that become both limiting and potentially self-fulfilling.
Making strategy happen requires an ‘eco-system’ of tightly coordinated, internally consistent and interlocking insights, foresights, choices, decisions and actions. To deliver growth, there must be a clear line-of-sight from the ‘where to play’ and ‘how to win’ choices to position us for growth, through the ‘choreographed growth moves’ and ‘targeted growth initiatives’ that act on those choices and stake-out positions for future growth, to the short-term actions, implications on existing business, and room for improvisation and agility where our plans meet reality. Without this ‘eco-system’, there is a disconnect between ‘strategy’ and ‘execution’. If you hear the complaint that “we had a great strategy, but we just couldn’t execute it”, you’re experiencing a typical manifestation of this gap – a strategy you can’t execute isn’t a strategy at all; it’s a collection of goals or aspirations you have no means of delivering. The corollary is another manifestation – if all functions are ‘busy executing’ but not exploiting the impact that comes with coordinated action, you’re missing a focusing strategic objective or growth initiative.
It may be possible to reduce the damage of this gap when conditions are stable and the ‘rules’ of the market and competition are relatively consistent and predictable. But in the face of greater volatility, uncertainty, complexity, ambiguity, and the pressure for innovation and growth, this cognitive disconnect is pried-open into a chasm between strategy and operations. The result? ‘Strategy’ becomes ‘bigger-picture’ and at the same time vague, vacuous and unactionable. ‘Execution’ focuses on the shorter-term, aiming to get a tighter grip on ‘delivering now’. The ‘gap’ between the two – in the critical medium-term where coordinated cross-functional actions are necessary to get beyond extrapolation of the current business and cultivate and accelerate growth opportunities – leads to debilitating incoherence.
While the combination of symptoms, causes, and potential remedies for not delivering growth are endless – and the specifics in any one case unique – one of the most useful shifts of viewpoint, and a start-point for opening-up new possibilities, is thinking about our own thinking. Be alert to any signs of the ‘Strategy-Execution’ Gap in the thinking in your organisation and look for disconnects in action. Take any opportunities to bridge this gap – however small they seem – in both directions. In the context of delivering growth, there is no better tool for sharpening strategic ideas than the need to act, and there is no more powerful way to create leverage in execution than through coordinated action in support of a clear strategic move.
So What? Some Considerations for S&OP/IBP:
- Does your organisation have a ‘Growth Strategy’? – The answer is almost always ‘yes’, and if so for you, how clearly does this show-up in your S&OP/IBP routines and are you serious about connecting longer-term goals with medium-term choices and decisions and short-term actions? Merely repeating strategy ‘slogans and tag-lines’, but then only reacting to short-term changes is not going to set you up for growth. Jumping from aspirational breakthrough goals to short-term sku-level spreadsheets that dim the lights when you open them is not going to get you on to a different growth trajectory. Of course, using S&OP to better balance short-term demand and supply will bring operational benefits, but without creating the bridge to your strategic choices and objectives, and bringing into view the medium-term initiatives, options and joined-up decisions for growth, these operational improvements may not be leading anywhere new
- What has your growth performance been and what are your future plans calling for? – One of the most telling ways of ‘interrogating’ your strategy – using pointed questions to probe for substance, coherence and what it’s going to take to deliver – is to both extrapolate demonstrated performance into the future and simultaneously work the ‘strategic planning numbers’ and objectives back to today. This often exposes the ‘gap’, the disconnect, in the critical medium-term. Used effectively, ‘S&OP/IBP’ processes and forums provide a platform to address this gap, integrating and reconciling not only the numbers, but the underpinning assumptions and what levers need to be pulled to achieve a growth trajectory. While this is an obvious start-point for some basic ‘triangulation’, and to provoke a conversation about what will be required to achieve growth, many organisations shy away from it. This may be because the ‘S&OP/IBP’ process is not set-up for this conversation, is perceived to only be about the immediate term, or is functionally biased. It may be that they’ve seen ‘hockey-stick’ projections like this many times before that don’t materialise. Or because they don’t really want to hear what this kind of probing will tell them – often this exercise reveals the need for an order of magnitude shift in market share, or a new product impact not previously experienced, or the imminent decline of a category they’ve been hanging-on to, and the like. Or they are not serious about acting on what it will take or getting innovative about finding alternative routes to the desired result. This is what keeps the ‘strategy failure’ odds at 9/10 and sets apart those companies that make up the 1/10… which do you want to be?
- Is S&OP/IBP an integral part of your ‘eco-system’ for translating strategy into action into sustainable results? – A couple of aspects and challenges:
- Challenge No. 1 – Many ‘S&OP/IBP’ processes have not been set-up with ‘strategy execution’ in mind, but have developed from of an operational, shorter-term focus on demand and supply balancing, often with a ‘supply-side’ bias. As organisations see the benefits of this operational process, there are often attempts to ‘connect to strategy’. However, without understanding and addressing the deeper cognitive nature of the ‘Strategy-Execution Gap’ these attempts, often mechanistic in their nature, fall-short. As an example, a common trap is ‘increasing the planning horizon’; based on the misplaced assumption that this will lead to longer-term, and therefore somehow more ‘strategic’, discussions. Merely ‘adding more columns to the S&OP spreadsheet’ is likely to form part of the problem rather than part of the solution, extrapolating information that’s useful in the short-term out into periods where it is less and less meaningful for decision-making. This one-dimensional view of what constitutes ‘strategy’ misses the point completely (we’ll explore ‘what is strategy?’ in the context of growth in some future themes!), failing to distinguish that the types of conversations and decisions – and the supporting information – are different over different horizons. Rather than extrapolating ‘more of the same’ and continually refining the detailed balance of demand and supply, the focus in the medium-term needs to switch to the ‘targeted growth initiatives’ and ‘growth platforms’ that deploy our strategy and move us onto the intended growth trajectory.
- Challenge No. 2 – Many, in fact I would suggest most, processes that are referred to as ‘S&OP/IBP’ have not been thought of as part of a larger ‘eco-system’ – the blend of both the ‘hard’ (processes, data, systems, etc.) and ‘soft’ (people, behaviour, passion, purpose, etc.) elements that translate strategy into results. Instead, being introduced as a new set of ‘activities, tasks, requests for information, metrics, meetings, and yet more meetings’, overlaid on top of other existing processes, forums and activities, competing for attention and running the risk of both duplication and disconnected decisions. Rethinking these conversations and decisions for growth emphasises the connections with other key decision-making processes and decision-makers – for example, innovation, portfolio management, business development, financial planning – not just reconciling different views of the ‘forecast’, but what we need to do differently, and coherently, to bring these growth initiatives to life and to scale. Establishing ‘S&OP/IBP’ as a platform for connecting different decision making processes – as opposed to adding yet another, disconnected and often functionally biased, one into the mix – and bridging the gap between ‘strategy’ and ‘execution’, positions the process as an integral part of the ‘strategy eco-system’.
- Is your ‘S&OP/IBP’ process ‘Best Practice’? – Hopefully you’ve picked-up that this is a trick question, which begs the follow-on questions… whose version of ‘best practice’, how does this support, progress and accelerate our strategic choices, how does it fit with other elements of our ‘eco-system’? Of course we should gain insight, stimulate ideas and trigger improvements from different sources, but recognise that blindly following ‘best practice’ is booby-trapped. Let’s make clear and conscious choices about what comprises ‘bespoke practice’ – e.g. ‘best in our context’ – resisting ‘process for process sake’ and being watchful that our planning and decision-making processes and behaviours bridge the ‘Strategy-Execution Gap’, designed to make our strategic choices happen – you drive the process, not the other way around.
I suspect by now some of you are already shouting at the computer screen, tablet or phone, that ‘S&OP/IBP’ has always addressed this gap, or that no company would operate with such a glaring disconnect. If that’s been your experience, I’m pleased for you; either you’re in the 1/10 group, kidding yourself, or you need to get out more.
Hopefully for some, this theme has given you a chance to reflect, provided a lens to sharpen some features of your situation, exposed some opportunities, and stimulated a few ideas about where you can start a conversation.
Look out for coming instalments exploring different themes – next up, ‘Striking The Tricky Balance Between Performance Now And Positioning For Future Growth’. These will offer more ‘lenses’ and as we progress will open-up some different viewpoints and mental models to add to your armoury.
This is my perspective; what’s yours? If this resonates, please let me know by ‘liking’ with the thumbs up button. I look forward to any comments and developing the conversation…