The human brain needs both creative and logical hemispheres to function. The same is true in business. As one can see by the chart below, both Strategic Vision and Tactical Solutions must combine for an organization to accomplish its Strategic Vision. The problem? Strategic visionaries rarely have the ability to accomplish their vision. Tactical Solution Providers rarely have Strategic Vision for an organization. This is because the mindset and skills of the people successful in their field are completely different.
|Definition:||The direction for an organization from a clear view of where it is, where it should be and what changes must be incorporated to enable that transition.||Management of all necessary details to accomplish the Strategic Vision.|
|People:||Generally “C” level leaders. People gifted with creativity and drive to accomplish. These people are often referred to as the “thinkers”.||Generally project managers. People gifted with organization and management skills and are driven to accomplish strategic vision. These people are often referred to as the “doers”.|
It is critical in any organization, that tactical expertise be utilized effectively in order for strategic vision to be accomplished. The purpose of this article is to explore the process of how the entirety must work for success.
When things are out of balance in a business, we often say that the left hand doesn’t know what the right is doing. However it’s not merely lack of communication. The roots of the problem go much deeper.
Strategic planning sessions are generally part of executive meetings, sometimes with major leaders within an organization, sometimes with owners. In any event, Strategic Objectives are generally floated to see which garners interest and acceptance. It is in the evaluation and acceptance of Strategic Objectives that the process for the organization either succeeds or fails.
Most organizations utilize a thoughtful approach to acceptance of Strategic Objectives. When potential strategic objectives compete for limited resources, the process generally breaks down.
Effective organizations QUANTIFY Strategic Objectives so they can be evaluated and measured. For example, it is not enough for a Strategic Objective to be “increase in sales”. It is much more useful to have the Strategic Objective be in the order of “increase sales by 40%”. This clarification enables comparisons to be made between competing Strategic Objectives.
Often, competing Strategic Objectives are evaluated based upon ROI (Return on Investment). Currently, the most widely accepted models for this rely upon Statistical Tools of either IRR (Internal Rate of Return) or NPV (Net Present Value). These tools are easily understood. In the case of our Strategic Objective of Increasing Sales by 40%, one can calculate the benefit (let’s say $8 million) against the cost ($2 million), and it’s quite easy to determine the ROI and compare that with other alternatives.
BUT – Is it really…
Typically, the “devil is in the details”.
Too often, benefit and cost information is insufficiently evaluated. Numbers are may be optimistic guesses that have little relation to reality. Estimation accuracy is not generally questioned.
Sometimes, benefit and cost information borders on the diabolical. I have seen two examples where a Vice President of Sales estimated the benefits and cost of a Strategic Objective of increasing sales which led to a Tactical implementation of a CRM (Customer Relationship Management) system. The problem? Terrible incentives.
Terrible incentives in the cases above, were executive compensation plans that called for the Vice President of Sales to receive a large bonus based upon increases in sales. In both cases, the benefits of the Strategic Objective was extremely inflated while the cost was extremely underestimated. In both cases, the organization lost considerable money and financial position based upon disastrous decisions. The aftermath was disastrous for the organization while the Vice Presidents of Sales were both laughing their way to the bank.
Even if the estimates are not the result of diabolical plotting, inaccuracy causes many significant issues. Examples can be found by asking any banker.
Banks are asked to loan money based upon a Strategic Objective of an organization. An example would be the new Office Building desired by the organization. The Strategic Objective said the office building would cost $18 million to construct. So, the bank decided that was a good investment and loaned the money. When the cost hit $25 million, the bank became worried. When it hit $32 million, the bank realized it was throwing good money after bad in a hope to keep from losing everything they had invested.
Every bank has that same difficulty and can provide numerous examples.
Let’s examine the same from a government perspective. Ask any legislature or city councilman how much they believe departments when they provide cost estimates for projects they hope to carry out. If you find one, you have discovered an outlier. When a public works project is being floated to the public, the primary focus for the public is “Who will be responsible for cost overruns?”. There should rarely be cost overruns if the budget is established correctly. The reality? There are almost always cost overruns.
How can we fix this?
The solution is to begin a tactical evaluation of the estimates. This may take as much as two months, but the results are amazing. The following process can go a long way to making Strategic Plans realistic.
- Break each Strategic Objective into a portfolio of projects necessary to accomplish it. In the case of increasing sales by 40%, perhaps we can break them down as follows:
- Implement a CRM (Customer Relationship Management) system.
- Establish a new international advertising campaign.
- Completely reorganization and rebuilding of the sales organization.
- Find an extremely talented project manager. Instead of relying on budgets and schedules based upon the (sponsor), utilize SMEs (Subject Matter Experts), determine requirements then break all of the work down into a WBS (Work Breakdown Structure) and estimate all work to be done according to PMBOK (Project Management Body of Knowledge). This will give you the beginning of a budget.
- Further add to the budget by using a rigorous project budgeting methodology that includes estimating everything from project manager costs, initiating and planning costs, meeting costs, EMV (Expected Monetary Value of Risk), ETV (the cost of Expected Time Value of Risk impact), training and recruitment costs, procurements and the costs associated with non worked and non productive time that the organization pays for – and you have a cost basis to be used for each of the projects.
- Roll up the cost of each of the projects within the portfolio, then project the balance to the Strategic Objective.
Now you have an effective number which should be used to base ROI calculations. Yes, this may add as many as two months to the length of the Strategic Planning timeframe, but the value of the increased accuracy will generally offset the cost in time and money for doing this evaluation.
Strategic Planning that utilizes a Tactical Approach within the planning process will be far more successful. There are some key issues you should consider:
- Even PMP (Project Management Professional) certification does not mean your project managers have the skills and knowledge to manage the estimating process. PMBOK does not go far enough in teaching best practice to actually develop a budget. Your project managers will need further training.
- You may need to invest in a tool that assists with budget development and also tracks performance. Would it not be nice to have a dashboard to see you have accomplished 22% of the work necessary and have utilized 21% of the budget? These tools exist but are not popular within the industry.
KEY ISSUE: Banks I’ve talked with almost unanimously will reduce interest rates to organizations utilizing this approach. The reason? It reduces their risk.
Strategic Planning must utilize a Tactical Approach within the Strategic Planning effort to enable an organization to add realness to their Strategic Planning effort. This might involve a paradigm change within an organization, but the results could be monumental.