This the 4th post in the better decision-making series. The series has been inspired by the work of James March (specifically the book A Primer on Decision Making) and is intended to provide a resource for organizational leaders that allows them to them reflect on how decision-making takes place in their organization as well as help them identify opportunities for improving their decision-making environments (for more info see introductory post).
We introduced the setting for our story (Meet the company) and our main character (Meet James) in previous posts. In this story we follow James as he works with management to clarify what decisions the organization needs to make as it aims to address the challenges it is facing (See meet the company), and what subsequently happens as he starts to work with the leadership team to make those decisions.
For convenience, the structure of our post follows (somewhat loosely) that of a generic business case; defining a problem, followed by research and generating alternatives, evaluating alternatives and finally making a decision. The business case process or thinking was chosen as it is one of the most common methods that organizations use to make decisions, including strategic ones (the use of various forms of business cases is usually formalized in an organizational procedure for building them).
Defining the Problem – The CEO sets the stage
After James finished his induction period (which was mainly focused on helping him better understand the organizational structure, key stakeholders, as well as existing decision-making mechanisms), James was invited to meet with the CEO. The purpose of the meeting was to prepare for an upcoming leadership meeting in which the CEO wanted to frame the problem and the associated decisions that the leadership team needed to make. The below is an excerpt of the CEO’s thoughts:
We have a profitability gap and it is getting worse (we are becoming less profitable). We really need to start demonstrating that we’ll be able to close it as soon as possible. We need to do better at selling solutions as opposed to selling products that are becoming commoditized….the other thing we need to focus on is operational efficiency, we really need to be more efficient at everything we do…the overall timeline for the strategy should be 3 years but we really need to demonstrate results as soon as possible…we have gone through similar planning exercises before, I am sure that you will leverage existing processes and knowledge…
As James was leading the preparations for the above mentioned, he sought out the strategic planning function within the organization. He wanted to make sure that as the CEO communicates his message and the team started working, that they would be armed with a detailed understanding of the assumptions underlying their strategy and business model (That would enable a better discussion especially in case of changes).
To his surprise he found out that the strategic planning function has been focused on tactical efforts (for example conducting market research for a specific product) and never really had the opportunity to help understand the organizational strategy in a holistic fashion. This meant that that the thinking and assumptions underlying the organizational strategy were not explicitly defined and or accessible (especially to someone new like him).
Another thing that James found out was that each member of the leadership team had an independent enablement function that led its performance improvement efforts. These teams were made up of team members who had been with the organization for a considerable period of time. These teams had the responsibility of supporting their leader in terms of strategic planning.
Setting the Overall Objective – The Workshop with the Leadership Team
In the first session of the workshop the CEO re-emphasized the profitability gap. After a discussion with the rest of the management team, they agreed on a set of high-level targets below (These were based on what the team saw as shareholder expectations):
- Increasing revenue from solutions by 10%
- Reducing costs across the board by 10%
(James recollected that as he was reviewing some of the planning documents from previous years that aspirations reflected in targets had previously been higher).
The below pillars were identified for achieving the above-mentioned target. These were developed based on a session facilitated by the strategic planning function. The main tools that were used were a facilitated SWOT exercise based on which the strategy (choice of market position and activities) that would enable the organization to win was defined:
- Increased focus on Small and Medium Enterprises – Lead: Sales
- Leverage key resource (see business model in previous post) to build innovative solutions on top of it – Lead: Marketing
- Accelerate the sales cycle (reduce cash-flow issues) – Lead: Sales
- Increase the level of automation in the value chain to enhance efficiency – Lead: Operations
Initial targets were set for each area and the leadership team agreed to come back to the next meeting with some plans and business cases for achieving the above as well as refine it. Each member of the leadership team would conduct their own investigation with the support of their enablement function.
On his commute back from work after the workshop, James was reflecting on the outcome, especially the identified focus areas. The focus areas definitely made sense to him, nonetheless, he wasn’t sure he was clear on the thinking underlying the SWOT and the strategic choices made. It seemed that the leadership team were on the same wavelength and that they seemed to have a similar set of starting assumptions. The narrative of the SWOT analysis and the conclusions progressed smoothly. James was curious as to whether or not there might be alternatives for action that have not been explored.
Modelling / Generating Alternatives
When the leadership team got back together, business cases along each of the identified areas were presented:
- The marketing team presented business cases for new products that could be introduced to leverage resource X for the defined market segment. These included new bundles of products that required more sophistication from an operational perspective
- The Sales team introduced plans to become more strategic in terms of prioritizing customers and distributing the sales force (including enhancing the utilization of their technical sales specialists)
- The operations team introduced plans to accelerate the fulfillment cycle (enhancing customer experience and efficiency through time introducing Lean principles)
It was quickly identified that some the ideas for initiatives cut across multiple functions and it was suggested that champions be assigned to coordinate dependencies and finalize the business cases. James documented that as a take-way to be addressed before the final business cases were developed and presented.
After the workshop, James started working with the teams on finalizing the business cases. For the business cases within the control of a member of the leadership team, the development of the business cases progressed relatively smoothly. James observed that each team seemed to comfortable building and planning for implementing business cases that encompassed process, technology, and organizational perspectives. James also noted that the processes for developing estimates and documenting assumptions were not completely standardized. Each team seemed to have developed its own “style” in terms of strategic planning and business case development.
For the cross-cutting business cases, the governance got very complicated very quickly. To cope with the limited time available, the teams were forced to keep overlapping business cases mostly stand-alone with a coordination governance defined. This concerned James as he believed that there needed to be a more detailed discussion amongst the different teams in terms of dependencies (for example: operations didn’t have a full chance to review marketing assumptions). James wondered how such capable teams didn’t seem to realize that were working in silos?
Choosing Between Alternatives.
In the next meeting the business cases were presented by the respective member of the management team (One to two slides containing the basic idea, key assumptions, and a high-level cost/benefit analysis).
The team had a discussion after each presentation (led by the CEO) and with insight provided by the CFO where they attempted to challenge some of the main assumptions and prioritize business cases. The business cases were prioritized by the overall value of the business case.
After the prioritization effort was complete, a consolidated business case was developed. This included an overall target state (design) that would achieve the future performance requirements, as well as a governance structure for implementation,
James felt that things were moving too quickly for him. He wasn’t confident that the overall design and the associated business case were robust. He was concerned about the limited discussions had taken place between cross-functional teams who might have followed different assumptions and procedures for developing the individual business cases.
Next Steps: Setting-Up the Performance Management System
The CEO announced his satisfaction with the overall effort. He congratulated everyone for being fact/data driven. This message was communicated to wider team involved in the effort by email.
As a next step, James and the strategic planning function were instructed to put together a mechanism for tracking the implementation of the business case. This will be discussed in the subsequent posts.