The world is and will continue to be an ever changing place bringing with it the uncertainties and risk which can cause us to bunker down and remain in our normal comfort zone. This cautious and sometimes defeatist approach is reflected in a number of the electronic discussions that featured in 2014 and focussed largely on dealing with the negatives in a largely reactive way.
Maxumise believes that we are missing opportunities and that in 2015 we should be taking a more proactive and progressive approach. While the uncertainties will not go away, at least we will be taking more control of our organisations destiny.
The proactive approach will need to be strategically driven with a clear and common understanding of where we want to be in say 3 to 5 years as an organisation and identify the corporate risks that need to be monitored. In the current global climate of “what’s going to happen next” and governments struggling to take control and drive their countries forward it is easy for an organisation to lose focus and start to pull in different directions. We had the opportunity to ask 6 Directors and a CEO to write down what they saw as the organisations one “core business”. We ended up with 7 different answers and while 2 were similar the answers were largely quite different. This meant that every time a decision was to be made around the Board table each member’s decision was based on a different “business” – no wonder decisions could not be reached or took a long time to be reached. Each Board member was “rowing” in a different direction. It was not surprising that this confusion was also reflected the operations and overall performance. The business responded quickly to the identification and agreement on what was the core business but that was too late for the takeover.
What is the answer to knowing what business we are in and how do we formulate the direction forward?
Previous articles by Maxumise have focussed on the need to have competent people in the businesses but to do this the organisation needs to know what competence they need and where. Therefore to move forward we need, firstly know what is our core business now and whether it will be the same in the future. Secondly have the whole organisation understanding how they contribute to that single core business wherever they are in the organisation. A robust strategic plan:
- Identifies the core business (now and in the future) and aligns this with the stakeholder needs;
- Establishes, in a quantifiable way, how we measure the success of the delivery of the strategic direction – corporate performance framework and measures;
- Defines the capabilities needed to deliver the strategic direction at the standard set by the corporate performance measures;
- Develops the corporate risk monitoring and reporting framework.
What is different about this approach to Strategic Planning?
It is likely that a number of us have been involved in producing a 5 to 10 year “Road Map” for an organisation that probably sat on the shelf until it was ready for the next production. Chances are we used up rolls of butchers paper; sorry these days it’s pads of extremely large “post-it notes”. The SWOT analysis ended up with a number of the items in all the boxes as there will be difference in opinion on what and how we deliver at the micro or departmental level. While it is easy to be cynical let us now outline an alternative process. This is a rolling strategic plan that develops a direction forward that is aligned with the stakeholder needs, has measurable outcomes, identifies the capabilities needed to deliver and incorporates the corporate risk factors for monitoring.
Diagram 1 – Strategic Planning is Part of a Process that is a Driver for the whole organisation
Maxumise has been assisting organisations incorporate human asset management into their strategic thinking allowing the organisation to drive the human asset management from a common driver and ensuring they have integrated HR programs. This is often referred to as Human Capital Management (HCM), a process that is structured and strategically driven. It is an outcome-based approach commencing with the definition of the strategic direction that includes a performance and a capability framework as well as the identification of the corporate risk. This strategic plan that drives the human capital management is also the driver for the total organisation going forward. This strategic plan also provides the foundation for the organisations good governance and is applicable to small organisations as it is large multi-nationals and commercial businesses to government and not-for-profit.
Know where we have come from helps planning where we want to get to
The strategic planning process is about understanding where we have come from, where we are today and where we want to be in 3 to 5 years’ time. Understanding our historical performance especially as compared to industry norms and the political, economic and possibly social environment in which we operate is key to the strategic planning process. This is part of the pre-workshop activities that lay the foundation for moving forward.
The organisation exists for the stakeholder a number of which might also be of interest to our competitors
The analysis of all the key stakeholders often commence with the owners and/or owners representatives then the customers and not forgetting the staff and business partners. On one occasion an organisation failed to recognise a particular “customer group” only to find they represented over 25% of the business and contributed much more than 25% of the profit. If they had been doing strategic planning and analysed the customer needs this would have been identified much earlier and built into the strategies. The analysis of the stakeholders and competitors is also critical in identifying the organisations core business which may be changing or in the case above the customer grouping was changing rapidly. It is not unusual to find massive change in the core business such as from manufacturing to importation of a product range which we have seen happen in a number of industries in Australia in recent years.
The Corporate Statements
Corporate statements like Vision, Mission and Values are often found at the start of the Strategic Planning or Road Map production agenda. Maxumise believes that the Corporate Statements start with identifying the Core Business or in NGO’s it is often referred to as Core Purpose. The organisation must understand what the stakeholder needs are and how we will measure the success of the delivery of the core business before we even think about Vision and Mission. Once the current and future business is understood then develop the Vision and Mission to reflect the organisation and any changes that may be evolving.
Performance Framework and Corporate Measures – foundation for empowerment
The critical element in any organisation is understanding how they will measure the success of the organisation “at the top”, especially where we are accountable to owners. Having said this it is as important for government entities and NGO’s to have the corporate measures to enable them to complete the Good Governance model.
While we hear about inverted organisation and bottom up driven organisations it is essential that the overall direction is driven from top whether the owner, a Board, the Minister in government and these people are also measured against the corporate performance measures. While some of the corporate measure will be unique to say the Board others will be shared with the CEO/President etc. Whatever these financial and non-financial measures are they need to be quantitative and if an envelope of measures are established the performance management system will empower the employees whether the CEO or the driver.
The Maxumise software (HRmonise) builds the performance measures into the position descriptions. We strongly recommend that the reporting against the measure utilises predictive modelling. This allows reporting to be driven by the employee/manager and focussing on correction of the shortfalls and capitalisation on achievements where these are above expectation. The organisation becomes bottom-up driven if we empower the employees through the quantitative performance management system that originated from the strategic plan corporate framework and measures.
Performance Based Strategies and Action Plans
Organisations can easily fall into the conservative generic growth especially in these times of uncertainty and risk. This growth is often not in alignment with the economic and/or social growth. The steps in preparing for the strategic planning is to analyse the historical performance, including the comparison against indicators. These historical performance trend lines also give us the “steady as we go” line and in some cases these lines are probably trending in the wrong direction. The performance based strategies and corresponding action plans represent the difference between the trend line projections and where we really want to be. If these strategies and action plans cannot achieve the required performance then we may have the projections wrong and will need to modify all or part of the 5 or 10 year projections but this is achieved as part of the process and before the Strategic Plan is completed. Where we have a negative trend line it is necessary to “bottom out” before we get the desired growth so the strategies need to take this into account. In other cases it is capacity that has restricted the expected growth and this may be corrected through a CAPEX that is itself likely to be a corporate measure like Return on Assets or Shareholder Funds. Most strategies will, like the CAPEX example, impact on multiple facets of the business like an increased throughput may be resolved for example, through technology CAPEX which in turn may impact on the type of positions we need as compared to what we have or even a downsizing.
Developing the performance based strategies is a key step in the Strategic Planning process as it firstly it tests and verifies the projections and secondly it defines what needs to be done to ensure the targets are achieved.
No good setting a strategic direction if we do not have the capabilities required to deliver
Many examples exist where the capabilities required do not match the capabilities in house or available through outsourcing or contracts. In a number of cases in the past the technology changes took place first and then we looked for competent people. The media industry experienced this in the electronic television and radio sectors with the move from analogue to digital equipment and from terrestrial to satellite transmission. Pity the print media did not watch the mistakes made by their counterparts. In reality the conversion from analogue technicians to the computer driven digital era involved 2 to 3 years internal development and about 30% to 40% of the staff could make the transition successfully.
It is accepted that the business environment is growing around the business whether economic growth such as GDP and Inflation or the social situation or demographic or overall supply and demand (including competitors). However, are we as an organisation growing the “human capital” at the same rate? We found in a retail chain that the top executive were up to 20% under competent when compared to the required competence for the position. Only 2 out of 19 were competent as compared to the ideal position profile. On average the competence was more that 10% under the required “people power”. If we had the Human Assets on the balance sheet then our return on human assets would have been well below expectation. The other aspect is that the 20% in competence shortfall represents close to 50% to 70% in overpayment as the pay curve is a steep exponential curve at these senior positions. Imagine what impact this would have on the TEC to Sales if they were paid at their true “value”.
The capabilities are represented by the structure which defines the delivery elements whether functional or geographic or a combination. Where we outsource non-core functions these need to be tracked and measured to ensure the required capability exists and develops overtime. Progressive organisations will have current and future structures developed and also likely to have a transitional structure identifying the short term changes that need to be made. Future structures may represent the development of the business in particular the growth in position competence as well as the preparation for more radical changes including change in core business.
The technology is available today to design and value the ideal or desired position and the same system is also capable of assessing and valuing the incumbent or applicant for the position (very different approach to the old “Job evaluation”). While most of the international accounting/reporting standards do not allow us to officially include HR assets on the balance sheet there is no reason not to include them as a balance sheet note and consider a range of measures based on the HR Asset Value including combined asset value if you like. This HR Asset provides a substantial amount of the gap between the company’s book value and market capitalisation in commercial organisations as well as a more realistic indicator of the asset base for government and NGO’s etc.
Corporate Risk is a key component in any Organisations Good Governance
Each step in the Strategic Planning process will identify and prioritise corporate risks that needs to be monitored on a regular basis and reported on ideally together with the corporate performance measures. The degree of change and likely impact of the risk on the organisation provides indicators for each risk as well as an overall corporate risk indicator. When a Board comments three (3) months in a row that the differential between the operating and supply currencies is changing for the worse and takes no corrective action then hopefully their D&O Liability insurance was up to date. The significance of this would have been picked up if the corporate risks had been reported correctly – a significant negative for the bottom-line and a significant good governance lapse.
A well founded Strategic Planning Process for Moving your Organisation Forward in 2015
Diagram 2 – Strategic Planning a structured and robust approach – your organisation needs it!
The rolling Strategic Plan developed becomes a dynamic, living document that is rolled over and extended one year nearing the end of the year. The corporate risk monitoring will also indicate if part or all of the Strategic Plan needs to be reviewed at any other point in time. Strategic Planning is not for the faint hearted as you are making a commitment to change and in some organisations change that will involve some hard decisions and possibly some pain.
The outcome of the Maxumise structured and dynamic Strategic Plan is a progressive organisation where all the assets are considered including the human assets. This approach will allow your organisation to manage their human assets as well as, if not better than, any other asset in the organisation whether financial, stock or plant, equipment etc.
As we write this article we hear of the atrocities in France and feel for all those affected but also see the solidarity and determination. These events together with the instability in global economic drivers, government’s inability to drive and make the necessary change and the social issues faced by a large number of society all contribute to this uncertainty in the world. However with a robust and structured approach to managing our organisations whether commercial, government or non-government; whether large or small there are the opportunities. While the uncertainties will continue to exist and the risks become more difficult to predictable it is time to get out of the “bunkers” and move forward making 2015 a platform for a better and more productive future.
Tel: +61 407998516
Max Underhill is both a Chartered Professional Engineer and a Certified Professional with Australian Human Resource Institute. He has applied engineering principles to organisational and human resource management and developed structure methodologies. As a Civil Engineer Max saw himself as a “resource” manger and focussed heavily on the integrated the management of resources ensuring the optimisation of these resources for productive and efficient outcomes. With one foot in the project management and the other in the organisational/HR field the solutions developed were practical, robust and well tested. The methodology is available through the Maxumise Consulting Pty Ltd (and Maxumise (Fiji) Limited – Licensee) all supported by the software tool Hrmonise.