Entries RSS · Company-strategy: answering the 'process-coding' riddle
The way I blog is pretty much continuous; I try to relate everything—from fashion, to relevance, to mobile-commerce, to SOA, etc.—to a general theme, which I eventually hope to use as a framework of principles and values in my future activities. I guess that this to some extent answers my previous question of whether process-coding is good or bad. It is good, as long as it takes environmental variables into account that may affect its effectiveness, as well as the fact that a basic human prerogative is to exercise the freedom of will and choice.
This post will be a little academic, as I’ll be quoting from a number of sources from that field. The reason I thought of writing it was because of following paragraph, I read this morning, by Michael Porter, strategy-expert extraordinaire:
“Strategy, in modern language, is a solution to the agency problem that arises because senior management cannot participate in or monitor all decisions and directly ensure the consistency of the myriad of individual actions and choices that make up a firm’s ongoing activities. If an overarching strategy is well understood throughout the organization, many actions are obviously ruled out and individuals can devise their own ways to contribute to the strategy that management would be hard pressed to replicate.” (Source)
This quote comes from a 3-part framework of firm-success, the first being a clear strategy, the second an alignment with external (industrial) conditions, and the third being the exploitation of ‘distinctive competencies.’
In other words, setting strategy is a form of ‘process-coding’ the behaviour of individuals within an organisation. This is easier said than done. According to another book I am reading, called “Valuation,” the process of reviewing the state of a larger organisation’s functions (marketing, sales, production, finance, research, etc.), in order to paint a picture of the historical and future “deployment of assets and resources” (the author’s definition of strategy), and their (expected) returns, is both a qualitative and quantitative process, which can take years to complete. I quote:
“The installation of a top-to-bottom, comprehensive planning system endorsed by all members of the organization and practised by people well-educated in its use is a process that usually takes three to five years.“
For smaller and younger organisations, I imagine that many of the exercises, described in the ‘E-Myth Revisited,’ will do just fine.
Last, but not least, Harvard Business Review recently published an article on ‘strategy execution,’ which is in the end the most important part of strategy—how well it is carried out. It is well-worth a read and I’ll just share the first five success-factors, out of a total of 17, with you:
The results came out of a 1000-company survey and are pretty telling; the more explicit the company strategy, the more explicit the role of individuals within the organisational context, the higher the success-rate of strategy execution. Meaning that no matter how hard it is to achieve just that, it is well worth the effort.
Something to think about.
Vincent
P.S. if you want to read a horror-story of how not to do it, check this out.
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For Company-strategy: answering the ‘process-coding’ riddle: I believe it’s as simple as 1-2-3.
1. Identify the individual industries the company competes in. (Many companies skip this step which ensures poor planning.)
2. Read Porter’s books
3. When anyone says, “Porter is too <>” – ignore them.
Cheers,
Alan S. Michaels
co-founder http://www.eCompetitors.com
I love when people make it seem so simple. But yes, Porter’s five forces are indeed essential reading towards understanding market-priorities. As for “process coding,” I first of all need a sexier term for that, and I think it requires a better understanding of human resources. Porter is not my idea of an expert in that field.
Having a really strong interest in decision making, it dawned me one day too that agent problem is a strong driver for clear company strategy.
Unfortunately, having a clear strategy well understood by all employees is not only a fantasy is also easily undermined by other company initiatives. One good example are the company stock options, which fell quickly out of favour around Enron’s collapse. On a theory level, again, aligning company’s and its employees’ wealth maximization decision-making criteria is difficult. The former is ran by shareholders that expect a certain (and only certain) level of risk-taking (otherwise they’d invest in bonds or something else) and the latter have mortgages and annual holidays to pay.
How well information flows or how clear the strategy is has thus no effect, if they live in isolation on what are the motives of employees. The current flavour of the month is performance matrixes, which are flawed in so many ways (you get what you measure, gaming, …) that it hurts. You know that if Sony wants to sell 150M PS3′s this year and if that’s in a executive’s perf matrix that there will be price-cuts until that number is full. Also, expect meetings discussing what counts as a “sold” PS3, what counts as “2008″ and is a warranty replacement a “PS3″… =)
That’s why I’d add to the first success factor in the chart “… and how they are related to company’s strategy and shareholder interests.”
The correlation of information-availability and strategy execution definitely needs to be qualified. An entry-level employee will not execute strategies and hence not need the same level of access. Added: Though they should receive enough information to be able to execute their job, of course, but that is context-driven, not company-wide.
The agency problem is a riddle that’s long been in existence and for which, so far, I think venture capital-styled contracts provide a pretty good template for aligning principle and agent, which is both a matter of carrots and sticks.
Unfortunately that idea gets somewhat diluted as soon as you’re working with people for whom the stick doesn’t work, e.g. long-term employees or people on the same level as you. And too many carrots just give you a stomach-ache so…
Please answer this riddle for me:
A Chomby was walking down a path one day when Jhudora appeared in front of it. “Solve this puzzle, and you may pass,” she said.
Suppose you have a bunch of wooden beds, each weighing 200 pounds each, arranged in a pyramid. The base layer is 5 beds by 5 beds, the layer above is 4 beds by 4 beds, and so on until the top layer of one bed. They are arranged in such a way that each bed is resting on four beds below it, one leg on each bed.
If the weight on each bed is always equally distributed to all four legs, and each bed leg can only support 200 pounds, how many pounds can you place on top of the topmost bed? Please round to the nearest pound, and plese submit only a single number as your answer.
[...] should add that, while I asked about the relevance of process-coding before, I don’t actually believe that you should have to spell out every task for a person, unless [...]