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28
Jan

Why Companies Bring on a Chief Strategy Officer

“Strategy”, both formulation and execution, is important for businesses of all sizes and research indicates that many companies fail, or experience disappointing results while remaining in operation, because of issues relating to strategy.  While the chief executive officer (“CEO”) is ultimately responsible for all important decisions regarding the direction of the company and its business, including the strategic direction of the company, firms are realizing that there is value to creating a separate position within the executive team for a person who will focus almost exclusively on developing and managing strategic planning processes, generating strategic alternatives for the CEO and other C-suite executives to consider and, perhaps most importantly, acting as a mentor and change agent within the organization to facilitate effective execution of the chosen strategy.  While different titles for this position may be used, it is common for the role to be designated as the “chief strategy officer”, or the “CSO”.  

The CSO was the subject of an extensive study described by Breene et al. in an October 2007 article published in the Harvard Business Review.  Breene et al. began by going through a sample of large global companies to identify executives who were either considered, or considered themselves, to be the chief strategy executives within their organizations, a process that led to creation of a database of more than 200 senior managers.  In order to get a handle of what the role and responsibility of the CSO entailed, the researchers analyzed press releases and media coverage of over 100 CSO appointments and conducted in-depth interviews with CSOs from various industries and a divergent backgrounds. 

Breene et al. cited several reasons why more and more large companies are adding a CSO to their executive teams:  

  • Companies need to cope with an increasingly dynamic and unpredictable business environment that includes complex and sophisticated organizational structures, rapid globalization, new regulations and pressure to innovate.  A CEO cannot deal with all these challenges simultaneously and needs help on key initiatives such as strategy execution. 
  • Strategic planning is no longer done by appointment one or two times a year and, in fact, the consensus is that development of strategy must occur in a continuous, not periodic, process and that important decisions regarding the strategic direction of the firm must be confronted and made all the time. 
  • CEOs have realized that overseeing execution of a chosen strategy is a full-time job and that a CSO plays an invaluable role in explaining and interpreting the strategy to line managers and other employees and make sure that those people act in a manner that is aligned with the goals and expectations of the leadership team rather than their own definition of strategy.

The increased use of a CSO position can also be attributed to the lack of a suitable alternative within the traditional executive team structure.  Breene et al. noted that while it is true that the CEO is ultimately responsible for the “vision and strategy” of his or her company, the reality is that the CEO has too many other demands on his or her time to do justice to all of the activities assumed by an effective CSO.  Among other things, the CEO of a global business must deal with the challenges of operating across multiple time zones, cultures and regulatory environments.  CEOs of large companies must oversee a complex network of business units and alliances and keep up with new trends in technology and customer preferences.  The CEO must also worry about delivering short-term performance, a situation that makes it very difficult for a CEO, who is seeing his or her average tenure shrink, to take long-term strategic objectives seriously.  Breene et al. also pointed out that it is the CEO who must be the face of the company to a wide array of external stakeholders including shareholder advocates, members of the financial community, regulators and legislators, environmental activists and non-governmental organizations (“NGOs”).  Breene et al. reported that one study had found that, on average, top management spent less than three hours a month discussing “strategic issues”, including mergers and acquisitions, or making strategic decisions.

Adding “strategy” to the portfolio of other members of the executive team, such as the COO or the CFO, has been criticized by those who argue that those executives will likely be hamstrung by conflicts of interest.  Breene et al. quoted from an article published in the Harvard Business Review in 1979 in which an executive explained the difficulties a COO might have in overseeing “strategy”: “a fundamental conflict between what is easy to execute and what is right to execute often leads the chief operating officer away from the tougher decisions”.  This is not to say that all COOs will be unable to participate effectively in strategic decisions and execution; however, there will be issues to the extent that a COO is charged with delivering short-term operational results.  The CFO has a similar dilemma, particularly as the holder of that position has become the principal communicator to a financial community fixated on quarterly results.  It is easy for the CFO to get bogged down in explaining variances from earning estimates and neglect to emphasize long-term strategic initiatives and the competitive advantages associated with the company’s intangible assets, human capital and capacity to innovate.  While the aforementioned conflicts are real, it does not mean that a COO or CFO will welcome a CSO.  A CSO will necessarily intrude on traditional ways of handling operational and financial issues and Breene et al. pointed out that when a CSO is hired “[t]he CEO may need to do a hefty amount of evangelizing and relationship management to get the top team to buy in to this restructuring of the org chart”.

Breene et al. summed up the various reasons that companies have taken to creating a CSO position and assigning important and challenging responsibilities to the persons who are appointed to fill the role.  First, the CSO can proactively assume ownership of the decision making process for each new strategic opportunity that arises for the company.  This means that the CSO can bring together all the parties required to reach a decision and get them engaged in the opportunity from the very beginning.  Second, since their role is focused on strategy, CSOs have the time to reach out to the heads of business units throughout the organization to make sure they are acting in ways that are consistent with the company’s strategic plan.  Third, a CSO brings a strategic perspective to analyzing and assessing opportunities that might have otherwise been vetted purely from a financial lens.  Fourth, the CSO can assist the CEO and the rest of the company by developing and maintaining top notch strategy development and execution capabilities that include both internal resources and a sophisticated network of outside consultants.  Finally, Breene et al. point out that many CSOs are interested in the position because they would like to run the entire business at some point in the future and many of the skills required of a CSO are necessary for being an effective CEO.  As such, companies may use the CSO position as a tool in the overall succession-planning process.

Source: R. Breene, P. Nunes and W. Shill, “The Chief Strategy Officer”, Harvard Business Review (October 2007), 85.

12
Jan

The Classical Administrative School of Management

 Jones and George summarized the core principals of several of main theories associated with the “classical administrative school”.  They described Weber’s principals of bureaucracy as follows: 

  • Managers in a bureaucracy have formal authority which they derive from the position they hold in the organization.
  • Managerial authority is the legitimate power to hold people accountable for their actions and thus provides managers with the legal right to exert direction and control over the behavior of their subordinates.
  • Positions in a bureaucracy should be given to people based on their performance rather than social standing or personal contacts.
  • The formal authority and task responsibilities associated with each position in a bureaucracy, and the relationship of that position to other positions in the organization, should be clearly specified so as to ensure that everyone—managers and workers—understand exactly what is expected of them and can be held accountable.
  • Effective exercise of authority in an organization requires that positions be arranged hierarchically so that everyone knows who to report to and who reports to them.
  • Managers must create a well-defined system of rules (i.e., formal written instructions that specify actions that should be taken under different circumstances to achieve specific goals), standard operating procedures (i.e., specific sets of written instructions about how to perform a certain aspect of a task), and norms (i.e., unwritten, informal codes of conduct that govern how people should act) so that they can provide guidelines for effectively control behavior within an organization and increasing the performance of a bureaucratic system.

Jones and George commented that strong and skillful management was essential to making a bureaucratic system work and that poor management could quickly lead to the complex system of rules and procedures impeding operations and causing decision making to become slow and inefficient.

Jones and George summarized Fayol’s principles of management as follows: 

  • Division of labor: Job specialization and the division of labor should increase efficiency
  • Authority and responsibility: Managers have the right to give orders and the power to exhort subordinates for obedience
  • Unity of command: An employee should receive orders from only one superior
  • Line of authority: The length of the chain of command that extends from the top to the bottom of an organization should be limited
  • Centralization: Authority should not be concentrated at the top of the chain of command
  • Unity of direction: Operations within the organization that have the same objective should be directed by only one manager using one plan
  • Equity: Managers should be both friendly and fair to their subordinates
  • Order: Materials and people should be in the right place at the right time
  • Initiative: Subordinates should be given the freedom to conceive and carry out their plans, even though some mistakes may result
  • Discipline: Members in an organization need to respect the rules and agreements that govern the organization
  • Remuneration: Compensation for work done should be fair to both employees and employers
  • Stability of tenure of personnel: High employee turnover rate undermines the efficient functioning of an organization
  • Subordination of individual interests: Interests of employees should not take precedence over the interests of the organization as a whole
  • Esprit de corps: Promoting team spirit will give the organization a sense of unity

Finally, Jones and George emphasized the following points regarding Follett’s concerns about emphasizing the “human side of the organization” and encouraging managers to involve their subordinates in planning and decisions: 

  • Workers are the people who know the most about their jobs and they should be involved in job analysis and participate with their managers in the work development process.
  • Provided that workers have the relevant knowledge, they, rather than their managers, should be in control of the work process and the role of managers should be limited to coaching and facilitating.
  • Organizations should rely upon cross-departmental teams composed of persons from different functional departments to carry out required projects.
  • Leadership should be based on knowledge and expertise rather than upon formal authority given to a manager based on his or her position in the hierarchy.
  • Power and authority in the organization should be fluid and flow to those persons who are best able to assist the organization in achieving its goals.

Jones and George commented that Follett’s approach was considered to be quite radical during her time and clearly her principals flew in the face of much of what Taylor advocated in pushing organizations to adopt “scientific management”.  For example, scientific management had no place for worker input into job analysis.  Not surprisingly, most organizations operating at the time Follett was writing continued to embrace Taylorism; however, Follett’s ideas regarding “cross-functioning”, the creation and use of cross-departmental teams, are now commonly applied by managers and modern organizations also rely heavily on self-managed teams and empowerment initiatives that allow employees to contribute their knowledge and expertise.

Source: G. Jones and J. George, Essentials of Contemporary Management (6th Ed) (New York: McGraw-Hill Professional Publishing, 2014), Appendix A (“History of Management Thought”) to Chapter 1.

5
Jan

Suggestions for Successful Strategy Execution

Neilson et al., a group of consultants from Booz & Company, a global management consulting firm, compiled and analyzed extraordinary amounts of data collected from more than 25,000 employees at 31 companies, and applied their own experiences in working with hundreds of other companies, to identify and rank the traits that made organizations effective at strategy execution.  They noted that while the first move that companies typically make when seek to execute a new strategy is to restructure the business, in fact there were four “fundamental building blocks” and that two of them appeared to be much more important than the others and thus should be the initial and primary focus of the strategy execution process.  The building blocks, in order of importance, were designing information flows, clarifying decision rights, aligning motivators, and making changes to the organizational structure.  Neilson et al. brought the themes together by suggesting that “[e]xecution is the result of thousands of decisions made every day by employees acting according to the information they have and their own self-interest”.  

Neilson et al. created a list of “the 17 fundamental traits of organizational effectiveness” with respect to implementation of strategy, each of which was ranked in order of their relative influence. Five of the top eight traits were related to “information” and included the following: 

  • Important information about the competitive environment gets to headquarters early.
  • Information flows freely across organizational boundaries.
  • Field and line employees usually have the information they need to understand the bottom-line impact of their day-to-day choices.
  • Line managers have access to the metrics they need to measure the key drivers of their business.
  • Conflicting messages are rarely sent to the market.

Neilson et al. stressed that headquarters will only be able to provide guidance about opportunities and trends in relevant business segments if it is able to obtain, analyze and disseminate information to managers and employees involved in operational activities that are closer to the company’s ultimate customers.  They made it clear that information must flow horizontally across different parts of the company so that the company is not held back by individual units acting as isolated “silos”.  Dissemination of information also allows the company to build a strong bench of managers with knowledge of all aspects of the company’s business activities.  Sharing information goes beyond numbers and includes face-to-face discussions among different groups that build mutual understanding and trust and serve as a foundation for the collaboration that is necessary for the use of team to engage with customers and complete other relevant projects.  Finally, information helps managers and other employees make the best decisions possible with an understanding of how their choices are likely to impact the bottom line and the company’s progress toward its strategic objectives.

Three of the top seven traits were related to “decision rights” and included the following:

  • Everyone has a good idea of the decisions and actions for which he or she is responsible.
  • Once made, decisions are rarely second guessed.
  • Managers up the line get involved in operating decisions.

Neilson et al. pointed out that companies need to be aware that blurring of decision rights will inevitably occur as they mature and grow.  During the early stages of business when the company is relatively small it is fairly easy for everyone to have an idea of what others are doing and seeking and obtaining a decision from a colleague is a quick and straightforward process.  Problems arise when growth brings turnover among the management team and continuously changing expectations regarding consultations and approvals, generally reinforced by more formal rules.  The byproduct of all this can be a lack of clarity among managers and employees as to where their accountability begins and ends and how much authority they have to act on their own in pursuit of what they perceive their specific role to be in the overall strategic plan.  Another issue relating to problems with respect to decisions is that it can impair the company’s ability to move quickly to address problems and/or take advantage of opportunities.

The following traits were ranked ninth and tenth and were related to “alignment of motivators”: the individual performance-appraisal process differentiates among high, adequate and low performers; and the ability to deliver on performance commitments strongly influences career advancement and compensation.  Managers and employees working in a system where motivators were aligned with performance could expect that they would be fairly rewarded in relation to their colleagues if they excelled at execution and consistently delivered on their individual performance goals.  This was consistent with the other building blocks in that it pushed everyone in the organization to seek information to make sound decisions.

Finally, the following three traits related to “structure” were ranked thirteen through fifteenth on the list:

  • Promotions can be lateral moves (from one position to another on the same level in the hierarchy).
  • Fast-track employees here can expect promotions more frequently than every three years.
  • On average, middle managers here have five or more direct reports.

Neilson et al. pointed out that structural changes are relatively easy to announce and come with high visibility that demonstrates that a change initiative is in the works; however, Neilson et al. argued that structural changes along produce little more than short-term gains in efficiency and will not be effective over the long run unless they are accompanied by better decision making rules supported by a free flow of information.

Neilson et al. argued that once companies knew and understand the issues and practices that were most important for effective strategy execution, they could implement targeted initiatives to improve their execution capabilities.  Suggestions that were offered, and the “building blocks” they were intended to impact, included the following:

  • Focus corporate staff on supporting business-unit decision making (decision rights)
  • Clarify and streamline decision-making at each operating level (decision rights)
  • Focus headquarters on important strategic questions (decision rights)
  • Create centers of excellence by consolidating similar functions into a single organizational unit (decision rights, information flows)
  • Assign process owners to coordinate activities that span organizational functions (decision rights, information flows and alignment of motivators)
  • Establish individual performance measures (decision rights and alignment of motivators)
  • Improve field-to-headquarters information flow (information flows)
  • Define and distribute daily operating metrics to the field or line (information flows)
  • Create cross-functional teams (information flows and aligning motivators)
  • Introduce differentiating performance award (aligning motivators)
  • Expand non-monetary rewards to recognize exceptional performers (aligning motivators)
  • Increase position tenure (information flows and structure)
  • Institute lateral moves and rotations (information flows and structure)
  • Broaden spans of control (structure)
  • Decrease layers of management (structure)

Neilson et al. cautioned against trying to implement too many of the initiatives, which they referred to collectively as a “transformation program” at one time and recommended that companies turn first to implementing practices that will positively influence freer flow of information and clarification of decision rights throughout the organization.  Once those areas have been improved, the executive team can turn to alignment of motivators and identifying and implementing the structural changes that will help institutionalize decision rights, information flow and collaboration among the right people.  Neilson et al. summed up the sequence of transformation of strategy execution as follows: “… [ensure] that people truly understand what they are responsible for and who makes which decisions—and then [give] them the information they need to fulfill their responsibilities.  With these two building blocks in place, structural and motivational elements will follow.”

Sources: G. Neilson, K. Martin and E. Powers, “The Secrets to Successful Strategy Execution”, Harvard Business Review (June 2008), 61; and G. Neilson and B. Pasternack, Results: Keep What’s Good, Fix What’s Wrong, and Unlock Great Performance (New York: Random House, 2005).