SUCCESSFUL STRATEGY ISN’T ABOUT AVOIDING RISKS

Performance indicators are most useful when things go wrong, provided a business has a culture that supports collaboration and growth, argues Michael Bourne

KEY PERFORMANCE INDICATORS (KPIS) ARE A GROWING PART OF THE MANAGEMENT TOOL ARSENAL IN MANY SRI LANKAN COMPANIES.

As a management tool, KPIs have been around for decades, and Sri Lanka’s best firms have been using them for years. Those adopting KPIs soon begin to appreciate the logic that what gets measured, gets done.

Michael Bourne, who specializes in performance measurement and strategy execution having helped multinational corporations and the UK and some Middle Eastern governments, suggests that KPIs’ greatest value is seen during difficult times.“This is when KPIs tell you something is wrong and change is required.”

During an interview, he discussed strategy execution and how management tools can be better deployed to deal with risk and uncertainty.

Economic and political uncertainty is common. How can businesses deal better with uncertainty?
Michael Bourne: Businesses have no control over external factors, but both they and the government prepare plans for various outcomes recognizing the need to be nimble enough to change tack and implement strategy quickly. We can only predict, plan and prepare, and it’s not easy to see what’s coming.

Let me tell you about Tesco, a British retail chain. They anticipated US giant Walmart’s entry into the UK, so Tesco prepared for it by changing its business model and KPIs. They did not know for sure that Walmart was interested in the UK, but Tesco’s executives prepared for it nonetheless.

Shell is a classic example of scenario planning. Oil is a volatile industry, but Shell has teams planning for various scenarios, which gives the entire organisation a degree of comfort. Being prepared is always prudent.

I worked with an airline on a contingency plan for a bird flu outbreak. We planned for chaos, disruption of flights globally and loss of business. The bird flu outbreak never happened, but our contingency plan was put into action when an Icelandic volcano eruption disrupted flying.

Businesses can anticipate disruptions, develop strategies
and contingencies, but it’s easy to be complacent. Kodak basically invented the digital camera, but was soon swept away by mobile phones.

What are some of the typical challenges around strategising and implementation?
Bourne: People treat developing strategy or policy as the end, but that’s just the beginning. The ability to implement, to transfer into action, is what it’s really about. This is where many organisations fail. Often, businesses entrust strategy to a specific team, department or unit. It’s important to have bright people who understand markets, the external environment, trends, and are able to identify opportunities and risks to formulate strategy; but for a plan to work, you need the buy-in of everyone else. Strategy cannot be one person’s bright idea. It won’t work.

Successful organisations are ones that realise strategy takes time to implement. You need to influence, inspire and manage change. You need to invest in resources, effort and have a lot of courage in order to have something concrete and measurable.

Sometimes, leadership teams don’t have a handle on implementing strategy. They don’t engage enough or deep enough into the organisation when developing strategy, so implementation becomes a challenge.

There are times when the leadership sets the tone and context, and then convinces everybody else to make a plan work. This is where effective KPIs come in. Most people believe that KPIs can work if the staff is motivated and incentivised to achieve targets, but it doesn’t work like that. KPIs require effective communication and enough resources committed to deliver changes and outcomes. Setting targets alone is not enough.

Performance is a bit like a garden. It’s not about sowing seeds and reaping the crop. You need the right kind of soil, nutrients and sunlight, and you need to keep weeds out. A garden requires constant nurturing—that’s the culture of an organisation. You cannot expect results just by having a strategy and performance measures to monitor implementation. You have to prepare the soil for it, and that is all about culture.

Performance indicators are often viewed as a stick to beat over people’s heads, and this breeds a negative sentiment as nobody wants to be seen to be failing. This is why I am so interested in an organisation’s culture. It’s important to have a culture that doesn’t treat failure like it’s a big problem, but be nimble enough to learn and move on. KPIs may inhibit growth if people are afraid to take risks. So you need to have a culture that encourages some risk taking to innovate and grow.

PEOPLE TEND TO BELIEVE THAT KPIS WILL DELIVER OVERNIGHT SUCCESS, BUT THEIR TRUE VALUE COMES DURING DIFFICULT TIMES

Sometimes, performance indicators can be tricky and you must be prepared to look beyond the numbers.

Far too many people tend to believe that KPIs will deliver overnight success. Th e organisations I’ve seen being successful with KPIs have been going at it for decades. It’s embedded in their culture and is a part of how they invest in growth. They realise that KPIs do work when things are going well, but their true value comes during challenging and diffi cult times. This is when KPIs tell you something is wrong and change is required. But if you don’t have an environment that encourages people to admit their mistakes and change quickly, then KPIs won’t be effective. KPIs are about knowing what’s not working and learning fast; failing fast is one good example.

How do you deal with flawed strategy?
Bourne: Sometimes, a fl awed strategy that is well executed can bring better results than a good strategy implemented poorly. What I like about well-thought-out KPIs is that each of them will tell you if the overarching strategy is flawed, but then you must be able to change course quickly.

Also, if you have a culture that encourages employee feedback, then an organisation will get early warning signs from those closest to the businesses. This will give you some time to do the necessary strategy changes. Nowadays, employees expect to have a say in the way an organisation is run and how strategy is developed. Th ey want to be a part of all that.

Chief executives are ultimately responsible for strategy and setting the tone at the top. You need the top level to set the direction, and create the culture and values of the organisation. But in reality, it’s the people closest to where the seed is growing like frontline staff that can make things work. Th is is why you need their feedback and input flowing right to the top, which is a critical role for middle management.

But isn’t the whole point of a strategy to get somewhere without making too many mistakes?
Bourne: You need to be able to take the appropriate risks so you can fail fast and learn. Th e public sector tends to be intolerant of mistakes, and this is why Brexit is kind of exciting because we are going to make a lot of mistakes and we’re going to get used to that. That will allow us to learn and move on. Th is aversion to risk is preventing large corporations from moving forward, and new businesses that are more tolerant of risks, and constantly trying new things and innovating, are disrupting them.

This is also why private businesses tend to be more successful in terms of growth, because they can fail in private, whereas governments and large corporations often deal with stakeholders that are risk averse.

What advice would you give Sri Lankan businesses at this moment?
Bourne: Most businesses have survived a long time because they have probably been protected from competition. In the UK, most companies haven’t survived for as long as those I’ve encountered in Sri Lanka because they succumbed to competition. But being able to compete is much more than survival, it’s about growth.

There’s an opportunity to grow by being exposed to competition from within and outside the country. Take my earlier example of Tesco – they were in supermarkets and wanted to get into general retail before Walmart entered the market. So they invested in general retail stores in the Czech Republic so they could learn the business, and more importantly, how to deal with competition. Not enough of businesses are taking risks like that these days. If you want to grow, you need to get out there, find a less expensive market to enter so you can learn, and learn fast.

You’re involved in several projects with the UK government. Do any involve Brexit?
Bourne: I can tell you that plans are being prepared for any eventuality, including a hard Brexit. Most bureaucrats, professionals and institutions are preparing the best they can. The biggest challenge is lack of clarity from the government. Ministers are not always clear about policy and don’t seem to understand the consequences of changing their minds midway through a project. Th ere are around 42 projects trying to get implemented, but we can’t go far without clarity from the politicians. But overall, plans are being prepared to deal with the worst, but hopefully, we won’t have a hard Brexit.

 

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BWONE-MINUTE BIO

Michael Bourne is a professor of Business Performance Action, Execution and Implementation at Cranfield University, UK. He gained his PhD from the University of Cambridge researching the design and implementation of performance measurement systems.

He has 20 years of experience working with companies like Accenture, BAE Systems, BP, DB Schenker, OKI Europe, Shell, Tube Lines and Unilever, and governments in the UK and the Middle East through the process of clarifying and executing strategy and policy.

Michael Bourne currently leads the UK government’s Project Leadership Programme.

He has authored over 100 publications, including ‘The Handbook of Corporate Performance Management’, ‘Balanced Scorecard – Instant Manager’ and ‘Getting the Measure of your Business and Successful Change Management in a Week’.

He is a Chartered Management Accountant and a Chartered Engineer.