Strategic initiative

The
only route to improved performance is by placing your people at the centre of
your strategic decision-making. Lynda Gratton argues that a new management
agenda is crucial if strategies are to have meaning

We
operate in time, we search for meaning, we have a soul – these are the tenets
on which the fundamental "humanness" of organisations is built. To
deny them is to create organisations without hope, inspiration or excitement.
To acknowledge them brings creativity and inspiration. But how do you bring
these tenets to life?

My
goal here is not to present you with a list of concepts you should consider, or
examples from great companies. They can only be the result of a complex
heritage which we can admire but not imitate. Rather, my goal is to share with
you a journey of decisions and actions which will lead to a living strategy and
set of actions with people at the heart.

This
is a journey I have taken with a number of companies over the past decade, a
journey that has been illustrated by insights from the research with the
Leading Edge Consortium of companies. I want to describe the journey in two
ways, first by reference to what the journey is seeking to achieve, ie the
content and then by the path which forms the process of the journey.

The
genesis of the journey to creating a living strategy started many years ago
when I began to advise companies on how to do more than simply design the best
assessment centres or reward strategies. By doing so we had begun to
acknowledge that the alignment between these processes and the business goals
would be critical to the success of the organisation.

But
it was no good having the world’s most advanced assessment centre if the
competencies it profiled and the simulations it created were out of line with
the mission of the business. Working with teams at BAT, Unilever, Northern
Telecom, Philips and Shell we began to experiment with various ways of bringing
life into strategy. At about the same time it became clear to me from the
in-depth interviews of the companies in the Leading Edge Research Consortium
that, generally, HR professionals and their line manager partners felt confused
and unclear about what a strategy for people could look like and how it could
be enacted.

To
understand the content of the journey we need to consider the three key
elements. These should be seen as a cycle of activity which show the link
between the short- and long-term vision and performance of the business.

Element
1

A
vision of the business

The
key to the energy of the system is the first element, a collective
understanding and vision of what the organisation is capable of achieving,
expressed as short-term goals as well as a long-term vision. This collective
understanding and vision has the potential to create a focal point for activity
which is both engaging and inspirational.

At
the heart of this is the wide group of people who have the view of the future
and arrived at a common understanding of what the future could be. It is the
energy and inspiration of these goals and visions which drives the whole
system.

Element
2

An
understanding of current capability

The
short-term business goals and long-term vision create a broad strategic agenda
and understanding of where the organisation should be heading. But to make
these goals a reality there must be a more clearly defined awareness of what
has to be achieved. The pathway of action comes from the second element, the
gap analysis, which creates a deep understanding of the gap between current capability
and the desired state. The extent of this gap is the basis of a shared
understanding of what needs to be achieved and potentially the energy for the
journey.

Therefore,
on the left-hand side of the cycle, we see the major sources of energy – an articulated
and agreed vision for the future and short-term business goals, scanning of the
capability to deliver to the business goals and vision and from this an
awareness of the gap between vision and capability.

This
cycle operates in the short term and in the longer term. I have described them
as two distinct and separate cycles of activity to show that their cycle speeds
are different. But in reality those two cycles operate simultaneously. At any
one time managers are grappling with making short-term adjustments to the
policies and processes, yet preparing for and implementing changes which will
be felt only three or four years hence.

At
the top is the long-term cycle, operating over a three- to five-year period.
The primary energy pump is the shared articulation of the future vision which
is shown by the arrow entering the model. Feeding into the future vision, is
the scanning of future capability in the sense the perceived ability of the
organisation to deliver to this future vision.

The
analysis expresses the degree of alignment between the future needs and likely
future capability. The understanding of this gap creates the frame for the
long-term people strategy and this highlights those long-term policy and
process levers which can be pulled.

The
short-term cycle is a mirror image, operating on an annual cycle time and
focusing on short-term business goals, current capability and short-term people
strategy tactics. Here the emphasis is on those levers which have the capacity
to create relatively rapid changes in the performance of the business.

When
the cycle is viewed in its entirety it portrays the balance between the
short-term and long-term cycles. These two cycles of activity are seen to be
working in tandem. The energy each creates may be different, they may rotate at
different speeds, but the energy is balanced. If one cycle assumes greater
momentum, the other suffers by losing energy – they are not independent
systems.

The
challenge is to create a strong and vibrant short-term cycle as well as an
exciting and compelling long-term cycle. Dominance of either cycle breaks this
harmony. Balancing the impact of the short-term and the longer term drivers is
critical – an over-emphasis of the short-term goals and levers and the
organisation will descend into continuous, iterative, reactive movement without
building the capability to meet the longer term vision.

Next
come the issues of implementation. The outcome of the understanding of this
alignment is a people strategy which describes the key actions needed to bridge
from the present to the future. Part of the strategy will examine the role
played by the third element, the key people process levers: selection,
performance management and career development. It will focus on those levers
which are most appropriate to the delivery of the short-term goals and the
long-term strategy.

Element
3

A
cluster of people process levers

The
cycle described simply refers to the key activities, the sequence of these
activities and the feedback loops between them. In reality, the cycle operates
within the context of time, with short-term elements spanning one year and
longer term elements spanning three to five years.

For
most organisations there is a dominant short-term cycle which follows the
annual cycle of business planning – the creation of annual budgets and goals,
the communication and commitment to these goals, the monitoring of performance
and the annual ritual of agreeing performance-related pay and bonuses. This
short-term cycle focuses on the rapid realignment of the business as the needs
and aspirations of the business change.

All
the aspects of the cycle are crucial. Without the driving force of the goals,
the vision and actions lack energy and focus. Without the ability to monitor
current capability and understand the gap between aspirations and reality,
actions are simply tactical responses to the most obvious problems, with
limited understanding of what could be more profound issues. Without an
understanding of the total system and the points of leverage, managers fail to
see the bigger picture and the key emerging themes.

The
energy of the short-term cycle comes from a collective agreement about the
goals of the business and understanding of the capability of the business to
deliver. Organisational capabilities and resources include the skills and
motivation of the individual members of the organisation and the capability of
the organisation to deliver to the short-term business goals.

From
this understanding comes the short-term people strategy which focuses on those
short-term actions that will be necessary to fine-tune the delivery of the
goals. In the short term there is limited potential to create systematic
leverage. But there are five possible process levers that can be realigned
relatively quickly to meet subtle, annual adjustments in the business goals.
These are recruitment and selection, performance objectives, performance
metrics, reward and recognition, and short-term training.

Recruitment
& selection

In
one year of the short-term cycle it is possible to refocus recruitment and
selection criteria and processes to rapidly bring and promote the skills,
capabilities and behaviours needed by the current business goals. Changing the
competency profiles for key roles sends strong messages about what is valued.
The recruiting of talent from the external labour market is the critical first
step to building the base of the organisation.

But
while buying talent from outside may plug short-term skills and competency
gaps, the nature of the psychological relationship between these individuals
and the organisation is likely to be mercenary, where skilled individuals are
attracted primarily by the financial contract. They are more likely to move on
when a competing firm brings a better offer for their skills.

So
while the rapid deployment of skills and talent into the organisation can have
a crucial impact on the delivery of short-term goals, the systematic selection
and retention of a stable and committed pool of talent cannot be achieved in
the short-term. For this we have to look to the longer term cycle.

The
characterisation of selection and recruitment processes which are aligned to
the people strategy are:

The
basic competency and skill descriptions accurately reflect what is needed for
the current business goals (ie, there is strong vertical alignment) and future
business goals (ie, there is temporal alignment)

The
selection methods are capable of accurately identifying the necessary
competency profiles and skills

Recruiting
line managers accurately portray the business goals in the selection process

The
selection process takes place in the manner which is judged to be fair by those
participating.

Performance
objectives

The
first step in providing a context which defines performance expectations is to
deploy and agree performance objectives which focus energy and key tasks on
delivering the business goals. Creating this vertical alignment between the
business goals and individual performance creates a strong sense of shared
meaning.

The
characteristics of performance objectives which are aligned to the people
strategy are:

The
performance objectives reflect what is necessary to the business goals (there
is strong vertical alignment)

There
is a strong shared agreement between the manager and the individual about the
nature and extent of the business goals and what has to be achieved to meet
these goals

The
setting of objectives takes place in a way which is judged to be fair and
accurate.

Performance
metrics

Performance
can be realigned around business goals by creating performance metrics which
measure, highlight and communicate these business goals. These metrics are the
means by which the contribution of the business unit to the organisation can be
recognised. Moreover, creating a broad understanding of performance is crucial
to understanding the "state of the system" and to leveraging
organisational learning. The vertical alignment created between the business
goal and individual performance allows managers to monitor the implementation
of strategy and to learn either to adapt the strategy or change their
behaviour.

The
characteristics of performance metrics, which are aligned to the people
strategy are:

The
metrics accurately reflect the business goals

There
is an appropriate mix of what has to be achieved (outcomes) and how it is
achieved (behaviours)

Individuals
are given feedback about their performance in an open manner

The
appraisal takes place in a way which is judged to be fair and accurate.

Reward
and recognition

What
gets measured sends out strong messages and cues about what is important and
valued. Realigning the reward processes reinforces the business goals and makes
known those behaviours that support the business context. Reward and
recognition can be one of the greatest sources of leverage available to a
company in its quest to increase organisational performance and effectiveness.

There
is this strongest potential for leverage when individual and team-based pay is
high enough to encourage and reward effort, and when the basis of reward
allocation is clear, fair and accepted.

Our
research shows that while aligning rewards to business goals is moving up the
corporate agenda, the use of this potential lever is fraught with difficulties.
For some companies the highly competitive environment in which they operate has
created razor-thin profit margins, hence the overriding focus is on containing
costs, which wipes out the potential benefits of performance-related pay. For
other companies the overriding perception is that while attempts have been made
to measure accurately team or individual performance, the link between pay,
job-related performance and business goals is not clear.

The
characteristics of rewards which are aligned to the business strategy are:

Financial
and non-financial rewards and recognition are in line with the implementation
of the business goals

The
financial rewards create a sense of shared meaning through their alignment with
the setting of objectives and metrics (horizontal alignment)

The
non-financial and financial rewards meet employee and organisational needs

The
rewards process is judged to be fair and accurate.

Short-term
training

Within
a relatively short term it is possible it is possible to bring new skills into
the organisation, to realign the objectives and metrics and to reshape the
reward mechanisms. Within a short timescale it is also possible to increase the
skills and competency base through focused, skills-based training and coaching.

Short-term
business-focused training is a key lever in creating the flexible and
multi-skilled workforce crucial to delivering short-term business performance.
The speed of response depends on a clear and shared understanding of the skills
necessary to deliver to the business goals, the provision of high-quality
training and the diagnosis of individual training needs. Short-term training
and development is as much about participating in challenging jobs as offline
training.

The
characteristics of short-term training, which is aligned to the business
strategy, are:

Training
and development is capable of delivering to the business goals of the
organisation

Individual
skills needs profiled and understood

Managers
are actively involved in sponsored training and development.

Creating
alignment between the people processes of the short-term cycle and changing
business goals are critical to organisational success. Without this capacity to
realign, the processes remain incapable of selecting, developing and rewarding
the skills and performance required of the current business goals and adapting
these to align with the future vision.

The
short-term levers have a key role to play in reinforcing changing business
goals and creating a shared sense of meaning about what is important. The
short-term cycle provides the opportunity to make small, incremental,
fine-tuned adjustments as the annual business goals emerge. The energy,
feedback loops and levers of the cycle ensure the organisation is capable of
reacting swiftly to changes in the competitive environment.

The
long-term cycle

The
short-term cycle is capable of making adjustments to meet the needs of changes
to business goals. But the organisation also operates in a longer term cycle of
three to five years, the speed at which more significant changes take place.
For instance, at Glaxo Wellcome the creation of a team-oriented culture could
not occur simply through the realignment of the performance management
processes.

At
Glaxo Wellcome, this longer term vision was supported by organisational
restructuring and by re-skilling of the workforce. At Motorola the delivery of
the business strategy in China required a fundamental transformation of the way
in which the management cadre of the company would be selected and developed.

This
longer term timescale reflects the development of the knowledge base of the
company created through management skills and competencies.

The
levers of structural change, leadership development and a basic realignment of
skills are not levers which bring instant results.

The
long-term cycle is a mirror image of the short-term cycle. The energy for the
system is created through an engaging and exciting vision. The extent of the
gap between the vision for the future and the capability of the organisation to
deliver to this vision comes directly from scanning future capabilities. The
long-term cycle has at the core, those levers which are crucial to the
organisation yet for which the complexity and scale requires continued
management commitment over many years.

This
is an edited extract from Living Strategy: Putting People at the Heart of
Corporate Purpose, by Lynda Gratton. Financial Times/Prentice Hall. ISBN 0 2736
5015 7. Price £19.99. Lynda Gratton is associate professor of organisational
behaviour at London Business School

The
elements for creating a living strategy

With
regard to content the journey should contain the following elements

A
vision of the short- and long-term goals of the business

An
understanding of the current and future capability of the business to deliver
to these business goals and an awareness of the extent of the gap

A
cluster of people processes capable of changing the context in which people
work

With
regard to process the journey should take the following path

It
should be capable of building wide involvement across the organisation

It
should work back from a vision of the future

It
should be capable of creating alignment between the business goals and the
context in which people work

It
should be action-oriented and build on the inspiration and commitment of people

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