Decision Making and Organizational Transformation
True transformation is rarely accomplished through incrementalism alone. It requires specific resources to be allocated to transformative initiatives and the real trade-off is often between how to balance between supporting the base business and investing in change.
Transformation requires more than expending 5% of current employees time on thinking about projects and initiatives to transform an organization. It requires specific people who can fully focus on understanding the benefits, costs, risks and opportunities that transformation can bring, then developing and proposing initiatives into the capital planning process or other budget processes. Then the real tradeoff that executives need to make regards determining which activities are not high priority in the base business so that the resources can be re-allocated to truly game changing initiatives.
What I have personally witnessed in many commercial organizations is that the two most difficult things they deal with in the evolution of their businesses is first to have people coming up with good ideas regarding new products and initiatives then making judicious investment decisions to ensure that they continue to innovate. The most destructive thing to many companies is overinvesting in their cash cow and not sufficiently investing in innovation causing them to grow in spurts, fall off cliffs, change personnel and start the process over again. Capital planning in infrastructure, IT, or other key parts of the business is key to maintaining this balance.
5 comments:
I do not believe that the major mistake companies make is to spend too much money on Cash cows. Its their inability to see the incremental benefit from it that is the trouble. As it is making money, they dont seem to mind spending on it as it seems "safe".
But it might lead to less diversification in the product mix that in-turn could hamper the revenues.
Ankit -- your last point is the key point. It's fine to invest in the cash cow as that is the underpinning of the business. The issue is that we find many organizations become so myopically focused on the cash cow itself that if or when the environment changes, they have no other alternatives lined up.
Transformation is a continuous process of invention and reinvention. Maintain the cash cow, but be explicit and proactive about continued investment in the strategic/new initiatives that could be the future of the organization.
Oftentimes we will see a good set of objectives for transformation of a business -- the objectives targeted at new product lines, new distribution channels, etc. But then the alternatives for investment (projects or products) are all small, incremental steps supporting the same old stuff. Relatively little new thinking because it's not really anyone's job to specifically address in a full-time capacity "how" the business will transform. It ends up being small pieces of a number of folks jobs and so doesn't ever quite reach the level of critical mass.
One example -- we just met with the strategic planning organization of a major hotel group. The new CEO of this $1B+ group had decided that it was critical to invest in strategic planning to help guide the future of the organization. But, as we found out when we met with this group, it turns out that the "strategic planning" was in fact a second job after their primary jobs which ranged from marketing positions to operating positions. They seemed distracted in the meeting -- "oh yeah, we have to do that strategic planning stuff." Even worse, they had no budget authority. We met with the CFO afterwards, and one of the planning folks suggested to the CFO that the strat plan document serve as an initial guidepost for criteria for investments. The CFO laughed and told this guy -- right there in front of a bunch of others -- that nobody reads the strategic planning document. No joke. This guy's face just fell. So this organization has a title for "strategic planning" but isn't really supporting it.
To say the least, I am shocked at your narration. I always thought that companies place a lot of (real) emphasis on strategic planning. But, it seems to be otherwise.
btw, A very nice blog. Gives me some food for thought everyday.
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Being transparent and close to staff without interfering allows for interaction and gives staff the feeling they have contributed to a decision. This is beneficial for both staff and managers. I read a another good article over at Barclays Website called “Wise decisions in the face of uncertainty”
Have a look over at: http://www.barclays.co.uk/commercial/turningthecorner/insight/
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