McKinsey Advises Senior Leadership Teams to Work in a Fundamentally Different Way

Norman Marks, CRMA, CPA, is a vice president for SAP and has been a chief audit executive and chief risk officer at major global corporations for more than 20 years.

 

In the latest McKinsey Quarterly is an interesting discussion entitled Managing the Strategy Journey. I was struck by the early reference to “pervasive, ongoing uncertainty” and the statement that “companies needed to get their senior-leadership teams working together in a fundamentally different way.” Their basic point is that rather than strategy being set in annual or semi-annual meetings, there should be a more continuous process, a journey, in which strategies and related actions are monitored and adjusted at least weekly.

The authors don’t hold back with their language, noting that they found “strong evidence that a great many companies are generating strategies that, by their own admission, are sub-standard.” Only 35% of strategies they evaluated were considered likely to beat the competition.

McKinsey’s first recommendation is that companies’ executive leadership teams should increase the time they spend together on strategy to 2-4 hours every week or two. Why? Because (although the authors don’t say it this way) risks to strategies and objectives are changing all the time, requiring response and, sometimes, adjustment to strategic directions. The authors do talk about companies’ inabilities to manage uncertainty — i.e., risk. — and the need to develop “uncertainty-management skills.”

They also recommend moving to rolling forecasts and budgets — which recognize that trying to look 12 months or more out is gazing into the mists of uncertainty (my metaphor). McKinsey has some detailed ideas and suggestions for moving to that more frequent process.

The board is advised to recognize the need for flexibility and that the company’s strategy is not “set in stone” but rather there is a “continual evolution and refreshment of the enterprise’s strategic direction.” I would add that this emphasizes the need to integrate risk management into both strategy-setting and performance management.

Do you agree that executive leadership teams should spend as much time monitoring and adjusting strategy as on operational issues?

I would appreciate hearing your views.

Posted on Jul 30, 2012 by Norman Marks

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  1. I'd agree that executive management should develop their "uncertainty" management skills (first) and periodically meet to discuss the status and risks associated with corporate strategies.  In discussing strategies and risks, I also believe that management should have the Chief Risk Officer, Chief Compliance Officer and Chief Audit Executive - assuming they have these positions - at the table to bring substance to the discussion, challenge management to address issues cross-functionally and beyond their traditional mindsets and approaches, and be in position to adjust their own plans and reallocate resources as necessary. 

    I don't know if the article addresses this, but I'd also recommend that the Audit Committee Chairperson or a designee actively participate in these meetings to ensure that they have "real time"  awareness of corporate concerns and can provide feedback, inform the Board of significant concerns, and take action - if necessary - in a timely manner.

  1. It's certainly an interesting and provocative observation. I think a lot depends upon the nature of the industry that an organisation is operating in. Some sectors are more turbulent than others. So for some daily reviews might be appropriate and for others, monthly reviews. Review of Risks and Opportunities should be a regular feature of control (as Risks impact ability to deliver strategy, opportunities may change strategy and missed opportunities could become Risks which impact strategy). But, in line with David Snowdon's observations (in his Cynefin Model) about managing chaotic situations, there is a need to monitor trends in external CSFs which impact a business and to try and identify new ones. So you may need to include people who look at the PEST issues which impact a business too (& not just the CRO, CCO and CAE that Terry mentions).
  1. I would agree that properly done, strategic planning is not a subset of the annual budget process but instead the annual budget should reflect the strategic plan, especially the investment portion.

    The caution I offer, is that while the report dully notes an 18 month period to "change direction", management and the board (and outside investors) shouldn't confuse tactics with strategy. While setting expectations, goals and targets is important, adjusting them based on a monthly review, depending upon the industry, may not be appropriate.

    The challenge is recognizing when external factors force a revision in the strategic objectives and resulting plans instead of a change in the journey.toward achievement of existing goals and objectives.

    For the financial services industry, the crisis of 2008 and resulting regulatory changes definitely forces a thorough review of strategy and what's achievable. For a manufacturing company, the financial crisis while adjusting tactics and timing, may not require the same complete strategic review.

     

  1. Karl hits it on the head that strategy should not be confused with tatics.  Strategy sets the course for the voyage, tatics maneuver the ship along the way.  That being said, management should revisit the strategy at anytime when the fundamental conditions assumed by the strategy change.  Its the conditions both internal and external that need to be monitored to ensure the strategy being pursued is relevant and attainable. 

     

     

  1. I agree with Karl and Mitch. IMO once strategy is developed (formulated) then it is reviewed against external (macro and competitive) and internal (objectives, KPIs, targets, and initiatives) factors periodically. The appropriate frequency of strategy review meetings depend upon the nature of the industry the organization is in as Rod said. But IMO anything less than a month would be too frequent. I also agree to the point that strategy and operations review meetings should be kept separate say two day meeting every month where day one is reserved for operations review and day two reserved for strategy review. 

    Also the point to be noted that strategy review meeings are separete from strategy refresh meetings which should take place annually or semi annually for mid course testing and adapting. 

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