the art and discipline of strategic leadership

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� Discover...why a sound business strat-egy is more important —and more elusive — thanever before.

� Examine...the three key questions that chief executives mustanswer before they canbegin to formulate an effec-tive strategy.

� Analyze...the five external factorsand the six internal factorsthat must be aligned for acompany’s strategy toachieve success.

� Improve...your ability to find the rightmembers for your strategyteam by looking for the ninecharacteristics of peoplewho think strategically.

� Unleash...the power of a proven, five-phase model for formulatingand implementing yourbusiness strategy through-out the organization.

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The Art and Discipline ofStrategic Leadership

by Mike Freedman with Benjamin B. Tregoe

A summary of the original text.

Strategy is one of themost used and abused

words in the corporate lexi-con. Rarely will you findany two executives, consul-tants, or academics whoagree on its definition.

For the purposes of thissummary, we define "strate-gy" as the framework ofchoices that determines thenature and direction of anorganization. The choicesyou face include which prod-ucts and services you willoffer and not offer, as wellas what markets you willserve and not serve. Theyalso include what capabili-ties you will need and notneed to take the selectedproducts and services to theselected market.

Adding to the complexity of making these choices,strategic thinking in today’sglobal economy is often dominated by the recent disappointments of dot-comfrenzies, e-commerce, andmergers and acquisitions.

And, in the time since theterrorist attacks, politicaland economic concerns have thrown spotlights onstrategic vulnerability.

As a result, a climate ofdeep uncertainty and rapidchange has become thenorm of the new century.Some pessimists tout thisuncertainty as a reason forabandoning strategic plan-ning altogether. Yet, thereality is that strategy hasnever been more important.

Now, more than ever, thecompany that lacks a coher-ent strategy is vulnerable toattack. In this summary,we’ll start by discussing themajor tasks senior execu-tives must undertake beforethey create a new strategy.Then, we will demonstrate a powerful five-step modelfor formulating and imple-menting that strategy. Theeffectiveness of this modelhas been demonstrated in a wide variety of public,private, and not-for-profit

Volume 11, No. 12 (2 sections). Section 2, December 2002© 2002 Audio-Tech Business Book Summaries 11-24.No part of this publication may be used or reproducedin any manner whatsoever without written permission.

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organizations around theglobe.

While the authors describethe process in the context ofa very large enterprise withmany layers of management,the reality is that it can beused just as effectively by asmaller business.

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THREE KEY QUESTIONSABOUT STRATEGY

When a company is about totake on the work of creatingand implementing a strate-gy, the chief executive mustbe out in front. In this por-tion of the summary, we’lltake a look at the three key tasks chief executivesshould perform beforestrategy formulation canbegin.

1. The first task is tounderstand the assump-tions about internal andexternal factors that willdrive the strategy.

2. The second task is toselect the right peoplefor formulating andimplementing the strate-gy and decide how tolead them. This meansanswering questionslike: "How will I lead myteam?" and, "Who willbe my key players, andwho will serve us betterfrom the sideline?"

3. The third task is todesign the process forgetting to an effectivebusiness strategy.

Let’s consider each of thesekey tasks in more detail.

Again, the first task is tounderstand the assump-tions about internal andexternal factors that willdrive the strategy.

Let’s start with the exter-nal assumptions. Abusiness occupies a positionin its value chain betweenthe company’s suppliers and other resources, which can be described as being "upstream" and its customers, which can be described as being "downstream."

One of the many vital rea-sons for formulating yourcompany’s strategy is todefine its current place inthe value chain, and carveout that portion of the valuechain in which it will participate in the future.This definition distinguishesthe organization from itscompetitors’ role in a similarvalue chain.

In some radical instances,the formulation of strategymay dramatically redefinethe value chain itself. Forexample, consider theInternet’s impact on thedelivery of goods and services in the business-to-consumer arena; it mayeliminate a middleman distributor altogether.

One of the first things acompany must do when itformulates strategy is toassess the external variablesand influences that affect it.There are five basic external

influences to consider.

The first external influenceis the environment.Environmental variablesinclude the expectations ofgovernment and regulatorybodies, the local and globalcommunities where theorganization operates, eco-nomic and technologicaltrends, and trends in societyat large.

The second external influ-ence is the company’s relationship with its shareholders. In the case ofa subsidiary, the parentcompany is the shareholder.A leader must always bemindful of the mutual relationship between thecompany and those who contribute to its financialstrength and profit from itsfinancial gains. Oftenshareholders and the parentcompany are in harmony,but there are also plenty oftimes when they are not.

The third external influencecomes from customers. Aprofitable relationship mustexist between those whohave needs and the productsand services designed tomeet those needs.

The fourth external influ-ence comes from suppliers.These include the externalsources of raw materials andcomponents, as well as tech-nology, people, capital, andeven wholly outsourcedcapabilities.

The fifth external influencecomes from competitors.Competition occurs both

2 A U D I O - T E C H

upstream for suppliers andresources, and downstreamfor customers and markets.

Any sound strategic visionwill be based on assump-tions and implications aboutthese external variables.However, internal factorsare at least as important as external factors for acompany that wants to formulate and implement a strategy. There are fivebasic internal factors that must be aligned insidea company for strategic success:

1. The company's businessprocesses.

2. The company's goals.

3. The skills and knowl-edge of the workforce.

4. The company's informa-tion and knowledge management.

5. The company’s culture.

The first internal factorinvolves a company’s busi-ness processes. These arethe processes that describehow a company’s work isdone, whether that work is interfacing with cus-tomers and suppliers ormore internally focused.

Those processes must bealigned with the company’sgoals. These goals includethe financial and non-finan-cial measures of successderived from the strategy,both as overall businessobjectives and as specificmeasures throughout the

organization, that are used to assess team andindividual performance.

The third internal factor isthe skill and knowledge ofthe workforce, which may beof a process, content, ortechnical nature.

Naturally, the knowledge ofthe workforce must bealigned with the firm's information and knowledgemanagement. Specifically,this refers to the data that iscollected and analyzed, dis-seminated, and applied insupport of the organization’svalue creation.

The fifth and final internalfactor is the company’s culture. This refers to thecombined effect of behaviors,values, heritage, thinking,and relationships, as well asthe way these are embeddedin an organization and itsperformance.

Each of these internal factors impacts, and isimpacted by, the choicesmade during strategy formulation.

Now, we turn to the CEO'ssecond strategic leadershiptask: selecting the rightpeople for the strategyformulation team, whichis also known as the "topteam." The top team is agroup of eight to 12 top peo-ple who are charged withthe responsibility to formu-late and implement thestrategy.

In order to be sure that youare choosing the right people

for your team, you need toanswer three questions:

1. Are your prospectivemembers working at thehighest levels, with sig-nificant responsibility?

2. Will their leadershipinspire a large segmentof the organization?

3. Do they have the right distribution of expertise?

More specifically, people who have strategic thinkingability are likely to possess:

• Good judgment.

• Passion and courage.

• Willingness and abilityto collaborate.

• Conceptual strength.

• Holistic perspective.

• Creativity.

• Expressiveness.

• Tolerance for ambiguity.

• A sense of stewardshipfor the future.

B U S I N E S S B O O K S U M M A R I E S 3

CHARACTERISTICS OFSTRATEGIC THINKING

First, good judgment. It’simportant to identify teammembers who are able tomove beyond systematic,fact-based analysis to acton their best instincts andjudgment. Strategy for-mulation puts a premiumon visionaries who have afirm grip on reality.

The third preliminary taskchief executives need to con-front before they formulate astrategy is to clarify theprocess for getting there.

This involves understandingthe five phases of formulat-ing and implementing strategy. Here is a brief outline of each phase; wewill examine each of them ingreater detail in the rest ofthis summary.

The first phase is strategicintelligence gatheringand analysis. In thisphase, executives assess thepresent and likely futuretrends in markets, competi-tion, technology, and a hostof other areas. They alsoexamine certain internalvariables like the company’svalues, capabilities, marketresults, and past strategicendeavors. Then the team

A U D I O - T E C H4

tolerate ambiguity is ableto analyze a situationeffectively, even whenonly partial information isavailable.

Ninth, a sense of steward-ship for the future.Strategic thinkers are will-ing to consider optionsthat may sacrifice short-term gains when it meansdoing what is best for theorganization in the longrun.

THE DEFINITION OF STRATEGY

Let’s take a more in-depthlook at the definition ofstrategy that we intro-duced earlier. As wenoted, strategy is theframework of choices that determines thenature and direction of anorganization.

The framework establish-es the boundaries or parameters that definethe scope of businessactivity. The criteria thatdetermine what’s "in" or"out" in an organizationare derived from a varietyof sources, such as thecurrent domain, the organization’s overridingbeliefs and values, the competitive advan-tages identified, andshareholder and parentcompany interests.

Choices are made in threedimensions of the organi-zation: the products andservices that it will offer,the markets that it willserve, and the key capabil-ities that it must deploy inorder to take its productsand service to market. Ofcourse, the criteria thatguide these choices vary.

The nature of an organiza-tion is what exemplifies it,

describes its character,and makes its shape rec-ognizable. For example,McDonald’s is the epitomeof a "fast food chain."

Of course, a strategy alsohas much to say about thefuture. Direction is theterm we will use in thissummary for the organiza-tion’s future course. Itencompasses the choicesthat will be made aboutfuture products and ser-vices, as well as futurecustomers and markets.

Once he has a grasp ofthis definition, a chiefexecutive must turn hisattention to choosing anoverall strategy-settingprocess.

Second, passion andcourage. These qualitiesdistinguish those who lead from those who merely manage. In formulating strategy, topteam members mustaccept assumptions thatare rapidly shifting, over-come timeframes that are impossibly brief, andprepare for the worst.You want team memberswho thrive on these challenges.

Third, collaboration. Topteam members will needto balance their passionto persuade with thegrace to compromise. Atthe end of the day, theymust be willing to acceptthe outcome of a rationalprocess and their collec-tive wisdom, put politicsaside, and commit to thesolidarity of the team.

Fourth, conceptualstrength. This is the abili-ty to think incisively andsystematically aboutabstract matters.

Fifth, holistic perspective.This characteristic ofstrategic thinkers is theability to see the wholepicture without being con-strained or misled by itsvarious parts.

Sixth, creativity.Creativity is the ability to think out of the box, to come up with radicallynew ideas, and to move beyond existing constructs.

Seventh, expressiveness.This is the ability to trans-late abstract thinkingabout the business intoclear words and picturesthat are understood byothers.

Eighth, tolerance for ambi-guity. A person who can

develops a set of assump-tions about the future, theimplications for the busi-ness, and a profile of theenvironment in whichstrategic decisions will bemade.

The second phase is theactual act of strategy for-mulation. Based on theoutputs of the first phase,the management teamexamines alternative futuresand then selects and createsthe strategic profile orvision. The quality of theformulation depends on the strength of the processthrough which the teammakes these decisions, as well as the strategic capabilities of the team’smembers.

The third phase is masterproject planning.Invariably, there are a sig-nificant number of projectsthat must be completed toensure that a strategy isimplemented effectively.Using sophisticated projectmanagement methods, thetop team can create a planfor how these projects willbe completed. Projects that will have the most significant impact may beidentified as being part of an optimal portfolio of priorities.

This leads to the fourthphase: strategy implemen-tation. One of the mostimportant elements of a successfully implementedstrategy is the quality ofproject execution. Everyplan also requires a majorcommunications effort

and broad employee involvement. Throughout,the progress of each projectis systematically reviewed,with modifications made asnecessary.

Finally, the fifth phase is monitoring, reviewing,and updating the strate-gy. This final phaseincludes the review of bothinternal indicators, such asprogress against strategicgoals and measures, as wellas of external indicators,such as, for example, howthe assumptions upon whichthe vision was created holdup in the marketplace.

Strategy is never a linear,one-time effort. At any pointin the five phases, newinformation will enable theteam to ensure the strate-gy’s continuous renewal.Key decision points mustconstantly be re-visited. Astrategy must never be iso-lated from the outside worldor from internal activitiesvital to a company's success.

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PHASE I: FROM DATA TOWISDOM

We now turn our attentionto the first phase of formu-lating and implementingstrategy: strategic intelli-gence gathering andanalysis.

Some of the thorniest issues in setting strategyrevolve around data. Forexample, you might beginwith questions such as:

• What data is needed?

• What information is relevant?

• What judgments can be made, and how canthe power of these becombined to draw impli-cations for the future ofa company?

Done properly, this work isthe prelude to formulating arobust strategic vision.

The key to assessing data,agreeing on assumptions,and making judgments liesin asking the right ques-tions. Some of the questionsyou must pose are those thatwill help you and your teamto look at broad areas of theexternal environment thatare largely outside the con-trol of the organization.Others might help the teamidentify the key players inthe organization’s valuechain, and the trends thatare likely to affect theirbehavior in the market.

To move from data to wis-dom, the CEO must lead thetop team decisively andshape the thinking of itsmembers. This requires thefollowing activities:

First, the CEO must ensurethat the team gathers accu-rate data. This requiresfocusing on the answers to afew vital and strategicallyrelevant questions:

• What are the key eco-nomic trends that couldaffect our strategy?


• What are the most sig-nificant trends in societyfor our business?

• What are the most relevant trends in gov-ernment, politics, andlegislation?

• What major technologi-cal trends could affectour future?

• What trends are likelyto affect our customersand suppliers?

• What should we expectfrom our direct and indi-rect competitors, as wellas any potential newcompetitors?

Second, the CEO must helpthe team to distill the datainto a manageable quantity.He must identify commonthemes and issues for theteam to address. The teamthen creates a summarythat reflects the group’s bestinsights.

Third, the team must analyze and agree on themeaning of the informationpresented. The membersshould draft a set ofassumptions, or agreed-toknowledge, that will guidetheir thinking from thispoint onward.

Fourth, the team membershave to make judgments.Based on their assumptionsand implications, they haveto use their best judgment toanalyze potential problemsand opportunities. Theyshould engage in "what-if"scenarios, anticipate the

future, and foresee the organization’s role in it.

Fifth, the team has to evalu-ate its own beliefs. Beforemoving on to begin formu-lating the strategy itself, itmust rigorously review thevalidity of its assumptionsand implications. If moreresearch is needed to vali-date the team's thinking,this is the time to consultacademics, think-tankexperts, and governmentmodels.

Gathering and analyzingdata effectively at this stageis crucial. In order to opti-mize these activities, adoptseven ground rules:

First, find the right answersthrough asking the rightquestions. By sticking to thecentral questions, each piece of the strategic territory willeventually be covered.

Next, continually zero in on the implications of theinformation for your ownfirm.

Then, build a framework oftrust. Avoid blindsiding theteam with closely guardeddata or "clever spin" thatseeks to score points ratherthan advance the group’sthinking.

Fourth, work hard to findcommon ground. Rememberthat areas of agreement areoften powerful indicators ofimportance and relevance.Flexibility and compromiseare always in order.

However, be sure to remain

open to challenges. Thenaïve question or the uniqueperspective of the outsider isoften crucial for validatingan assumption.

Sixth take risks, and trustyour own and others’ judg-ment. Remember that noneof you can predict thefuture. Together, you will doyour best to anticipate it.

Finally, trust the process.Setting strategy deservesthe discipline you wouldaccord any other crucialbusiness process, combinedwith your most inspired creativity.

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PHASE 2: STRATEGYFORMULATION

Now that we've exploredgathering and analyzingstrategic data, we’re readyto turn our attention to thesecond phase: strategy for-mulation.

More specifically, we need toexamine the two initialparameters within whichthe strategic vision will bedeveloped: The first para-meter is the organization’sstrategic timeframe. Thesecond is the organization’sbasic beliefs and values.

First, there’s the timeframe,which is the most basic parameter of a strategic vision. A defined timeframe,no matter how long, focusesthe development of environ-mental assumptions. Moreimportantly, it is the axis formeasuring organizational


and employee performanceagainst strategic objectives.

Ask yourself about theforces that affect your owncompany’s sense of strategictime.

• How do shifts in theworld at large, such asemerging legal and regu-latory constraints, affectyour enterprise?

• What is the overall rate of change in yourindustry?

• What is the impact of relevant markettrends, technologicaldevelopments, shifts in demographic pat-terns, and emergingcompetitive threats?

The answers to questionslike these confirm that anycompany’s strategic time-frame is uniquely its own.Naturally, the timeframeitself is subject to reviewand modification as theprocess goes forward. Itsprimary purpose is to provide a parameter forstrategic deliberations, and a reference point formeasuring progress towardimplementation.

Second, basic beliefs play a big role in formulating corporate strategy. Today’scorporations face increasingpressure to examine and acton a set of values andbeliefs.

Basic beliefs are an impor-tant aspect of strategyimplementation because

they set boundaries for day-to-day decision making.They also provide a sense ofcohesion that reinforcesstrategic unity. And theysupport desired performanceby setting a standard foraccountability.

To be strategically useful, acompany’s basic beliefs haveto fulfill six "musts":

1. They must be universal,and apply to everyone.

2. They must be realistic.

3. They must be clearlystated and easily understood.

4. They must be measurable.

5. They must be demon-strable so that everyonecan see them "in action."

6. They must be consequential, because ifa company’s basic beliefshave no impact on itsdecision making, theyare irrelevant.

Most companies settle on a relatively few basic beliefs,usually between eight and12. They frequently addressstrategic, operational, andhuman dimensions.

Basic beliefs are not simplysomething that is "nice tohave." Instead, they explainhow an organization goesabout its business. They arecrucial to successful strategyimplementation, aligning theorganization’s communica-tions, culture, and practices

with its strategic vision.

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Once the company hasestablished its basic

beliefs and set its time-frame, it is ready to create aset of alternative strategicvisions for consideration.This is the most importantpart of the strategy formula-tion process, and it dependson identifying the company's"driving force."

The driving force is the pri-mary factor that decides theproducts and services thecompany will and will notoffer, and the markets it willand will not serve.

Every organization has at its strategic core one of eightdriving forces:

1. Products or servicesoffered.

2. Markets served.

3. Low-cost production.

4. Operations capability.

5. Method of sale and/ordistribution.

6. Technology.

7. Natural resources.

8. Return on investment orprofit.

Because they vary in charac-ter, the eight driving forceslead to entirely different portfolios of products andmarkets and sources of com-petitive advantage. Let’s look


at each driving force in turn.

For up to half of the companies you’re likely toencounter, the driving forceis Products Offered. AProducts Offered organiza-tion meets a basic andenduring need in the marketplace by offering alimited range of products.The core products will havesignificant synergy in meet-ing a specific and basic need.For example, an automobilemanufacturer addresses theneed for personal trans-portation by making andselling cars, station wagons,sports utility vehicles, andthe like.

One of the most common dilemmas an organizationfaces is the choice between anarrowly-focused and a morebroadly-focused ProductsOffered alternative. In asense, these are differentstrategies. However, aProducts Offered firm willnot include in its portfolioany products or service thathave radically different end-use characteristics, or thatmeet completely new typesof needs.

Customers and end-users ofa Products Offered organiza-tion perceive its products orservices as superior to, or unavailable from, its competitors. This differenti-ation might be based onuniqueness, price, value,packaging, quality, or a combination of these charac-teristics. As a result, thecompany will continuallylaunch product improve-ments, modifications,

upgrades, and extensions ofits product line. It will notventure into entirely newproducts.

A Products Offered organiza-tion seeks to penetrate current demographic, geographic, or industrialmarkets as fully as possiblebefore pursuing growththrough the extension ofmarkets or the creation of entirely new markets.For this reason, it needs to be fully attuned to its customers’ buying motives.

The competitive advantageof a Products Offered firm isderived from its product differentiation, which lies in both the real benefitsdelivered and in end-userperceptions. The company’sproduct differentiation mustbe both distinctive and supe-rior to its competitors inorder to maintain orincrease market share.

The key capabilities a Products Offered organiza-tion exploits to sustain competitive advantage are most often related toproduct research, productdevelopment, and sales anddistribution. Examples ofProducts Offered companiesinclude Rolex and Toys "R"Us. Both of these companieshave a narrow product rangethat meets an enduring,well-defined need.

A second driving force isMarkets Served. While aProducts Offered organiza-tion provides a limited rangeof products to an unlimitedmarketplace, a Markets

Served organization doesjust the opposite. Thesecompanies build a powerfulrelationship with a clearlydefined group of customers.

A Markets Served companypursues growth and newbusiness through offering anever-increasing number ofproducts to its chosen mar-ketplace. It will not venturefrom its core market. Itunderstands its customers’buying patterns and sense ofloyalty.

The competitive advantage aMarkets Served enterpriseenjoys is achieved throughits superior relationshipwith its chosen market.When it succeeds, it gener-ates fierce customer loyalty,and company and brandidentification.

Such franchises are hard tocome by, yet extremely com-pelling. For example, tryconvincing a teenager tochange his sneakers fromNike to Reebok, or vice-versa. The key capability of a Markets Served compa-ny is the ability to focus oncreating this type of loyalcustomer base. Such a company actively assessescustomers’ needs throughmarket research, and seeks to match these ever-increasing needs with a widerange of products.

A third driving force isProfit. Initially, many CEOsare attracted to this force fora very obvious reason:Without solid financial per-formance, all other choicesare meaningless. Profit is


typically the driving forcebehind highly diversifiedcompanies like GeneralElectric. However, it isimportant to remember that the financial goals of abusiness are the result of its strategic vision, ratherthan its primary reason forexisting.

A fourth driving force isLow-Cost Production. Thetype of organization thatuses this as its driving forceoffers a limited range ofproducts. Its superiority liesin offering a strongprice/value relationship. Itsfocus is on the ability to pro-duce goods more cheaplythan its competitors. Itderives competitive advan-tage from price as it passeson cost advantages to itscustomers. All its key capabilities are related toproduction processes, skills,and investment in equip-ment and related services.Examples of Low-CostProduction organizationsinclude commodity compa-nies and many firms in thesteel industry.

A fifth driving force isTechnology. A company pursuing this driving forcebuilds its vision around abody of knowledge, or a setof capabilities that enable itto develop new technologiesor enhance existing ones. Itskey capabilities are researchand development. Its com-petitive advantage lies in thedevelopment, acquisition,management of unique andsuperior technological exper-tise, and its application tothe leading-edge products.

The sixth driving force isNatural Resources. Such anorganization will own or con-trol a portion of one or moreof the world’s naturalresources. It may makeusable products for directsale to consumers, or sell itsresources to intermediariesfor use as raw materials.The competitive advantageof these companies lies inthe quality, quantity, loca-tion, form, and cost ofexploitation of the naturalresources themselves.Companies in the oil, natur-al gas, and forestry productsectors often have a NaturalResources driving force.

The seventh driving force isthe Method of Distribution or Method of Sale. Thesetwo similar driving forces acton their logistical, distribu-tion, and sales capabilities,as well as the human andsystems resources needed to exploit them fully. Typicalexamples include expressmail deliverers and telemar-keting or in-home sales organizations.

Finally, the eighth drivingforce is OperationsCapability. A firm pursuingan Operations Capabilitydriving force has a set ofcapabilities which, whenused in a variety of combina-tions, produces a wide rangeof products or services.Such companies’ competitiveadvantage lies in their supe-riority within a certaindomain, be it printing, metalfabricating, or trading.

Selecting the optimum dri-ving force is one of the most

important and powerfuldecisions made by a topteam. How can your company go about choosingits driving force? Itdemands an equally power-ful process for making thatchoice.

First, create a set of objectives drawn from theorganization’s strategicintelligence. Second, rankthese by their degree of rela-tive importance since theywill not all be of equalweight. Next, develop anumber of alternative futurestrategic visions, based onperhaps three or four alter-native driving forces. Thenevaluate each alternativerigorously against the criteria to discover the bestchoice.

Using this process to select adriving force answers twoseminal questions that faceevery organization:

• What is the company's competitive advantage?

• Which key capabilitieswill be required to capitalize on it?

These components will helpmake the company’s strate-gic vision a reality, as it istranslated into actionthrough carefully alignedimplementation.

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PHASE 3: MASTER PROJECTPLANNING

We now turn our attentionto the third phase of


formulating and implement-ing strategy: master project planning. Thechallenge of implementingstrategy can be overwhelm-ing. However, the strategicmaster project plan is onetool that can be of immensehelp in overcoming thisdaunting challenge.

Strategic master projectplanning includes the ele-ments common to all projectmanagement methods:

• A clear statement of the project’s purpose and specific goals andobjectives to be met.

• Expectations about project on-time delivery.

• Scheduling.

• Resourcing.

• Cost performance assessment.

• Correct sequencing of projects.

• Quality and performancestandards.

However, it is also wider inscope and more ambitiousthan day-to-day projectmanagement.

The purpose of the strategicmaster project plan is four-fold:

1. To assess the strategic initiatives that must belaunched.

2. To integrate into the plan the existing

operational projects that continue to be relevant.

3. To identify the projects that must beaccomplished first.

4. To create a system forreview and integrationof additional projectsthat keep their imple-mentation in line withthe strategic vision.

The strategic projects comefrom four areas:

The first area involves criti-cal issues that pose a signifi-cant threat to the strategy’ssuccess. The projects thataddress critical issues willbe of the highest strategicpriority. For example, oneelectronics firm faced asevere shortage of engineersbecause larger and wealthiercompetitors were luring thetop talent to better-equippedresearch facilities at highersalaries. Its first two strate-gic projects were designed toaddress this critical issue:The firm upgraded itsresearch facilities, and itdesigned a more attractivecompensation system thatallowed it to recruit andretain the engineers it needed to implement itsstrategy.

The second area is thestrategic vision, or what thecompany will be like if thestrategy is successful. Theteam must carefully revieweach of the profile’s compo-nents to identify the gapbetween the company’s cur-rent state and its ideal stateat the end of the timeframe.

Some of the componentsthat might be comparedinclude the company’s cur-rent versus ideal source ofcompetitive advantage, aswell as its key capabilities,basic beliefs, and strategicintelligence gaps.

The third area that’s likelyto yield strategic projects isexisting key operational projects that impact thestrategy. It’s inevitable thatprojects will already beunderway in your organiza-tion, such as the upgradingof telephone systems or moving headquarters to anew location. Althoughthese may have little to dowith the strategy, they willcompete for resources andmanagement attention. As a result, they may affect the company’s ability toimplement strategy. Somewill be integrated into theplan, while others will bediscontinued.

The fourth and final arealikely to yield strategic pro-jects are the internal andexternal influences that wediscussed earlier in thissummary. Again, externalinfluences include relation-ships with shareholders,customers, and suppliers, aswell as the actions of com-petitors. Internal influencesinclude the company's goals;the skills and knowledge of the workforce; the company's information andknowledge management;and the company’s culture.

Drawing on these fourareas, the team gathers apotential pool of projects for


the strategic master projectplan. They will range wide-ly in urgency, in importance,and in potential strategicimpact. The top team mustprioritize them based on theimpact and urgency of theirresults, as well as theresources that will be need-ed and the resources thatare available. Ultimately,the team will rank theentire list of potential pro-jects. The entire list ofpotential projects is the"optimal portfolio."

The top team then starts at the top of the list andallocates resources to thehighest-priority projects,and stops when there are noresources left. However, thisdoes not mean that a lower-priority project will neversee the light of day. Theteam can move a lower-ranked project ahead of onethat consumes moreresources, or it can choose toallocate more total resourcesto the overall plan.

The projects that survivethis exercise become thebasis of the strategic masterproject plan.

The top team must focus onthree key responsibilities toensure that the plan willsucceed. Let’s look at eachin turn.

First, the members of thetop team remain directlyinvolved as the ultimatereviewers of the strategicmaster project plan. Theymonitor the progress of theplan, and approve the inte-gration of new projects intothe plan.

The team is also the stewardof the organization’sresources, allocating bothpeople and funds to thehighest-priority projects.

Finally, its members are the champions of the imple-mentation itself, both astheir ultimate sponsors andthe chief communicators.The top team’s activities arethe focal point for the orga-nization’s assessment ofstrategic progress.

The top team delegatesresponsibility for overseeingthe execution of the projectsto the "strategy implementa-tion team." As a first step,this team sets its own char-ter, including a proposal for communication andinteraction with the topteam and the rest of theorganization, the processand methods to be used, andthe resources it requires.This team also completesthe optimal project portfolioanalysis.

When projects are being executed, the "strategyimplementation team" pro-vides expertise and supportto "project teams," and, insome cases, the requiredtraining. It reports progresson the overall plan to thetop team, and prepares an initial analysis for anyadditional projects to be considered.

Finally, the "project teams"are formed for the executionof individual projects.Project roles are clearlyidentified. Every partici-pant in the implementation,from the top team to individ-ual project resources, mustunderstand their responsi-bilities for managing,reviewing, and executingprojects.


1. A single project man-agement methodologyto be used throughoutthe organization. Thecommon language forprojects must be systematic, visible,and transferable to alllevels, from the teamto the shop floor.

2. Clarity in the definitionof projects, as well as their planning andexecution.

3. Robust tools and methods for projectresource planning,scheduling, and monitoring.

4. Awareness of thehuman side of projectmanagement; manag-ing projects is about managing people.

5. A sense of balancebetween people's cur-rent job requirementsand their project work.

DEFINING THE PROJECTMANAGEMENT DISCIPLINE

The first responsibility isto choose a systematicprocess that defines theproject management discipline. The adoption of a project managementdiscipline for strategyimplementation must besubject to the followingfive criteria:

Effective systems must becreated by the "strategyimplementation team" forreporting progress on allmajor projects and signifi-cant exceptions to executivemanagement. In the earlystages, the reporting mayoccur at weekly intervals.Eventually, monthly report-ing may suffice. The top team retains its responsibilities throughoutimplementation.

The optimal portfolio of projects must be reviewedregularly by the top team in order to limit project proliferation. With the same discipline applied tothe initial selection, projectsthat are in the pipeline, aswell as new projects suggest-ed by feedback on theprogress of the plan, are re-evaluated against thewhole. The top team mustalso consciously manageemployee behavior toinclude rewards for perfor-mance on projects andbehaviors in support of thestrategy.

Finally, remember that thelikelihood that an entirestrategic master project planwill meet its time, cost, andperformance expectationswithout a hitch is virtuallyzero. When the inevitableexceptions and variationsare reported, the top teammust seek out and remedythe causes. When progressis habitually below expecta-tions, they may be forced toask: "Is this strategy realis-tic, or are we below par inits execution?"

The strategic master plan is the most powerful, andnimble, tool available todrive the business forward.It enables a top team torespond with the full weightof its financial and humanresources to the pivotalevents that determinewhether the strategy willsucceed.

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PHASE 4: STRATEGYIMPLEMENTATION

The fourth phase is strategy implementation.

In this portion of the summary, we examine three crucial aspects of thestrategic master projectplan.

1. Organization structure.

2. Strategic information management.

3. Complexity.

We’ll begin with organiza-tion structure. Whenever astrategy has been formulat-ed, a company’s structureshould at least be examinedto ensure that it promotesimplementation. If it does,then it should be left alone.If it inhibits implementa-tion, then restructuring isjustified.

Default structures are oftenbased on geography, or typesof manufacturing activities.Yet, the executive teammust look first to the strate-gic vision for guidance. Ifthe driving force is Products

Offered, for example, anorganization will almost certainly consider a struc-ture that reflects its majorproduct categories.

Selecting a structure shouldbe considered with the samerigor as choosing a drivingforce. Most importantly, theselection criteria must be rooted in the strategicvision if the structure is to successfully supportimplementation.

Next, we’ll examine the sec-ond of the three aspects:creating and managingstrategic information.

To formulate strategy anddraw up the strategic mas-ter project plan clearlyrequires relevant informa-tion. Every top teamexpects its organization’scapacity for gathering, storing, retrieving, and syn-thesizing information to playa crucial role in its success.And it risks strategic failureif it does not build the development, analysis, anddissemination of strategical-ly critical information intoits implementation plan.

When information is opti-mized to support strategicactivities, a company can gain an invaluableadvantage. Given an under-standing of the strategy, theinformation technology func-tion can play a critical rolein meeting the need forstrategic information, aswell as the day-to-day infor-mation normally requiredfor operational, financial,and planning purposes. The


information glut shows no sign of abating. Winningorganizations will harnesstheir people, time, and IT capabilities to ensure the strategic dimension ofinformation comes first.

The third and final aspect isreducing complexity, particu-larly with respect to therelationship between products, customers, andprofitability. Many compa-nies make too many prod-ucts in too many markets —and this effort to be "allthings to all people" canbecome a huge obstacle to implementing a newstrategy.

For example, one stationerysupplier offered tens of thou-sands of items, includingpencils in all sizes, colors,and shapes. The firm rou-tinely accepted orders for itsmost obscure items in minis-cule quantities. Inevitably,the typical customer placedthese offbeat orders no morethan twice a year, whileplacing the bulk of hisorders with another suppli-er. The firm lost money onevery order of this type, butit continued the practice foryears. This level of complex-ity made its new strategicprojects impossible, and thefirm ultimately had to aban-don the practice to avoidgoing out of business.

This example illustrates the"Rule of 50/5." Like thewell-known Pareto Rule of80/20, the Rule of 50/5describes the high cost ofcomplexity. The top 5 percent of the number of

products sold in a givencompany typically accountfor at least 50 percent of therevenues. Similarly, the top5 percent of a company'scustomers typically accountfor at least 50 percent of itsrevenue.

To look at this rule anotherway, the bottom 50 percentof many firms' customersaccount for only 5 percent ofrevenues.

Serving these customers islethal to a business strategy.Therefore, the top teammust look for ways to reducecomplexity by eliminatingunprofitable products, discontinuing service ofunprofitable customers, andoutsourcing any activitiesthat could be done more efficiently by a supplier. Inmost cases, reducing com-plexity will free up evenmore resources for the high-priority projects that arecrucial to the strategy.

Finally, to achieve success instrategy implementation,every organization must alsobuild a systematic approachto communicate its strategythroughout the ranks.Failure to do so is a death sentence for strategyimplementation.

The strongest support forimplementation will begained when everyone isgiven opportunity to under-stand, question, andembrace the strategic vision.

Let’s look at the nine keys to the vital task of communicating strategy:

1. Realize that the topteam carries the bruntof the responsibility.The involvement of theCEO and/or members ofthe original top team isa powerful message inand of itself, and theyshould be part of asmany communicationchannels as possible.

2. Stick together. No matter what the ups and downs of the strategy process mayhave been, the top teammust present anabsolutely unified front.The slightest chink in the armor or rum-bling in the corridorinvalidates the entirecommunication effort.

3. Rely on face-to-face communication. On atopic as crucial as strategy, doubt and controversy are givens.When communicationtakes place on a personallevel, any potentiallymisleading messages canbe clarified on the spot.

4. Involve the supervisor ormanager closest to thetargeted individuals orgroups. To answer criti-cal questions about howspecific actions andbehaviors will change,the person who will beresponsible for monitor-ing those changes mustbe on hand, alongsidethe CEO or top teammember.

5. Know when to listen.Every communication


effort provides an oppor-tunity for dialogue. Thepotential lessons to belearned are too valuableto overlook.

6. Skip the dazzle andfocus on the message.The purpose of commu-nicating strategy can getlost in the attempt topackage the messageappealingly.

7. Engage your audience.There’s an art to moti-vating people, and communication must bepersuasive if it is toinfluence each individ-ual to change his or her behavior.

8. Connect every messagewith an action to betaken, or a plan to beimplemented. If yourconstituents are expect-ed to make changes, theyneed to understand how.Words are not enough.The "next steps" thatpeople have to take mustbe made clear.

9. Remember that no com-munication is successfulunless it answers the keyquestion on the mind ofeveryone who receives it:"What does this mean forme?" When you’re ask-ing individuals andgroups to change theirbehavior and align theirefforts with the strategicvision, they’d betterunderstand what youwant them to do, andwhy.

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PHASE 5: MONITORING,REVIEWING, AND UPDATINGTHE STRATEGY

Once the company’s strategyhas been implemented, thereis still more work to do toensure that it succeeds. It’scrucial to monitor thehealth of a strategy at alltimes. This is the fifth andfinal phase of formulatingand implementing strategy.Thus, we conclude this summary with four majorquestions that are vitallyimportant to ask when it comes to monitoring strategy.

The first major question is: How well are we imple-menting the projects in ourstrategic master projectplan?

To answer this questionfully, the progress of everyproject, sub-project, andindividual task must be subjected to four additionalquestions.

1. Is the project meeting itsobjectives, at therequired level of quality?

2. How does our progressmeasure up against theexpected timelinesestablished?

3. Are we staying withinthe expected budget ofhuman and financialresources?

4. Has anything changed to cause us to revisit thepriority of projects?

The top team’s involvement

in reviewing project progresswill vary with the nature ofthe organization and thecomplexity of the plan.Some companies may reviewonly those projects wherethe deviations are very significant, or where a project failure could derailthe strategy. Others mayfocus on a limited set of cri-teria, or conduct a regularmonthly overview.

In any case, the top team’scommitment must be clear,including its own adherenceto the project managementdiscipline and the processfor assessing the priority ofpotential new projects.

The second major questionis: Is strategy driving the decisions made in ourorganization?

One could argue that it is thesum of every decision madethat determines whetherstrategy implementation hasbeen successful. The topteam plays a vital role inboth modeling and monitor-ing the strategic alignment of decisions. It must be onthe lookout for managerial"lone rangers" who operateas though immune fromstrategic imperatives, posing real threats to bothimplementation and strategicsuccess.

The third major question is:Are the environmentalassumptions we made dur-ing strategy formulation stillvalid?

The assumptions madeabout internal and external


environments during the initial phase of strategicintelligence gathering arethe bedrock on which everyother component of thestrategy rests. If an envi-ronmental tremor shakesthose assumptions, thestrategy may well be in trouble.

The fourth and final ques-tion is: Is our strategyviable? Is it driving our success in the marketplace?

Viability is both the purposeof strategy and its ultimatereality test. The top teammust habitually re-visittough questions aboutwhether or not it has select-ed the best possible drivingforce, whether its relativeemphasis on certain products and markets hasproduced the expectedresults, and whether thecompany’s source of competi-tive advantage has proven tobe a significant one.

As the world continues tobecome more competitiveand complex, continuallyasking — and answering —these questions is more vitalto your company’s successthan ever before.

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B U S I N E S S B O O K S U M M A R I E S

NOTES

15

ABOUT THE AUTHORS

Mike Freedman is the president of the Worldwide Strategy Practiceof Kepner-Tregoe, Inc., the global consulting and training company.He has led many consulting assignments designed to facilitate clientsin the formulation and implementation of their strategies. His clientshave included the American Manufacturing Corporation, the Bank ofIreland, Bristol and West Bank, Corning, Courtaulds, ChaseManhattan Bank NV, Hallmark, the Industrial Development Agencyof Ireland, ICI Paints, Kennametal, Inc., Lagoven (The State OilCompany of Venezuela), Massey Ferguson, Royal Mail, SavoyGroup of Hotels, and many others.

Benjamin B. Tregoe is the cofounder of Kepner-Tregoe, Inc., and theauthor of numerous books, including the bestselling managementclassic The Rational Manager.

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