Distillations in this newsletter: Leading & lagging indicators as strategy metrics; Google’s ‘Simplicity Sprint’; introducing ‘scruffy strategy’.
STRATEGY DISTILLED:
A monthly concoction of insight, learning and things you might have missed for anyone who works on strategy, works with strategy or just loves strategy.
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This month …
- Leading and lagging indicators as strategy metrics
- Snippets on strategy you may have missed: Google’s ‘Simplicity Sprint’ and introducing the idea of ‘scruffy strategy’
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Leading and lagging indicators as strategy metrics
This year has turned into a year of two halves, as far as my consultancy work is concerned. The first half was all about strategy production, the second half is all about strategy adoption. Which has led me to two interesting reflections on how to make strategy properly joined up across the strategy lifecycle.
My first reflection is on the adoption-readiness of strategy. Typically, strategy is written as a flowing narrative. It is designed to tell the story of an organisation’s future (or at least the future they seek to bring about). It needs to read well. It needs to be engaging. It needs to be compelling. This is great as a piece of communication but it isn’t a great place to start strategic planning (in last month’s newsletter I emphasised the importance of separating strategy from strategic planning). For strategic planning, the narrative of a written strategy needs to be translated into discrete goals that can be clearly defined, meaningfully delegated and effectively resourced and performance-managed. This process of making strategy adoption-ready seems to be a missing link in many organisations’ management of strategy. To help rectify this in the Higher Education sector, I’m running a hands-on workshop on the subject in London on the 6th October. If you can’t make it, or would like me to show you how to apply the principles to another sector, drop me a line (mike@goalatlas.com) and I will send you some materials on the subject.
My second reflection is on tracking progress towards strategic goals, and it is this idea that I want to drill down into in this newsletter. I see tracking progress as quite a different thing from ‘measuring the impact of strategy’, which is talked about more commonly. Clearly, both are important. If you want to prove (for example to your board or your customers) that your recently completed strategy was a success, you need to measure its impact. To do so you will use lagging indicators – measures of the outcome of your past actions. There are two issues with this. Firstly, lagging indicators, as the name suggests, are delayed in yielding results. Your strategic actions take time to have their intended impact and hence lagging indicators take time to quantify the impact of your actions. Secondly, most strategies are designed to drive change over long periods of time. Lagging indicators of strategic impact are, therefore, doubly delayed.
This is why I believe talking about tracking progress towards strategic goals may be a lot more useful. Tracking uses leading indicators – measures of likely future performance. These measures are much better suited to guiding and adapting strategic plans to respond to circumstances that were unforeseen (and possibly unforeseeable) when the strategy was first written.
Just to make sure we are clear, there are two criteria that differentiate leading and lagging indicators, namely time frame and purpose:
Some examples of leading and lagging indicators are:
To dig into this in more depth, let’s sketch out the process for deciding how best to measure strategy – both its progress and its impact.
The starting point, and one that’s often overlooked, is to be clear about what your strategy is for. What is its purpose? This isn’t as straightforward a question as it might first appear. Michael Porter proposed that there are three generic strategies that organisations of all sizes and in all sectors can choose between.
- Cost leadership, where organisations succeed by having the lowest priced products in a market, which is only possible if they maintain the lowest operating costs. Aldi, Lidl and Walmart are cost leaders in the retail sector.
- Value differentiation, where organisations offer value that their competitors find hard to replicate. Such value differentiation usually enables organisations to charge premium prices. Apple and Tesla are successful value differentiators.
- Focus, where organisations focus on meeting the needs of a market niche, often within a geographic niche. Much of the hospitality sector operates focus strategies, with bars, restaurants and hotels focused on the needs and preferences of a particular type of customer in their particular neighbourhood.
Subsequent research, such as that by Donald Hambrick (see here and here), has elaborated Porter’s generic strategies considerably. These include:
- Strategies for aggressive market entry versus strategies for managed decline and market exit;
- Strategies focused entirely on shareholder’s interests versus strategies focused on all stakeholders’ interests;
- Strategies for innovation and growth versus strategies for cost management and profit maximisation;
- Strategies to make money versus strategies to make the world a better place.
Deciding on the purpose of your strategy should give a clear indication of how you need to measure its ultimate success: if you seek cost leadership, you need to measure your prices and operating costs; if your strategy is entirely focused on shareholder benefit, you need to measure dividends and stock price.
Given such measures of ultimate strategic success, are there secondary measures of success that you need to add? Remember here that the purpose of your strategy is not the same as your actual strategy. Your strategy needs to set out HOW you plan to achieve your strategy’s purpose. What specific combination of actions will lead you to that ultimate measure of success. Measures of the impact of those various actions might then become your secondary measures of success.
Okay, that ought to have resolved the measures of success for your strategy. These will all be lagging measures. They seek to retrospectively quantify the impact of your past actions. They may, therefore, not be fully resolved until a year or two after the strategy is complete – something everyone responsible for strategy governance needs to be fully aware of.
Then, finally, we can consider leading indicators – the measures of progress that will guide and adapt our strategic plans to respond to changing circumstances. Leading indicators, of course, should be predictors of lagging indicators. If you make good progress towards a strategic goal, this should give you confidence that your lagging indicator will go on to prove your actions have had their desired impact.
One thing to remember when choosing leading indicators is that binary metrics are often useful. This is because the only question you need to answer in a lot of strategy work is ‘have you completed the action needed to make progress?’ Have you organised the team to work on the strategic goal? Have you specified, exactly, what goal you will be working on? Have you secured the resources you need to start work? Have you achieved the goal yet? These are all yes/no questions, which make the tracking of them as easy as you can get.
Another thing to think about when planning the leading indicators across an entire strategy is that leading indicators should cascade. Making progress on sub-goals should lead to progress being made on main goals. Ultimately, reaching leading indicators should lead to the achievement of lagging indicators and hence the cascade of strategy metrics should connect together in one single cascade of inter-connected measurements. Anyone who knows me will realise that strategy mapping is my tool of choice for planning and validating the cascade of goals that make up a strategy and subsequently for cascading the metrics by which both progress and impact are measured.
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Snippets on strategy you may have missed
Google’s ‘Simplicity Sprint’
Google’s productivity is not where it needs to be, given their head count and the turbulent macro-economic times expected ahead, according to CEO Sundar Pichai. As a result, he is launching a ‘Simplicity Sprint’ designed to “create a culture that is more mission-focused, more focused on our products, more customer focused. We should think about how we can minimize distractions and really raise the bar on both product excellence and productivity.” The reason this caught my attention is that it is a great exception to one of my favourite rules, that strategy should always be differentiated from business-as-usual. My Boundary Model of Strategy suggests that the very essence of strategy is that it seeks to introduce the sort of change that won’t happen just by carrying on with business-as-usual. By definition, therefore, strategy and business-as-usual are different activities and the boundary model highlights the fact that leaders need to decide where the boundary lies between the two, and what relative allocation of time and resources needs to allocated to each (one possible answer is to spend 70% of the organisation’s effort on business as usual, 20% on refining business-as-usual and 10% on strategy, to invent business-as-usual for the future). Then Google’s Simplicity Sprint comes along and reminds us that sometimes strategy is all about business-as-usual. Sometimes the lens of strategy needs to move away from long-term investments to hedge our bets about the future. Instead, it needs to look urgently at our ways of working today that are no longer sufficiently fit for purpose. Strategy can be many things in many different circumstances: the important thing, as discussed in the ‘leading and lagging indicators’ piece above, is the be clear about what purpose your strategy is intended to serve.
Introducing the idea of ‘scruffy strategy’
Rob Estreitinho takes the idea of ‘scruffy hospitality’ and uses it to make a useful point about strategy.
“Scruffy hospitality means you’re more interested in quality conversation than the impression your home or lawn makes. If we only share meals with friends when we’re excellent, we aren’t truly sharing life together.”
‘Scruffy strategy’ (and this is what I took from what Rob wrote) means sharing the essence of strategy, well before its presentation is perfected, to make sure it is grounded in reality, is seen from different perspectives and is stress tested by comparison with alternative strategic opinions. In my opinion, leaders need to spend a lot more time on the scruffy versions of their strategy in order to make the polished version more likely to succeed and more impactful when it does.
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Goal Atlas gives you structured processes and tools to ensure strategy is adopted and impactful across your organisation. Get in touch if you think we might be able to help.
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If you enjoy reading this newsletter, don’t forget to forward it to friends or colleagues who might also find it of interest.
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