By John Barrington
When boards and management embark upon strategy development or strategic review, there are often a number of related matters that rise to the surface as requiring action. Each seemingly requires urgent attention, even though they may have been an issue for an extended period of time.
Such issues that we see circling around at similar times in the organisational life cycle can include remuneration and incentive schemes, internal systems, the strategy itself and organisational structure. Each is inter-related but not all can be addressed simultaneously. Nor should they be.
From the above list, one would start with the strategy itself, beginning with why the organisation exists. Only then can questions of structure be addressed: structure follows strategy. We often see it done the other way around and the (often ill-attributed) quote that reorganisation can be a “wonderful method for creating the illusion of progress while producing confusion, inefficiency and demoralisation” springs to mind. First determine how the organisational objectives will be delivered before deciding where you will place your scarce human resources.
Next comes the incentive schemes that may be put in place to align management actions with the desired outcomes. We recommend that the ultimate measure of organisational performance, the Beneficiary Performance Indicator, be a key factor in short- and long-term incentive plans. This links management focus and performance to the needs of the intended beneficiaries of the firm. And with respect, the intended beneficiaries are not the management themselves.
If changes to internal management control systems are required, they can then be implemented in a way that supports the outcomes desired, the strategies and structure to deliver those outcomes and the bonus schemes to be implemented to drive performance. In summary, the five questions to be addressed in strategic priority order are:
Why does our organisation exist?
When will the desired objectives be delivered?
How will the objectives be achieved?
Where will you place scarce organisational resources?
What will incentivise management to achieve the desired results?
The answers to the above will provide: organisational purpose, targets, strategy, structure and incentive schemes. In that order.
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