With this organizational strategy guide you will learn the fundamentals of organizational strategy. Developed by an ex-McKinsey consultant the guide includes best practices, frameworks, and examples.
THE BIG PICTURE ON ORGANIZATIONS
1. Solve the business model, before solving the org
Strategy must flow down from mission to targets to value proposition to go-to-market and then to the organization.
2. Always remember the purpose of an organization
The purpose of an organization is to efficiently & effectively develop and deliver the value proposition and go-to-market to fulfill the needs of customers better than competitors to achieve the mission.
3. An organization is more than its people
Every action of the org is part of a process, executed by a team members, partners and infrastructure.
4. Solve core competencies to drive differentiation
Core competencies are the best-in-class organizational capabilities necessary to develop and deliver the competitive advantage and differentiation of the value proposition.
THE PURPOSE OF AN ORGANIZATION IS TO...
In business, the purpose of an organization is to efficiently & effectively develop and deliver the value proposition and go-to-market to fulfill the needs of customers better than competitors to achieve the mission.
Now, the reality is employees aren't expending most of their energy on developing and delivering the value proposition and go-to-market. Therein lies the opportunity and challenge; to lean out a lot of the energy and waste that doesn't create value for the company.
We've all felt the pain of working for or with companies that are fraught with complexity, inefficiency, apathetic employees. It isn't fun, rewarding or motivating. Half of the issue is typically strategic misalignment, where there isn't a strong focus on target customers, differentiating the value proposition, and amplifying the value through an aligned go-to-market. The other half of the issue is typically org related, driven by organizational complexity, problems with culture, norms, and a sub-optimal employee journey.
Let's dive into the fundamentals of organizations.
The Elements of an Organization
There are five main elements of an organization 1. functions, 2. processes, 3. team members, 4. infrastructure, 5. partners.
Every action of the organization is part of a process, whether acknowledged as a process or not. Processes are a combination of actions by team members, partners, and infrastructure, organized into functions.
How a Value Chain Works...
An organization has value chain functions and support functions. Value chain functions, such as logistics, ops, sales, marketing, and service, are functions responsible for taking raw inputs and processing them into the value proposition and go-to-market, which creates value for the business. The support functions, such as HR, IT, facilities, procurement, and finance, support the rest of the functions in their drive for efficiency and effectiveness.
The Profit Equation
Growing profit is a function of increasing revenue while reducing the costs and capital of a business.
Most of the costs and capital of an organization are tied up in the team members, infrastructure and partners. Improving the efficiency and effectiveness of the organization reduces costs and capital.
Revenue growth is a function of how well the customer value proposition competes in the market, and how effective the go-to-market amplifies the value proposition to the target customers. Improving the customer value proposition and go-to-market is drives revenue growth.
At a high level, corporate strategy is about improving the customer value proposition and go-to-market, while improving the efficiency and effectiveness of the organization.
Core competencies are the best-in-class capabilities needed to develop and deliver the competitive advantage and differentiation of the value proposition. Before diving into organizational strategy, a business should define their competitive advantage and differentiation, and then define the core competencies necessary to develop and deliver the competitive advantage and differentiation.
Examples of core competencies are Tesla's design and engineering, or Coca Cola's branding and marketing, or McDonald's service operations. Each one of these companies builds the best processes, hire and retain world-class talent, create the foundational infrastructure, and develop strong partnerships for their core competencies.
THE 5 PILLARS OF ORGANIZATIONAL STRATEGY
As you develop a holistic organizational strategy, you should address each building block of your organization, including functions, process, team members, infrastructure and partners. Let's dig deeper into each one of these pillars.
1. Functional Strategies - Don't Start There
Large gains to organizational efficiency and effectiveness comes from aligned and coordinated functional strategies. Let's go back to the purpose of an organization, which is to efficiently and effectively develop and deliver the customer value proposition and go-to-market.
The key to functional strategy is to work from the top of the business model down in strategic planning. Define and evangelize a strong mission. Then focus the business model on the right target markets, customers and geographies. Better defined target strategies will help focus the product, services, and pricing strategies to drive better customer value than the competition. Once the differentiated value proposition strategies are in place, then it is easier to develop great go-to-market strategies that will amplify the value proposition.
Once you understand what you need to develop and deliver for your value proposition and go-to-market strategies, then you can answer the strategic questions about the organization, functions, processes, people, infrastructure, and partners to drive the execution.
Unfortunately, many companies solve their strategy from the bottom-up, with the functions independently defining their strategies, which is analogous to trying to design a car by having the engine, chassis, body, and electronics teams independently design their components. In the end, the car won't work.
1. Functions - Solve for the Big Output & Big Process
Every function has some big process that creates some big output. As we defined early on, strategy is simply the goals we choose and the actions we take to achieve those goals. So, functional strategies always come down to defining the big output (goals) and then defining the initiatives (actions) to improve the big process.
2. Process - Inputs into Outputs
Every action in an organization is part of a process, whether acknowledged as one or not. A process is defined as team members, infrastructure, and/or partners processing inputs to make outputs. There are often hundreds to thousands of processes across companies, with varying levels of process maturity. Companies with strong process discipline drive the efficiency of their team members, infrastructure and partners.
2. Process Transformation - Up, Down & Across
In a company, process connects all the various actions of individuals, teams, functions, and leadership. Process excellence is not some centralized capability. Process excellence needs to be developed within individuals and teams throughout the organization.
A process transformation nurtures in an organization important concepts and tools, such as the process maturity model, lean methodologies, continuous improvement, automation and governance. Process excellence is a language of improvement, and the more people talk the same process excellence language, the better the process improvement.
3. Team Members
Team members are the true heart and soul of any organization. The goal is to elevate and realize the potential of individuals and the collective team. There are three main elements to team member strategy: 1. organizational design, 2. the employee journey, and 3. culture. Getting these three elements dialed in will create dividends for years in the form of fulfilled and productive team members.
Infrastructure includes all of the equipment and technology team members work with, and the facilities they use. Infrastructure strategy is essential, given a few reasons. Companies typically invest most of their capital in infrastructure. Also, a company's value is largely based on their return on invested capital.
Partners include all of the companies that support the processes of an organization. Just look at the list of suppliers on the accounts payable report to understand all of a company's partners. Companies typically don't put enough effort into defining and executing a strong partner strategy. Partners are often taken for granted, instead of treated as a strategic asset to help drive value for the business. Partner strategy starts with optimizing the partner portfolio, and instilling strong partner management and best practices within the procurement cycle.
PUTTING IT ALL TOGETHER
For any company, the organization is the engine of execution. There are many parts to get right to drive the efficiency and effectiveness of an organization. In the next sections, we go over the strategies for each element of an organization, including: