The Focused Organization

How Concentrating on a Few Key Initiatives Can Dramatically Improve Strategy Execution

Antonio Nieto-Rodriguez

• Publisher: Routledge
• Year: 2016
• Print ISBN:
  9781409425663
• eBook ISBN:
  9781317031567
• Topic: Business
• Subtopic: Business General
• Index: Business

In The Focused Organization Antonio Nieto-Rodriguez shows you how fewer, more effectively elected and managed projects are the key to strategic and long-term success. Using his own research and work experience he explains how and why those organizations that focus on just a few key initiatives can perform significantly better than unfocused organizations, not only financially but also in achieving their strategic objectives and motivating their staff. The author introduces a new way of looking at a company through two very different and often conflicting dimensions: running-the-business and changing-the-business. What you add to one dimension you have to subtract from the other one. Finding the right balance between these two dimensions represents one of the major challenges to successful strategy execution. Becoming a focused organization involves a radical change in the way companies are organized and the way they select and manage projects - the creation of a new culture. The Focused Organization discusses the characteristics that comprise a focused organization. It describes key areas where a focused organization builds its levels of maturity; provides examples of focused organizations that outperform the rest; and explains in practical steps how all enterprises can become focused. The book finishes with a unique and inspiring case study that transports us to the early days of the current business world. Through the main character, Benny White, we learn how a business was conducted and how management evolved over decades with the introduction of business theories, including project management.

Part I
Why Most Companies Only Partially Achieve Their Strategies

1
Organizational Evolution and the Challenges of Strategy Execution

Organizational evolution over the last 100 years has involved major changes, for example, the move from an industrial economy to an information society and the mass use of personal computers (PCs) and the Internet.

Although these changes have resulted in improvements to organizations’ operations, a significant gap exists between companies’ strategic plans and the execution of those plans. The fact is that while companies are running more and more projects, they lack a basic understanding of how to link them with their overall strategy.

Figure 1.1 New paradigm

This chapter describes a new paradigm, a totally different way of looking at a company’s activities: run-the-business vs change-the-business – the link between strategy planning, strategy execution and project management. It also discusses why despite the ways in which organizations have evolved, some of their fundamental aspects have not changed.

A simple model (Figure 1.1) illustrates a new way of looking at an organization’s activities, which will help explain the current split between operations and projects as well as the challenge of linking strategy planning with strategy execution.

The Composition of a Business

OPERATIONS – ACTIVITIES THAT RUN-THE-BUSINESS

The core element of most organizations is their operations, which include all the activities involved in running the business. If an organization’s revenues are derived primarily from its products, its fundamental activities are supply, design, production, distribution, marketing and sales. This concept is reflected in Porter’s value chain.1

Updated Business Model

I have developed my own business model which takes into account the organizational changes that have affected operations during the last few decades (Figures 1.2 and 1.3). This model illustrates the composition of most companies whose main activities involve producing and selling products and/or services (with the exception of complex global conglomerates with multiple lines of business or companies).

For the sake of simplicity, the model is divided into four main components:

Figure 1.2 Products value chain

Figure 1.3 Services value chain

1. Shareholders. Shareholders are the organization’s owners. In large and quoted companies shareholders generally comprise big investors, banks, investment funds and other companies. These owners often sit on the board, which decides the composition of the top management and follows up the performance of the company.

2. Top management. Top management is the branch of an organization that both sets and is responsible for defining and executing the company’s strategy. This group also oversees the company’s day-to-day operations.

3. Core activities. Core activities define the essence of the organization. Their output is the products that are sold to customers and which bring in the revenues that enable the company to continue to operate.

4. Support activities. Support activities, which are now often referred to as ‘functions,’ aid the company’s core processes. In addition, some of the support activities provide information that helps top management make decisions. Finance and accounting, which are clear examples of support functions, control the financial aspects of the business and provide top management with regular updates on performance. Other support functions are information technology (IT) or human resources (HR), which deals with the people-related side of the business.

Some additional information to consider with this model is outlined below:

• These four components need to interact with each other; therefore reaching harmony and having common objectives is important for the stability and future development of the business.

• A business can be profitable if the cost of both core and support activities is less than the price the end customers pay for its products or services.

• The link between activities, including information flow as well as systems and processes for performing activities, is crucial to an organization’s success and profitability.

• Most companies excel at one or two of their core activities, which is what differentiates them from the competition. These areas can also be referred to as value drivers or core competencies.

• Many companies do not perform all of their core activities – for example product design, production of components, final assembly and delivery to the end user – by themselves. Some of these core activities are outsourced or involve the purchase of products from other companies. Some of the support activities can also be outsourced, for example, information technology (IT) infrastructure maintenance.

Activities That Comprise the Operations/Run-the-Business Dimension

Operations are not only about managing production activities or plants, but also include the daily activities required to run the business, such as logistics, procurement, finance, sales, customer service, marketing, IT, payroll and so forth. These components involve most of the employees and their worksites; are where management focuses most of their time and attention; and are ultimately the source of the company’s day-to-day revenue. Without operations, there is no business.

Increasing a company’s growth and profitability purely through operational changes is limited to a few strategic decisions:

• Raising the price of products or services.

• Boosting sales by reducing prices.

• Boosting sales by producing more products or services.

Growing the business and boosting its profitability depends heavily on initiating and successfully completing projects.

The Evolution of Operations

Prior to the adoption of PCs during the 1970s and the 1980s, business operations were tied to plant and production activities. With the move from the industrial age to the service age and then the information age, operations’ core focus shifted from production to services to information technology; and the factories of the past have been replaced by IT departments. As will be discussed in detail later, this shift has exponentially increased the number of projects.

Both in the industrial age, with its heavy production, and in the information age, with its dependence on the output of large IT departments, operations consume most of a company’s resources in terms of both capacity (workforce) and money (budgets, costs). They also bring in the revenues for the funding of projects.

Examples of Companies’ Heavy Operational Focus

Despite all the changes in the business world in the last few decades, most of a company’s key elements are still based on this operations model. Some of the most evident examples are explained in Table 1.1, and Chapter 2 will discuss the impact of this heavy operational focus on a company’s ability to execute its strategy.

Table 1.1 Examples of the current strong focus on operations

Elements	Operations Evidence
1. Culture & Leadership	Today, the culture of the company is very much focused on running-the-business/operations. Top management’s main priority is to deliver short term results, monthly or quarterly. Most companies lack an execution culture.
2. People & Skills	The majority of the people working in today’s organizations are busy working in operations. Career paths are defined for staff working in running-the-business. For example, marketing, sales, and finance staff have more chances of climbing the corporate ladder than staff working in projects. Finally, rewards, yearly bonuses, are pretty much linked to the results of running-the-business. Companies don’t have a defined way to reward people delivering successful projects.
3. Organization & Governance	Businesses’ organizational charts still strongly reflect their operations and the run-the-business activities. Each of the core and supporting activities is represented in the form of a department, with the responsibilities, resources, and budgets managed by the respective department heads.
4. Processes & Methods	In order to make operations more efficient and less costly, businesses have documented and standardized all of their core and supporting activities. Most of the quality standards, like ISO 9000, focus on standardizing operations. Large companies, in particular, have a strong need for standardization. Another clear example is the accounting rules and the budgeting cycle, which are solely oriented to cover the run-the-business/operations dimension.
5. Systems & Tools	Most of the important systems have been implemented to manage and to monitor run-the-business/operations, in particular the core activities. For example, the main goal of the Enterprise Resource Planning (ERP) systems, which every business now has in place, is to automate sourcing, production, distribution, and finance.
6. Performance Management	Today most of the top management performance monitoring models and applications solely cover the run-the-business/operations dimensions. Reporting is mainly done on the progress and the outcome of the execution of the operations.

PROJECTS: TASKS THAT CHANGE-THE-BUSINESS

The contrasting dimension to a company’s operations (run-the-business) is its projects, which are defined as the activities that change-the-business.

Differences Between Projects and Operations

Projects differ from operations in the following ways:

• Projects are one-off investments designed to achieve predetermined objectives, whereas operations are a business’s day-to-day activities, with similar objectives every year (with some marginal improvements).

• Projects are restricted in terms of time and budget and are staffed by temporary team members. On the other hand, operations are repetitive, can be more easily automated, operate according to a yearly budget and are staffed by full-time team members.

• Projects need different types of resources from operations. Project leaders need to work transversely to bring different views together and thus require diplomacy and negotiation skills. They also need to be good at managing uncertainty because large strategic projects are not predictable from one week to another.

After a project is completed, the end product/deliverable is often transferred to the operations side of the business, where the anticipated benefits (i.e., the business case for the project) must be achieved successfully. As an example, consider a technology company that decides to run a project to develop a new digital tablet. The estimated cost of the project is

15 million, with expected revenues in the order of

100 million. Once the tablet has been produced, the organization’s operations side will take over – with the marketing team launching the product and the sales team selling the tablet and working to achieve the target revenues of

100 million.

Common Projects and Their Strategic Ranking

The most common types of projects and their strategic ranking2 are illustrated in Table 1.2 on the following page. As the table shows, the most strategic projects have a strong external focus, with a goal that is revenue and profitability growth related, while the least strategic projects are internally focused, with a goal that often involves productivity improvements, either via cost reduction or increase in asset performance. So, very simplistically, when a company launches a new project one of its main objectives must be to increase growth or improve productivity and performance. The more strategic projects (growth related) are usually sponsored by the business and corporate departments, while the less strategic (productivity related) are launched by the support functions (Figure 1.4).

Chief executive officers (CEOs) and senior management prefer the more strategic initiatives because they produce the highest returns and the greatest benefits. However, such initiatives are usually riskier, more costly and produce benefits that require time to harvest.

Table 1.2 Most common types of projects, ranked by strategic importance

Figure 1.4 Types of projects

Companies must also carry out projects that are mandatory, meaning that any changes or adaptations are required by either external regulation (like Basel III in the banking industry) or technical imperatives (upgrades to a new system because the previous one is no longer supported). Finally, companies need to carry out smaller projects (which m...

Table of contents

• Cover Page
• Half Title Page
• Dedication
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• About the Author
• Foreword by Greg Balestrero
• Acknowledgements
• Benny’s Tale
• Reviews for The Focused Organization
• Introduction
• Part I Why Most Companies Only Partially Achieve Their Strategies
• Part II The Benefits and Methods of Becoming Focused
• Case Study: The Evolution of Spare Parts Benny, Inc.
• Bibliography
• Index