Archive for December, 2013

Strategy in the New Year

AngelThe New Year is upon us. I always view these last days of the year as a time to think as broadly and as strategically as possible about the coming few years. Many managers have just been through the planning and budgeting “ringer” in preparation for activity in the new year. As important as this process is in directing limited resources to the largest opportunities, I’ve always felt that this process sometimes limits strategic thinking. 

I always like to hark back to an HBR article titled ‘Strategic Intent‘ by Gary Hamel and C.K. Prahalad. The authors argue that many firms fall into a pattern of competing through imitation, and that a great deal of the planning process involves evaluating the competition, then deploying resources in areas that managers feel they can tackle share away from their rivals. Not enough time is spent seriously thinking about how to create a focused winning culture that drives radical change and innovation that not just gains marginal advantages over the competition, but drives to create a new playing field that the company can dominate. This drive is what they call “strategic intent”.[more…]

Strategic intent, the authors argue, is not a concept that can easily fit into a traditional planning process, because the stringent rules prevent stretch ambitions from being approved. The quote that has stayed with me most is that “most managers, when pressed, will admit that their strategic plans reveal more about today’s problems than tomorrow’s opportunities”. Industry leadership is something that can definitely be planned for, but it has to be an explicit goal that the organization adheres to and is infused into the culture. 

I talk about developing strategic intent quite often in client engagements, but admittedly it is the one concept that raises the most amount of skepticism. It sounds like consultant-speak that points out a rather obvious concept of a having a corporate goal. Even when there is agreement that an overarching strategic goal is missing and needs to be defined to drive the business forward, the conversation becomes fluffy, abstract, and hard to link back to the specific tactics that need to be implemented. My recommendation in these instances is to define a stretch goal, although not one that is limited to the existing resources of the firm. This has to be an ambitious goal that if achieved places the firm in an enviable spot relative to its competitors. Next there has to be a plan put in place to not just clearly communicate that goal to everyone in the organization, but also to get buy-in from all levels. It’s so important to give a sense of urgency and also a perception of flexibility and support to innovate. Overtime an organization will create new advantages that it can compete with. 

This leads, in a round-about way, to the message I want to leave you with this year. As we start the new year, plans and budgets in hand, we should constantly remind ourselves what it is that we ultimately want to achieve in the long-run and ask whether what we are doing on a day-to-day basis is in line with those goals. Taking some time to reflect on our true strategic intent should clear our thinking and allow us to be more creative on our approach. 

I wish everyone a Happy New Year and see everyone on 2014!

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Truths in Cost Management

Sunny cloudsOne of the most dramatic changes that has occurred in Institutional Banking since the financial crisis hit in 2008 is an increased focus on management of costs. This is isn’t anything incredibly new. Financial firms have been focusing on cost management for years. What has changed is an increased intensity and urgency due to margin compression driven by increased regulatory pressures and more aggressive competition for a quickly shrinking client wallet.

Many banks have created teams fully dedicated to the analysis of their costs. We’ve worked with a few of those organizations to help them define the scope of their work. It’s important to determine upfront what kinds of costs will be targeted for analysis and what will be on the table for aggressive management.[more…] The sizing of the initiative is critical in order to make sure that expectations are in line with what can realistically be achieved. Senior management have to be on board with most of the changes that the analysis identifies. It’s all too common for management to have high hopes only to back down when they perceive that they are cutting too much into meat and bone.

It’s important to get comfortable with a few truths:

  • Cost efficiencies in some cases will only come from additional investments in the platform and will be realized only some years later.
  • Cutting costs implies in many cases a cutting of some revenue streams
  • The perceived “fat” that people talk about in an organization is not a discrete element separate from the productive “meat and bone”. Most banks now are running pretty lean, so the exercise is one of objectively evaluating prioritization of businesses, functions, and initiatives.
  • Every business or project has their merits which should be fully understood before any rash decisions are made about them, especially…
  • Projects with longer horizons often have less potential impact that is less visible on the organization so they have higher risk of being cut. The long-term strategy of the organization should weigh heavily upon evaluation of these.
  • Cost and profitability analyses use a great deal of assumptions to come up with their results. All layers of management who are part of the cost management decision-making process must be well-versed in these assumptions to ensure that implications of decisions are well understood.

I’ll be writing more about cost management in the next few posts as its a topic that seams to be top-of-mind for many managers as they plan for 2014.

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