What is the real role of the strategy function?
This is a question that we will be discussing at our next Chief Strategists Club dinner on 25th February - an event that we are hosting in collaboration with the Ashridge Strategic Management Centre. In this article my aim is to get the conversation started. The thoughts are my own, not those of the Strategic Management Forum or of Ashridge, and they are offered to stimulate some initial thinking by members of our community. For more information about the event, please see the end of the article.
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To answer the question what is the real role of the strategy function?, I think it is necessary to understand how the role evolved into what it is today and how it needs to evolve to be of greater value in the future.
All research into the role of the strategy function to date comes to a common collusion. Today the role varies massively. I think it has always varied, but not to the degree that it does now.
From the early days of strategy as a management discipline, and until relatively recently, the strategy function was related to strategic planning, including long range planning. It was about trying to design and optimise systems of production for maximum efficiency. And, from the early 1980s with the work of Michael Porter, the additional consideration of competitive forces was widely introduced.
Still, the goal of the strategy function was to optimise a system, regarded as mechanistic, as effectively as possible - an approach that was seen as a principal means of achieving competitive advantage and sustaining it.
Differentiation was also introduced as a competitive strategy by Porter, but that did not distract those who were in search of excellence from their search, which still focused on the design of efficient systems, giving rise to strategic management tools such as Total Quality Management, Just in Time and Business Process Re-engineering.
Through this period, the skills required of the strategy function were analytical, systems design, planning and project management related. The impact of the function on resource allocation was great, supported by financial tools provided by the finance function to make the business case.
At that time financial capital was regarded as the only resource that really mattered. Compared to today, finance was scarce, whilst other assets such as natural resources and labour were relatively plentiful. And the labour required was plentiful, because it was generally low-skilled labour used to operate production lines involving ever finer divisions of labour.
As economies evolved from the industrial era and mass manufacturing into a post-industrial knowledge economy, strategic planning initiatives either failed or were of limited value. The only real value was in assisting resource allocation decisions. In many cases the Chief Finance Officer was, arguably, as capable as the Head of Strategy or Chief Strategy Officer in performing this more limited role.
In this context, it is not surprising that all studies into the role of today’s Chief Strategy Officer or Head of Strategy come to a common conclusion: the role is hard to define and it varies massively from company to company. The same can be said of the strategy function, not only the person responsible for it.
At the same time, the move to a post-industrial economy, coupled with the abundance of financial capital, means that finance is no longer the most important asset for most businesses. Other assets have a far more important impact on the ability of the company to generate value. The so-called ‘intangibles’ constitute other capitals, or assets, for which there are currently no widely-accepted valuation methods, or even methods of measurement in non-financial ways. It is generally accepted that these intangibles (brand recognition, goodwill, intellectual property, know-how / knowledge etc) account for more than 80% of the value of most businesses.
If the finance function is only able to accurately account for 20% or less of the value of a business it can be argued that the traditional role of the finance function is becoming less and less relevant, just as the strategy function did. Like the strategy function, the finance function is now expanding into a broader range of areas, overlapping with strategy and other functions. But, as I have argued provocatively in the pasti, I think there are real dangers associated with these developments.
What I have said so far indicates how the strategy function became what it is today - a function that varies widely and is hard to define. I think this is both a strength and a weakness in a volatile, uncertain, complex, and ambiguous (VUCA) business environment in which widespread disruption and continuous change are increasingly the norm.
My hypothesis is this: as the business environment demands that businesses become increasingly agile, the strategy function has, with varying degrees of success, become a more agile function. It has needed to respond to the situation that the organisation finds itself in. From what I read, I believe that in too many cases the emphasis is on reactive responses, rather than proactive planning. And I think this is the consequence of the myth that planning is pointless in a highly competitive and fast changing world – the view that strategy should simply emerge.
Going forward I think the strategy function needs to remain agile, but must also enable the company to become agile too. The key terms that might define the role are foresight provider, capabilities builder and change facilitator. Jointly with the finance function, I think a fourth responsibility should be dynamic resource allocation, to enable firms to allocate resources in ways that drive the strategy. Researchii has shown that this does not happen in most companies today. I suggest that this is one reason why most strategies fail, or fail to meet expectations.
Above I mentioned that in the past the skills required of the strategy function were analytical, systems design, planning and project management related. I think these skills are still relevant, but not sufficient, for the future. I think that the strategy function also needs to have excellent leadership, communication and facilitation skills, adopting a partnership, stewardship and support service mindset. But all of this must follow the capacity to generate foresight, insight and realistic options for future value creation to enable strategic decision-making: the role of navigator.
This last paragraph sums up the real role of the strategy function, and the real objective of the role is to navigate a path to the future which will be taken by an agile team of people (a company). And, given the nature of the competitive environment (volatile, uncertain, complex and ambiguous), the agility required will be that of a decathlon athlete, rather than that of a marathon runner who, by way of analogy, would be more suited to the strategy function of the industrial era.
When I refer to the strategy function I think it is important to make it clear that I am referring to a team, as opposed to the person who is the Head of Strategy, CSO, or similar. I make the distinction since I don’t think any one person has the range of skills and experience that I have suggested the function needs to have. To this I would add that I do not see the function as being a strategy department. I see it as a team, or teams, made up of individuals from within the company, and beyond the company, who are relevant to the strategic management agenda of the particular company. Relevance is determined by the specific context and issues that the firm faces at a particular point in time, which may mean some teams are temporary. The external parties involved may be consultants or advisers, but they might also be from suppliers, customers, regulators or other relevant parties. In all but the largest organisations, I think this would be preferable to forming a departmental silo.
The final point I will make is that the role of the Head of Strategy or CSO could be more clearly defined than it is today, and it should be more consistent over time, and amongst all firms and organisations. It is the strategy function, the team or teams, that need to remain dynamic, according to the situation-specific needs of the company. Only by being agile, and helping the firm stay agile, will the strategy function deliver the greatest value to the company and help it to navigate the future.
References:
i https://www.linkedin.com/pulse/20140807065041-190861715-is-it-the-end-for-chief-finance-officers
ii http://www.mckinsey.com/insights/strategy/rethinking_the_role_of_the_strategist
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Event Information
The Board, Strategy & Strategic Decision Making in Corporations: What is the Real Role of the Strategy Function?
Wednesday 25th February 2015
From 6pm: registration and drinks reception
The evening is for board members (including non-executive directors), CEOs, Heads of Strategy or CSOs, and other C-suite executives from FTSE 350, Fortune 500 or larger private corporations.
The Ashridge Strategic Management Centre directors will present new research conducted for a forthcoming Harvard Business Review feature article. This will be followed by a short moderated panel discussion and a lengthy Q&A session. Topics likely to be discussed are: What do boards want from the strategy function? What should they want? Who should be involved in strategy making? What factors drive and define the roles? And, what is “best practice” for the strategy function?
If you would like to participate, and you meet the delegate profile (see above), please email for
further details:
pbarnett@strategicmanagementforum.org
