In today's intricate business landscape, making sound decisions demands more than just cascading directives from the top. It requires carefully thought-through strategic execution to translate well-laid plans into tangible results.
In business, decisions are made daily in all corners of the organisation. In November, I wrote about the importance of having an engaged workforce, which drives business strategies, takes on challenging responsibilities, and makes decisions to propel the organisation forward.
However, things are not always that straightforward. We must recognise that modern business ecosystems are orders of magnitude more complex than previous generations of decision-makers ever have had to cope with. Increased supply chain risks due to geopolitical tensions, greater consumer awareness of environmental issues and emerging environmental regulations, and trade tensions, to name a few, are contributing to this increased complexity.
It’s now vital for business leaders, perhaps more than ever, to make sure that their workforce is actively engaging with the business strategy.
In this day and age, many businesses have crafted multi-capital strategies, which include sustainability ambitions with executive incentives incorporating sustainability components. But the real challenge isn’t creating winning strategies and attracting talented executives – it’s in executing these more complex strategies.
Great execution is dependent on having operating models in place that seamlessly integrate sustainability with operational and financial factors into decision-making at all levels. For many businesses, achieving their sustainability ambitions means increased costs and putting a permanent pressure on financial performance. And as the business learns to live and operate within this altered reality, executives must focus on getting feedback from all corners of their business – something that we, management accountants, call the “feedback loop”.
Why is this important? Well, it’s only by getting continuous insights and feedback that executives can efficiently and effectively manage trade-offs by adjusting operations (the feed forwards loop), manage surprises, and keep the board “in the loop”. To achieve this, businesses must create a performance culture, or in other words, an environment where people are empowered, trusted, and engaged, driving growth and innovation, and creating long-term value.
But what makes a great performance culture? In our Integrated Performance Management (IPM) framework, we identified seven key dimensions.
I would like us to look a bit closer at the “performance mindset” aspect of the framework and how executives contribute to it.
Let me start with saying this: lazily parroting the business’s purpose and values or weaponizing them to force behavioural change is more likely to antagonise rather than engage people. Executives contribute to creating a performance mindset when they can articulate to their people how their business model and operations align with the organisation’s purpose and values, this is what will engage and energise teams across the business to do their best work.
The organisation’s purpose should be a powerful North Star for employees; in other words, for it to act as a compass for team members, it should be meaningful in each operational activity. The same goes for the organisation’s values, it shouldn’t be a set of theoretical, immutable diktats. Instead, they need to be embedded within daily activities to encourage people to challenge, innovate, and bring diversity of thought, paving the way for new ways of thinking and working within the business.
Activating purpose and values in this way is as powerful for driving performance as operational, financial, and sustainability targets. After all, it is people who drive all creativity and value for the organisation.
Every business strives, and rightly so, for functional excellence. Internal systems and processes can be a source of competitive advantage, but this can very often be copied or leapfrogged by rivals, making the benefit relatively short-lived. Great business leaders know that sustained business success depends on a laser focus on strategic objectives.
Yet, finance leaders admit that they often struggle to understand how operational functions collaborate to drive strategic value. Because of this, they find it more difficult to appropriately allocate resources and manage operational and capital budgets. And this just one example among many.
In some businesses, executives are responsible for both their function’s performance and accountable for delivering a strategic objective. Even with such “dual citizenship”, executives will tend to prioritise their functional responsibilities over their strategic responsibilities as power hierarchies tend to follow business unit and functional structures. Perhaps these businesses should consider a shift to a more strategically aligned power hierarchy to even up the balance of power between functions and strategies as some organisations have successfully done. This would significantly improve collaboration between functions across the organisation and enhance coordination for strategic execution.
My November article for Accountancy Age’s sister publication, The CFO, also covered the importance of aligning controls with the values of the business and how striking a balance between coercive controls and enabling controls, which is also a key dimension of a performance culture, will positively impact elements such as cooperation, empowerment, innovation, responsiveness, and engagement within the organisation. My point here is that all seven dimensions of a performance culture are interdependent; you cannot have one if you fail to deliver in the other areas.
Making progress in developing a performance culture that strikes an even balance between functional excellence and strategic execution requires that all seven dimensions are addressed with an understanding how each dimension impacts the others. But this requires a cohesive approach to leadership and having the right people in place, people that can dedicate attention to delivering the changes that are needed, allocating the resources required, and a willingness to assemble cross-functional teams to champion change.
