"Strategy" can be categorized into four distinct types, all operating in parallel, all the time:

1. Business strategies: What businesses do we want to be in, and how will we get there?

   For internal service providers (like IT), this includes alignment with enterprise strategies.

   This can be highly volatile, subject to changes in technologies, the competitive landscape, the economic and regulatory environment, business opportunities, etc.

2. Capabilities strategies: What capabilities do we need in order to support today's and tomorrow's business strategies?

   By nature, this must be relatively longer term, since it takes time to build distinctive competencies.

   In IT, for example, this includes technology innovation strategies.

3. People strategies: How can we attract, motivate, guide, and retain the best talent?

   This has to be ongoing, at every level, in every function in the enterprise.

4. Organizational strategies: How will we build an organizational ecosystem in which everybody can succeed?

Great leaders do more than formulate brilliant business and capabilities strategies, hire and inspire the right people, and make tough decisions.

They build organizations designed to succeed from the ground up.

"We implemented Meyer's approach to building a high-performing organization, and it's provided lasting value with tangible daily benefits. Organizational transformation took strong leadership, energy, and perseverance; but the payoff made that investment extremely worthwhile."

Steve Monaghan CIO and Chief of Staff, County of Nevada, CA

Case Study:
Don't Just Fix It! Build an Organization that Fixes It
My job is to develop an organization that can solve problems and deliver outstanding results, with or without me.
by Preston T. Simons (2018)

By focusing on organizational strategy, you can leave the legacy of a high-performing organization -- an organization capable of inventing and delivering dynamic business strategies, now and into the future.

The Organizational Ecosystem

Organizational strategies focus on designing the "organizational ecosystem."

What, exactly, is that?

Organizations send signals that guide people in their day-to-day decisions and actions.

These signals may be confusing, conflicted, and sometimes just wrong. If that's the case, even the best people will ultimately fail.

Here's a classic example:

We want people to be frugal, reduce costs, and conserve headcount.

But some antiquated job-grading systems award higher grades (with more compensation and status) to those with bigger budgets and more staff.

The result: People may pay lip service to controlling costs, but they build empires -- because that's what the organizational signals are telling them to do.

What's the alternative?

• Design jobs as businesses within a business.

• Measure managers as internal entrepreneurs -- on competitive rates (unit costs).

• Treat budgets as checkbooks that customers control; and require customers to limit their demand to what they can afford.

• Allow customers to find additional money to spend on the organization if they want more (perhaps from their own budgets).

• Require managers to break even -- to limit spending to the revenues they get from the sale of their products and services. That is, measure them on their bottom lines (breakeven), not their top lines (total spending).

In this way, you have complete control of costs. There's no incentive for empire building.

Beyond that, internal entrepreneurs are customer focused, innovative, and results oriented. And they're free to expand their supply (spending more) if customers want to buy more and provide the funding.

The organization is frugal, flexible, and aligned with customers' needs.

This is just one example of programming the organizational ecosystem to induce the right behaviors.

Symptoms of Problems in your Organizational Ecosystem

Of course, the organizational ecosystem affects more than just financial controls.

Haphazard or wrong signals can:

• Cause people to waste their talents and energies doing the wrong things.

• Fail to coordinate work, forcing executives to step in and manage tactical issues.

• Send people too many ways at once, diluting their talents and often creating conflicts of interests and unnecessary stress.

• Scatter critical internal lines of business around the organization, leading to lost collaboration, redundant and conflicting work, and lost synergies.

• Cause people to work at cross-purposes, compete with one another, and resist teamwork.

• Overload staff, which causes them to cut corners, sacrifice their own training and innovation, and burn out.

• Train staff in unproductive patterns of behavior (the culture that they call "our reality").

The Antidote: Organizational Programming

Sure, great people can overcome these hurdles. But wouldn't you rather your great people focus their precious time and energies on achieving great things, than spend it dealing with self-imposed obstacles which can (and should) be fixed?

Leaders can "program" those signals so that they're appropriate, well aligned, and clear.

Organizational strategies have leverage: If you get your organizational strategies right, great people throughout the organization will invent and deliver the other three strategies every day, forevermore.

Then, people can be empowered and they'll naturally do the right things.

One of the most important jobs of leadership is to design an organization in which everybody can succeed. That means programming the organizational ecosystem.

Five Organizational Systems (The Organizational Operating Model)

Where do those signals come from, and what can executives "program" in organizations?

Signals come from five organizational systems:

• Structure: the organization chart that determines people's specialties and the reporting hierarchy; and the workflows that draw those specialists together onto teams to produce results.
  More on structure....

• Internal economy: the resource-governance processes that decide budgets (business planning); align resources with business priorities, approve projects, and manage demand (governance); set rates; and report on resource consumption (accounting).
  More on the internal economy....

• Culture: the patterns of behavior generally manifested throughout the organization.
  More on culture....

• Processes, methods, and tools: the cross-boundary processes, procedures, methods, skills, and technologies that enhance people's competence. Methods include best practices and traditional process engineering. Tools reinforce methods and extend people's capabilities.

• Metrics and rewards: the dashboards people use to monitor their work and adjust their behaviors accordingly; the performance metrics (KPIs) that their managers use to judge their work; and the consequences associated with performance metrics, including incentives for improving performance and performance deficiency management processes. Metrics also include benchmarks, which define what "good" is on a metric (the "green range" on a meter).
  More on the design of metrics and benchmarks....
  More on the design of rewards....

"The integration of financial processes founded on market economics, a principle-based organizational structure, and a behaviorally-based culture can drive sustainable outcomes and scalable companies."

Joe Morgan, CEO of siY and serial entrepreneur

These are all attributes of the organization (not the people currently in it, nor the work they do).

What's not on the list and why: people and strategies....

The Organizational Operating Model

By redesigning these five organizational systems, leaders can permanently modify the behavior of an entire organization.

"Intellectuals solve problems; geniuses prevent them."

Albert Einstein

The patterns of work that result from these five systems might be called the "organizational operating model" -- an analogy to computer operating systems and nod to the programmability of organizations.

Organizational Strategy

Organizations can only absorb a limited amount of change at a time. You can't address all five systems at once.

It's far better to work on one organizational system at a time, rather than a "scatter-shot" that makes little changes in multiple systems in parallel.

Focus allows you to really get it right, and to institutionalize the changes in one system before moving on to the next. Also, a success in one organizational system builds staff's enthusiasm for the next change.

So you have to plan the right sequence of changes, one organizational system at a time. That sequence is your "organizational strategy."

Getting that sequence right is very important. Some organizational systems are more powerful than others, and should come earlier in your organizational strategy:

The big three: The first three -- structure, internal economy, and culture -- determine the overall character and capabilities of an organization. These are transformational, and should come early in an organizational strategy.

Fine tuning: The last two -- methods and tools, and metrics and rewards -- do not lead to transformational change. They institutionalize and fine-tune the big three, and drive continual improvement (not transformation). Thus, these two generally are addressed late in an organizational strategy.

The specific sequence is a matter of your unique challenges, as well as the interdependencies among the five systems.

Change Management

Organizational strategy leads to big changes -- it can be transformational, affecting every aspect of how people work. Thus, change management is an important component of an organizational strategy.

"Dean answers an age-old question: What do successful leaders actually do (versus who they are)? Most writings on success look at a billionaire, focus on one personality trait among dozens, and suggest that we all act that way. Dean is talking about something quite different: the skills involved in leading organizations. So, short cut your learning curve and get your organization really performing by studying Dean's work."

Jim Studer CIO, Univision Communications, Inc. (retired)

There are three essential elements of a conducive climate for change:

• Burning platform: Clear dissatisfaction with the status quo

  Staff may recognize some problems. But they won't willingly change unless they have to. It must be very clear that staying where we are is not an option. You don't have to say we've failed in the past; but you do have to say that our organization isn't prepared for the future, and will fail if we don't change.

• Vision: A clear and detailed description of where you're taking us

  Staff may recognize that they're sitting in a hot pan; but they won't jump into the fire. They need to see a compelling vision of the end-state to believe that the change is safe and worthwhile.

  This vision can be inspirational. It brings staff together to work in concert on a shared goal. It also ensures that each step in the strategy adds up to a consistent end-state.

• Strategy: A clear path from here to there

  People need faith that the change will work before they take the risks and invest their energies in the process. A step-by-step strategy builds trust that we can do this.

  Also, understanding how each step fits into the broader plan encourages patience, and precludes cynicism about the "management flavor of the month."

If you allow your leadership team to participate in the development of your organizational strategy, all three of these change-management requirements can be satisfied while coming to consensus on your plan.

How to Develop Your Organizational Strategy

The most powerful way to develop an organizational strategy is to engage your leadership team in a participative process.

The major benefits of a participative process are:

• It takes advantage of participants' deep knowledge of how the organization works and what its problems are.

• It develops participants' understanding of the vision and plan, so that they're better able to implement it.

• It builds their commitment, since they created the plan and hence believe in it.

The disadvantages include:

• It takes their time.

• The elapsed time is a bit longer.

• It makes public the ambitious nature of your plan, which may not be appropriate in some conservative, risk-averse enterprises.

The alternative is that you, the leader, plan your strategy and then communicate it to your staff.

In either case, the steps are essentially the same:

1. Listen to staff and clients, and gather their concerns. This becomes part of the burning platform, the impetus for change.

2. Develop a clear, detailed vision of the end-state -- hopefully based on the business-within-business paradigm. A vision is more than a few glowing words. It describes in detail what's expected of the organization in the future for it to be considered successful.
   More on an effective, detailed vision....

3. Assess your current organization against your vision (the "stretch assignment") and identify the gaps. Input from clients and staff can be used to calibrate the self-assessment. These gaps contribute to the burning platform.

4. For each gap, diagnose root causes in the five organizational systems. Ask yourself, "Why would our good people fail at these specific visionary expectations?" This focuses you on systemic changes (rather than just treating symptoms).
   Free interactive tool to help you learn to diagnose organizational root causes....

5. Assemble the root causes into corrective actions, grouping together multiple root causes that would be treated with the redeisgn of a single organizational system.

6. Sequence those corrective actions (the organizational systems) into a plan, based on the urgency of your concerns as well as technical interdependencies among the organizational systems.

7. Communicate the plan widely before proceeding with the first step.

Your organizational strategy should win you trust, patience, and commitment, while guiding you at a sensible pace through a logical series of changes that add up to a consistent vision.

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Special Situation: Shared Services

Organizational strategy is the right way to establish shared services.

Shared services promises reduced costs, improved performance, enterprise synergies, and better career opportunities for staff.

But, of course, all those benefits aren't enough to sway business-unit leaders if they don't want to depend on shared-services organizations.

The key to establishing shared services is to develop an internal service provider that's the supplier of choice to business units -- one which earns their business through performance and great relationships.

This requires a highly effective, customer focused organization. Hence, the key to establishing shared services is a transformational organizational strategy.

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Special Situation: Innovation

Innovation is essential to success, perhaps even to survival.

It's not enough to lead a creative project or two. Continual innovation should come from every corner of an organization.

A leader's job is to remove the obstacles that get in the way of everybody innovating. The most significant obstacles are systemic. Hence, the key to innovation is an organizational strategy (as described above).

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Special Situation: The Founder Bottleneck

One situation where organizational strategy is particularly critical is when a small, growing firm (such as a founder-led venture) grows to around 50 people, perhaps US$25 to $250 million. At that point, the founder may appear to be the constraint to continued growth (or even survival).

Too often, investors push the founder aside and hire an experienced CEO to lead the firm through its next growth phase.

But this often results in disaster. It marginalizes the founder and many of the senior leaders who have the passion and the vision that made the firm successful. And in many cases, the new CEO installs big-company bureaucratic processes and controls which destroy the firm's entrepreneurial culture.

This is a time where the focus should be on maturing the organizational ecosystem, not replacing leaders.

An organizational strategy based on an entrepreneurial vision (the business-within-a-business paradigm) can install mature processes -- systemic mechanisms of coordination and control -- without bureaucracy, and without losing the talent that created the firm.

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Frequently Asked Questions (FAQs) on organizational strategy and transformation planning....