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Strategy Survey: Strategic planning after the global financial crisis
1. Insight | Strategy Survey
Strategy work after
the global financial crisis
According to a survey conducted by BearingPoint, the Contents
global financial crisis took the Finnish economy almost Changing operating environment 3
completely by surprise in the early autumn of 2008.
Practices of strategy work 4
The financial crisis has been ruthless in revealing the Building competitive advantage 5
weaknesses inherent in traditional strategic planning and
Towards a new kind 7
management. We are now at the eleventh hour in under-
of strategy work
standing competitive advantage as a dynamic concept and
challenging the established concepts in strategy work. Implementation of the survey 10
Insight | Strategy Survey
2. BearingPoint surveyed the views of senior and middle manage-
ment in Finnish businesses and public organisations regarding,
among other things, strategic planning, building competitive
advantage as well as changes and uncertainties in the oper-
ating environment. The objective was to find out what are the
means by which Finnish managers in the private and public
sectors intend to guide their organisations towards success.
The survey was carried out in the spring of 2008, when the
global financial crisis was right around the corner. The respon-
dents’ views reflect a fairly optimistic outlook at the time. This
publication now examines those views in light of what we
have come to know about the effects of the crisis on the
Finnish economy one year later. The web-based survey
included a total of 327 respondents representing senior and
middle management in Finland’s 500 largest companies and
major public sector organisations.
2 Insight | White Paper
3. Changing operating private enterprises. In March 2008, 50% of the total market value of
the total market value of companies companies vanished as the stock
environment listed on the Helsinki Stock Exchange index reached its lowest point for
Objective: To survey the respon- was approximately 241 billion euros. about 10 years.
dent’s views regarding the extent The market values of most companies
to which the operating environ- had considerable built-in expecta-
ment can be anticipated and to tions of growth and the creation of
identify key factors of uncertainty. added economic value. The effect of
the unforeseen financial crisis on the
market values of companies has been
In the spring of 2008, public and
hair-raising. In just one year, some
private enterprises in Finland had a
confident view of the future.
Table 1
83% of the private sector respon- Uncertainty in the operating environment (0-2 year period)
dents surveyed assessed the oper- 13% Very Minor
3%
ating environment to be no more 1% Minor
than fairly uncertain within the next 46%
5% Fair
two years (Table 1). The respondents’ Significant
views regarding changes in the Very significant
operating environment were also 32% Can’t say
optimistic. Some 51% felt that
uncertainty was more positive than
negative, while 24% considered the Table 2
uncertainty to be more of a threat Attitude regarding uncertainty in the operating environment
than an opportunity (Table 2).
Significant threat
25%
According to the respondents, the Threat
45%
greatest factors of uncertainty in the Neutral
operating environment were compet- Opportunity
itors’ actions and changes in 21%
Significant opportunity
customer needs (Table 3). Macroeco- 3% 6%
nomic trends were seen as fairly
foreseeable. Only 4% of the respon-
dents rated macroeconomic uncer-
tainty as very significant over the Table 3
Factors of uncertainty in the operating environment (0-2 year period)
next two years. An exception to this
was constituted by respondents Politics and legislation 24% (2,72)
representing the banking, finance Macroeconomy 33% (3,13)
and insurance sectors. In their view,
Customer needs 39% (3,25)
macroeconomic factors were the
single greatest source of uncertainty. Competition and industry structure 43% (3,34)
The respondents rated political and Technology 24% (2,79)
legislative factors and technological Environment and social responsibility 26% (2,88)
change as the least significant
Globalisation and internationalisation 31% (2,97)
sources of uncertainty.
Level of uncertainty, answered "significant" or "very significant" (% share)
This optimism was also strongly Level of uncertainty, mean response (scale 1-5)
reflected in the market values of
Insight | Strategy Survey 3
4. Practices of strategy work planning is, on average, longer than
in the private sector. 60% of the
Objective: To survey the respon-
public sector respondents indicated
dent’s views regarding the
that, in the organisation they
practices of strategy work and the represent, strategy is defined less
strengths and weaknesses associ- frequently than once per year.
ated with them.
Of the respondents, nearly 64% were
satisfied with strategic planning in
According to the survey strategy work their organisation on the whole. The
remains, for a large part, an annual elements of strategy work that the
planning process. 65% of the private respondents were most satisfied with
sector respondents surveyed indi- were management participation,
cated that, in the organisation they process logic and the phasing and
represent, strategy is defined once scheduling of the strategy process
per year (Table 4). In the public (Table 5). The elements of strategy
sector the time frame of strategic work that the respondents were least
Table 4 satisfied with were the tools used in
Strategic planning cycle analyses and the speed of analyses.
7% 11%
2% Less frequently than once per year Strategy work was perceived as more
Once per year challenging by public sector repre-
15%
More often than once per year sentatives compared to private sector
Varies representatives. The proportion of
65% No defined strategy public sector respondents dissatisfied
with strategy work was 30%, while
the same figure for the private sector
was below 15%. The public sector
Table 5
Strengths and weaknesses in strategic planning representatives were most dissatis-
fied with process logic, phasing and
Process logic 57% (3,54) scheduling as well as management
Process phasing and scheduling 53% (3,43)
participation. Based on Bearing-
Point’s previous experience this
Process management and assigning responsibilities 51% (3,34)
result does not come as a surprise, as
Managing information and documentation 36% (3,12) in the public sector strategic deci-
Management participation 74% (3,93) sion-making and management is
largely based on budgets and
Employee participation 36% (3,15)
performance agreements. Strategy
Tools used in analyses 31% (3,02) work is often an administrative
Information used in analyses 47% (3,28) process that is separate from budgets
Speed of analyses 34% (3,10) and performance agreements and its
(3,15) role as a management mechanism is,
Quality of analyses 37%
to date, unclear.
Speed of decision-making 52% (3,38)
Quality of decision-making 51% (3,40)
Satisfaction, answers "satisfied" or "very satisfied" (% share)
Satisfaction, mean response (scale 1-5)
4 Insight | Strategy Survey
5. Building competitive solution as the key factor in building
competitive advantage. Differentia-
advantage tion and features of the offering were
Objective: To survey the respon- also considered fairly significant. The
dent’s views regarding their role of low prices, on the other hand,
organisation’s competitive posi- was perceived as very insignificant in
tion and to determine what factors terms of competitive advantage. Only
the organisations build their 3% of the respondents indicated that
competitive advantage upon. low price was a significant success
factor. In BearingPoint’s view the low
significance attributed to low price
The managers who participated in the
reflects, for its part, the small size of
survey indicated strong confidence in
the domestic market and the oligopo-
their companies’ competitive advan-
listic structure of many industries.
tage in the spring of 2008. Some 70%
When the number of rivals on the
assessed their competitive advantage
to be strong or very strong (Table 6).
In estimating the duration of their Table 6
compe- titive advantage, approximately Strength of current competitive advantage
4%
75% of the respondents indicated that 5%
Very weak
they expected their competitive Weak
advantage over rivals to last more than 25%
Neutral
two years.
Strong
Success is, naturally, a consequence of 66% Very strong
several factors working together.
Factors contributing to competitive
advantage can be roughly grouped
Table 7
into four categories: (1) Offering and Building competitive advantage: Summary
benefit to customer, (2) operating
model, (3) strategic resources and (4) Offering and benefit to customer 54% (3,49)
position and barriers to entry. Of these Operating model 74% (3,98)
categories, the respondents rated
Strategic resources 65% (3,81)
operating models and strategic
resources as the most significant Position and barriers to entry 55% (3,54)
(Table 7). In assessing the responses in Significance to competitive advantage, responses "significant" or "very significant" (% share)
more detail, it’s important to keep in Significance to competitive advantage, mean response (scale 1-5)
mind that each factor has a different
effect on competitive advantage.
Some factors can be identified and Table 8
Building competitive advantage: Offering and benefit to customer
duplicated quite easily, which means
that competitive advantage built on Lowest price 18% (2,59)
them is not sustainable, even if it may
Differentiation and features of offering 69% (3,82)
result in strong profitability in the
short term. Broadest total offering 50% (3,44)
Regarding the offering and benefit to Best total solution 80% (4,12)
customer, the respondents perceived Significance to competitive advantage, answers "significant" or "very significant" (% share)
the ability to deliver the best total Significance to competitive advantage, mean response (scale 1-5)
Insight | Strategy Survey 5
6. market is fairly low, it is common advantage (Table 9). Approximately
that businesses find it in their best 88% of the respondents indicated
interest to maintain existing market customer focus was significant or
positions and not jeopardise profit- very significant. Operational excel-
ability by engaging in price competi- lence and the ability to produce
tion. innovative products and services
were perceived as fairly significant.
Regarding operating models, the
The ability to innovate with regards
respondents perceived customer
to the operating model was consid-
focus as the clearly most important
ered the least significant by the
factor in building competitive
respondents.
With regards to strategic resources,
the respondents indicated that
Table 9 strong customer relationships are the
Building competitive advantage: Operating model
key factor in building competitive
Operational excellence 76% (3,96) advantage (Table 10). Some 93% of
the respondents indicated strong
Customer focus 88% (4,33)
customer relationships are significant
Ability to innovate, products 75% (3,96)
or very significant. In addition, the
Ability to innovate, operating model 62% (3,68) respondents emphasised the signifi-
cance of business partners as well as
Significance to competitive advantage, answers "significant" or "very significant" (% share)
Significance to competitive advantage, mean response (scale 1-5) organisational culture and values.
The role of tangible and intangible
resources, on the other hand, was
Table 10 perceived as less significant in terms
Building competitive advantage: Strategic resources
of competitive advantage.
Tangible resources 49% (3,48) According to BearingPoint, operating
Intangible resources 56% (3,59) models and corporate culture and
56%
values together form a strong base
Brands (3,60)
for building competitive advantage.
Organisational culture and values 69% (3,78)
When competitive advantage is built
Customer relationships 93% (4,43) on the synergy of several factors,
Business partners 74% (3,99)
forming so-called systemic compe-
tence, it is very difficult for competi-
Significance to competitive advantage, answers "significant" or "very significant" (% share)
Significance to competitive advantage, mean response (scale 1-5) tors to analyse or duplicate. A good
example of this is Toyota, whose
Table 11 operational excellence (including
Building competitive advantage: Position and barriers to entry continuous improvement) is a
characteristic that is deeply ingrained
Required capital and investments 49% (3,47)
in corporate culture. The significance
Economies of scale 57% (3,54) of operating models is further
Control over distribution channels 60% (3,61) supported by the fact that customer
Strong customer relationships 89% (4,27)
relationships and business partner-
ships were perceived as the most
Legislation 23% (2,82)
significant strategic resources in
Significance to competitive advantage, answers "significant" or "very significant" (% share)
terms of competitive advantage.
Significance to competitive advantage, mean response (scale 1-5)
6 Insight | Strategy Survey
7. Both are specifically related to how other things, national debt in the adapted and fitted to the operating
the organisation operates. U.S. economy, imprudent lending by environment - in other words, what is
banks and insufficient supervision of required is strategic agility.
With regards to competitive position
the financial markets. With the
and barriers to entry, the respondents The challenge of developing strategic
benefit of hindsight, it can be said
considered strong customer relation- agility is one that is faced by organi-
that the events that have taken place
ships as the most significant factor in sations differently depending on,
were actually rather inevitable and
terms of competitive advantage (Table among other things, the industry
that there were clear warning signs
11), which is in line with the previous they operate in. Organisations are
for quite some time. Before it
answers. In light of the results, it can increasingly, regardless of industry,
happened, the financial crisis (at
be said that customer focus in faced with constant uncertainty and
least in the extent since witnessed)
organisational thinking and opera- rapid (systemic) changes. The
was not, however, within the realm
tions has a strong role in driving challenge of developing strategic
of perceived possibilities.
organisations forward. With regards agility is best met by those organisa-
to other factors, the responses From a historical standpoint the tions which understand the dynamic
highlighted differences between financial crisis is not a one of a kind nature of competitive advantage and
industries. In capital intensive event. Nevertheless, the current have the ability to adjust or revamp
industries the factors contributing to crisis does have two special charac- their strategic decision-making
competitive advantage that were teristics compared to previous crises: correspondingly. We propose four
highlighted included having the (1) its global reach and (2) the speed themes as a starting point for
necessary capital and investments as at which it happened. The various developing strategy work in the
well as economies of scale. In parts of the global economy are post-financial crisis business environ-
responses from public sector represen- tightly linked through financial ment (Figure 1):
tatives, the role of legislation was markets, regardless of geographic or
emphasised. industrial border lines. Changes in • Competitive advantage as a
different parts of the global economy dynamic concept
are reflected at great speed and, • Strategy work as open dialogue
Towards a new kind of from the perspective of traditional • Analytical decision-making
strategy work analysis of industries, very surpris-
• Management of strategy work
ingly. In light of these circumstances,
The financial crisis has been one might ask whether strategy work
ruthless in revealing the weak- or strategy as a concept has lost its 1. Competitive advantage as a
nesses inherent in traditional significance? dynamic concept
strategic planning and manage- Competitive advantage has tradition-
On the contrary. We argue that the
ment. We are now at the eleventh ally been perceived as a static
ability of organisations to think and
hour in understanding competitive concept, according to which the
act strategically is now more impor-
advantage as a dynamic concept success of an organisation is based
tant than ever. Success in a dynamic
and challenging the established on its correct positioning in the
operating environment, however,
concepts in strategy work. industry and operational excellence.
calls for organisations to develop the
In BearingPoint’s view, competitive
ability to question traditional linear
advantage should be seen, above all,
The global financial crisis is a Black models of thinking used in strategy
as a dynamic concept that changes
Swan for the global economy, which work where strategies are seen as
prevailing perceptions of e.g. the
also took the Finnish economy almost being created through detailed
relationship between strategy and
completely by surprise in the autumn planning systems. Strategy work in a
the organisation as well as manage-
of 2008. The development of the dynamic operating environment
ment responsibilities.
financial crisis has, in retrospect, requires that strategic choices and
been described as a logical chain of the organisation are constantly Roughly simplified, the success of an
events that boils down to, among organisation can be said to be based
Insight | Strategy Survey 7
8. on the fit between three elements: and revamping strategy work is that
(1) The operating environment, (2) the management gives up its exclu-
strategic choices and (3) the organisa- sive right to strategy work and finds a
tional model. Under the prevailing way to build it into organisational
paradigm strategies are seen as being dialogue to facilitate the formulation
formed as a result of detailed planning of joint objectives. This results in two
systems, with structure following important benefits: (1) Better stra-
strategy. The management’s task is to tegic choices based on a broader view
define a strategy for the organisation and (2) a higher level of under-
and to adjust organisational structure standing and commitment among
and management systems to facilitate employees, which is necessary for the
implementation of that strategy. This effective implementation of strategy.
approach emphasises organisational
In developing and revamping strategy
control and operational efficiency in the
work it must further be ensured that the
prevailing operating environment.
organisation is seamlessly integrated with
In an operating environment character- its operating environment and key
ised by rapid change and uncertainty, stakeholder groups. In a network
such a static view of competitive economy the success of an organisation is
advantage is, however, misleading. The largely based on its ability to integrate
pivotal risk is that success leads to the with its customers to create added value
organisation specialising on too narrow together and to mobilise the resources of
a front, which compromises its ability key actors in the value network in a
to adapt to changes in the operating direction that supports the organisation’s
environment. strategic objectives.
Building dynamic competitive advan-
tage calls for not only short term 3. Analytical decision-making
profitability and efficiency, but also an In BearingPoint’s view strategic
organisational ability to continuously decision-making and management can
improve and reinvent itself and create form a basis for building competitive
options for the future. Managing these advantage for the organisation. In a
two conflicting perspectives highlights dynamic operating environment the
the significance of organisational organisation must be able to
planning as part of strategy and as a constantly make management
management task. decisions and success will come to
those organisations which consistently
2. Strategy work as open dialogue make better choices than their rivals.
Strategy work has traditionally been In our experience a significant
perceived as a task for the organisa- proportion of management’s time is
tion’s senior management. In Bearing- currently spent on reviewing past
Point’s view, success in a dynamic events and reports describing past
operating environment calls for closer events. In this, the main challenges
participation in strategy work by not are related to the reliability of
only the organisation itself, but also information and the extent to which
customers and key stakeholder groups information is up-to-date. Reports
in the value network. often need to be fetched from various
information systems, which tends to
The point of departure for developing
8 Insight | Strategy Survey
9. be slow and places a significant 4. Management of strategy work
workload on experts in the organisa- Strategy work in a dynamic operating
tion. Another problem is that different environment refers to continuous
reports from different sources are strategic decision-making and actions,
often difficult to compare as a result neither of which is tied to the calendar
of e.g. deficiencies in master data. year. In BearingPoint’s view success in
A central aspect of improving and strategy work calls for two key changes
revamping strategy work is building in how strategy work is managed: (1)
organisational ability for analytical Revamping the work of the manage-
decision-making. This starts from ment team to form a collective view
information management and having and facilitate the flexible use of
the right analytical tools. In addition resources and (2) managing strategy
to the organisation being able to work as a functional entity and an
report what has already occurred, it is organisational ability.
important from the viewpoint of In terms of the latter, the point is not
strategic management to e.g. identify to institute traditional planning units
problems quickly, understand the which focus on the content of strategy
causes of problems, create models and define guidelines and objectives
and forecasts of future developments for implementation by functional
and to optimise the organisation’s areas. On the contrary, what is
courses of action in alternative needed is a function that focuses
scenarios. primarily on the practice of manage-
Figure 1
Strategy work after the financial crisis
tegic choices
Stra
From planning Organisational planning
to strategic agility as part of strategy
Analytical
decision-making
Operating
Management
tion
of strategy work
isa
env
on
an
g
ir
me
nt Or
Strategy work to become
open dialogue
Operating environment Strategic choices Organisation
High High Management
Speed Effectiveness
of change Low
and focus Low
Processes Values
Linear Systemic Low High
Nature of chance Growth and renewal Resources
10. ment work and supports the organisa- BearingPoint
tion in management work and the
BearingPoint is a leading global
implementation of strategic choices.
consulting company in the field of
From an organisational standpoint, management and technology.
the tasks of this function which can, BearingPoint Finland Oy currently employs
for instance, be under the strategy some 60 experts at its Helsinki office,
manager, include supporting strategic representing the following areas of specialty:
thinking and strategy work, fitting
• Business Strategy & Transformation
strategies and strategic objectives
• Operations Management
together, the practices and tools of
strategy work (including analytics), • Finance & Performance Management
fitting strategy work to management • Applications & Technology
systems (e.g. budgeting, development • Information Management
discussions, rewards), managing We help our clients succeed in strategi-
strategic communication and cally significant change situations and
managing and developing the compe- build sustainable competitive advantage.
tences related to strategy work. Our customers in Finland typically include
companies ranked in the Top 100 of the
Implementation of the list published by Talouselämä magazine as
well as major public sector organisations.
survey
BearingPoint surveyed the views of References
senior and middle management in Nassim Nicholas Taleb: The Black Swan,
Finnish businesses and public organi- Penguin Books (2007).
sations to find out by which means
Finnish managers in the private and Speech by the Chairman of the Board of
public sectors guide their organisa- the Bank of Finland, Pentti Hakkarainen,
tions to success. The survey was at Jyväskylä University on 17 February
implemented as a web-based question- 2009.
naire using a standardised form Yvez Doz & Mikko Kosonen: Fast Strategy,
consisting of 19 questions grouped in Wharton School Publishing (2008).
five categories by subject. The respon-
John Roberts: The Modern Firm, Oxford
dents were also able to add comments
University Press (2004).
to further explain their views. The
survey was carried out in March-April Thomas H. Davenport & Jeanne
2008 and there were a total of 327 G. Harris: Competing on Analytics,
respondents representing senior and Harvard Business School Press (2007).
middle management in Finland’s 500
Timothy S. Breene, Paul F. Nunes &
largest companies and major public
Walter E. Shill: The Chief Strategy Officer,
sector organisations. The respondents
Harvard Business Review (October 2007).
represented a total of over ten
different industries, with manufac- Robert S. Kaplan & David P. Norton: The
turing, public administration and Office of Strategy Management, Harvard
retail and wholesale trade being the Business Review (October 2005).
best represented sectors.
Henry Mintzberg: The Fall and Rise of
Strategic Planning, Harvard Business
Review (January-February 1994).
10 Insight | Strategy Survey
