Sometimes the management environment is hampered by a management system that is completely unrelated to the skill of the management team. In the current issue of the Harvard Business Review, writers Robert S. Kaplan and David P. Norton discuss “Mastering the Management System” as a significant hindrance to managerial activities in many corporations. The problem all boils down to one key issue: immediate concerns overwhelm long-range planning. This article focuses of the steps that managers need to take to prevent this issue from destroying their company.
Strategic planning: Kaplan and Norton point out that most managers and corporate boards understand the need for strategic planning, but many get caught up in the day-to-day operations of their company and then fail to devote the time needed to making strategic planning a reality. The authors discuss five steps managers can use to avoid this problem by creating a closed-loop management style. The authors argue that between 60 and 80 percent of companies fail to meet the potential identified in their strategic planning because they get caught up in the mundane (Kaplan and Norton, 2008).
Closed-loop management: The five stages of closed-loop management are strategic planning, development of objectives and initiatives, strategic implementation, internal review, and periodic assessment to update underlying assumptions. This process is meant to encourage the managers and the board to look beyond the daily, monthly and quarterly production and profit numbers to see the big picture and plan for growth. (See figure 1)
Profitability focus: Kaplan and Norton identify the focus on short-term profitability as the real hindrance to strategic planning. While the authors acknowledge that maintaining profitability is required for business to stay afloat, they argue that many organizations miss their true potential because they are spending some much time correcting the little things that they cannot take the time to look at the big picture. As an example of this, the authors use the fictional Conner Corporation and its monthly board meetings, discussing how the board gets bogged down in profit and loss discussions and the day-to-day management of the corporation and takes away time from its strategic planning discussions to deal with current issues.
The value of this discussion is very high when discussing management environment. Unfortunately, as the authors discuss, managers are expected to be able to consider daily operations and still plan for strategic operations. If companies could step away from the emphasis on the here and now they would be much more able to plan for the future. Kaplan and Norton argue that this means that companies make or barely miss their revenue targets on a current basis, but completely miss the long-term revenue streams that are neglected because of the concentration on current events.
The concept that this behavior can be modified and that it is so pervasive in American business is very interesting. It is much like the advice to the average American that they need to find a way to save for retirement while dealing with huge amounts of current personal debt. The suggestion then is that the business, much like the consumer, must identify long-term goals and then translate them into achievable actions. Those actions would then be implemented and constantly reviewed to see if they are taking the company in the right direction and would periodically be reevaluated to see if the underlying assumptions need to be changed and a new plan implemented. In the broadest terms, this means identifying the long-term changes that need to be made to achieve a goal. In personal retirement terms it could mean sacrificing the purchase of a new car in order to invest more in a retirement account. In business terms, it could mean upgrading technology to meet future needs or streamlining the manufacturing process to increase production capabilities in anticipation of future needs.
The important thing to learn from Kaplan and Norton’s article is that planning for the future must always be a part of the managerial environment despite corporate demands to push it to the back of the priority list. The authors argue effectively that by planning for the eventual instead of dealing strictly with the current issues, a good manager can see the same results in terms of immediate profitability and can create the type of business environment to make his company more profitable in the future.