Strategy for software Dummies – part 13

The title for this series of posts is inspired by the extensive series of instructional/reference books, which serve as non-intimidating guides for readers new to the various topics covered, or for readers who need a solid brush up.  The title doesn’t imply that software CEO’s are Dummies; only that there is a need for a new type of “strategy framework” that produces more than fluff and which can be completed in a very short time.

A recap from post #12.

The ABC company is an Independent Software Vendor (ISV) planning to go global. They have asked a ValuePerform consultant to help them define an international Go-To-Market plan.  The ValuePerform consultant wants to know the current position of the ABC company before any work on future strategies commences. So far the management team of the ABC company has been through a number of exercises revealing that each member of the team has very different perceptions in areas such as the sources of growth, the nature of the Customer Value Proposition, the market situation, which management areas are important and which are not and how the management team is actually performing on 15 critical management areas.

The low hanging fruit (who gets the high hanging fruit?).

Modern plantations have no “low hanging fruit” anymore

Have you ever visited a modern fruit plantation? If you have, you will also have noticed that the issue of the “high hanging fruit” has been solved. The trees are still taller than any human being, but the way they are groomed and the machinery available makes each level of the tree equally accessible.

Why do business people outside the agricultural industry keep talking about the “low hanging fruit”?

I believe the expression “low hanging fruit” is a simplification, which often misleads us to pursue the smaller short term opportunities rather than being more patient and building up a long term sustainable business platform.

I am not advocating dismissing the need for weighing high impact/low impact vs. long term/short term vs. high investment/low investment. I am recommending to determine your ambition/strategy first, identify the corresponding management areas of importance next and then plan and execute the action items. This balance is well illustrated in the blog post “Should Startups Focus on Profitability or Not?” by Mark Suster. The balance is not only an issue for startups, it applies to all types of companies.

The ValuePerform framework, described in this series of blog posts, offers an approach, which starts with the strategy, then lets you define the most important management areas associated with your chosen strategy BEFORE jumping to define what to do.

Improvement opportunities

The management team of ABC Company has been through a process of assessing the importance of versus the performance on 15 critical management areas. The assessment is closely related to the strategic direction the management team has defined for the company.  Overlaying the two assessments gives the result illustrated in Fig. 1.

Fig. 1: What is important versus how we perform

The chart in Fig. 1 provides an intuitive depiction of:

1. What is considered most important

2. Where are the most obvious and urgent areas for improvement

Two areas have received an importance score of 9 and higher (strategy and customer relationships), with a corresponding performance score of 6.

There are 12 management areas that receive an importance score over 5. Under “normal” circumstances this is far too much. However, as the ABC Company is bringing out a new product, is moving into new markets and are having to change their Customer Value Proposition, all at the same time, there is a corresponding need for improving performance on almost all management areas at the same time.

The absolute variation in each of the 15 management areas are illustrated in  Fig. 2.

In general terms it is obvious that major changes in how a company is delivering value to its’ customers requires substantial investments in the Learning/Growth perspective. Such changes can only be accomplished with major investments in the human capital, information capital and organization capital areas.  It is also obvious that the planning and execution of such major changes requires very strong and capable management. These two perspectives accounts for 7 of the 15 management areas.

Let’s review each of the 15 management areas one by one.

The absolute gap between importance and performance

Financial performance

• Importance score: 4
• Performance score: 2
• Difference: +2

Financial performance has not been a major issue for the ABC company in recent years. Even the development of the new product has been fully funded with cash from the ongoing operations with no activation to the balance sheet.

However, the changes required to move from a position as a local player to a position as an international player, the introduction of the new product to the market and potential market pressure for a Cloud-based subscription delivery format will require considerable investments. Additionally, it will be hard to predict the magnitude of investments required as well as the financial performance from the new and untested activities. The degree of uncertainty increases substantially in the future.

The area is still well under control but needs closer monitoring in the future.

Objectives

• Importance score: 8,5
• Performance score: 7,0
• Difference: +1,5

Setting objectives has received the 3rd highest importance score. The ABC management team agrees that setting clear objectives is crucial for steering the company in the right direction. Objectives must be broken down from the management level to the execution level ensuring full alignment between strategy and activities.

Strategy

• Importance score: 9,0
• Performance score: 6,0
• Difference: +3,0

Strategy receives the 2nd highest importance score. The primary reason is that the change in strategy must be communicated to and understood by the entire organization. The second reason is that the degree of disagreement on the strategic priorities in the management team came as a big surprise.  If the members of the management team can have such different perceptions of the strategic priorities, then the “level of confusion” must be even higher in the ranks. Strategic unambiguity is both important and urgent.

Action

•  Importance score: 8,0
• Performance score: 5,0
• Difference: +3,0

The management team identified a need for improving the ability to “get things done”.

People

• Importance score: 8,0
• Performance score: 5,0
• Difference: +3,0

Despite the previous conclusion that the current management team has the skills and experience required to implement the changes, the strategic alignment process changed this perception.  Now the management team see a need for a management development program as well as a need for additional skills and experiences in the management team.

Product/Service

• Importance score: 8,0
• Performance score: 5,0
• Difference: +3,0

Moving from a Customer Intimacy dominated Customer Value Proposition towards a Product Leadership dominated Customer Value Proposition calls for increased emphasis on the product/service components.

Customer Relationships

• Importance score: 9,5
• Performance score: 6,0
• Difference: +3,5

This management area is considered the most important. It is somewhat contradictory to a Product Leadership dominated Customer Value Proposition, but the rationale is the following: Managing the migration of the current customer base to the new product over the next 5-7 years will require close account management. The migration process will open the customer base for competitive attacks. Avoiding such attacks requires maintaining close relationships with individual customers.

Image

• Importance score: 7,0
• Performance score: 7,0
• Difference: 0,0

The management team see no reason for changing the image and brand values in the domestic market.  International market penetration has been postponed for 18 months. The brand values and positioning for new markets will have to be decided in the meantime.

Customer management

• Importance score: 8,0
• Performance score: 6,5
• Difference: 1,5

The management team agrees that there is a need for improving the customer relationship management processes.  Sales and pipeline management have improved since the new VP of Sales started. Improvement is required in the post-sales and support areas.

Regulatory and Environment

• Importance score: 3,5
• Performance score: 7,0
• Difference: -3,5

Human Capital

• Importance score: 8,0
• Performance score: 4,5
• Difference: +3,5

This management area has a very high difference between Importance and Performance. The management team see requirements for training and developing the staff to be qualified undertaking the changes required.

Information Capital

• Importance score: 8,0
• Performance score: 5,5
• Difference: +2,5

The ABC company need to invest in their own internal information systems. A brief review of the current systems revealed a need for improvement in almost all current systems including the ERP system. Further, it was considered critical to look into what the new social collaboration platforms could provide in the areas of informal knowledge sharing and ad hoc project collaboration.

Organization Capital

• Importance score: 8,0
• Performance score: 7,0
• Difference: +1,0

The internal “employee satisfaction surveys” performed every year showed an increased level of satisfaction with the company and the management.  The company is paying well, providing compensation packages and working environment conditions which are well over the market average. The management team would like to move more emphasis on the non-monetary components, however, there is no immediate need for substantial changes.

Other posts in this series

Post #1: Strategy? – oh no, not again!
Post #2: Introducing ValuePerform – a lean approach for strategy analysis and alignment
Post #3: The 6 sources for financial growth
Post #4: Why do management teams disagree?
Post #5: Getting the priorities in place
Post #6: The Customer Value Proposition
Post #7: The Customer Value Proposition TODAY
Post #8: The Customer Value Proposition in the FUTURE
Post #9: The Market Situation
Post #10: ValuePerform and the 15 Management Areas
Post #11: What is important and what is not?
Post #12: How are we performing?
Post #14: The Action Plan
Post #15: Why does misalignment occur?
Post #16: The price of management misalignment
Post #17: Avoiding invisible or suppressed misalignment
Post#18: The cost/benefit ratio of ensuring alignment