Surf the Waves of Opportunity

Chapter 1: Surf the waves of opportunity

Figure 1.1 Top management's job is twofold

Vision and strategy: To see the waves of opportunity coming.

Operational leadership: To lead the company to ride them. Better than competition.

Dick Hackborn9, who led HP into the printer business, defined a business leader's job in short and clear terms: "To see the waves of opportunity and lead the company to ride them".

As business leaders we need vision to see coming waves of opportunity and strategy to select the best position on these waves. However, vision and strategy alone are not enough. We must also lead the company or the business unit to ride the wave. That is the role of operational leadership.

In this chapter we position operational leadership where it deserves to be: as the prime driver for consistent lasting business success. It is an element in the management value chain in its own right. Its purpose is to lead our business to achieve its to-date goals consistently.

Figure 1.2 Value chain of business management. Vision selects the wave to ride. Strategy defines the position to take on the wave. The performance of business functions brings us to operational business results. Operational plans guide functions to perform.

The management value chain

Viewed as value chain, business management consists of four elements: determine vision and strategy, operational leadership, business function performance and operational business results. Generations of managers have learned to view this chain from start to end: We start with vision and strategy. From there on we subordinate everything else in the management value chain to these two.

Let's now regard this value chain, as we would do with a manufacturing process, starting at the end and going upstream from there:

• Operational business results are the purpose, the end result of business leadership,
• Going upstream from there, we subordinate every link in the chain to that purpose, each serving the next in chain.

First, the operational business results: The purpose

All of the efforts of a business have one - and only one - purpose: to achieve its operational business goals. The degree to which these goals are achieved is the level of "operational excellence". Business processes, operational leadership, strategy and vision are but tools to achieve that purpose.

Second, business functions: Deliver business results meeting the operational goals

Each function's performance is subordinated to the business goals. Their added value is to achieve or perform at the performance goal levels required for the entire business to achieve its goal. Activities not aimed at operational business goals are wasted effort and diminish effectiveness and efficiency.

Third, operational leadership: Lead functions deliver their contribution

Operational leadership sets functions' performance goals, subordinated to the business goals and leads the functions to deliver against these.

Operational plans - the backbone of operational leadership

Operational plans are the backbone for this task. They comprise functions' performance goals and the actions for how to achieve these.

They are the surfboards that enable us to surf our wave. Every surfing beach and every wave are different, so we build a special one for each area and wave. In addition, we check and adjust our surfboard continuously, adapting it to the constantly changing conditions of our wave.

Our success in surfing is highly dependent on how adequate our surfboard is for a specific wave.

Operational leadership creates company success

The value chain view shows that operational leadership - not vision or strategy - creates a company's success. This is where our thinking is brutally tested against reality, where all the great models and concepts are put to the test.

Seldom acknowledged and very difficult

Operational leadership is seldom acknowledged as a separate discipline of management, as John P. Kotter, renowned expert on leadership and change points out:10

Although traditional hierarchies and managerial processes (the components of a company's operating system) can meet the daily demands of running an enterprise, they are rarely equipped to quickly identify important hazards, formulate creative initiatives, and implement them.

". Need an additional element to address the challenges produced by mounting complexity and rapid change.. a second operating system, devoted to the design and implementation of strategy, that uses an agile, networklike structure and a very different set of processes. The new operating system continually assesses the business, the industry, and the organization, and reacts with greater agility, speed, and creativity than the existing one... It actually makes enterprises easier to run and accelerates strategic change. This is not an "either or" idea. It's "both and."

Not only is operational leadership often not recognized as required, it is also much more difficult than creating vision and writing strategy, and the risk of failure is high:

One disturbing reality that our research has turned up is a major fault line at the front end of innovation. Booz & Company's most recent Global Innovation 1000 study revealed that just 43% of senior innovation executives and chief technology officers at nearly 700 companies believe their organizations are highly effective at generating new ideas, and only 36% believe they are highly effective at converting ideas to product development projects. Still fewer - one-quarter of respondents - indicate that their organizations are highly effective at both.11

Fourth, vision and strategy: Provide information for operational planning

Vision and strategy need to provide information for operational planning. There are three categories of information required by operational plans:

Figure 1.3 Strategy's added value: Provide information required for operational plans

Three well known views of strategy and their added value for setting operational goals and designing operational plans.

• Information for setting the operational goal: As a basis for setting the right operational goal a longer range (2-3 years) financial plan is required. It must take into account seasonality, product rollover and other aspects, which shape the goals over time.
• Information for determining the critical success factors: These are the elements upon which the operational plan must focus in order to lead functions to the required performance. For these, vision needs to tell us about new waves and what they will be like. Strategy needs to provide information on customers (segments, position, trends), products and services (road maps, value added) encompassed by the new wave.
• Information for understanding competitors' plans: These elements of our operational plan determine how we will cope with our competitors. For this we need strategy to tell us whom we must expect as competitors, how they will differ from us and which goals and plans we should expect from them.

Figure 1-3 shows how elements of strategy, as defined by three leading authorities - Henry Mintzberg12 ("5Ps"), Michael E. Porter13 (3 generic strategies) and Soin Singh14 (9 step business plan) - relate to elements of operational plans.

Operational excellence

The purpose of operational leadership is to achieve operational excellence of the company.

• For methods experts, operational excellence means to make business functions deliver key performance metrics by using a toolbox of methods.15
• For operational leaders, operational excellence has a different meaning. It is a state of business performance, which is reached, when our business consistently achieves its "to date" operational goals.

Figure 1.4 Operational excellence - Two views

Leader's view recognizes operational excellence from the point of view of the outcome. Methods expert's view stresses methodologies.

At first glance this definition makes it seem like we are putting too much emphasis on achieving short-term goals (at the expense of longer term results). This is only the case when our strategy did not define longer-term goals as the framework for short-term - for instance annual - goals. When the strategy defines longer-term goals as the framework for short-term goals, the shorterterm annual goals are subordinated to longer-term goals.

"To date" performance is more realistic than performance by a shorter measurement interval, like a month or a week, as the cumulating results smoothens out short-term variations in results.

Hewlett Packard, showcase of operational excellence16

What does operational excellence look like? HP is a good example. Readers know this company for its market leading products in electronic test and measurement, computers and printers. The company's outstanding historical results in revenue and profit are less known. HP consistently delivered growth in revenue and earnings, year after year, to a large degree self-financed.

Figure 1.5 HP: A showcase of operational excellence

Constant growth in revenue and earnings - based on...