Futurists enjoy taking out their crystal ball and projecting future innovations, but they are typically wrong. For example, George Orwell’s book, “1984,” which was published in 1949, did not come close with its projections. And in the 1960s, I recall a Walt Disney television show describing automobiles that required no driver and were guided by a magnet-like strip imbedded in the street’s or highway’s roadbed. Nice try.
In contrast, historians research the past to determine what lessons might be learned and applied today. For example, historians examine the judgments, policies and actions of past U.S. Presidents and international government leaders to assess what actions may best serve citizens today. The recent movie “Lincoln” is an example.
But which group -- futurists or historians – provides more useful information? Futurists make us think by being provocative. Historians allow us to reflect on what worked or did not work in the past.
This question is relevant for today’s organizations because many enterprises fail to successfully execute their executive team’s plans and allocate an appropriate mix and level of resources to complete those plans. This involves strategy and budgeting – two disciplines that are widely criticized today.
Historical Lessons Applicable to Strategy Execution and Budgets
In the book, “The Art of Action,” author Stephen Bungay reflects on lessons from war and military campaigns that can be applied to leadership skills and planning. He specifically addresses how an organization can implement and achieve the formulated strategy and plans of its executive team.
Bungay’s premise is that the leaders of almost all organizations can define reasonably good strategies. Where executives often fall short is in leading their organization to execute their strategy. Bungay describes this problem as a gap and advises how to close the gaps.
His assertion is that, similar to military campaigns in war, when a strategy encounters the real world, three types of gaps appear. He describes gaps in terms of expected results and reality, particularly related to outcomes, actions and plans. Gaps result from the complex and unpredictable environments that all organizations deal with and are made more severe by globalization. The three gaps are:
- The Knowledge Gap - The difference between what we would like to know and what we actually know.
- The Alignment Gap - The difference between what we want people to do and what they actually do.
- The Effects Gap - The difference between what we expect our actions to achieve and what they actually achieve.
Based on knowledge as a historian of military practices, Bungay observes that a key to successful strategy execution is delegating more decision-making authority to managers and employee teams.
Empowering Managers and Employee Teams
Bungay recounts lessons from the 19th century Prussian army. Following an unexpected military defeat, the Prussian military reformed its tactics. Lower-level officers were given more flexible command to make decisions. What mattered was that they fully understood the battle mission. Allowing the officer corps to make more decisions resolved a problem: The higher-ranked military leaders were from farther from the battlefield and less aware of the current situations. Officers could pursue local actions as they saw fit.
The Prussian army solution was the institutionalization of military genius with centralized and elite generals, and increased accountability of the field officers with rewards based on their performance and outcomes. This reform was successful, and the army conquered other countries.
In terms of today’s managerial methods, the parallels of the Prussian army reforms are the application of balanced scorecard methodology and the adoption of “Beyond Budgeting” concepts, first written about by Robin Fraser and Jeremy Hope.
The balanced scorecard’s primary feature is the development of a strategy map that visually displays a dozen or more cause and effect-linked strategic objectives. Using four sequenced components (referred to as “perspectives”), the linkages move from employee learning, growth and innovation to process improvement initiatives to customer loyalty objectives, which all impact the outcome of financial objectives. The KPIs reported in the balanced scorecard are derived from the strategy map. The KPIs monitor the progress toward accomplishing the strategic objectives and, with each KPI assigned targets, the foundation for accountability is established and alignment with the mission and strategy is achieved.
The “Beyond Budgeting” concept views the annual budget as a fiscal exercise done by accountants that is disconnected from the executive team’s strategy and is usually insensitive to forecasted volume and product/customer mix. It acknowledges that budgeting annual line-item expense limits are more like shackling handcuffs to managers; they may need to justifiably spend more than was planned for and approved many months ago in order to take advantage of newly emerged opportunities.
This method advocates abandoning the annual budget, which quickly becomes obsolete. It proposes removing the budget’s controls by giving managers the freedom of decision rights, including hiring and spending decisions without requiring approval from superiors. It invokes controls by monitoring non-financial KPIs against the targets defined by the executives in the balanced scorecard’s strategy map. Managers do not escape accountability, and there are consequences. The time frame is not annual, but rather dynamic.
Historians versus Futurists
The message here is not that organizations should not be researching emerging and imminent new technologies and methods, like analytics and big data. The message is that granting decision rights to managers – but holding them accountable with consequences – is effective at closing the three gaps. And this is a lesson learned from historians.