strategy survey: strategic planning after the global financial crisis

Insight | Strategy Survey

Strategy work after the global financial crisis


According to a survey conducted by BearingPoint, the global financial crisis took the Finnish economy almost completely by surprise in the early autumn of 2008.

The financial crisis has been ruthless in revealing the weaknesses inherent in traditional strategic planning and management. We are now at the eleventh hour in under-standing competitive advantage as a dynamic concept and challenging the established concepts in strategy work.

Contents

Changing operating environment 3

Practices of strategy work 4

Building competitive advantage 5

Towards a new kind 7 of strategy work

Implementation of the survey 10

2 Insight | White Paper

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.

Insight | Strategy Survey 3

Changing operating environmentObjective: To survey the respon-dent’s views regarding the extent to which the operating environ-ment can be anticipated and to identify key factors of uncertainty.

In the spring of 2008, public and private enterprises in Finland had a confident view of the future.

83% of the private sector respon-dents surveyed assessed the oper-ating environment to be no more than fairly uncertain within the next two years (Table 1). The respondents’ views regarding changes in the operating environment were also optimistic. Some 51% felt that uncertainty was more positive than negative, while 24% considered the uncertainty to be more of a threat than an opportunity (Table 2).

According to the respondents, the greatest factors of uncertainty in the operating environment were compet-itors’ actions and changes in customer needs (Table 3). Macroeco-nomic trends were seen as fairly foreseeable. Only 4% of the respon-dents rated macroeconomic uncer-tainty as very significant over the next two years. An exception to this was constituted by respondents representing the banking, finance and insurance sectors. In their view, macroeconomic factors were the single greatest source of uncertainty. The respondents rated political and legislative factors and technological change as the least significant sources of uncertainty.

This optimism was also strongly reflected in the market values of

private enterprises. In March 2008, the total market value of companies listed on the Helsinki Stock Exchange was approximately 241 billion euros. The market values of most companies had considerable built-in expecta-tions of growth and the creation of added economic value. The effect of the unforeseen financial crisis on the market values of companies has been hair-raising. In just one year, some

6%

45%

25%

21%

3%

32%

5%46%

13%

1%3%

Minor

Very Minor

Significant

Fair

Can’t say

Very significant

Table 1Uncertainty in the operating environment (0-2 year period)

Table 2 Attitude regarding uncertainty in the operating environment

Threat

Significant threat

Opportunity

Neutral

Significant opportunity

Table 3 Factors of uncertainty in the operating environment (0-2 year period)

Macroeconomy

Politics and legislation

Competition and industry structure

Customer needs

Environment and social responsibility

Technology

Globalisation and internationalisation

24%

33%

39%

43%

24%

26%

31%

Level of uncertainty, answered "significant" or "very significant" (% share)Level of uncertainty, mean response (scale 1-5)

(2,72)

(3,13)

(3,25)

(3,34)

(2,79)

(2,88)

(2,97)

50% of the total market value of companies vanished as the stock index reached its lowest point for about 10 years.

Practices of strategy work Objective: To survey the respon-dent’s views regarding the practices of strategy work and the strengths and weaknesses associ-ated with them.

According to the survey strategy work remains, for a large part, an annual planning process. 65% of the private sector respondents surveyed indi-cated that, in the organisation they represent, strategy is defined once per year (Table 4). In the public sector the time frame of strategic

4 Insight | Strategy Survey

planning is, on average, longer than in the private sector. 60% of the public sector respondents indicated that, in the organisation they represent, strategy is defined less frequently than once per year.

Of the respondents, nearly 64% were satisfied with strategic planning in their organisation on the whole. The elements of strategy work that the respondents were most satisfied with were management participation, process logic and the phasing and scheduling of the strategy process (Table 5). The elements of strategy work that the respondents were least satisfied with were the tools used in analyses and the speed of analyses.

Strategy work was perceived as more challenging by public sector repre-sentatives compared to private sector representatives. The proportion of public sector respondents dissatisfied with strategy work was 30%, while the same figure for the private sector was below 15%. The public sector representatives were most dissatis-fied with process logic, phasing and scheduling as well as management participation. Based on Bearing-Point’s previous experience this result does not come as a surprise, as in the public sector strategic deci-sion-making and management is largely based on budgets and performance agreements. Strategy work is often an administrative process that is separate from budgets and performance agreements and its role as a management mechanism is, to date, unclear.

Table 4 Strategic planning cycle

Once per year

Less frequently than once per year

Varies

More often than once per year

No defined strategy

15%

11%2%

65%

7%

57%

53%

51%

36%

74%

36%

31%

47%

34%

37%

52%

51%

Table 5 Strengths and weaknesses in strategic planning

Process logic

Process phasing and scheduling

Process management and assigning responsibilities

Managing information and documentation

Management participation

Employee participation

Tools used in analyses

Information used in analyses

Speed of analyses

Quality of analyses

Speed of decision-making

Quality of decision-making

Satisfaction, answers "satisfied" or "very satisfied" (% share)Satisfaction, mean response (scale 1-5)

(3,54)

(3,43)

(3,34)

(3,12)

(3,93)

(3,15)

(3,02)

(3,28)

(3,10)

(3,15)

(3,38)

(3,40)


Building competitive advantageObjective: To survey the respon-dent’s views regarding their organisation’s competitive posi-tion and to determine what factors the organisations build their competitive advantage upon.

The managers who participated in the survey indicated strong confidence in their companies’ competitive advan-tage in the spring of 2008. Some 70% assessed their competitive advantage to be strong or very strong (Table 6). In estimating the duration of their competitive advantage, approximately 75% of the respondents indicated that they expected their competitive advantage over rivals to last more than two years.

Success is, naturally, a consequence of several factors working together. Factors contributing to competitive advantage can be roughly grouped into four categories: (1) Offering and benefit to customer, (2) operating model, (3) strategic resources and (4) position and barriers to entry. Of these categories, the respondents rated operating models and strategic resources as the most significant (Table 7). In assessing the responses in more detail, it’s important to keep in mind that each factor has a different effect on competitive advantage. Some factors can be identified and duplicated quite easily, which means that competitive advantage built on them is not sustainable, even if it may result in strong profitability in the short term.

Regarding the offering and benefit to customer, the respondents perceived the ability to deliver the best total

solution as the key factor in building competitive advantage. Differentia-tion and features of the offering were also considered fairly significant. The role of low prices, on the other hand, was perceived as very insignificant in terms of competitive advantage. Only 3% of the respondents indicated that low price was a significant success factor. In BearingPoint’s view the low significance attributed to low price reflects, for its part, the small size of the domestic market and the oligopo-listic structure of many industries. When the number of rivals on the

Table 6 Strength of current competitive advantage

Weak

Very weak

Strong

Neutral

Very strong

25%

4%5%

66%

54%

74%

65%

55%

Table 7 Building competitive advantage: Summary

Offering and benefit to customer

Operating model

Strategic resources

Position and barriers to entry

Significance to competitive advantage, responses "significant" or "very significant" (% share)Significance to competitive advantage, mean response (scale 1-5)

(3,49)

(3,98)

(3,81)

(3,54)

18%

69%

50%

80%

Table 8 Building competitive advantage: Offering and benefit to customer

Lowest price

Differentiation and features of offering

Broadest total offering

Best total solution

Significance to competitive advantage, answers "significant" or "very significant" (% share)Significance to competitive advantage, mean response (scale 1-5)

(2,59)

(3,82)

(3,44)

(4,12)


market is fairly low, it is common that businesses find it in their best interest to maintain existing market positions and not jeopardise profit-ability by engaging in price competi-tion.

Regarding operating models, the respondents perceived customer focus as the clearly most important factor in building competitive

advantage (Table 9). Approximately 88% of the respondents indicated customer focus was significant or very significant. Operational excel-lence and the ability to produce innovative products and services were perceived as fairly significant. The ability to innovate with regards to the operating model was consid-ered the least significant by the respondents.

With regards to strategic resources, the respondents indicated that strong customer relationships are the key factor in building competitive advantage (Table 10). Some 93% of the respondents indicated strong customer relationships are significant or very significant. In addition, the respondents emphasised the signifi-cance of business partners as well as organisational culture and values. The role of tangible and intangible resources, on the other hand, was perceived as less significant in terms of competitive advantage.

According to BearingPoint, operating models and corporate culture and values together form a strong base for building competitive advantage. When competitive advantage is built on the synergy of several factors, forming so-called systemic compe-tence, it is very difficult for competi-tors to analyse or duplicate. A good example of this is Toyota, whose operational excellence (including continuous improvement) is a characteristic that is deeply ingrained in corporate culture. The significance of operating models is further supported by the fact that customer relationships and business partner-ships were perceived as the most significant strategic resources in terms of competitive advantage.

76%

88%

75%

62%

Table 9 Building competitive advantage: Operating model

Operational excellence

Customer focus

Ability to innovate, products

Ability to innovate, operating model


(3,96)

(4,33)

(3,96)

(3,68)

49%

56%

56%

69%

Table 10 Building competitive advantage: Strategic resources

Tangible resources

Intangible resources

Brands

Organisational culture and values


(3,48)

(3,59)

(3,60)

(3,78)

Table 11 Building competitive advantage: Position and barriers to entry

Required capital and investments

Economies of scale

Control over distribution channels

Strong customer relationships


Customer relationships

Business partners

93%

74%

(4,43)

(3,99)

Legislation

49%

57%

60%

89%

(3,47)

(3,54)

(3,61)

(4,27)

(2,82)23%


other things, national debt in the U.S. economy, imprudent lending by banks and insufficient supervision of the financial markets. With the benefit of hindsight, it can be said that the events that have taken place were actually rather inevitable and that there were clear warning signs for quite some time. Before it happened, the financial crisis (at least in the extent since witnessed) was not, however, within the realm of perceived possibilities.

From a historical standpoint the financial crisis is not a one of a kind event. Nevertheless, the current crisis does have two special charac-teristics compared to previous crises: (1) its global reach and (2) the speed at which it happened. The various parts of the global economy are tightly linked through financial markets, regardless of geographic or industrial border lines. Changes in different parts of the global economy are reflected at great speed and, from the perspective of traditional analysis of industries, very surpris-ingly. In light of these circumstances, one might ask whether strategy work or strategy as a concept has lost its significance?

On the contrary. We argue that the ability of organisations to think and act strategically is now more impor-tant than ever. Success in a dynamic operating environment, however, calls for organisations to develop the ability to question traditional linear models of thinking used in strategy work where strategies are seen as being created through detailed planning systems. Strategy work in a dynamic operating environment requires that strategic choices and the organisation are constantly

adapted and fitted to the operating environment - in other words, what is required is strategic agility.

The challenge of developing strategic agility is one that is faced by organi-sations differently depending on, among other things, the industry they operate in. Organisations are increasingly, regardless of industry, faced with constant uncertainty and rapid (systemic) changes. The challenge of developing strategic agility is best met by those organisa-tions which understand the dynamic nature of competitive advantage and have the ability to adjust or revamp their strategic decision-making correspondingly. We propose four themes as a starting point for developing strategy work in the post-financial crisis business environ-ment (Figure 1):

• Competitive advantage as a dynamic concept

• Strategy work as open dialogue

• Analytical decision-making

• Management of strategy work

1. Competitive advantage as a dynamic conceptCompetitive advantage has tradition-ally been perceived as a static concept, according to which the success of an organisation is based on its correct positioning in the industry and operational excellence. In BearingPoint’s view, competitive advantage should be seen, above all, as a dynamic concept that changes prevailing perceptions of e.g. the relationship between strategy and the organisation as well as manage-ment responsibilities.

Roughly simplified, the success of an organisation can be said to be based

Both are specifically related to how the organisation operates.

With regards to competitive position and barriers to entry, the respondents considered strong customer relation-ships as the most significant factor in terms of competitive advantage (Table 11), which is in line with the previous answers. In light of the results, it can be said that customer focus in organisational thinking and opera-tions has a strong role in driving organisations forward. With regards to other factors, the responses highlighted differences between industries. In capital intensive industries the factors contributing to competitive advantage that were highlighted included having the necessary capital and investments as well as economies of scale. In responses from public sector represen-tatives, the role of legislation was emphasised.

Towards a new kind of strategy workThe financial crisis has been ruthless in revealing the weak-nesses inherent in traditional strategic planning and manage-ment. We are now at the eleventh hour in understanding competitive advantage as a dynamic concept and challenging the established concepts in strategy work.

The global financial crisis is a Black Swan for the global economy, which also took the Finnish economy almost completely by surprise in the autumn of 2008. The development of the financial crisis has, in retrospect, been described as a logical chain of events that boils down to, among


on the fit between three elements: (1) The operating environment, (2) strategic choices and (3) the organisa-tional model. Under the prevailing paradigm strategies are seen as being formed as a result of detailed planning systems, with structure following strategy. The management’s task is to define a strategy for the organisation and to adjust organisational structure and management systems to facilitate implementation of that strategy. This approach emphasises organisational control and operational efficiency in the prevailing operating environment.

In an operating environment character-ised by rapid change and uncertainty, such a static view of competitive advantage is, however, misleading. The pivotal risk is that success leads to the organisation specialising on too narrow a front, which compromises its ability to adapt to changes in the operating environment.

Building dynamic competitive advan-tage calls for not only short term profitability and efficiency, but also an organisational ability to continuously improve and reinvent itself and create options for the future. Managing these two conflicting perspectives highlights the significance of organisational planning as part of strategy and as a management task.

2. Strategy work as open dialogueStrategy work has traditionally been perceived as a task for the organisa-tion’s senior management. In Bearing-Point’s view, success in a dynamic operating environment calls for closer participation in strategy work by not only the organisation itself, but also customers and key stakeholder groups in the value network.

The point of departure for developing

and revamping strategy work is that the management gives up its exclu-sive right to strategy work and finds a way to build it into organisational dialogue to facilitate the formulation of joint objectives. This results in two important benefits: (1) Better stra-tegic choices based on a broader view and (2) a higher level of under-standing and commitment among employees, which is necessary for the effective implementation of strategy.

In developing and revamping strategy work it must further be ensured that the organisation is seamlessly integrated with its operating environment and key stakeholder groups. In a network economy the success of an organisation is largely based on its ability to integrate with its customers to create added value together and to mobilise the resources of key actors in the value network in a direction that supports the organisation’s strategic objectives.

3. Analytical decision-makingIn BearingPoint’s view strategic decision-making and management can form a basis for building competitive advantage for the organisation. In a dynamic operating environment the organisation must be able to constantly make management decisions and success will come to those organisations which consistently make better choices than their rivals.

In our experience a significant proportion of management’s time is currently spent on reviewing past events and reports describing past events. In this, the main challenges are related to the reliability of information and the extent to which information is up-to-date. Reports often need to be fetched from various information systems, which tends to

From planningto strategic agility

Organisational planningas part of strategy

Strategy work to becomeopen dialogue

Figure 1Strategy work after the financial crisis

Analytical decision-making

Management of strategy work

OrganisationStrategic choicesOperating environment

Speed of change

Nature of chance Growth and renewal

Effectiveness and focus

Management

Resources

Processes Values

High

Low

Linear Systemic Low High

High

Low

Strategic choices

Org

anis

atio

n

Operating environment

be slow and places a significant workload on experts in the organisa-tion. Another problem is that different reports from different sources are often difficult to compare as a result of e.g. deficiencies in master data.

A central aspect of improving and revamping strategy work is building organisational ability for analytical decision-making. This starts from information management and having the right analytical tools. In addition to the organisation being able to report what has already occurred, it is important from the viewpoint of strategic management to e.g. identify problems quickly, understand the causes of problems, create models and forecasts of future developments and to optimise the organisation’s courses of action in alternative scenarios.

4. Management of strategy workStrategy work in a dynamic operating environment refers to continuous strategic decision-making and actions, neither of which is tied to the calendar year. In BearingPoint’s view success in strategy work calls for two key changes in how strategy work is managed: (1) Revamping the work of the manage-ment team to form a collective view and facilitate the flexible use of resources and (2) managing strategy work as a functional entity and an organisational ability.

In terms of the latter, the point is not to institute traditional planning units which focus on the content of strategy and define guidelines and objectives for implementation by functional areas. On the contrary, what is needed is a function that focuses primarily on the practice of manage-

From planningto strategic agility

Organisational planningas part of strategy

Strategy work to becomeopen dialogue

Figure 1Strategy work after the financial crisis

Analytical decision-making

Management of strategy work

OrganisationStrategic choicesOperating environment

Speed of change

Nature of chance Growth and renewal

Effectiveness and focus

Management

Resources

Processes Values

High

Low

Linear Systemic Low High

High

Low

Strategic choices

Org

anis

atio

n

Operating environment


BearingPointBearingPoint is a leading global consulting company in the field of management and technology.

BearingPoint Finland Oy currently employs some 60 experts at its Helsinki office, representing the following areas of specialty:

• Business Strategy & Transformation

• Operations Management

• Finance & Performance Management

• Applications & Technology

• Information Management

We help our clients succeed in strategi-cally significant change situations and build sustainable competitive advantage. Our customers in Finland typically include companies ranked in the Top 100 of the list published by Talouselämä magazine as well as major public sector organisations.

References

Nassim Nicholas Taleb: The Black Swan,

Penguin Books (2007).

Speech by the Chairman of the Board of

the Bank of Finland, Pentti Hakkarainen,

at Jyväskylä University on 17 February

2009.

Yvez Doz & Mikko Kosonen: Fast Strategy,

Wharton School Publishing (2008).

John Roberts: The Modern Firm, Oxford

University Press (2004).

Thomas H. Davenport & Jeanne

G. Harris: Competing on Analytics,

Harvard Business School Press (2007).

Timothy S. Breene, Paul F. Nunes &

Walter E. Shill: The Chief Strategy Officer,

Harvard Business Review (October 2007).

Robert S. Kaplan & David P. Norton: The

Office of Strategy Management, Harvard

Business Review (October 2005).

Henry Mintzberg: The Fall and Rise of

Strategic Planning, Harvard Business

Review (January-February 1994).

ment work and supports the organisa-tion in management work and the implementation of strategic choices.

From an organisational standpoint, the tasks of this function which can, for instance, be under the strategy manager, include supporting strategic thinking and strategy work, fitting strategies and strategic objectives together, the practices and tools of strategy work (including analytics), fitting strategy work to management systems (e.g. budgeting, development discussions, rewards), managing strategic communication and managing and developing the compe-tences related to strategy work.

Implementation of the survey

BearingPoint surveyed the views of senior and middle management in Finnish businesses and public organi-sations to find out by which means Finnish managers in the private and public sectors guide their organisa-tions to success. The survey was implemented as a web-based question-naire using a standardised form consisting of 19 questions grouped in five categories by subject. The respon-dents were also able to add comments to further explain their views. The survey was carried out in March-April 2008 and there were a total of 327 respondents representing senior and middle management in Finland’s 500 largest companies and major public sector organisations. The respondents represented a total of over ten different industries, with manufac-turing, public administration and retail and wholesale trade being the best represented sectors.

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© Copyright BearingPoint Finland Oy, Helsinki, 2009. All rights reserved. The content of this document is protected by copyright. The modification,

abridgement, expansion and endorsement of the document require the prior written consent from BearingPoint Finland Oy, Helsinki. Every duplica-

tion is permitted for personal use only and subject to the condition that the duplication contains this copyright notation. Every publication or every

translation requires the prior written consent by BearingPoint Finland Oy, Helsinki. The commercial use or use for educational purpose by third

parties requires the prior written consent by BearingPoint Finland Oy, Helsinki as well N-0025-0409-01-USNY

The study is based on limited primary research (web-survey) sources we believe to be reliable and trustworthy but neither accuracy nor

completeness can be guaranteed. BearingPoint has relied upon and assumed, without independent verification, the accuracy and completeness of

all information available from survey partners and public sources. The opinions expressed herein are subject to change without notice.

BearingPoint takes no responsibility for decisions which are based on the information included in this analysis. BearingPoint does not accept any

liability, whatsoever, with respect to the use of this analysis. Neither the study nor any of its content may be used for other purposes than the

above mentioned, without prior written consent of BearingPoint.

For more information on the survey and BearingPoint’s services, please contact:

Hans RosendahlSenior Manager Business Strategy & Transformation

Riku SantalaManaging Director BearingPoint Finland


strategy survey: strategic planning after the global financial crisis

Documents

respondents views

respondents views

strategy work implementation

practices of strategy

key factors of uncertainty

public organisations

private sector respondents

views of senior