4
Link People Performance to Strategy
“The real need is to creatively and systematically unfold the strategy, bring it to life by creating integrated action plans across an organization that ensure all functions and divisions are aligned behind it.”
—Farsight Leadership Ltd.
In chapter 2, “Superior Performance Comes From Alignment,” we discussed how superior performance is the result of properly aligning nine variables: organizational (goals, design, and management); process (goals, design, and management); and performer (goals, design, and management). Chapter 3, “Building a Compelling Vision,” dealt with the importance of vision and hiring people who are inspired by, and excited about, the firm’s vision.
In this chapter, we discuss the importance of creating a strategy and then linking performance to the firm’s strategy. We’ll share with you a case study of a hypothetical firm: Hunt & Associates. Then, in the next chapter, we share what successful leaders do to bring all the pieces together and encourage superior performance.
Linking performance to strategy is a critical piece of the puzzle that must be in place if you want superior performance. If you expect to have superior performance (let’s say by outperforming the gross domestic product), strategy is key to that endeavor.
“If people want more growth than the economy as a whole can provide, something has to give,” says Hay Group director of public sector consulting, Peter Smith. “All too often,” Smith elaborates, “there is a mismatch between what a CEO expects and what may actually be achieved. The majority of employers are missing a trick by failing to align performance management with strategy and culture. As a result, many employees are unaware of how they can contribute to their company’s strategic goals. Rather than pushing people to work longer and harder, the answer may lie in equipping them to work smarter.”1
What Is Strategy?
Strategy fundamentally reflects how you will achieve your mission and vision through articulation of goals and objectives that will guide activities. Strategy reflects what you intend to do and what you will not do. As such, strategy allows you to optimize the use of your time and resources by focusing your attention on the initiatives and activities that support achievement of your mission and vision and that create value for your firm.
For your firm strategy to be effective, it must be communicated and cascaded throughout the firm, creating strategic alignment at all levels. This ensures owners and employees understand where the firm wants to go, how it will get there, and how they fit into the plan. Leaders of the firm (managing owner, department and functional heads, team leaders, and so on) need to ensure owners and employees also understand their role in the plan, so they can establish priorities and determine where to spend time and resources.
Strategy is much more than motherhood and apple pie. Yet, we believe too many professional services firms either don’t recognize or play down the importance of strategy. If a firm has not clearly defined what it wants to accomplish and how it will do so, then people are less likely to know what they can do to support the strategy. So, firm leaders default and call that mediocre performance.
A strategy is nothing more than a bet—an assumption or a belief—that doing A and B will get you C. Although you’ve made your best educated guess, you have no guarantee that strategy will work, and you often don’t find that out until you implement the strategy. You may find that certain actions are good (for example, getting work out the door in a timely fashion or going on prospective client calls), but you’re not doing them enough. You may also find you’re doing enough of the right things (for example, lots of prospective client calls), but you’re just not doing them well (not closing at a high enough rate). You may also find you’ve simply chosen wrong actions.
How often have you heard that success in any venture depends not only on the plays (bets) but also the execution? A quarterback in football may memorize all plays from the game book but fail to execute. On the other hand, he may execute well, but the plays were poorly designed, or his teammates did not have the skills to uphold their end of the bargain. Finally, the plays could be good; he and his teammates could execute well; but other circumstances (competitors’ plays and execution, his own team’s defense, and so on) can impact the game’s outcome negatively. The same applies to professional services firms. The managing owner of firm A lays out a brilliant marketing strategy only to find the firm cannot execute or win for a variety of reasons. In firm B, owners and other professionals consistently fail to meet client expectations, even though the vision clearly states, and the strategy eloquently reflects, their commitment to client service excellence. Finally, firm C adopted what most would consider an average client acquisition strategy, but it manages external forces well and executes the strategy brilliantly. Firm C achieves its desired client acquisition outcomes. You will generally get better results by executing well an average strategy rather than executing with mediocrity a brilliant strategy.
Where to Start?
Firm leaders must work through and finalize answers to the following questions in order to link performance to strategy and before designing a firmwide performance management program:
What are our shared values?
What are our aspirations?
What is our time period?
What assumptions are we making about the external environment (clients, competitors, resources, regulatory agencies, economy, technology, and so on)?
What services are we best at?
What services are we passionate about?
What are our clients asking for?
What new services will we offer?
What existing services will we discontinue?
What niches are we best at?
What niches are we passionate about?
What drives profitability in our firm?
What new niches will we enter?
What existing niches will we exit?
What new geographic markets will we go after?
What geographic markets will we leave?
How do we intend to grow (organically or mergers)?
If you don’t answer these questions, strategy is difficult to determine. When answered carefully and completely, these questions help you think through and craft firm strategy.
Case Study
Hunt & Associates, a fictional CPA firm, is one of the largest independent firms in a major metropolitan area and finds itself in a very competitive environment. Several similar-sized firms in the market were acquired by national firms, and the owners of Hunt & Associates realize they need a refined strategy to remain independent and competitive.
To do so, owners and key management team members recently held a 2-day retreat to address the preceding questions. They agreed upon the following objectives:
What are our shared values?
We operate as a team when serving our clients.
We strive for the most profitable work as a vehicle that allows us to invest in new initiatives and technology and to reward our people with above-market compensation.
What are our aspirations?
We want to be the metropolitan area’s largest independent firm.
We want to be the firm of choice for not only our core clients but also similar organizations.
What is our time period?
We believe we can implement our strategy over a four-year period. At the half way point, we will revisit the strategy.
What assumptions are we making about the external environment (clients, competitors, resources, regulatory agencies, economy, technology, and so on)?
Our core clients will demand more attention and a wider variety of services.
Clients are willing to pay higher fees for services that help them accomplish what’s important to them.
Our greatest external competition will be the Big Four, as well as our clients’ lack of decision to move forward with our recommendations.
Compliance and consulting requirements will become increasingly complex and require greater levels of professional development and specialization.
The local economy will continue to grow at a slow pace.
Technology will continue to evolve such that clients will believe they can do more on their own.
What services are we best at? What services are we passionate about?
We are best at audit, management advisory services, and business valuation.
We are passionate about audit and management advisory services.
What are our clients asking for?
Clients are asking for greater proactivity on our part (we contact them with new ideas and advice for their businesses), information about growing their businesses in spite of the economic environment, and succession planning.
What new services will we offer? What existing services will we discontinue?
We will add succession planning but agree that expanding service offerings is not a high priority at this time.
We will discontinue no services at this time but will not proactively seek individual or small tax engagements.
What niches are we best at? What niches are we passionate about?
We are qualified and equipped to work well with not-for-profit, real estate, professional services, and financial services institutions.
Although our proficiency is growing, we are passionate about the entertainment industry.
What drives profitability in our firm?
New clients must meet a minimum gross profitability level of 50 percent.
What new niches will we enter? What existing niches will we exit?
We will enter three niches that will distinguish the firm from competitors: international tax, technology companies, and medical equipment companies.
We will exit the printing industry (keeping existing clients but not seeking new clients in this industry).
What new geographic markets will we go after? What geographic markets will we leave?
We will identify and go after three international geographic markets that allow us to do what we are good at and passionate about.
We will not consciously leave any existing geographic markets at this time.
How do we intend to grow (organically or mergers)?
Recognizing the challenges associated with mergers and given that we have solid practice development skill sets in the owner group, we expect at least half of our growth to come organically.
When we merge or acquire other firm(s), these decisions will be based on welldefined criteria and due diligence.
Only mergers that are accretive to the net income, bring in unique and needed talent, and are culturally fit will be considered.
Now Hunt & Associates is better prepared to craft and finalize firm strategies. Strategies tell the people in the firm how you intend to accomplish the objectives you have set. So that people know whether they’ve executed on the strategy, they must understand the finish line they must cross (goals they must achieve). There are several different ways to achieve a goal. For example, you may set a goal to increase profitability in your construction niche by 10 percent in the next 2 years. A firm could undertake multiple strategies, such as the following, to achieve the goal:
Cost reduction. Perhaps Hunt & Associates can further automate the services it is currently providing, thus reducing its cost of service. Hunt & Associates may also be able to empower staff-level associates to perform more of the work previously done by more senior (and expensive) people. The firm could also outsource some of its work to an affiliate overseas.
Client service. A client service strategy could be reducing client turnover through improving client retention.
Acquisition strategy. The firm could acquire another accounting firm specializing in construction work and attempt to cross-sell these newly acquired clients other services.
Service delivery enhancement. This strategy requires Hunt & Associates to improve the timeliness of delivery. Clients have indicated dissatisfaction with the firm’s inability to deliver services in a timely manner. Re-engineering the workflow process or going to a digital environment for working papers may be a strategy to consider.
Client profitability. Not all clients are equally profitable. In fact, it may even cost the firm money to service some of its clients. Knowing which clients contribute most to the gross profit is critical in determining who to service and how to service them.
Product and service development. Another way to increase profitability of an area is to offer services that have a higher value to the client. Clients are willing to pay for quality services that have a positive return on investment. For example, succession planning has a higher value to a client than tax preparation. Strategic planning services or profit improvement is valued more than monthly bookkeeping. Hunt & Associates must decide which new services it needs to develop or acquire.
Market development strategy. The firm could move into new geographic markets to acquire new construction clients.
Positioning strategy. In every market, there exists the most expensive firm and the most inexpensive firm, with everything between. Where should Hunt & Associates position itself in terms of fees, range of services, reputation, value offer, innovativeness, and so on?
As you can see, any firm can embrace multiple strategies, and all must ultimately focus on clients—acquiring them, exceeding their expectations, retaining them, and ensuring they are as profitable as possible.
Strategy Execution as a Core Competency
Regardless of whether they’re formalized, every firm has its core competencies—those things it excels in (for example, new service development, client service, cross-selling, and process improvement). We find that most firms fail to achieve the benefits of their strategic plans because execution is not one of their core competencies. In their book, Execution: The Discipline of Getting Things Done, Larry Bossidy and Ram Charan say, “Seventy percent of strategic failures are due to poor execution … it’s rarely for lack of smarts or vision. Execution is the major job of a leader and must be the core element of an organization’s culture.”
To excel in client service, or anything for that matter, Bossidy and Charan go on to say, “You don’t need a lot of complex theory. You simply need to change your people’s behavior so they produce results that are linked to achieving your goals and strategies.”
They outline four basic steps in this process:
Each person in the firm needs to know the results you’re looking for.
Management or firm leaders must discuss with each person what they need to do to achieve the results. (This is an ongoing coaching process, not a one-time event.)
Those individuals who achieve their results must be rewarded appropriately.
Those who are unable to do so may need training or coaching. If that doesn’t work, other steps may be needed (for example, changing responsibilities, adjusting compensation, and perhaps even termination).
Most firm leaders believe the ideas we have shared in this chapter, but they have difficulty with implementation (execution) because it calls for hard management decisions and cultural changes within the firm. Again, the number one reason for strategy failure is simply lack of implementation.
Final Thoughts
When starting down this route, don’t search for the perfect strategy. Remember that a strategy is nothing more than an assumption. If you are not getting the expected results from your strategy, there could be many reasons: the strategy itself, the systems and processes that support the strategy, team member skills and knowledge, productivity, etc. Don’t be too quick to change strategy, but also, know when to cut your losses.
In the next chapter, we discuss the importance of firm leadership. None of what we have suggested will happen unless a firm’s leaders are behind these initiatives and are the role models for the rest of the firm.