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Applying Operational Thinking to a Strategic Topic

In the last couple of posts we looked at the value of introducing a strategic perspective into an operational conversation and then whether strategic and operational topics can be distinguished from each other. But what happens when we take an operational view when dealing with a strategic issue.

The discussion about introducing a strategic perspective into an operational conversation concluded that there is value in doing this because the strategic perspective can shape our operational decisions in the right direction, even if we aren’t consciously aware of this influence. We then looked at whether it is possible, when considering a topic in isolation of its context, to categorise it as strategic or operational and concluded this may not always be possible. There doesn’t appear to be a clear dividing line between what’s strategic and what’s operational.

But what about the reverse – what would happen if we took an operational view when we should be thinking strategically? In most organisations I have worked with I have observed a common complaint i.e. that people tend to take a short-term, operational view when they should be thinking strategically. In several of these cases, the issue is not related to the length of the planning horizon or the relevance of the issue to a strategic goal. The issue is often that the preferred solution addresses a symptom, not the underlying cause. This type of thinking is not necessarily related to the strategic-operational categorisation but can easily be misunderstood as relating to it.

In the example we looked at last week, the problem of abnormally high spare parts inventory could be the result of any number of causes, like quality issues for example. The solution from a purely financial perspective, to reduce stock levels across the board, is an example of a symptomatic solution. The real problem with solutions like these is that they appear to work – in the short term. But of course, the problem then surfaces in a different form, and very likely causing far more damage.

This type of thinking is quite common both in organisations and in personal life. Take the example of the person who starts spending just a little more than he earns. As he finds his bank balance depleting, he finds he can sign up for new credit cards that allow him to repay the minimum balance on each credit card. The problem of course, is that his debt increases quite rapidly because of the compounding of credit card interest on an ever-increasing number of credit cards.

We noted an example of this type of thinking in an earlier post. In their attempts to improve employee engagement, the management team wanted to do the right thing by employees by introducing a number of new employee benefits. In the short-term this may have made employees feel better about their work and the organisation, and reported higher levels of engagement. But in the longer term a number of other effects would be likely to kick in. For example, this might raise employee expectations of the norm. They might then feel a sense of entitlement to the benefits and once again feel less engaged.

This pattern is one of a set of what are called system archetypes that explain why systems behave in ways that we may not expect. This particular archetype, shifting the burden, can be described in terms of two cause-effect relationships. There is a relationship between the underlying root cause and the symptom, but there is another relationship – between a possible symptomatic solution and the intensity of the symptom. The symptomatic solution, as intended, alleviates the symptom. This has the effect of reducing the motivation to search for the underlying cause. When the underlying problem shows up again, the symptom may look quite different, this prompting yet another symptomatic solution that reduces the intensity of the new symptom. Under the right conditions, this can go on indefinitely. From a cynical point of view, this needs to continue just a bit longer that the average term of the typical executive.

This brings us back to the discussion on a related topic, this time about the management framework called Economic Value Added (EVA), here and here. The problem is that when executives focus on shareholder value, there is a risk that they make decisions that increase share price at the expense of long-term performance. To address this issue, proponents of EVA suggest that instead of remunerating executives on an annual basis, they are remunerated on the basis of a ‘bonus bank’ such as three-year moving average of share price performance. This might work, but it is possible that all this would accomplish is to extend the horizon of dysfunctional thinking from one year to three years!

Let me know what you think…

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