Manage dynamically

Date: 2015-10-07; view: 502.

Once the newly simplified vertical structure allows line managers to limit their attention to meeting the near-term earnings expectations of the company, it has the luxury of focusing other professionals on the long-term creation of wealth. The advantages of such a separation are obvious. As one executive we know put it, you don't want people who are engaged in hand-to-hand combat to design a long-term weapons program.

Ongoing multiyear tasks such as launching new products, building new businesses, or fundamentally redesigning a company's technology platform usually call for small groups of full-time, focused professionals with the freedom "to wander in the woods," discovering new, winning value propositions by trial and error and deductive tinkering. Few down-the-line managers, who must live day to day in an intensely competitive marketplace, have the time or resources for such a discovery process.

Not that companies should forgo discipline while undertaking such a project. In fact, the portfolio-of-initiatives approach to strategy enables them to "plan on being lucky" by using the staged-investment processes of venture capital and principal investing firms, as well as the R&D processes of leading industrial corporations.1 Companies that take this approach devote a fixed part of their budgets (say, 2 to 4 percent of all spending) and some of their best talent to finding and developing longer-term strategic initiatives. Each major one usually has a senior manager as its sponsor to ensure that resources are well invested. Once an initiative is ready to be scaled up — when revenues and cost projections become clear enough to appear in the budget — it can be placed in the line structure.

Of course, at the enterprise level, companies must manage their short- and long-term earnings in a way that integrates their spending on strategic initiatives with the overall budget, so they will need to adopt a systemic, effective way of making the necessary trade-offs. What we call dynamic management can help: a combination of disciplined processes, decision-making protocols, rolling budgets, and calendar-management procedures makes it possible for companies to manage the portfolio of initiatives as part of an integrated senior-management approach to running the entire enterprise. Dynamic management forces companies to make resource allocation trade-offs, explicitly, at the top of the house rather than allowing them to be made, implicitly, by down-the-line managers struggling to make their budgets. This change further simplifies the line managers' role.