Presentation delivered by Brian Wood to the Actuarial Profession Life Convention in November 2008

1. PRACTICAL IMPLEMENTATIONOF BUSINESS STRATEGY Brian Wood Telos Solutions 2008 Life Convention, Amsterdam v1.5

2. Every organisation needs to be able to convert its business strategies into operational reality, but most experience severe difficulties in doing so. There is a lot of business literature about strategy and a lot about operational management, but virtually none about how they can be connected up. This presentation explains the systemic reasons for the black hole that usually opens up between strategy and operations - and describes some of the practical steps that can be taken to deal with it. OUTLINE 2

3. The relationship between strategy and implementation Why a systemic gap exists in business What you can do about it Agenda 3

4. What is Strategy? Purpose, vision, goals Strategy Tactics, actions, results 4

5. One that isn’t implemented successfully Three distinct reasons: It was a poor strategic idea It was a good idea but implemented poorly The idea was good in theory but didn’t take account of implementation issues properly WHAT IS A BAD STRATEGY? The third is the least obvious, but the one that cause the greatest cost and frustration 5

6. Scottish Parliament building (vs St Pauls) Investment in NHS (vs Tesco) Millennium Dome (vs London Eye & O2 Arena) Invasion of Iraq (vs Battle of Britain) IMPLEMENTATION, IMPLEMENTATION, IMPLEMENTATION 6

7. “To think is easy. To act is hard. And the hardest thing in the world is to act in accordance with your thinking.” Johann Wolfgang von Goethe (1749-1832) 7

8. WHAT IS A GOOD STRATEGY? Bad: One that isn’t implemented successfully Three distinct reasons: It was a poor strategic idea It was a good idea but implemented poorly The idea was good in theory but didn’t take account of implementation issues properly Good: One that is implemented successfully Three distinct reasons: It was a good strategic idea There was good implementation The strategy and implementation were each shaped to take account of the other 8

9. The relationship between strategy and implementation Why a systemic gap exists in business What you can do about it AGENDA 9

10. The Dilemma Two completely different disciplines are needed for a business to succeed: strategic, and operational Every strategy needs to be implemented into operational reality Operational excellence is useless unless it is linked to a sound business strategy Organisations usually experience difficulty turning their Thinking (the strategy) into Action (operations) Note: the graphics and labels used in this and subsequent slides are Registered Service Marks of Telos Solutions ltd 10

11. DIFFERENT BUSINESS LANGUAGES Strategy Positive, directional, “big-chunk” Conceptual Focus on what other people in the market will do/buy Created and managed by people Operations Failure-avoidance, stability, details Tangible Focus on what we do Created and managed by people 11

12. The Strategic Orbit Strategic disciplines: intuitions uncertainty accepting risk ‘divergent thinking’ medium/long timescales Involves: complex relationships external engagement working towards outcomes many/varied stakeholders ‘Outside-In’ 12

13. The Operations Orbit Operations disciplines: control certainty efficiency risk avoidance ‘convergent thinking’ short/medium timescales Involves: hierarchical relationships internal processes managing tangible details relatively few stakeholders ‘Inside-Out’ 13

14. Well-developed - but separate We seek structured methodologies for each: Hundreds of strategy approaches, textbooks etc Hundreds of operations textbooks, processes etc Almost nothing on keeping them aligned 14

15. Thinking styles reinforce the separation Our brains perceive data in different ways We can adjust, but we have “preferred” settings eg big chunk vs detail towards vs away-from external vs internal options vs processes We tend to gravitate towards either strategic or operations thinking 15

16. A systemic Gap Each Orbit is internally coherent impossible to think strategically and think operationally in the same moment people tend to gravitate towards one or the other so people speak completely different languages Polarisation is the ‘natural’ state in business Strategy and operations are systemically disconnected The Gap is the most common source 16

17. What we want to achieve Both thinking orbits moving in their own direction But reinforcing - rather than pulling against - each other The Results Orbit ® 17

18. The relationship between strategy and implementation Why a systemic gap exists in business What you can do about it AGENDA 18

19. Parameters for closing the Gap The Gap is inherently messy Moving in two different directions at once There is no easy/universal panacea Most purported solutions tend to ‘ping’ to either the strategy or the operations side Experience, understanding and flexibility are key The business payback from paying attention to the Gap is huge 19

20. What you can do about it Operate from wherever you are – but respect the other positions Strategy people who respect operations don’t dismiss operations as ‘trivial’ Operations people who respect the strategy don’t dismiss strategists as ‘pie in the sky’ Experienced and pragmatic realists respect both positions and roll up their sleeves to get them working together 20

21. What you can do about it Recognise the interdependency Neither is ‘absolute truth’ The best result is created when strategy and operations flow together Team up with experienced people Create a team with different perspectives progress comes from understanding differences, not eliminating them Use tools, but don’t expect the tools to solve the problem 21

22. Some useful tools Planning Essentially an operations discipline Assumes a fixed goal Constant re-planning is essential Re-scoping/ de-scoping The world changes while you implement Reflect this in delivery plans Modify the strategy so that it has a chance to live Design Principles Language in the middle between strategy and operations Expose implicit assumptions Enables solid agreement on interim milestones Reality-mapping Describe the successful strategy in real, tangible terms Program management Dedicated resource working inside the gap 22

24. Good cost estimates

25. Good time estimates

26. Anticipate likely problems and take action

27. Can be interpreted in hundreds of ways

28. You can’t cost it

29. You don’t know how long it will take

30. Failure rate is likely to be high23

31. You need to close the gap Switch from strategic focus on value to practical focus on cost and delivery 3 dimensions: Credible: do people have a clear understanding? Realisable: how will the strategic concept be turned into reality? Viable: how much time will it take, and cost to implement? Committing to a strategy without this understanding is reckless Realisable StrategicConcept Viable Credible 24

32. Top-slice: a key tool A ‘first-look’ at operational impact switch from strategic mindset to operational mindset essential to calculate costs and risks A high-level delivery plan Get a feel for the shape of the work Size, sequence, dependencies Analogous to building a working model or prototype Operational implications are fed back into refining the strategy 25 Realisable StrategicConcept Viable Credible

33. Top-slice closes the gap Realisable People see, hear and feel in a more tangible form what the strategy is really about Expectations are set accurately – the Board cannot say “you never told us it meant this” People get the “what-does-it-mean-for-me?” information they always ask for Generates real and robust milestones for implementation Flaws/problems spotted before implementation and eliminated or minimised Because the strategy is more tangible, its components can be managed properly Costs can only be determined using an operational mindset Delivery timescales can be estimated Impact on ‘business-as-usual’ can be assessed properly Credible Viable 26

34. Results Orbit: other implications Negotiation All organisations work like this So you are working at two levels, not just one Communication It’s simply not enough to communicate the strategic vision! Creative tension Every delivery breathes life into the strategy ... ... but also defines what the strategy “isn’t” any more! 27

35. Summary Without implementation, strategy is worthless Without good strategy, operations are worthless too Strategy and Operations disciplines are different This creates a systemic gap Keeping them aligned is messy Despite this, you can do something about it Understand what is going on Team up with different thinkers and experienced people Use tools that fit the situation – but don’t force a mechanical approach 28