by Denys Lai, Senior Vice President at BTS
It’s late winter in San Francisco and despite the colder weather it’s not unusual to see tourists clutching maps at street corners trying to make their way to Chinatown or North Beach, near our office. Sometimes, one of them will flag me down and ask for directions. “Go up the hill,” I say, or I point them in a general direction and say “keep going that way.” They always smile politely and thank me, but I know they’d probably appreciate more specific, turn-by-turn steps because they are unsure if they’ll really get there.
Tourists aren’t the only ones who prefer detailed, step-by-step guidance. At BTS, our flagship experiences have been these amazing company-wide, holistic business simulations that allow participants to zoom out and get a high-level strategic enterprise perspective of their business. This helps them gain a broad perspective on the business and think more strategically. Many times, when these smart executives see the big picture, a light bulb goes off, and they can figure out for themselves how to get to the destination.
However, there are also situations where a more focused lens and a deeper-dive will provide needed clarity, inspire confidence and help turn strategy into action. Sometimes, you need to go step-by-step and dig into the details in order to reach the desired end point. Execution can be accelerated at many different types of organizations just by double-clicking on a specific business unit, function, or process.
In the deep-dive simulation experiences, participants get to do just this through controlling a “what-if” calculator with levers that are much more granular than the typical enterprise simulation. This enables real-time business planning and leads to better, more effective strategy execution back on the job. This type of deep-dive simulation experience helps enable leaders to operationalize their plans and often has the following objectives:
- Align the actions of leaders to corporate objectives
- Familiarize leaders with key profitability drivers of the business, division, function and/or process.
- Allow managers to explore real-life “what if” scenarios and their potential impact on Key Financial Metrics like EBITDA and ROIC
- Facilitate group goal setting and plan development
- Set future action plans focusing on KPIs
- Ensure that plan becomes a part of leader’s work
The following are some examples of the key learnings that come from a deep-dive simulation experience:
- Breaking down silos and building an understanding of strategy execution across the value chain – We often see clients within highly successful organizations who have grown up by having a domain expertise and executing within a silo very well. Often times, even though ostensibly the members of this organization are working towards a common purpose, they understand and talk about that goal in vastly different ways. It is very beneficial for someone to see how his/her actions upstream in the value chain impact others downstream– you can either enable others or really inhibit their ability to drive value. For example, an engagement with a paper manufacturer highlighted that a broad product portfolio and an excessive number of SKUs differentiated them slightly, but also wreaked havoc on the planning/supply chain function because it required them to source an excessive number of grades and types of pulp. This severely impacted its raw materials cost and gross margin. After immersing the senior leadership team into the sales-supply chain-manufacturing cycle and these relationships, leaders saw firsthand the connection between product portfolio and cost, and reported the results outline in the charts below:
- The 80-20 rule – There are often a wide number of initiatives or projects that can help the performance of a company. However, according to the 80-20 rule, for many events 80% of the outcomes come from 20% of the causes. Thus, in a world of limited resources, a firm must decide which costs represent a disproportionate “piece of the pie” and which categories are most fungible, and concentrate effort into those areas. Items that are either small or fixed should be ignored or deprioritized. When participants make decisions in the simulation, they immediately experience the scale of each component and also the company’s ability to impact it. Observing a dynamic pie chart together and acknowledging the magnitude and rate of change of each element gets everyone on the same page. For example, for an oil and gas company, the laws of physics and commodity markets dictate that, in the short term, it would be very hard to impact cash flow by increasing revenue or decreasing production cost. Instead, it should focus on immediate, high-impact actions, such as curtailing capital expenditures, and perhaps its inventory management, more carefully.
- What must be true – What I have found most interesting is that as revelatory and important as the previous two points are, it is the human and cultural side of things that often have the highest impact. These moves and actions are not rocket science, yet they had not been executed upon. In asking “what must be true” in order for the company to move the needle on a certain key metric, we often find that the answer has roots in motivation, incentives, or other organizational dynamics versus strictly a lack of knowledge or capability. One example: In working with a leading software-as-a-service company to dissect its infrastructure cost, it emerged that a lack of communication between the team of application engineers and data center operators caused high incidences of regression where each new release required more and more bandwidth. Our engagement challenged the team to answer the question of “what must be true” and encouraged them to sync up with their counterparts and collaborate on testing, automation, and new protocols to mitigate against this trend. It helped them understand the interdependencies that existed from product engineering through infrastructure management and which levers are the big ones that they should focus their attention and collaboration on.
As the above examples show, sometimes diving into the details of a certain step of a process can greatly improve the execution of the journey. The other day, I once again saw a particularly lost couple navigating the City. They were trying to go to my favorite dim sum restaurant and I felt particularly motivated to help them. With their hotel map and a pen, I instructed them to go down Kearny Street for 3 blocks and then turn right when they saw an alley with a red awning and they wouldn’t be able to miss it. They nodded and thanked me, confident that they would find it.