The World Has Been Changing. Have You Adapted Your Business Strategy? – Part 4 –

Image Source: Unsplash

During that past few weeks, we’ve shared our perspective on several of the seven levers to strategic success. You’ve considered identifying actions you can take to develop or enhance the following components of your strategic framework:

  • Market Discipline or Focus
  • Strategy Map
  • Strategic Understanding & Buy-in
  • Balanced Metrics (or Performance Indicators) and Scorecard

Part 4 focuses on People and Activities & Structure.

7 Levers to Strategic Success

  1. Market Discipline or Focus
  2. Strategic Understanding & Buy-in
  3. Balanced Metrics/Performance Indicators
  4. Scorecard & Business Performance Reviews
  5. People
  6. Activities and Structure
  7. Leadership

People: Intangible Assets

Use of Image Authorized by Source: Ocean Tomo

One of the most significant developments in business during recent decades has been the dramatic shift in the valuation of company assets.

A Look At Assets

Tangible Assets are physical and/or financial. Examples include Land, Buildings, Equipment, Vehicles, Cash, Supplies, Accounts Receivable, Stocks, and Bonds. These assets are concrete examples of worth, demonstrable through documentation. These can be used as collateral for financing that can be used to continue as well as expand and invest in operations.

Intangible Assets are not bricks, mortar or machines. They are not financial. Examples include People (referred to as Human Capital), Intellectual Capital, Intellectual Property, Goodwill, Brand Recognition, Customer Loyalty, and Market Share.

Implications of the “Components of S&P Market Value” Chart

Since 1975, the value of intangible and tangible assets has been turned upside down, as intangible assets soared from 17% to 90% of the total assets in the S&P 500 in the USA while tangible assets decreased to 10%. Intangible assets have clearly become most important for organization success in today’s business environment.

The Extraordinary Evolution of Asset Value

There are some experts who have stated that asset values have changed because of the advent of the internet. But, it’s not that simple.

In CEO Daily, a Fortune Magazine newsletter, Alan Murray shares a much bigger-picture perspective. He writes: “The three great business trends of our time–1) technology-driven transformation, 2) reinvention of office work, and 3) increased attention to social and environmental goals–are all closely related…The source of business value in the 20th century was access to capital, access to natural resources, investment in infrastructure –plants, stores, trains…It was a physical world and controlling financial and physical capital gave you the edge. Capital is plentiful, physical resources have lost value, and intellectual property rules. The way to win the game today is to attract the best and brightest talent.”

Certain types of assets are more valuable than others. Intangibles such as knowledge, business methodologies, computerized data, brand recognition and customer/supplier relationships can make a more significant contribution to business success than buildings, equipment, and machinery. In fact, some intangible assets enable competitive differentiation from competitors and can help increase a business’s value by supporting a powerful reputation, name recognition and respect among customers.

Some intangible assets have the potential to build and leverage knowledge and skills to contribute to the business in many ways, such as promoting sales and fighting the competition. These intangible assets, that can drive such value, are typically known in business as Human Capital; they are the best and the brightest that Alan Murray refers to. They can influence the value of all other assets.

But, a critical point to keep in mind is this wise observation from PeerComps’ article dated July 8, 2019, “Intangible Assets: What They Are and How They Can Add Value to Your Business “… the development of these intangible assets is essential to the long-term life of a business. Of the 5.4 million firms with employees operating today, seven out of 10 new firms only survive about two years, and a big part of that is a lack of intangible assets.” (source: PeerComps – see Recommended Reading below)

People: Human Capital

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And, so it is our workforce — our people are the intangible asset we refer to as Human Capital, now holding a uniquely critical priority in businesses today. When it comes to executing the business strategy, people do the work. When it comes to intellectual capital, people create it. When it comes to building brand recognition, customer loyalty, and supplier relationships, it is people who do it. In 2022, the knowledge and skills of an organization’s workforce exert powerful influence on both short-and-long-term business success.

We believe the data provided in the Ocean Tomo asset value chart above is useful in helping leaders to re-shape and re-align their leadership strategy and practices with current business needs. It informs leaders about the continually changing value of their organization’s intangible assets.

The data and our own experience make it clear: human potential is the primary source of competitive advantage in today’s organizations.

Therefore, it is up to business leaders to acquire, develop, inspire and actualize the potential in their people–and, to retain talent.

We know in our minds that people should be our greatest asset. Many organizations say they are. Does your organization treat people as its greatest asset? Organizations who believe that people are their greatest asset take actions to invest in and leverage this asset. They customize jobs to fit people’s skills, knowledge and preferences as well as business needs.

There are many ways they can do this, bringing value to their people and to the business, both short-and-long-term. Refer to Recommended Reading for detailed examples.

Activities

The work tasks, processes and projects your people do form the foundation of your competitive advantage. When these are aligned with your business strategy, and people have a solid understanding of how they contribute to delivering the strategy, they can effectively prioritize their daily activity, and can understand how their efforts, decisions and actions lead to creating the unique customer value that is your value proposition to your customers.

The design of work tasks, processes and projects offers a valuable opportunity to leaders that is often overlooked. Each role in an organization can be set up to provide meaning and value in the eyes of the employee doing it.

This can be done by considering both the business needs and the employee’s skills, knowledge and interests, in shaping the role. A strategic understanding of the business offers people a cause they can sign up to support; and we can take that commitment to another level by tailoring the role in aspects such as scope, task flexibility, and decision making authority, so that the assigned employee can find meaning and fulfillment in making their contribution to the organization’s strategic success. When this happens, it brings fresh energy and even passion for the work itself.

We know that an effective Strategy Map and Balance Card can enable ongoing improvement in strategic performance for organizations. A related but sometimes unrealized benefit of your Strategy Map and Scorecard is the use you can make of them to involve and leverage the capabilities of your people in conducting analyses of your Value Chain; you can involve them in following that analysis by helping to target and drive improvement in operational effectiveness and efficiency. Driving change and improvement with the involvement of your people will can result in a marked improvement in job satisfaction and strategic execution. To learn more about Value Chain analysis see the Recommended Resources below.

Structure

It is a basic function of Leaders to build an organization that can effectively pursue the direction set by the business strategy, and to do so in alignment with the company culture and leadership philosophy. This is complex, because the design of the organization structure needs to optimize the ability for people to use information, materials, systems and processes, as well as to work and communicate easily with each other, to execute the business strategy and achieve its goals.

There are many types of organization structures. The structure chosen will have influence communication and decision making authority. These are two important considerations due to the impact on job roles, autonomy, teamwork, information sharing and collaboration. The structure can streamline communication or inhibit it; it can make it easier or more difficult to get things done; it can provide or withhold job autonomy; it can help ensure the right people have input on different types of decisions.

An organization structure that fits one company may not fit another. There are three standard designs that form the basis of most organization structures. They are:

  1. Functional
  2. Departmental/Divisional
  3. Matrix
  • Functional structures group people by function, such as Finance, Manufacturing or Human Resources.
  • Departmental or Divisional structures group people by product line, business unit or plant.
  • Matrix organizations are a blend, grouping people either by function or by department/division and requiring employees to report to two managers, one functional and one departmental.

Refer to the recommended resources below for additional information that may be helpful as you start researching tools to assess and consider changing your organization structure.

Summary

When people are recognized as the top value business asset, as the intangible assets who create other intangible assets for the organization, the need to attract, develop and retain people continues to grow. As we move through the pandemic, and employee expectations have continued (and may continue) to change, companies will need to find new ways of building ties that foster commitment and with it, longer term employment.

We feature this image of Old Dominion as a powerful example of the messaging of purpose that today’s businesses need to deliver to their people to build understanding, buy-in and commitment. We are willing to bet that Old Dominion has established themselves as a leader in their industry as as well as a leader of people.

What is the purpose and message your organization is driving?

Next Steps

Series Step 4

Activity 1: Consider questions such as these as you think about the Activities and Structure of your organization. Document your thoughts and ideas.

  • Do we all use our knowledge of the strategy to help prioritize our daily activities and to-do-lists?
  • How well does our organization structure support and enable the strategy?
  • Does my team understand how our efforts, decisions and actions lead to creating our unique customer value?
  • How well does my team understand our competitive advantage and the value proposition we offer customers?

Activity 2: Think about the purpose/vision shown in the Dominion Freight image above. What might be the effect of such a statement on customers? On employees? On work activities? On organization structure?

Action 3: Read and research the Value Chain and the types of improvement charting and analyzing it could potentially generate in your organization.

Action 4: Consider your organization’s culture, values and leadership practices as these relate to achieving your business strategy. What steps might you take to assess and improve the strategic effectiveness of these core elements of your organization?

Activity 5: Think about how you might provide employees with the opportunity to find individual meaning in the work they do. Do jobs require development and use of an individual’s preferred skills? Is learning and growth available that aligns with employee career and advancement aspirations? What can leadership do with job assignments that can improve the sense of satisfaction each employee finds in doing their job day in and day out?

What are your thoughts on Part 4 in our series?

Please tell us! What has your company’s experience been with developing and leading with Strategy? What metrics have you discovered to be most effective in the past? What will you do differently now? Please share your questions, results and comments with us! You’re welcome to contact us at your convenience.

Other segments in this mini-series

The introduction segment: “Sometimes, in business and in life, we find wisdom not in what people think, but in how they think” LINK: https://rosannamnadeau.com/2022/01/21/sometimes-in-business-in-life-we-find-wisdom-not-in-what-people-think-but-in-how-they-think/

Part 1 “The World Has Been Changing. Have You Adapted Your Business Strategy? Part 1” – Market Discipline or Focus – LINK: https://rosannamnadeau.com/2022/01/19/the-world-has-been-changing-have-you-adapted-your-business-strategy/

Part 2 “The World Has Been Changing. Have You Adapted Your Business Strategy? – Part 2” – Strategic Understanding & Buy-in – LINK: https://rosannamnadeau.com/2022/01/19/the-world-has-been-changing-have-you-adapted-your-business-strategy/

Part 3 “The World Has Been Changing. Have You Adapted Your Business Strategy? – Part 3 – Balanced Metrics – LINK: https://rosannamnadeau.com/2022/01/26/the-world-has-been-changing-have-you-adapted-your-business-strategy-part-3/

Part 4 “The World Has Been Changing. Have You Adapted Your Business StrategY? – Part 4 – LINK: https://rosannamnadeau.com/2022/01/30/the-world-has-been-changing-have-you-adapted-your-business-strategy-part-4/

Part 5 “The World Has Been Changing. Have You Adapted Your Business Strategy?” – Part 5 – LINK: https://rosannamnadeau.com/2022/01/31/the-world-has-been-changing-have-you-adapted-your-business-strategy-part-5-2/

Additional Resources

“What is Value Chain Analysis,” Harvard Business School On-Line – LINK: https://online.hbs.edu/blog/post/what-is-value-chain-analysis

17 Types of Organization Design and Structures – LINK: https://www.aihr.com/blog/types-of-organizational-design/

“Organizational Structure: How to Create or rebuild One,” – LINK: https://www.insperity.com/blog/organizational-structure/

“The Top 10 Signs It’s Time to Change Your Organization Structure,” – LINK: https://organizationalphysics.com/2019/02/26/the-top-10-signs-its-time-to-change-your-organizational-structure/

“Do You Have a Well Designed Organization?” – LINK: https://hbr.org/2002/03/do-you-have-a-well-designed-organization

Free Educational Resources

LINK: https://lessons.online.hbs.edu/?_ga=2.112300612.1957100363.1643561546-1783180230.1643561546

Free E-book Download from Harvard Business School On-line

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