Picture from Silvio Roli on Railpictures.net
Setting strategy can be complex. Organisations carry out complex analyses of who they are and how they can make the most of opportunities.
The plan should be simple. The best teams know a few things they always ‘MUST’ do and a few things they know they must ‘NEVER’ do. J Richard Hackman called these ‘Norms’. ‘Precepts’ are a more situational version of norms. Precepts define a decision framework based on ‘Values’ (what is important to us), opportunities and current constraints. A handful of precepts will facilitate the process for making strategic decisions.
Consider the story of ALL, the Americana Latina Logistica. In 1997 the government of Brazil privatised the rail network. After decades of neglect the system was close to collapse. Rail usually accounts for 80% of long-haul transport. In Brazil at the time the figure was 20%. The new team, managing eight freight lines, inherited a bureaucratic, overstaffed, politicised, underperforming organisation, bleeding cash. Every year at harvest time, undelivered crops rotted in the fields. It was a mess.
Picture from PRB 10 website.
The new management team agreed the following strategic objectives:
- Cut costs
- Grow revenue by expanding services to existing customers.
- Support revenue growth by investing in infrastructure.
- Develop an aggressive corporate culture.
The fulcrum in the strategy was the infrastructure. Requests for upgrades exceeded $150 million. They got $15 million.
Within three years the ALL had increased revenues by 50%. They tripled EBITDA. They went public in 2004 as Latin America’s largest independent logistics company, with an extensive rail network in the continent.
Photo from the ALL website
With their performance orientated culture, they were recognised as one of the best employers in Brazil.
photo from the ALL website
How did they manage to change the culture and engage the employees?
First the management team acknowledged access to capital as a strategic bottleneck. Then they made a strategic decision to reinforce adaptability, creativity and engagement over fiscal efficiency. Instead of issuing detailed, restrictive investment rules, they engaged a cross-functional team to translate strategic objectives into practical guidelines to prioritise capital spending. The team defined the following precepts for evaluating all proposals for new projects:
- Remove obstacles to growing revenues.
- Minimise up-front expenditure.
- Provide benefits immediately (rather than paying off in the long-term)
- Reuse existing resources
These precepts provided a framework for negotiating agreements between teams with different driving philosophies. For instance engineers want solid solutions and sales staff want to service customers. Precepts reduced the role of emotion and politicking in decision-making. Everyone worked hard to translate the rules into transparent reasons for decisions. This built trust.
Delegation of authority stimulated a wealth of ideas from the front line. Staff initiated projects to repair decommissioned engines, buy used locomotives from Africa and use track from abandoned parking sites to repair damage on main lines. On a staff suggestion, they increased the size of fuel tanks to increase the range of the engines.
Picture from Daniel Trevison on Railpictures.net (waiting for confirmation of permission)
Another good example of precepts in action comes from People Express Airlines. The founder Don Burr set out to create an organisation that fully engaged the talents of people working there. Each person working in the airline was called a ‘manager’ and was treated as such. They continuously made decisions and judgement calls in their day to day work. He convened meetings of the officers of the organisation months before operations began and together they agreed a framework of six precepts to govern the choices made throughout the daily operation of the airline at every level.
Staff selection was thorough and new hires were taken through rigorous training on the precepts. The six precepts were:
- Service, commitment to the growth of the individual.
- Best provider of air transportation.
- Highest quality management.
- Role model.
- Simplicity.
- Maximisation of profits.
The founder also elaborated further on the second precept in what became known as the three C’s: Complete, Clean, Communicate.
The founding team also defined two constraints in decision making:
- They were to comply, without fail with Federal Aviation Administration regulations.
- They were never, ever to give away liquor. Apart from the cost of drinks, the chairman wanted to remove the temptation to resolve service difficulties with free drinks.
Even when the precepts seemed to contradict each other, as teams talked through the situation, the best way to proceed would emerge.
Create your own precepts
How do you go about creating precepts? What are some strategic precepts for creating strategic precepts?
- Know what you are trying to achieve. Define your strategy.
- Identify the key obstacle to realising your strategy, the ‘bottleneck’. There will be many bottlenecks. No organisation has enough cash, talent or resource. Which bottlenecks will lead to precepts with the greatest impact?
- Base your precepts on analysis of data. Precepts may be counter-intuitive. Draw on experience from your business as well as data from your industry.
- Draw frontline staff in to craft, test and refine the precepts. Remember: We only ever commit to what we have created ourselves.
- Give full executive support to the creation, roll-out and exercise of precepts. Halter those executives who prefer vague decision criteria rather clear precepts from the team.
- Keep precepts focussed, specific and easily implementable. Prohibit vague concepts such as ‘innovative’, ‘synergy’ or ‘strategic’. Avoid simple sounding ideas requiring a large amount of work to fulfil. Projects will deliver monthly Earned Value Calculations is easy to say but onerous to do. This will frustrate your teams rather than facilitate change.
- Keep precepts to a handful. A long list probably means the team have not wrestled enough with the detail. Eight is already too many!
- Develop precepts as they are used in practice and as the industry changes.
Here are four categories of precepts you may find useful:
- Strategic Priority: How will opportunities take you closer to or further from your vision?
- Timing rule: How much revenue or savings do you want returned within what time period?
- Boundary rule: Is an opportunity within your purpose and values?
- How-to rule: Sketching out how implementation will unfold.
Precepts may be the heart of implementing strategy
Your strategy lives in the hearts and minds of your people. A set of simple strategic precepts will bring life to your intent. As your staff wrangle with each other to agree the difficult trade-offs required in executing strategy, the strategic precepts will keep your strategy alive.
image from MailOnline – quote from Sull and Eisenhardt.
