Comprehensive Strategic Audits
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Like personal health-check-ups, do you go for
Total-health-check-up of your business?
How does one know that a business is successful, sustainable and is in sound-health?
A business may be labeled as successful if it keeps growing at a steady pace if not faster.
A successful business keeps creating new markets/customers while at the same time retaining current ones. It administers employee retention strategies and keeps all its stakeholders engaged as well as delighted.
Successful businesses do this by offering better value to customers. They anticipate their needs as a subset of evolving need-cycles or demand-cycles of 'need' rather than offering myopic-products. Going beyond (merely) satisfying demand (offering a product) they solve customer's problem (problem-solution fit) unlike the 'fly-by-night' competitors offering 'Me-Too' products.
'Me-Too' suppliers typically offer fad-based technological frills as solutions. Riding upon technology-cycles and product-life cycles they usually use 'market-penetration' strategy guided by myopic-visions. 'Me-Too' companies often play on price-cut games although at losses due to lack of benefits of 'scale'.
Customers eventually force pulling down shutters of the 'Me-Too' companies. This is because eventually, the sweetness of low-price gets spilled-over by the bitterness of shoddy-quality. This is a result of cutting corners to compensate for price-cuts. However, while delivering pseudo-value they do pose competitive challenges to successful businesses forcing them to strive hard to make profits as a subset of profit-for-planet as their long-term vision.
Successful businesses overcome this by preparing themselves to be ever ready for 'cost-leadership' by leaner business operations. Concurrently they offer differentiated value by using innovative practices for leaner product development with speed. They offer innovative products or services by product-market fit, rather as a problem-solution fit at lower costs as affordable to masses. If company's products are not differentiated in ways that really matter to their customers, although their products may not necessarily die, they certainly will be commoditized over time and at best will end up as 'Me-Too' products.
Many a time it may not be necessary for a new product or service to be out-of-the-world innovative at the first-go itself. It might just be enough to find a few gaps in quality-cost-delivery features by consciously going beyond customer-complaints in order to capture customer-voice in current &/or un-served markets. And then meet those gaps by simply being better-in-quality, affordable-in-price, faster-in-delivery so that it gets difficult for the 'Me-Too' competitors to match especially in the current markets with current customers. Similar approach in new markets with new customers is now-a-days called as blue-ocean strategy.
Successful businesses do this in Kaizen-way. Various teams there build in incremental-innovations in both products as well as processes continually. They make-n-deliver them with speed in such a manner that over-a-targeted time both the product and processes emerge as truly different from the original ones. On-lookers may call them as innovations or inventions. In the process, they create Kaizen culture itself as “competitive advantage”. It, in turn, creates transient-competitive-advantages for the company to tackle dynamic market conditions. And hence they get difficult to be matched, eventually posing competitive challenges to the competition.
Modified Ansoff's Grid for Growth Strategies Porter's Generic Strategies
Innovation Strategies
PMS (Pioneer/Migrator/Settlers) Map Where does your business fit in Ansoff's Grid? Which quadrant do your 'products or services' fall? Where should they optimally fit?
(What Product to sell to Whom? Where-n-How to reach the market?)
They evolve as environment-friendly LEANER businesses that create value: Businesses that revolve around producing & marketing differentiated but environment-friendly 'needs' rather than 'wants' while at the same time consuming lesser and lesser resources. As responsible corporate citizens, they know that nurturing 'want-based-consumerist-attitude' is detrimental to the bigger cause: The societal needs and the sustainability of the planet itself!
Value = Delivering More and More to the Stakeholders (Divided By i.e. By) Using Less and Less Resources
The main challenge in the process is to tackle “environment” in which the businesses operate. The business-environment constantly keeps changing, faster and in chaotic manner. Taking stock of the situation holistically is like a typical comprehensive personal health check-up: a Total-health-check-up!
So a business must conduct the audit of business-environment (PEST: Political, Economic, Social and Technological) in which it operates, the opportunities and threats (OT) it offers, the strengths and weaknesses (SW) that it has of its own to tackle those OT. In other words, do PEST & SWOT analysis, Competitor analysis, etc. along with an audit of efficiency & effectiveness of business operations. Doing this in an integrated i.e. holistic manner shall help it understand changes in the environment.
Accordingly, it must adapt and adopt itself in order to reflect changes in the business-environment, make strategic decisions about how to change its business mix (business portfolio, product portfolio, and corresponding marketing-operations-finance-and-HRD mix) and implement it meticulously. It must:
i/ Challenge the current 'product-market-fit' in order to evolve it in line with the future needs of the target market from the chosen market/segment with corresponding risks involved, if any.
ii/ Decide whether to pursue - ‘differentiation-leadership’ on offerings in the broader market based on uniqueness perceived by the market/customer, - create an optimized 'business-model fit' that offers 'cost-leadership' in the broader market, - 'focus' on cost or 'focus' on differentiation based on the chosen niche target (narrow market segment provided it is economically feasible as well as viable) or - to pursue a hybrid model that focuses on premiumization and differentiation-at-low-cost (off-late jargon-ed as 'blue-ocean-strategy') if stuck in the middle of the Porter's matrix. In any case, it should inevitably be done by lean practices in order to facilitate ‘scale-up’ of business.
iii/ Evolve corresponding lean marketing-operations-finance-and-HRD mix.
iv/ Align the mix that addresses the common concerns of customers and the needs of other stakeholders.
v) Accordingly, allocate resources optimally over the near-to-medium-to-longer term (1 to over 5-years or more).
vi/ And in order to succeed, implement the corresponding strategies and tactics meticulously but with speed by using and continually upgrading its strengths by taking stock (recognition-&-review) on a daily-weekly-monthly-quarterly basis.
Recently in an article "RIL, Infosys and Bharti Airtel struggle to find the 'next big thing'" in the Economic Times, Vijay Govindarajan (the Earl C Daum 1924 professor of international business at the Tuck School of Business at Dartmouth) corroborates the above point while saying "Indian companies that have achieved success in the past 20 years are vulnerable, given the rapid pace of change in technology, customer demographics, regulation, globalisation, & so on".
Pankaj Ghemawat (an author, strategist & professor at IESE Business School in Barcelona) continues in the same article "In mature markets, more than nine-tenths of a competitive advantage - as manifested by above-average performance - tends to disappear within a decade".
In light of this, it gets more challenging for small and medium enterprises (SME). Because SME business owners are unaware of many elements in the internal and external environment that can prevent their markets and in turn business from growing and being successful.
Often, small businesses, in particular, get organized around its manager's functional expertise, such as marketing, accounting or production. This specialized expertise often prevents its business owner from recognizing problems that may arise in other parts of its business.
Paradoxically, arms of large businesses tend to become so specialized and remote to control at times that lack of comprehension & alignment of their local actions in the context of their global vision and existence causes their failure.
This publication hopes to provide with the essentials for conducting a continual comprehensive search (or say comprehensive audit in the conventional parlance) for existing or potential problems at workplaces. The audit as designed and suggested here actually serves as an 'enabler' (like a typical family-friend-cum-doctor does using a stethoscope). It motivates the target audience to strategize and source opportunities for improvement as opposed to a typical nasty 'inspector' using lenses-over-lenses to 'catch people' that results in a 'blame-game'.
Towards such a larger goal of 'enabling', actually, it's more than a tool although it's not a replacement for good management and leadership skills.
Audits and books anyway cannot substitute managerial leadership skills. However, effectively designed instruments such as this kind of enabler audit especially with a reasonable perspective of an 'objective-external-eye' can save valuable time for a seasoned as well as a novice business manager/leader. Such audit designs can be suitably modified to suit the environment of both large and SME businesses in order to address their unique needs and problems. It creates/evolves improvement opportunities (Instant©Kaizens as well as Distant©Kaizens; small-steps as well as break-through improvements as appropriate) in order to improve their offerings (products/services) as well as processes.
Holistic Radar Score
Comprehensive audits
Comprehensive audits (like holistic health-check-ups) thus are concerned with allround efficiency, effectiveness, and economy in the design, operation, and maintenance of businesses.
Comprehensive audits can be performed at a variety of levels including at the organization level as a whole, or at a specific branch, location or function levels such as Human Resources, Operations, Marketing or Strategic Management.
Typically, a comprehensive audit would examine adequacy and compliance of management-control-&-improvement-framework of the entity as a whole.
This is done in terms of operational practices, controls and metrics of each spoke/pillar on the holistic radar (see adjacent table) as it is exploded hereunder on a scale of 01-10 (see tables) as an example for Lean-Business pillar with its sub-spokes/pillars.
What Is the Importance of a Strategic Audit?
Audits serve various purposes. Some audits assess compliance with laws and regulations, business-risks, level of governance & accountability, etc. Others measure compliance with organization's internal policies & procedures. Few others measure compliance with a chosen management practice by the organization.
A strategic audit helps business owners assess whether internal processes and functions - adapt to reflect changes in the environment in which the business operates and - meaningfully integrate with each other helping advance toward strategic business goals. It helps align them with a strategy for a given period.
New initiatives usually get launched as standalone orphans without strategic focus. Often such 'failed efforts' are evident in terms of diagonally opposite findings, that of scoring a high grade in (and in particular on-the-day of the) 'award audits' even though the workplace is full of 'fire-fighting' and 'filth' (except on the audit day).
A Strategic audit done comprehensively keeping the strategic-fit in mind opens up eyes and catalyzes to prevent improvement initiatives from turning out to be 'flavor-of-the-month kind locally-optimized' ones. It helps find the right path in order to provide the initiatives a strategic fit to the long-term global-goals of the organization. Based on audit results, management adjusts their operations and conceptual management processes to maximize progress toward chosen goals to delight all the stakeholders.
Typical Purposes of an Audit
Measure 'adequacy' and 'consistency of compliance' of strategy-management-process involving business, marketing, finance, HRD and/or operations strategy planning and deployment. Measure whether it is driven with strong, assertive and if required aggressive management review mechanism (MRM). Measure whether the MRM process ensures: i/ 'catch-ball' hoshin-policy deployment type unity-of-ownership right through the top, middle and grass-root level Self-Managed-Teams (SMTs), ii/ accountability through individual level performance-development-plan as a part of HRD process.
Measure whether the success of the strategy-deployment process is evident in terms of sustainable business results (KRAs or KPIs) in tune with stakeholder needs (not to forget the financial ones also typically the 'return-on-equity' (ROE) and 'return-on-capital-employed' (ROCE)).
Measure 'adequacy' of the current 'product-market-fit' in line with the future market needs.
Measure 'adequacy' and 'consistency of compliance' of the business risk management process.
Measure 'adequacy' and 'consistency of compliance' with laws and regulations specific to the entity.
Measure 'adequacy' and 'consistency of compliance' with the organization's internal policies and procedures.
Diagnostic study of 'current state' (base-level) of the organization. Identify strategic-fit and tactical 'gaps' as 'areas of improvements' (KRAs or KPIs) with reference to a chosen practice/initiative such as ISO Standard Certification, LEAN, 5-S, TPM, Deming-Award, etc.
Measure 'adequacy' and 'consistency of compliance' towards 'desired future state' identifying strategic-fit and tactical 'gaps', if any, as 'areas of improvements' with reference to a chosen management practice/initiative such as Lean, Total Productive Maintenance (TPM), Just-In-Time (JIT) operations, Achieving Business Excellence, To be a Highly Standardized Workplace (SDCA: Standarize-Do-Check-Act cycle), etc.
Measure current status (base-level) with reference to benchmark management practices in the industry. Identify strategic-fit and tactical 'gaps' in achieving Dream/s-Vision-&-Mission/s based KRAs or KPIs, if any, as 'areas-of-improvements'.
Audit-findings-based tracing/tracking of the continual improvement culture and journey in order to achieve lean and excellence objectives.
Auditing suppliers on behalf of the principal organization on similar lines as above in a wide range of industries.
To help draw up an aggressive succession and training plan based on audit findings. This will help in strengthening the weak areas of the business by filling in gaps in knowledge-skill-attitudes and thereby make it a learning organization in tune with the strategic-business-plan.
Establishing objectives and the scope of audit towards the strategic plan of the business under consideration gives auditors a baseline for their work. With a shared scope of ‘comprehensive strategic audit’ in place, auditors examine business functions and assess each function as the corresponding spoke on the improvement radar wheel so as to enable measures that improve the radar score and in turn move the indicators of the business goals for the better.
The Audit Report
Strategic audit compares the 'current state' of a business as it exists on the day of the audit to the 'future state' of the business the way its improvement goals were planned. The auditor prepares a written report that evaluates each functional unit of the business and grades it according to the improvement radar wheel on a scale of zero-ten (0-to-10).
A strategic audit is an on-going process. However, just like an aware and pro-active human being undertakes an annual preventive health check-up, an audit undertaken at least once annually can help an organization ensure proper functioning and mitigate problems at the seed stage.
Based on the audit report, a business owner implements changes that are evolved, and the auditor team checks in periodically to re-evaluate the performance of each unit post-implementation. As the business strives to achieve its goals, management suitably updates the strategy and its execution plan (P part of PDCA improvement cycle or the Deming Wheel), implements it (Do part of PDCA cycle) and the audit cycle begins anew (Check or rather Study part of PDCA cycle) in search of chasing newer benchmarks (the next Action part of PDCA cycle).
The journey towards excellence continues with a number of macro-micro PDCA cycles. Business continues to stay successful, miles ahead of the competition. with a stronger brand image that all stakeholders, running behind such businesses, crave for.
Questions, Doubts: Is it necessary to have such a comprehensive audit and an elaborate vision-mission-strategy exercise for a small business?
Answer: Actually such an elaborate exercise does get done in small businesses as well. But, in its entrepreneurial stage, it gets evolved in a subtle form in the mind of the entrepreneur herself. More structured way of doing so becomes an essential exercise when 1/ size of the market and business begins growing, 2/ it becomes difficult to manage due to heightened environmental changes and pressures, 3/ there is a need to professionalize the entrepreneurial business that was so far dependent on the entrepreneur and his skills intrinsic to a given business.
Author: Shyam Talawadekar
Business Coach (World-Class-Management), Management Author
FAAAI Expert Faculty (on Industrial Psychology and Japanese Management), AOTS Japan
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How and where can we help?
As a Business-Doctor, Kaizen Management Systems has conducted many such comprehensive-audits and subsequent hand-holding during the improvement journey. This includes strategy deployment for the same for large as well as small organizations and their variety of processes achieving impressive results.
Our team has combined two decades of experience in developing methodologies for comprehensive auditing with a wedge opening for the next step. As a next step to audit, our core competence lies in hand-holding a company's core team in tracing the improvement journey on fast-track with reference to the findings of the audit. The improvement journey may be a leap jump toward achieving breakthrough improvements or challenging coveted awards such as Deming Award as a by-product as we did as partners in their Deming journey at Mahindra & Mahindra, Nagpur.
In fact, we specialize in diagnosing and treating typically 'failed or aborted efforts' of improvement initiatives, and even the 'flavor-of-the-month kind locally-optimized', 'false-start' ones.
The audit, right word could be the 'diagnostic-enabler-audit' or a 'periodic organisational health check-up', if followed by a more rejuvenating logical next step that we suggest, would actually serve as an 'enabler'. It would motivate the target audience to evolve as self-assessing-auditors across the company. This would of course evolve over a period of time if duly supported by top-management commitment and faith in our coaching that goes 'beyond consulting'.
Proof of the pudding lies in the examples of such case-studies (of a typical sustainable continual improvement journey towards being lean) driven by us and included in our publications.
What is the first step that you take now?
Let your top management team declare their commitment to the scope of audit and to the improvement journey thereafter, if any.
Decide upon the following and collect relevant information :
1/ Purpose and scope of the audit
2/ Timeline that you have in mind for the audit (and for the improvement) cycle
3/ The entities (location/function) to be audited
4/ The improvement goals planned at the entities
5/ Number of people working there and the auditee team
6 The product portfolio and (management and delivery) processes in place at the corresponding entities
7/ The corresponding SOP manual in use
Let your management representative (MR) e-mail this information to us and then we commit to the joint efforts on this continual improvement journey.
Abbreviations:
HRD: Human Resource Development
Additional Reading: