By André Chaves, FALCONI partner
One of the biggest challenges faced by the top management of any organization, especially industrial companies such as those manufacturing paper and cellulose, is the constant mismatch between strategy and execution.
Very often companies invest time and money in complex processes to conceive a unique organizational identity, long-term objectives and goals, and robust strategies to join the elite of companies that reach high and sustained levels of performance.
Much to the frustration of business leaders and shareholders, however, such actions are unable to deliver the results promised because they fail to bring about the intended changes at the speed and depth needed to address the challenges identified.
Then, why is it that, in spite of robust strategic planning processes, such mismatches keep on occurring? Maybe the most important conclusion about the problem is the fact that the strategies (which can be grouped into goals, actions, and policies) are not appropriately developed by means of the entire organization and its processes in order to completely align all team efforts with the company’s long-term goals. Thus, actions disconnected from the top priorities and, quite often, even conflicting actions, start to coexist and consume the limited resources available.
Fortunately, there is a structured approach called Management by means of Guidelines (GPD). It is aimed at ensuring that the company’s strategic objectives are transformed into clear goals for all people, who start to contribute by means of concrete actions towards the overall result and, consequently, towards full execution of the strategy.
How does GPD work and what are the steps towards its efficient implementation within organizations? GPD can be organized in a simplified manner as follows:
At stage one, it is necessary to identify the strategic objectives and set annual goals for the company’s overall performance indicators – for example, the sum of EBITDA that will satisfy the need to generate cash that year in order to promote the investments planned, or, in addition, the amount of turnover that should be acceptable to ensure that the knowledge acquired by the team will not be lost, adversely affecting productivity.
Next, it is necessary to build a “performance indicator tree” that connects, by means of a quantitative cause and effect relationship, operating indicators such as Specific Timber Consumption (CMAD) or Boiler-Burnt Dry Solids (SSQ), with the economic and financial results, such as the cost of products sold, the profit, or the need for working capital. The tree-building process should involve both managerial and operating levels and should clearly show the “owners” of each indicator.
As soon as the indicators have been specified, we should collect data about each one of them to understand what the current situation is. The next step consists in comparing it with internal and external references in order to identify “gaps”, which are opportunities for improvement (“if someone is doing or has already done it, I should also be able to do it”). With this in mind, it is possible to prioritize the points we should work on in order to make the biggest impact on the overall result, using the cause and effect relationship specified in the indicator tree (e.g.: what would be the impact on EBITDA if there was a 1% reduction in CMAD versus the same 1% reduction in SSQ?).
We should set a goal (objective, value and time) for each focal point in order to grab a portion of the opportunity. In this way, we can ensure that the challenges presented will make an important contribution towards results while being feasible.
For each goal established, a plan of action should be prepared by considering the set of measures necessary and sufficient to achieve it (e.g.: changing the concentrations of oxidizing substances or changing the frequency of preventive maintenance of the “Fourdrinier table”). Its construction involves in-depth investigation into company processes conducted by the correct people, at all levels and functions, capable of contributing their own knowledge to identify the reasons preventing better results and then specify what needs to be done to block them. Each action must have a clearly specified owner and a feasible deadline for execution consistent with the annual goal.
To obtain results, however, clear goals and well-designed plans are not enough. One must ensure that the improvements indicated are really implemented. This is performed with a robust and disciplined control process, with standardized and sequential meetings that start at the lowest level of the operation (e.g.: the cellulose dryer’s cell or the maintenance team in charge of the offset machinery) all the way up to the president. In these meetings, indicator owners discuss the results obtained, assess the progress of the actions proposed, identify any deviation from goals, investigate the reasons, and propose the necessary corrections.
At the end of each year, one must think carefully about the results achieved, the solutions proposed, the challenges faced, and the learning experience gained, as well as prioritizing the points to be addressed for the next year.
Over time, the practice of GPD offers a lasting competitive advantage because by facilitating the participation of all people, it makes it possible for the organization to devote its entire intellectual effort to its major problems (resulting from the strategy). In addition, it creates a real result-driven culture and lays solid foundations for adopting meritocracy and promoting human growth.
Published in the august issue of O Papel magazine.