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 / Spring 2013 / Issue 70(originally published by Booz & Company)


Think Functionally, Act Strategically

Leading from Within

If you are a functional leader, your role is more challenging than ever before. You are a critical player in every aspect of capabilities: identifying them; designing the processes, tools, and practices that enable them; and executing the strategy through them. Your personal leadership qualities—your interpersonal skills and strategic insight—are a primary source of success not just for the function, but for the enterprise as a whole. In your most important work, on differentiating capabilities, you share authority with other functions and departments, instead of maintaining unilateral control. You need a level of credibility and integrity high enough that you can counsel business unit leaders, even telling them hard truths—for example, that their priorities conflict with those of the overall enterprise.

As the company becomes more coherent, you may often be called on to help build or develop differentiating capabilities—and to help discard investments that no longer fit. That may mean shifting abruptly from a service bureau orientation, where your role is to fulfill every request, to a more strategic approach, where you help set and maintain priorities and sometimes have to say no. Even as its leaders espouse greater coherence, your organization may not move smoothly in that direction. Everybody tends to think that the number of projects should go down, starting with everyone else’s projects. In those organizations that embrace coherence, too much centralization can be a weakness; you will also have to guard against top-down rules and practices in your function that stifle creativity and make it hard to reach out to customers effectively.

A well-designed and well-executed functional agenda makes all this easier. Once you can establish an open, well-communicated set of priorities and an explicit, well-understood functional blueprint, you will not be operating alone. By putting these together and talking about them openly, you reinforce a higher degree of alignment between the corporate center, the local business leaders, and your own team. As you gain practice in saying no to multiple priorities, and focusing on the few most critical capabilities, you enhance your own ability to lead. When the company moves in the direction of a capabilities-driven strategy, and needs your function to take part wholeheartedly, you and your team will be ready.

Measuring Functional Performance

Every function’s first priority should be to support the building and management of differentiating capabilities. Therefore, it is essential to define and measure explicitly just how much value each function is delivering. You can use four distinct indicators to assess this value.

1. Quantifiable impact. Measure all the function’s activities against definable business outcomes that are aligned with the company’s strategic priorities and tied to a specific time frame. A centralized consumer insights capability, for instance, might be measured by the reduction in the number of weeks required to develop new products during the next 18 months.

2. Clear drivers of value. Identify the sources of your function’s greatest contributions to the enterprise. Improved demand management might depend, for example, on having sophisticated analytical tools that can provide streamlined access to data, greater scale, and the bundling of expertise. Metrics should establish the degree to which these tools exist and are used.

3. Cost-effectiveness. Continue to track the relationship between expenses and outcomes. Your function’s contribution to the enterprise—measured through financial performance improvement in revenue or profit—must outweigh the cost of its activity.

4. Internal market validation. Seek out and incorporate feedback from your clients and constituents within the company, to drive your function’s effectiveness and efficiency wherever possible. This may include the use of charge-backs, service-level agreements, and make-versus-buy assessments (analysis of whether to build a capability in-house or outsource it).

Leading companies deploy rigorous processes and tools to ensure the alignment of ongoing and proposed functional activities and investments with the functional priorities and the operating model, and to ensure maximum value creation. Within the context of continuing pressure on support budgets, this helps functional leaders allocate their resources to the activities with the highest value.

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