How employee involvement enhances strategy formulation
Is there such a thing as too much freedom in leadership?
Consider this: as a CEO, you set your organizsation’s strategic direction and define clear objectives. You also empower your employees by giving them the creative freedom to achieve these goals. But when does this freedom become counterproductive? What happens when too much autonomy leads to misalignment with the company’s visionand chaos in the execution?
This scenario challenges the traditional view that more freedom always correlates with better outcomes. Let's explore the balance necessary between guiding and empowering to ensure that freedom within your organization is a driving force for success, not a barrier.
When strategic goals are cascaded down to the employee, it can feel like a raw deal. The employees did not decide on the goals.They may not even agree that they are the right goals. Yet, they are held accountable for reaching them.
Separating the What and the How of strategy – the goals and the roadmap to get there - has always struck me as an unlikely route to success, yet it appears to be the norm in most organisations.
When it comes to developing strategy, it’s easy for the company leaders to stick to the same old strategy planning process they have used in the past, even if they know it’s not the best – it’s comfortable and easy.
Recognising these challenges, I would like to suggest a different approach - employee involvement in strategy formulation.
The benefits of employee participation in strategy
Employee involvement is the process whereby staff, especially frontline staff, become active participants in the decision-making of an organisation. This contrasts with traditional business practices where employees follow the top-down communication of a strategy plan passed down from the top via senior managers.
There are possibly valid reasons why the status quo of siloed strategy plans and execution has persisted for so long. Leaders may feel that employees lack the experience to partake, or at least don’t have the business language to understand each other across the company's levels. And the process involving many members of staff may be perceived as time-consuming and an unnecessary burden on employees. And often, having done strategy in a certain way stops leaders from considering other options.
However, it could be argued, that opening up the strategy process is a necessary adaptation to today’s changing business environment characterised by dynamism, complexity and need for innovation and inclusivity.
Research by Gallup on employee engagement, reports a strong correlation between higher levels of engagement and improved business outcomes. It indicates that highly engaged teams show 21% greater profitability.
But there are further upsides when involving employees beyond profitabillity.
Increased trust in leadership and more credible strategies
The biggest problems in strategy arise between strategy formulation and execution. Research indicates that a staggering 60-90% of strategies fail to achieve their desired objectives. This high failure rate often stems from a disconnect between those who formulate the strategies and those responsible for implementing them.
When leaders exclude employees from strategy-making, they inevitably end up with insurmountable communication problems, which become evident during the execution phase.
Involving employees in the strategy creation process will give staff a sense of ownership of the problems and an appreciation for the difficulty in making the right choices. Allowing staff to contribute their ideas and perspectives, creates a personal investment in the outcomes, which naturally fosters a sense of responsibility towards the implementation and success of the strategy. This phenomenon aligns with the Self-Determination Theory, which suggests that when individuals feel autonomous, competent, and connected to a community, their intrinsic motivation increases. By involving employees in strategy formulation, companies tap into these psychological needs, enhancing motivation and commitment to the organizational goals.
Involving people from diverse backgrounds and with different perspectives is an easy way to broaden the scope of strategic thinking which helps shift away from the often narrow focus on the competition. The inclusion of diverse viewpoints in the decision-making process enriches the analysis of complex market dynamics, as varied perspectives often reveal subtleties and interconnections that a more homogenous group of senior managers might overlook.
A further point to add is that strategy formulation requires a certain amount of humility from leaders, who need to be able to admit that the situation has changed, which requires the company to figure out how to best move forward. There is nothing fundamentally wrong with disclosing it. This is far better than devising a plan B without input from staff, who all too often see strategy changes that aren’t explained well as “shooting from the hip”, or a response that comes too late, making the leadership look out of touch. Involving staff in the sense-making stage will make them more sensitive to customers' needs and emphasise the importance of good communication.
Motivation and job satisfaction in strategy-making
Involved employees will develop a deeper understanding of the issues outside their own sphere, which can lead to better alignment with other colleagues in complementary functions. Breaking up complex questions into parts to be examined by teams of employees will lead to a more thorough investigation of customer problems and better strategy considerations.
While a strategy workshop can be considered a great team-building exercise in its own right, it will also create a deeper understanding of the different skills required to succeed. Training needs and mentors or learning support can be identified within an organisation. Moreover, this approach resonates with the concept of Psychological ownership in organisations, where employees feel a sense of ownership over their work and outcomes This sense of ownership is not about legal rights, but rather the feeling of 'this is mine,' which has been shown to increase not only job satisfaction but also commitment to the organisation, fostering a more cohesive and proactive workforce
If KPIs need to be set to measure progress towards the strategy goals, this can be broached at the strategy level before they are cascaded to the individual level, making them more likely to be accepted by the employee. Framing the strategy goal as a collective aim will likely lead to greater collaboration within the organisation and the expression of shared values.
The role of empathy for the customer, leveraging frontline employee knowledge
Frontline staff are often a valuable source of insight into customer problems and needs. Yet, employees often are reluctant to offer these nuggets of strategic insights, because they lack the understanding of their true value and might struggle to find an appropriate time to voice them.
This is a terrible waste since the secret to a great strategy is to find nuanced facts surrounding the customer that the competition has failed to notice. These customer insights are the building blocks for a competitive advantage which lies at the heart of a great strategy.
Possibly, the biggest advantage of involving employees in strategy is the opportunity to build increased empathy for the customer. A detailed, granular strategy that results from involvement in the strategy-making process can help staff in day-to-day decision-making and make the strategy more intuitive and logical.
Real-world impact of employee-driven strategies
In 2012, Best Buy was in trouble. The American brick-and-mortar electronics retailer was facing competition from the likes of Amazon and Walmart, and customer buyer behaviour was shifting towards buying online.
Before Hubert Joly joined the company as CEO, it was pretty certain that Best Buy would go out of business. It had just recorded a loss of $1.7bn in a single quarter.
However, under Joly, the company underwent a phenomenal transformation.
The first thing Joly introduced was a focus on people over profit. He introduced a customer-first approach, training staff to be more knowledgeable and helpful, thus improving the customer in-store experience. Next, he created an integrated, seamless experience for customers wanting to shop online and in-store. It is worth recognising how far ahead of time Joly was with this thinking, as the term phygital – combining the best of physical and digital - had not even been invented.
Joly’s view was that the employees are at the heart of the business – he later wrote a book of the same title. The key point in Joly’s strategy was to fundamentally change from a transactional company to a relationship-based one. This increased loyalty from customers and employees.
He introduced employee round tables and pushed decision-making authority down to store managers and frontline staff. Corporate leaders were tasked with removing obstacles, not micromanaging.
Using this approach, Best Buy was able to spot a huge opportunity and capitalise on creating specialist retail stores within its stores. These stores perfectly suited customers’ needs, increased employee satisfaction, and turned electronics makers into partners.
Joly was able to turn a loss-making business into a profitable one with an increase in stock price by 330% in six years. And all by putting people first.
A similar focus on employees can be found in the success story of Four Seasons Hotels. In his book “Four Seasons”, founder Isadore Sharp points to the company’s employees as the driving force of this strategy, saying staff were focused on more than their jobs, with real concern for their customer's comfort.
Four Seasons excelled by placing a strong emphasis on exceptional customer service, with a deeply ingrained culture of treating each guest with personalised care and attention. This commitment to service excellence was achieved through employee training on high standards of professionalism, and empowering staff to go above and beyond to meet guest needs.
Over time the focus on staff excellence created a competitive advantage as staff loyalty increased and turnover reduced. This in turn allowed Four Seasons to invest more money in staff training than competitors, thus creating a virtuous circle of better staff and high-quality guest experiences. By prioritising their employees as the key drivers of customer satisfaction, Four Seasons established a competitive advantage in the luxury hospitality market, leading to sustained success and a strong brand reputation.
To further emphasise the point, here is a short video by Simon Sinek talking about one of his encounters with a Four Seasons employee. It gives plenty of food for thought.
Simon Sinek: Noah
How to involve employees in strategy formulation and planning
Ideally, your company will already have processes in place for open dialogue to voice concerns and pass on customer feedback.
But sometimes, a specific strategy workshop dedicated to a particular problem would be more appropriate—it could be about positioning, how to create customer value, or a major anticipated change affecting staff.
Here is an example of the key steps for a workshop focusing on customer needs to build better solutions or to position the company more clearly against the competition.
The main steps of the workshop include:
1. Firstly, make sure everyone involved has recently talked to a customer and brings detailed notes of the conversations. Information that participants should have collated include answers to the questions: who is the customer, how does the brand or product feature in the customer’s life, what does the company or brand do better than the competition, what improvements could be made to the product, and what else does the customer wish the company would offer?
2. Next, the customer needs will be grouped into themes. This can be achieved by creating posters around each need to make them visual and bring the theme to life.
Workshop participants are asked to write the pertinent customer comments - with the language preserved - on post-it notes and add them to the poster that matches the theme. A facilitator can help here to keep the discussion organised.
3. The insights are then distilled into meaning by allowing the team to answer the question: what do these takeaways mean for the product, brand and company?
At this point, familiar strategy frameworks can be helpful such as SWOT, positioning maps or decision trees to clarify how the company can differentiate in a meaningful way.
4. The final step sees participants identify possible solutions.
Here the idea is to connect the possible solutions to capabilities within the organisation – tools like VRIO, value chains, 7S and TOWS can be helpful.
Employees will be far more committed to solutions if they have discovered them themselves rather than having them handed to them. This has to do with confirmation bias, which makes people believe the information they have discovered themselves is more likely to be correct and important.
Looking ahead: the evolving landscape of business strategy
Someone much smarter than me once noted, “The bottleneck is always at the top of the bottle”. That is true – many companies are bloated at the management level when it would make far more sense to hire fewer, better people, pay them more - I mean employees at the coalface – and involve them in the strategy making, hence giving them a clear sight of the goals and how to achieve them.
When every employee can articulate a company strategy simply and clearly, it removes the need for management.
The old way of thinking about strategy was based on military strategy, with generals needing to maintain constant discipline over the troops. But in 2024, an open strategy appears to be a more appropriate approach, harnessing the knowledge of the crowd or your employees while motivating them at the same time.
To finish off, I will leave you with this quote from Kaplan and Norton, from the 2000 book The Strategy-Focussed Organization: “A mere 7% of employees today fully understand their company's business strategies and what's expected of them in order to help achieve company goals.”
As we reflect on the evolving landscape of corporate strategy, it's clear that the traditional top-down approach is increasingly misaligned with the dynamic and collaborative nature of today's business world. The evidence suggests a need for leaders to reassess their strategy formulation processes. It's not just about involving employees for the sake of inclusivity; it's about harnessing the collective intelligence and creativity that resides within your organisation.
Imagine a future where every employee feels not just like a cog in the machine but a co-creator of the company's future. This vision is attainable and, as shown, leads to tangible benefits in terms of engagement, innovation, and profitability.
I hope the options are now clearer: initiate open dialogues, conduct inclusive strategy workshops, and actively seek the insights of those who are at the frontline of your business operations. Let's shift from a culture of command and control to one of collaboration and empowerment.