Developing a functional strategy: how departments derive their own

What is a functional strategy?

A functional strategy describes what a department contributes to the corporate strategy and which decisions it makes to deliver that contribution.

It's much shorter than the corporate strategy and much more concrete. Where the corporate strategy says "we're betting on small batches with higher margins," the production department's strategy says which changeover times have to come down and which machine will no longer run at full capacity.

It isn't a scaled-down copy. A function that replicates the structure of the corporate strategy (its own vision, its own analysis, its own target picture) has misunderstood the task and produces a second document nobody reads.

How do you derive it from the corporate strategy?

With three questions, in this order:

• Which action areas of the corporate strategy involve us? Usually two or three, not all of them. A function that declares itself responsible for everything isn't prioritizing.
• What do we have to do differently than today? This is the actual substance. If the answer is "nothing," the function isn't contributing anything either.
• What do we stop doing in return? Capacity is finite. Without this answer you end up with a list of extra initiatives on top of daily business, and that list gets dropped at the first bottleneck.

A functional strategy that answers these three questions fits on one page. Everything beyond that is rationale and belongs in the appendix.

How is it different from a business unit strategy?

The terms often get mixed up, and the difference matters in practice.

A business unit has its own customers and its own competitors. A function has neither; it has internal customers. That's why a business unit strategy can talk about market share and a functional strategy can't.

How do you prevent contradictions between functions?

By reviewing the functional strategies together instead of signing them off one after another.

The usual pattern: each function develops its strategy, presents it to management, gets approval. After five approvals it turns out that sales is planning growth in a segment where production is currently cutting capacity. Both derived their plans cleanly from the same corporate strategy.

The session that prevents this takes half a day: all function heads put their one-pagers side by side and actively look for conflicts. You'll always find three to five, and each of them would otherwise have shown up as a surprise a year later.

Who decides when functions compete for the same resources?

Management, and explicitly rather than implicitly.

Otherwise the budget decides by default: whoever budgets first or argues loudest gets the money. The result is a resource allocation nobody consciously decided on, which means nobody can defend it either.

One question helps: which of the two investments contributes more to the action areas of the corporate strategy? If both contribute equally, the corporate strategy isn't sharp enough. In that case the problem sits one level up.

What does a one-page functional strategy look like?

Five blocks, nothing more:

• Contribution: which two or three action areas of the corporate strategy we serve.
• Change: what we'll do differently than today, in three to five points.
• Trade-offs: what we stop doing in return.
• Measurement: how we'll know in a year whether it worked. Two metrics are enough.
• Dependencies: what we need from other functions. This block is exactly what makes the alignment session productive.