Developing a functional strategy: how departments derive their own

What is a functional strategy?

A functional strategy describes what a given function contributes to the company strategy and which decisions it makes to deliver that contribution.

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

It is not a miniature copy. A function that replicates the structure of the company 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 company strategy?

In the StrategyFrame®, this has its own step: CASCADE, the fifth of eight. Company goals are derived in team dialogue rather than assigned, level by level. The difference is not a nuance. An assigned goal gets processed; a derived goal gets defended.

Through three questions, in this order:

• Which fields of action in the company strategy concern us? Usually two or three, not all of them. A function that declares itself responsible for everything isn't setting priorities.
• 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 drop in return? Capacity is finite. Without this answer, you get a list of additional initiatives stacked on top of day-to-day business, and it will be abandoned at the first bottleneck.

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

How is it different from a business unit strategy?

Before you sort that out, it's worth looking at the question that stands at the start of every strategy process: which part of the company is the strategy actually meant to cover? There are four scopes to distinguish, and they get mixed up regularly.

• Company or group strategy. The broadest scope, covering the entire company or all parts of a group. It defines where, when and how resources are deployed. At its core, it stakes out the playing fields: which markets you compete in.
• Business unit strategy. Applies to a defined part of the business with its own market and its own P&L responsibility.
• Functional strategy. For sales, production, IT or HR. It has to pay into the levels above it and can't be built in isolation. Write an IT strategy without a company strategy and you get a project plan with pretensions.
• Geographic scope. Global, multinational or local. Companies operating internationally usually have a global frame, with local strategies for individual markets hanging beneath it.

Confusing these levels is the most common reason a strategy discussion goes nowhere. When one person is talking about the company's playing field and another about the priorities of their function, both are talking about strategy and still talking past each other.

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 cannot.

How do you prevent contradictions between functions?

A real case shows what's at stake. At one company, a product segment kept running in one country and losing money, while that exact segment had already been stopped, wound down or sold in every other country based on the agreed strategy. Nobody acted in bad faith. The decision had simply never reached that one part of the business.

That leads to an uncomfortable insight: a strategy isn't in force because it was decided. It's in force once it has reached every function and been translated into goals. The path there is called cascading, and it's less trivial than it sounds.

• Who runs which cascade meeting, with which level and how many participants?
• How long does it take for the strategy to reach the last corner of the company? Set that number upfront, or the rollout will drag on for a year.
• How are goals aligned horizontally? Vertical alignment downward is the obvious one. Alignment between functions at the same level is routinely forgotten, and that's exactly where the contradictions arise.

By reading the functional strategies together rather than approving them one after another.

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

The meeting that prevents this takes half a day: all function heads lay their one-pagers side by side and actively look for conflicts. You'll always find three to five, and every one 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 that nobody consciously decided on, and that nobody can defend.

One question helps: which of the two investments contributes more to the priorities set in 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 priorities of the corporate strategy we serve.
• Change: what we will do differently than today, in three to five points.
• Trade-offs: what we will stop doing to make room for it.
• Measurement: how we will 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 meeting productive.