INTEGRATING ESG INTO
BY YULIYA ZHEVNO
As a trusted expert in strategic planning and organizational development, focuses on helping for-purpose organizations, nonprofits, foundations, associations and government agencies fulfill their missions and enrich our communities.
• Strategic Planning & Management
• Organizational & Leadership Development
• Community & Business Consulting
• Community & Programs/Services Assessments proudly supports the research and advancement of evidencebased strategic planning methods of our Founder, Denise McNerney.
Philippe Marchildon and Pierre Hadaya
Yuliya Zhevno
Alex
Kerrin
Strategy
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E: info@strategymagazine.org W: www.strategymagazine.org
TPIERRE HADAYA, EDITOR, STRATEGY MAGAZINE
Our Focus: Promoting Three Key Types of Contributions
he mission of Strategy Magazine is the diffusion of high-value innovative ideas and practices related to the field of strategy. We are dedicated to publishing theory-based practical articles to help executives, strategists, managers, and other professionals better formulate, implement, execute, engage, and govern strategies. In Issue 38, I wrote about how our mission is anchored on the essential role theory and theorizing can play in practice, and as such, that Strategy Magazine is dedicated to publishing articles that rely on novel, valuable, testable, and robust theory-based concepts, frameworks, or practices to address practical, strategy-related problems of today’s organizations, most effectively and efficiently. In this editorial, I’d like to present the types of contributions I think can maximize the diffusion and impact of Strategy Magazine, while promoting diversity in the articles we publish.
To effectively advance the mission of Strategy Magazine, we should focus on promoting three key types of contributions. The first type, Synthesizing scientific research contributions, involves distilling and summarizing the essential findings of previously published strategy research to enable practitioners to quickly and effectively apply this knowledge. One such well-known example is Joan Magretta’s extensive work to translate Michael Porter’s powerful insights into practice (Magretta, 2011, 2012).
The second type of contribution, Latticework contributions, combines insights from other fields/disciplines
(e.g., risk management, finance, decision making, psychology) to advance to field of strategy. Indeed, in the words of the polymath Charlie Munger, who coined the concept of latticework of mental models: “You must know the big ideas in the big disciplines and use them routinely – all of them, not just a few. Most people are trained in one model – economics, for example – and try to solve all problems in one way. You know the old saying: To the man with a hammer, the world looks like a nail. This is a dumb way of handling problems. (Munger, 2005).”
The Balanced Scorecard (Kaplan and Norton, 1992) is a widely recognized and straightforward contribution to strategy that integrates concepts from management accounting, organizational behavior, and systems thinking to help organizations align their activities with their strategy by measuring performance across multiple perspectives.
The third and last type of contribution, Extending past contributions, improves previously published strategy contributions to address limitations or increase impact. One such example is the TOWS (Threats, Opportunities, Weaknesses, Strengths) Matrix developed by Heinz Weihrich in the 1980s as an extension of the SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to facilitate more strategic thinking and to generate actionable strategies based on the interrelationships between internal strengths and weaknesses and external opportunities and threats (Weihrich, 1982).
I am very proud to write that, for the first time in my tenure, the
current issue of Strategy Magazine proposes contributions of each of the three types promoted. The first article, Strategic Planning in Nonprofits – Evidence-Based Answers, is a Synthesizing scientific research contribution. Written by Denise McNerney, this article distills and summarizes some of the key findings from a survey on strategic planning in nonprofit organizations (NPOs) she conducted in collaboration with Crystal Evans and Margaret Reid, sponsored by the International Association for Strategy Professionals (IASP). In this article, the author 1) shows that strategic planning significantly impacts the overall success of NPOs; 2) identifies the drivers of and practices used in strategic planning; 3) determines how organizational capacity affects these variables; and 4) discusses the implications of the findings for the practice and support of strategic planning in NPOs.
The next three articles in this issue are Latticework contributions. In the second article, Leveraging Past IT Decisions in Future Strategy Cycles, my colleague Philippe Marchildon and I explain why and how IT decisions from past strategy cycles impact future ones as well as provide insights to help organizations leverage this influence.
In the third article, An Outside-In Cascading Risk Management Approach To Ensure Strategy Selection Aligns with Organizational Risk Profile, Kerrin Anderson, Lewis Atkinson, and Valerie MacLeod propose an outside-in cascading approach that integrates risk considerations into strategy selection.
In the feature article, Integrating ESG into Your Strategy Formulation: A Practical Guide for Sustainable
Success, Yuliya Zhevno proposes a structured approach to help organizations integrate Environmental, Social, and Governance (ESG) principles and related activities into their strategy formulation processes for sustainable success.
The last two articles of this issue are Extending past contributions. In the fifth article, Integrating Accountability in Strategy to Drive Excellence in Municipalities, Mia George identifies the key stakeholders and strategic plan components involved in municipal strategy and describes how integrating strong accountability can drive excellence in municipal service delivery for communities.
Finally, in Evolving OKR Practices in Strategic Management for the Age of Uncertainty, Alex Milovanovich examines the evolution of the OKR framework, addressing its key vulnerabilities and introducing contemporary best practices to enhance its effectiveness.
“ FOR THE FIRST TIME IN MY TENURE, THE CURRENT ISSUE OF STRATEGY MAGAZINE PROPOSES
CONTRIBUTIONS OF EACH OF THE THREE TYPES PROMOTED.
I would like to thank all those who have contributed to the publication of this issue, especially my associate editor, Tamara Highsmith, and Katie Woychyshyn from Craig Kelman & Associates, without whom bringing this issue to publication would not have been possible. Together, we hope that you’ll enjoy this issue as much as we enjoyed preparing it.
PIERRE HADAYA , PHD, ASC Editor, Strategy Magazine
MAGAZINE
EXPLORING THE STRATEGY LIFECYCLE
Call for Ideas
The mission of Strategy Magazine is to publish theory-based practical articles to help executives, strategists, managers, and other professionals better formulate, implement, execute, engage, and govern strategies. The magazine is dedicated to helping executives, strategists, managers, and other professionals make their strategy work. Topics relevant for our readership include, but are not limited to:
• Novel and proven ideas and practices (e.g. methods, techniques, and tools) to support the formulation, implementation, execution, engagement, and governance of sound strategies.
• Thought provoking case studies and summary survey findings in the field of strategy.
If you are interested in joining the leading practitioners and researchers that provide quality articles that will shape the future of the field of strategy, please complete the idea form on our website (www.strategymagazine.org) and send it to us by email at hadaya.pierre@uqam.ca.
REFERENCES
Kaplan, R. S., and Norton, D. P. (1992) The Balanced Scorecard – Measures that Drive Performance. Harvard Business Review, January-February. Magretta, J. (2011) Understanding Michael Porter: The Essential Guide to Competition and Strategy Harvard Business Press.
Magretta, J. (2012) Michael Porter Answers Managers’ FAQs. Strategy & Leadership 40(2).
Munger, C. T. (2005) Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger. Donning Company. Weihrich, H. (1982) The TOWS Matrix –A Tool for Situational Analysis. Long Range Planning 15(2).
Best wishes,
PIERRE HADAYA , PHD, ASC Editor, Strategy Magazine
DMONICA R. ALLEN, 2023-2025 IASP GLOBAL PRESIDENT
Strategic Choices, Lasting Impact
ear Members of the International Association for Strategic Professionals, in a world full of change, uncertainty, and constant movement, one constant remains: the power of strategic thinking that gives us a way forward. I’d also add that contingency planning is just as important and helps us prepare for the unexpected.
Strategic thinking is more than a skillset; it is a mindset. It is the ability to see patterns in chaos, anticipate change before it arrives, and align people and resources with purpose. Whether we work in government, private enterprise, nonprofit leadership, or consultancy, we are united by a shared belief: when done right, strategy transforms.
Recently, I attended a conference with a theme that deeply resonated with me: “Today’s Choices; Tomorrow’s Impact.” That phrase captures the essence of what we, as strategists and aspiring strategists, commit to each day. We make decisions today that shape the future. Over a decade ago, a mentor of mine reminded me of a timeless truth: for every choice, there is a consequence. I carry that wisdom with me still – and I invite you to reflect on it as well. Strategy is about intentionality, and intention begins with choice.
Mahatma Gandhi once said, “The future depends on what you do today.” That truth sits at the heart of our work – and it lines up perfectly with IASP’s strategic priorities for 2024-2026. They remind us of what’s most important.
• Membership: Strategy starts with people. As we continue growing and supporting our global community, we’re building deeper relationships and sharing knowledge that strengthens us all.
• Connections: Our members are the heart of this profession. By leaning into collaboration, sharing tools, and investing in each other’s growth, we’re raising the bar for what’s possible in strategy – together.
• Organizational Sustainability: For strategy to thrive, it needs a solid foundation. We’re making sure IASP has the resources and structure to keep growing and making a difference for years to come.
Alongside these priorities, I also believe we must be guided by core principles. Here are a few that I personally embrace:
• Stay Curious: Strategic insight begins with intellectual curiosity. Ask “why,” “what if,” and “what’s next?”
“ STRATEGIC THINKING IS MORE THAN A SKILLSET; IT IS A MINDSET. IT IS THE ABILITY TO SEE PATTERNS IN CHAOS, ANTICIPATE CHANGE BEFORE IT ARRIVES, AND ALIGN PEOPLE AND RESOURCES WITH PURPOSE.
• Embrace Collaboration: The best strategies are not created in silos. Seek diverse perspectives – the most powerful ideas often emerge at the intersections.
• Lead with Integrity: Strategy is about choices. Choose courage over comfort, people over processes, and long-term value over short-term wins.
Being part of this global community is inspiring. As strategists, we’re helping shape the future – not just reacting to change but leading it. That’s powerful. And I believe that together, through our shared commitment to strategy, we’ll keep creating real lasting impact in the world around us.
Thank you for the work you do, the values you uphold, the connections you create, and the ways you contribute to the sustainability of IASP. Your commitment strengthens our organization and inspires me every day. As such, the art of possibility is alive and well – and it holds tremendous promise for our future within IASP.
With gratitude and courage,
MONICA R. ALLEN, PHD 2023-2025 IASP Global President
STRATEGIC PLANNING IN NONPROFITS EVIDENCE-BASED ANSWERS
BY DENISE MCNERNEY
Considerable evidence indicates that strategic planning enhances performance (Bryson, 2011; Moore, 2000). Many studies have also identified important practices that enable organizations to fully leverage the advantages of strategic planning. However, most of this research focuses on the private sector, with few empirical studies examining the effectiveness and the practice of strategic planning in nonprofit organizations (NPOs). The objective of this article is to 1) show that strategic planning significantly impacts the overall success of NPOs; 2) identify the drivers of, and practices used in strategic planning; 3) determine how organizational capacity (Cap) affects these variables; and 4) discuss the implications of the findings for the practice and support of strategic planning in NPOs.
THE DATA SOURCES UNDERLYING THE FINDINGS
The data presented in this paper originates from both empirical research and consulting work. First, the core of the findings comes from a survey on planning practices in NPOs I conducted
in collaboration with Crystal Evans and Margaret Reid (Evans et al., 2024). By “strategic planning,” we mean conducting environmental assessment efforts, developing the plan content, and establishing plan implementation tracking/reporting processes. In turn, by NPO we mean charitable organizations, sometimes referred to as NGOs, and classified by the US government as 501c3 or c6. This survey, sponsored by the International Association for Strategy Professionals (IASP), allowed us to gather data from 1,216 NPOs throughout the US (one survey respondent per NPO).
calculating the mean for specific variables and comparing these means between High-Cap and Low-Cap groups. Additionally, a regression analysis explored the influence of the ensemble of practices (Independent variables) on Cap (Dependent variable) for those firms in the High-Cap sub-sample.
Along with the empirical survey data, the insights presented originate from 30+ years of experience in the field, which not only informed the survey content but also provided essential context for interpreting the findings and their implications.
“ HIGH-CAP WERE MORE LIKELY THAN LOW-CAP TO SAY THEIR STRATEGIC PLANNING PROCESS HAS A HIGH IMPACT TO THEIR OVERALL ORGANIZATIONAL SUCCESS (72.9% VERSUS 44%).
I revisited several questions from that survey to reach my objectives in this article (Table 1).
Statistical analyses were conducted to examine the data, including
These actionable insights will assist practitioners in enhancing the quality of their strategic planning practices, and help educators emphasize the most effective strategies.
VARIABLE/ QUESTIONS DESCRIPTION
Organizational Capacity
Who has a strategic plan?
Impact of strategic planning1
Drivers of strategic planning1
Practices Used in strategic planning1
When looking for successful practices, it is important to consider how successful the organization is overall. However, there is no universally accepted method for measuring “success” among NPOs. To address this, we devised a variable that assesses the organizational capacity (Cap) of the NPO, a good proxy for organizational success (Evans et al., 2024; Despard, 2017). To operationalize this variable, we used an index allowing us to categorize organizations into three groups: High, Medium, or Low-Cap. This was done by using a Likert scale; the variable comprised 18 questions divided into the following six dimensions that measure the performance of: 1) board of directors, 2) environment, 3) program development, 4) mission, 5) management, and 6) funding.
A yes/no question to ask the NPOs if they had a current strategic plan.
To assess the level of impact, we asked: “To what extent has your strategic planning process impacted your overall organizational success?”
Respondents rated impact on a Likert scale.
Four common drivers were found in the survey literature stage that could influence conducting a planning process. These drivers are listed below in the results section.
Based on a literature review, a collection of questions focused on commonly used strategic planning practices was created (Brown, 2015; Bryson, 2011; Wolf and Floyd, 2017). These practices (listed in the results section) are divided into two groups:
1. Plan development practices: 16 practices that are commonly used in the plan creation process.
2. Plan implementation practices: Six practices that are commonly used to track/report on plan progress, and one question to assess frequency of assessment/reporting.
Respondents rated the effectiveness of development approaches and the usefulness of implementation practices on a Likert scale, plus indicated their frequency of progress reporting.
A significant majority of High-Cap report that strategic planning has greatly impacted their overall success. While practitioners have intuitively understood this for decades, we now have concrete evidence to support it. These findings are particularly compelling for those who argue that “strategic planning is dead.” They also provide a strong rationale for justifying budget or resource allocation to support planning and suggest that more Low-Cap could enhance their capacity and effectiveness as an NPO if they were supported in strategic planning efforts.
3. Drivers of Strategic Planning
Key People Involved1
Based on the literature, a listing of nine stakeholder groups (listed in the results section) was added to the questionnaire to assess the level of participation in the planning process (Moynihan and Landuyt, 2009; Rughase, 2006).
1 These variables were assessed solely for the sub-sample of NPOs that had a strategic plan.
STRATEGIC PLANNING
IN NPOS: KEY FINDINGS
1. Capacity of Nonprofits and Who Has a Strategic Plan
Approximately 1/3 of organizations were High-Cap, whereas another 1/3 were Low-Cap. Roughly 60% of the 1,216 respondents had a current strategic plan. Furthermore, almost 90% of High-Cap had a strategic plan, whereas only 70% of Low-Cap had one. This begins to build the case that strategic planning is important and related to an NPO’s overall organizational capacity. I thus encourage all NPOs to conduct strategic planning as it will likely have a positive impact on their capacity.
2. Impact of Strategic Planning on Overall Organizational Success
58% of respondents indicated their strategic planning process had a high impact on their overall organizational success, while 30% and 9% respectively said it had some or low/no impact.
In addition, High-Cap were more likely than Low-Cap to say their strategic planning process has a high impact to their overall organizational success (72.9% versus 44%) (Table 2). Furthermore, Low-Cap are five times more likely than High-Cap to say strategic planning has a low impact on their success (17.6% versus 3.4%)
Our research identified four key drivers for the strategic planning process. In order of importance, they are: 1) routine periodic process in our organization; 2) driven by opportunity; 3) driven by significant risks/challenges; and 4) mandated by a stakeholder/funder. Findings support that strategic planning as a routine periodic practice is very important for both Highand Low-Cap NPOs (Table 3). Furthermore, being driven by opportunity is more important to High-Cap than Low-Cap, whereas the other two lower rated drivers are more important for Low-Cap than High-Cap NPOs. An interesting note is that Low-Cap NPOs were almost twice as likely to say they were “driven by significant risks/challenges” or “mandated by a stakeholder/funder.”
Based on these results, conducting a routine strategic planning process enables an organization to be more proactive rather than reactive. It’s also interesting that Low-Cap NPOs seem significantly more “reactive” given their level of “driven by a significant risk/ challenge” or “mandated by a stakeholder/ funder.” I encourage all NPOs to ensure strategic planning into a routine process.
4. Practices Used in Strategic Planning
Two areas of practice were analysed, with survey questions focusing on each area: 1) plan preparation and content development and 2) plan implementation tracking and reporting.
Plan Preparation and Content Development Practices
Our research identified 16 plan preparation and content development practices. In order of effectiveness, they are:
1. Conduct programs/services assessment/evaluation
2. Mission/strategy mapping
TABLE 1: OPERATIONALIZATION OF THE VARIABLES
TABLE 2: IMPACT OF STRATEGIC
challenges
by a stakeholder/ funder
3. Gather stakeholder input: interviews/surveys and/or focus groups
4. General group discussions on identified strategic topics
5. Research best practices/ benchmarks
6. Brainstorming techniques
7. Conducting visioning session(s)
8. Review industry trends
9. Explicitly defining customer value proposition
10. Needs assessment
11. Review competitive environment
12. Scenario Planning
13. SWOT
14. Logic Modeling
15. Review of regulatory environment, social, economic, technological environments (PEST)
16. Balanced scorecard approach
The order of effectiveness of the practices is very similar for both the High-Cap and Low-Cap. It is important to note, however, that, when comparing the average rating of each practice in both High and Low, the High-Cap NPOs’ numerical ratings of top practices were significantly higher than Low-Cap.
Due to the apparent similarity in basic statistical comparisons of effectiveness of practices between High and Low-Cap, we conducted a regression analysis of the 16 practices on to the capacity variable for the High-Cap NPOs. Only 11 of the 16 practices are statistically significant for High-Cap (Table 4). The three highestranked practices by High-Cap focus on externally-facing practices. Surprisingly, the SWOT practice is one of the most common pre-planning techniques, and though widely used, ranked last in terms of its effectiveness. It is also noteworthy that several other commonly used practices were found not to be significantly beneficial. For instance, Logic Modeling and the Balanced Scorecard are widely recommended and utilized. However, there was no statistically significant relationship between them and NPO capacity. Consequently, NPOs are encouraged to make greater investment in the pre-planning stage where an important component is external assessment. These are often practices that are skipped as they can be time-consuming, expensive, and can require special skill sets. However, this research shows the importance of not skipping these efforts. A well-executed community needs assessment typically includes stakeholder interviews, surveys, focus groups, and a review of the competitive environment (other practices that ranked highest overall). I encourage NPOs and funders to consider the costs of these external assessments and information gathering in their grants, recognizing the importance of these efforts to both the strategic planning process and organizational capacity. The findings also show SWOT analysis, the Balanced Scorecard, and Logic Modeling have low effectiveness, which has important implications for NPO practices and curricula. I encourage trainers and practitioners to consider using higher-rated techniques like
PRACTICES FOUND TO BE STATISTICALLY SIGNIFICANT FOR HIGH-CAP (IN ORDER OF MOST EFFECTIVE)
1. Interviews/Surveys/Focus Groups
2. Review competitive environment
3. Community Needs Assessment
4. Conduct Programs and Services Assessment
5. Mission/Strategy Mapping
6. PEST Analysis
7. Review industry trends
8. Conduct visioning session(s) research
9. Best practices/benchmarks
10. Brainstorming techniques
11. SWOT Analysis
PRACTICES BELOW WERE NOT FOUND TO BE STATISTICALLY SIGNIFICANT FOR HIGH-CAP (IN ORDER OF LEAST EFFECTIVE)
1. Explicitly defining value proposition
2. Logic Modeling
3. Balanced Scorecard approach
4. General group discussions topics
5. Scenario Planning
TABLE 4: HIGH-CAP EFFECTIVENESS OF PRACTICES (REGRESSION ANALYSIS)
Mission/Strategy Mapping, PEST Analysis, reviewing industry trends, and conducting visioning sessions, in addition to the top four approaches noted above.
Plan Implementation
Tracking and Reporting:
Our research identified six plan implementation tracking and reporting practices. In order of usefulness, they are:
1. Discussing updates on progress of plan implementation during periodic executive and board meetings.
2. Annually meet with board and staff leaders to review plan progress and content.
“ A WELL-EXECUTED COMMUNITY NEEDS ASSESSMENT TYPICALLY INCLUDES STAKEHOLDER INTERVIEWS,
TABLE 3: DRIVERS OF STRATEGIC PLANNING
3. Running formal periodic (e.g., quarterly) reporting and documentation.
4. Align staff accountabilities/ incentives/performance expectations to achievements of strategic plan goals/outcomes/ metrics.
5. Conduct audits and financial annual reports relative to strategic plan initiatives.
6. Use software applications to help with tracking/reporting. Similar to our findings in development practices, we found little difference when comparing High-Cap and Low-Cap NPOs. Due to this, we conducted an additional analysis and evaluated the frequency of reported progress on plans. Most NPOs indicated that they conducted some level of plan progress reporting annually (Table 5).
The highest frequencies were 3 to 4 times annually (34.9%) and 1 to 2 times annually (22.8%). In addition, 20.2% indicated monthly reporting, and 22.1% indicated “no or inconsistent in reporting.” When comparing High-Cap to Low-Cap (Table 6), we found that High-Cap NPOs report plan progress/achievement results more frequently than Low-Cap, with 40.9% reporting 3 to 4 times per year. Only 28.3% of Low-Cap NPOs report 3 to 4 times/year, and 30% of Low-Cap report inconsistently or not at all.
I believe tracking and reporting on progress regularly is critical to ongoing plan success and I encourage all organizations to review their plan three to four times annually, which is a successful practice of High-Cap NPOs.
“
TRACKING AND REPORTING ON PROGRESS REGULARLY IS CRITICAL TO ONGOING PLAN SUCCESS AND I ENCOURAGE ALL ORGANIZATIONS TO REVIEW THEIR PLAN 3 TO 4 TIMES ANNUALLY, WHICH IS A SUCCESSFUL PRACTICE OF HIGH-CAP NPOS.
5. Key People Involved
The following nine key groups were found to often participate in the planning process: 1) board, 2) CEO/ED, 3) senior management, 4) mid-level management, 5) frontline staff, volunteers, 6) funders/donors, 7) clients or members, 8) expert advisors, and 9) regulators. When comparing High-Cap and Low-Cap, High-Cap NPOs generally involved a larger variety of stakeholders in their plan development process. Furthermore, beyond “consistently involving” their CEO/EDs, Low-Cap were much less likely to consistently involve board members, senior management, mid-level management, or frontline staff in their plan development process. Alternately, High-Cap involved most of these various groups at different points of the process, with CEO/ED, board members, senior management, mid-level management, being the most engaged – but not leaving out frontline staff at appropriate waypoints.
This level of broad and high engagement of diverse stakeholders certainly helps increase plan buy-in throughout the organization. Furthermore, given that this is a practice of High-Cap NPOs, I highly recommend that organizations be intentional in their preparation for planning by identifying all the key stakeholder groups to engage in the process, as well as when and how to engage them.
CONCLUSION
to 4 times
TABLE 5: REPORTING FREQUENCY
This article provides empirical evidence that having a strategic plan enhances an organization’s capacity, enabling NPOs to better optimize their resources. As practices, technologies, and ecosystems evolve, I encourage researchers to continue studying which planning practices are most effective to advancing the missions of NPOs and ensuring their ongoing financial sustainability.
REFERENCES
Brown, W. (2015) Strategic Management in Nonprofit Organizations. Jones & Bartlett Learning.
Bryson, J. M. (2011) Strategic Planning for Public and Nonprofit Organizations. Jossey-Bass.
Despard, M. R. (2017) Can Nonprofit Capacity Be Measured? Nonprofit and Voluntary Sector Quarterly, 46(3). Evans, C., Reid, M., and McNerney, D. (2024) Creating and Validating a Capacity Measure for Nonprofit Organizations. The Journal of Nonprofit Education and Leadership, 14(1).
Evans, C., Reid, M., and McNerney, D. (2024) Strategic Planning Methods and Higher Capacity Organizations. The Journal of Nonprofit Education and Leadership, 14(1).
Moore, M. H. (2000) Managing for Value: Organizational Strategy in For-profit, Non-profit, and Governmental Organizations. Nonprofit and Voluntary Sector Quarterly, 29(1).
Moynihan, D., and Landuyt, N. (2009) How Do Public Organizations Learn? Bridging Structural and Cultural Divides. Public Administration Review, 69(6).
Rughase, O. (2006) Identity and Strategy: How Individual Visions Enable the Design of a Market Strategy that Works. Northampton.
Wolf, C., and Floyd, S. (2017) Strategic Planning Research: Toward a Theory-Driven Agenda. Journal of Management, 43(6).
ABOUT THE AUTHOR
Denise McNerney is Founder and Chief Strategy Officer of iBossWell. She is also past-president of the IASP Board of Directors. E: dmcnerney@ibosswell.com
LEVERAGING PAST IT DECISIONS IN FUTURE STRATEGY CYCLES
Originating from studies in economics, PDT suggests that once a particular path – such as a technology, strategy, or behavior – is chosen, it creates a self-reinforcing trajectory that becomes increasingly difficult to alter over time (Arthur, 1989; David, 1985). Specifically, PDT posits that past DOWNLOAD OR PRINT THIS ARTICLE
BY PHILIPPE MARCHILDON AND PIERRE HADAYA
The ubiquity of legacy computer systems as well as the rich and complex technological heritage of today’s private and public organizations creates a context where IT decisions made in the past dictate present and future organizational decisions. This phenomenon, crystalized in various catchphrases such as “history matters” or “Bygones are rarely bygones,” is particularly potent and has been observed to have both positive and negative bearings on an organization’s performance. The objective of this paper is to explain why and how IT decisions from past strategy cycles impact future ones as well as provide insights to help organizations leverage this influence.
A strategy cycle consists of three key interconnected group of activities –formulate, implement, and execute strategy – that collectively allow an organization to address challenges and optimize the rewards of its strategic efforts (Hadaya and Gagnon, 2017). To ensure its long-term survival and success, an organization must repeatedly and effectively navigate this cycle, which restarts whenever its strategy is revised or updated throughout its history.
PATH DEPENDENCY
THEORY TO EXPLAIN THE INFLUENCE OF THE PAST
Various theoretical frameworks (e.g., structural inertia, imprinting) from a wide range of disciplines have been proposed in the literature to elucidate how past events shape present and future organizational decisions. Among these, path dependence theory (PDT) stands out by offering valuable insights to organizations aiming to capitalize on this influence, shedding light on its origins and providing sound explanations for its positive and negative impacts.
decisions and actions may trigger self-reinforcing mechanisms, eventually locking individuals or organizations on certain paths by generating increasing returns (Marchildon and Hadaya, 2022; Sydow et al., 2009). It is for the pursuit of these increasing returns that organizations embrace self-reinforced paths or cycles and end up trapped by past decisions when making new ones.
PDT has three key elements at its foundation. First, a contingent choice that represents the initial conditions and random events that set the course by triggering one or more selfreinforcing mechanisms. Second, the self-reinforcing mechanisms, in the form of four effects – complementary, coordination, learning, and adaptive expectations – generate increasing returns. These returns then foster the emergence of a dominant action pattern by rendering potential alternatives uninteresting, thereby narrowing the range of choices to a point where the whole decision process is increasingly irreversible (more on these mechanisms in the next section). Third, the lock-in that ensues. As increasing returns grow over time, switching to alternatives becomes costly or even impractical. It is at this point, that an organization’s flexibility in decision-making is lost and deeply influenced by past decisions. As for the impacts of this phenomenon, the PDT literature highlights that they can be both positive and negative. Indeed, depending on context, organizations can be locked-on virtuous and/or vicious paths or cycles. As such, it is key for organizations to be mindful of the path or cycle they are on and, based on a sound understanding of market forces, to know when they should transform or leave it (Garud et al., 2010).
THE MULTIFACETED INFLUENCE OF PAST IT DECISIONS ON FUTURE STRATEGY CYCLES
Over the past decade, we have conducted in-depth empirical research and provided advisory services to both private and public organizations to explore why and how IT decisions made during past strategy cycles impact future ones. Our findings confirm that the four mechanisms at the heart of PDT, along with the increasing returns they generate, account for
this influence. This section details these mechanisms, offers specific examples to highlight their powerful multifaceted influence on future strategy cycles, and provides insights to help organizations leverage this influence.
Complementary Effects
Complementary effects happen when the benefits provided by a set of two or more discrete elements (i.e. resources, systems, rules and/or practices) are greater than the sum of the benefits provided by each of the elements in the set alone. To maximize these enhanced benefits, certain elements are often combined, explaining why past decisions that establish complementary pairings can shape future ones.
physical and/or digital. For instance, throughout several strategy cycles Nike combined physical products like Nike+ shoes with apps such as The Nike Training Club (NTC) and Nike Run Club (NRC), creating a synergy that today strengthens sales and customer loyalty.
Second, organizations may leverage data across operations. For instance, over multiple strategy cycles, Netflix has developed a sophisticated capability to collect detailed viewing data (e.g., titles watch, pause points, completion rates) from its vast customer base. Today, this data can be repurposed to create content, optimize streaming, and improve marketing, thereby creating a personalized offering that enables the company to cut churn, increase revenue, and diminish bandwidth costs.
“ ORIGINATING FROM STUDIES IN ECONOMICS, PDT SUGGESTS THAT ONCE A PARTICULAR PATH – SUCH AS A TECHNOLOGY, STRATEGY, OR BEHAVIOR – IS CHOSEN, IT CREATES A SELFREINFORCING TRAJECTORY THAT BECOMES INCREASINGLY DIFFICULT TO ALTER OVER TIME.
The rise and fall of Blockbuster vividly demonstrates the potent impact of complementary effects. In the 1990s and early 2000s, Blockbuster dominated the video rental market thanks to its integrated IT ecosystem, which included store-based inventory management, point-of-sale systems, and supplier coordination tools. This system integration boosted inventory efficiency, secured favorable revenuesharing agreements with suppliers, and strengthened customer loyalty. Yet, these IT decisions locked Blockbuster into a path where complementarities favored reinforcing existing systems over innovation during future strategy cycles. Consequently, when Netflix disrupted the market with DVD-by-mail in 1998 and streaming in 2007, Blockbuster stayed tethered to its physical media ecosystem and an outdated business model, leading to its decline.
As illustrated in the Blockbuster example, organizations can leverage complementary effects to their advantage in future strategy cycles in several ways. First, they can create synergies between their assets,
Third, organizations can form partnerships with complementary entities. For example, throughout its numerous strategy cycles, Apple has developed an expertise in forming and maintaining key partnerships with partners to reach its growth objectives while minimizing capital investments (e.g., Hon Hai Precision Industry to manufacture and assemble iPhones and iPads, Taiwan Semiconductor Manufacturing Company to design Apple’s new proprietary processors, and Nike to first leverage the iPod and later the Apple Watch in the Nike+ strategic initiative).
Coordination Effects
By creating an ecosystem comprised of an ensemble of technological components (e.g. hardware, devices, software), past IT decisions foster the emergence of technological standards or key common denominators that enable seamless component interaction. However, these standards also create barriers to change, as only compatible components can join the ecosystem, influencing future decisions.
Nokia’s experience with Global System for Mobile Communications (GSM) highlights the power of coordination effects. In the early 1990s, GSM emerged as a critical standard for mobile communication across Europe and beyond, and Nokia, a key contributor to its development, rode this wave to become the world’s top mobile phone maker. Yet, Nokia’s deep ties to GSM became a liability during future strategy cycles when competitors and consumers shifted toward open, app-centric ecosystems that favored software innovation over hardware dominance, a trend Nokia underestimated. Nokia’s journey illustrates the dual nature of aligning with technological standards; its GSM-compatible phones initially unlocked a vast global market, but clinging to outdated standards while ignoring emerging ones ultimately led to its downfall.
gained immediate compatibility and scale, securing the success of its initial Galaxy lineup and setting the stage for future strategy cycles.
Learning Effects
Learning enhances our ability to perform tasks quickly, reliably, and with fewer mistakes, making actions that build on these skills appealing for their effectiveness and efficiency. However, because learning is limited to existing systems and technologies, IT decisions made in past strategy cycles limit learning possibilities (and thus IT decisions) during future strategy cycles.
BlackBerry’s journey in the mobile device market powerfully showcases the impact of learning effects. From the late 1990s to the early 2000s, the company thrived by building expertise in 1) secure, real-time email delivery, 2) seamless keyboard-operating system integration, and 3) efficient data
“ LEARNING ENHANCES OUR ABILITY TO PERFORM TASKS QUICKLY, RELIABLY, AND WITH FEWER MISTAKES, MAKING ACTIONS THAT BUILD ON THESE SKILLS APPEALING FOR THEIR EFFECTIVENESS AND EFFICIENCY.
As illustrated in the Nokia example, organizations can leverage coordination effects to their advantage in future strategy cycles in several ways. First, they can use standards to lock-in users. For example, across multiple strategy cycles, Apple’s ecosystem – comprising its proprietary hardware and software – has progressively evolved to lock-in users, raising the cost and inconvenience of switching to or incorporating competitors’ solutions.
Second, organizations may take advantage of established standards when launching new products or services. Rather than creating its own proprietary operating system, Samsung, for example, capitalized on the Android platform during earlier strategy cycles with the launch of its Galaxy smartphone series. By leveraging an existing ecosystem – complete with Google Play Store’s vast app library, a robust developer community, and widespread user familiarity – Samsung
compression and network performance. This mastery positioned BlackBerry as the benchmark for enterprise users, generating $20 billion in revenue by 2011. Yet, these IT choices cultivated an expertise so narrowly focused on secure, keyboard-driven devices for business users that it obscured the shift to consumer-focused, app-centric smartphones. This limited perspective steered its future strategy cycles, triggering a steep fall.
As illustrated in the Blackberry example, organizations can leverage learning effects to their advantage in future strategy cycles in several ways. First, they can refine core processes. For instance, Toyota spent decades optimizing its assembly lines with its Kaizen system that refines car-making efficiency by using insights from models introduced during previous strategy cycles. This enabled Toyota to drastically reduce the costs and improve the quality of its vehicles over the years.
Second, organizations can build on existing knowledge and skills to effectively and efficiently develop adjacent offerings. For instance, Salesforce’s early success with Sales Cloud allowed the company to develop a strong expertise in cloud delivery, customization, and system integration. Salesforce then leveraged this expertise during later strategy cycles to both extend its offerings with the development of its Service Cloud and Marketing Cloud as well as accelerate these launches by capitalizing on existing technologies and a trusting customer base.
Adaptive Expectations Effects
The mechanism of adaptive expectations hinges on the idea that our preferences are shaped by those of others. Given our lack of perfect foresight, we form expectations about the future based on past experiences and events, gradually adjusting them as new information emerges. Consequently, as more individuals adopt a specific product or service, its appeal grows. This means that historical outcomes inform our predictions, which then guide our choices in future strategy cycles, establishing a feedback loop that reinforces and amplifies prevailing trends.
Kodak’s ascent and decline as a leading film and camera provider powerfully illustrates the influence of adaptive expectation effects. Kodak’s success stemmed from its anticipation of sustained film demand, a logical forecast rooted in a century of steady growth in film and camera sales. In response, the company incrementally refined its products throughout subsequent strategy cycles to align with customer expectations and built on its historical triumphs. This approach propelled Kodak to dominance in the industry from its founding in 1888 through the early 2000s. However, this same reliance on past patterns blinded Kodak to the disruptive rise of digital cameras. As a result, its sales collapsed, culminating in the company’s bankruptcy filing in 2012.
As illustrated in the Kodak example, organizations can leverage adaptive expectation to their advantage in future strategy cycles in several ways. First, they can educate stakeholders to shape their expectations. Tesla used
“
THE MECHANISM OF ADAPTIVE EXPECTATIONS HINGES ON THE IDEA THAT OUR PREFERENCES ARE SHAPED BY THOSE OF OTHERS. GIVEN OUR LACK OF PERFECT FORESIGHT, WE FORM EXPECTATIONS ABOUT THE FUTURE BASED ON PAST EXPERIENCES AND EVENTS, GRADUALLY ADJUSTING THEM AS NEW INFORMATION EMERGES. CONSEQUENTLY, AS MORE INDIVIDUALS ADOPT A SPECIFIC PRODUCT OR SERVICE, ITS APPEAL GROWS.
this practice to great effect by first educating stakeholders about the ins and outs of EVs when it launched the Roadster in 2008 and the Model S. Building on this groundwork, Tesla continued to shape stakeholder expectations in later strategy cycles by relying on high-profile endorsements, viral launch of products (e.g., the Cybertruck reveal), and long waiting lists to amplify the sense of a growing movement for its products and services. As a result, Tesla created a momentum that pulled in buyers and pressured rivals to enter the electric vehicles (EV) market, turning the company into a status symbol and setting the stage for future strategy cycles.
Second, organizations can present new products or services as a natural extension of their existing offerings (theirs and those of competitors). In doing so, organizations can use past successes to set positive expectations about their new products or services. Adobe adeptly applied this practice to shape expectations with the launch of subscription-based Creative Cloud in 2013. The company positioned this new solution as a natural progression of its established offerings from previous strategy cycles, leaning on its decades-long reputation for delivering dependable, industry-leading software to instill confidence in users. Consequently, the shift to a subscription model succeeded, as users – trusting in Adobe’s history of quality and consistency – experienced the transition as seamless rather than jarring.
The Interplay of Self-Reinforcing Mechanisms and Their Cumulative Impacts
While earlier examples each highlight a single mechanism for clarity, these effects – complementary, coordination, learning and adaptive expectations –often intertwine in practice. Amazon’s rise exemplifies the combined and cumulative influence of these
self-reinforcing mechanisms across the strategy cycles the company has undergone over the past 30 years. For example, the complementarity between Amazon Web Services (AWS) and Prime enabled Amazon to evolutionarily diversify its activity. In addition, the shared technological foundations across its vast operations drove economies of scale and efficiency gains, while decades of e-commerce and tech expertise fuelled strong yet steady growth. In addition, Amazon managed to leverage past success to set positive expectations among customers, employees, and investors. Together, these forces shaped Amazon’s strategy cycles, transforming an online bookstore into a $1.6 trillion empire by 2023.
CONCLUSION
We wrote this paper to help strategists leverage the influence of past technology decisions in their current and future strategy cycles. To do so, we explain four mechanisms –complementary, coordination, learning and adaptive expectations effects –through which past decisions interfere with organizational decision-making processes and provide insights to help organizations take advantage of these mechanisms to repeatedly and effectively navigate strategy cycles over time. Still, our research efforts continue with the aim of providing useful guidelines to help organizations master this important phenomenon.
REFERENCES
PLEASE NOTE: CHATGPT WAS USED TO ASSIST AUTHORS WITH FINDING AND DESCRIBING EXAMPLES MENTIONED IN THE ARTICLE.
Arthur, W. B. (1989) Competing Technologies, Increasing Returns, and Lock-In by Historical Events. Economic Journal, 99(396).
David, P. A. (1985) Clio and the Economics of Qwerty. The American Economic Review, 75(2).
Garud, R., Kumaraswamy, A. and Karnøe, P. (2010) Path Dependence or Path Creation? Journal of Management Studies, 47(4).
Hadaya, P. and Gagnon, B (2017) Business Architecture: The Missing Link in Strategy Formulation, Implementation and Execution. ASATE.
Marchildon, P., and Hadaya, P. (2022) Understanding the Impacts of Increasing Returns in the Context of Social Media Use. Information Technology & People, 35(3).
Sydow, J., Schreyögg, G., and Koch, J. (2009) Organizational Path Dependence: Opening the Black Box. Academy of Management Review, 34(4).
ABOUT THE AUTHORS
Philippe Marchildon, PhD, is an associate professor and the director of graduate programs in information technology at the School of Management of the Université du Québec à Montréal. His teaching and research interests include information system evolution, cybersecurity and theory building. M. Marchildon is also engaged in developing teaching content that brings theory and practice into the classroom through the case study and other methods.
E: marchildon.philippe@uqam.ca
Pierre Hadaya, PhD, ASC is a full professor at the School of Management of the Université du Québec à Montréal. His research and teaching activities focus on strategic management, organizational transformation, governance and enterprise architecture including related financial aspects. M. Hadaya also collaborates with organizations striving to transform themselves so they can develop a competitive advantage.
E: hadaya.pierre@uqam.ca
Managing risk is critical to an organization’s ability to achieve its objectives.
Deloitte Research (2012) compared the relative contribution of different types of risk to observed business underperformance. They found that 75% of underperformance comes from failure to consider how strategic risks may result in unanticipated outcomes. Unfortunately, traditional approaches to risk management fail to adequately manage interdependent risks because of the heavy emphasis on operational compliance. The myopic perspectives of individual business units obscure the way different risks can interact and how strategy selection can amplify their impact on organizational goals – for good or bad. The objective of this article is to propose an outside-in cascading approach that integrates risk considerations into strategy selection. In the context of this article, a strategy can be defined as a course of action taken to attain one or more strategic objectives (Hadaya et al, 2024).
RISK AND RISK MANAGEMENT: AN OVERVIEW
The Oxford Dictionary defines risk as a situation that involves exposure to danger. This definition applies well in the safety engineering field and in traditional risk management, where risk is a known threat with predictable probabilities of occurrence. However, new definitions of risk focus on uncertainties and their impact
OUTSIDE-IN
AN RISK MANAGEMENT APPROACH
ALIGNING STRATEGY SELECTION WITH RISK PROFILE
BY KERRIN ANDERSON, LEWIS ATKINSON, AND VALERIE MACLEOD
on an organization’s ability to achieve its objectives. For example, Warren Buffett famously said, “Risk comes from not knowing what you’re doing.” This infers a willful state of ignorance of the organizational context and operating environment, leading to sub-optimal strategic positioning and blind spots.
The Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) Enterprise Risk Management (ERM) framework adopts the new definition of risk not solely focused on events that could cause loss for the organization but also on potential opportunities that may arise from the risk. The new definition focuses on any uncertainty that could have an effect, whether positive or negative, on the organization’s ability to achieve its objectives.
There are numerous classifications of risks in the literature depending on industry and application (Kaplan and Mikes, 2012). Particularly relevant is the one proposed by Deloitte Research (2005) with four broad risk categories which are adapted from the COSO framework:
• External risks: Emerging from the ecosystem within which the organization operates over which it has little or no agency, such as an industry crisis, political or economic issues, terrorist acts, and public health crises.
• Strategic risks: External to the organization over which it has agency, such as demand shortfalls or failures to address competitor moves.
• Corporate risks: Internal across the whole of the organization, such as high debt, poor financial management, and trading losses.
• Operational risks: Internal to the organization at a business unit level, such as cost overruns, failures in internal controls, and personnel management failures.
In addition to COSO’s ERM, there are several approaches in the literature (Orellano and Gourc, 2025). These traditional risk management approaches usually encompass the following steps:
• Risk Identification: Registering all potential risks that could impact the organization, whether operational, financial, technological, reputational, or otherwise.
• Risk Analysis: Analysing the likelihood and potential impact of each identified risk.
• Risk Evaluation/Prioritisation: Evaluating and prioritising risks allowing for focused resource allocation.
• Risk Treatment: Developing and implementing courses of actions to address the identified risks, including avoidance, mitigation, transfer or acceptance of the risk.
• Risk Monitoring: The ongoing process of tracking the effectiveness of risk management measures, identifying new risks, and adjusting strategies as needed. Despite all their strengths, those approaches have certain limitations and/or are insufficiently comprehensive, including (Deloitte, 2015):
• Risk interactions either not identified or only in a limited way.
• Lack of clarity between board and management regarding risk appetite and management.
• Different parts of the organization defining and reporting risk in different ways, leading to poor coordination.
• Strategy selection made without conscious risk consideration and those chosen fall outside the organization’s risk profile.
THE OUTSIDE-IN CASCADING RISK MANAGEMENT APPROACH
To address these limitations and properly integrate risk into strategy selection, we propose the outside-in cascading approach. This approach is designed to ensure the:
• Alignment of risk profile with the organization’s vision, mission, and objectives.
• Measurement and tracking of key risk indicators and the early warning of the impact of risk events.
• Clarity in assessing, managing, reporting, monitoring, and reviewing impact of the risk in strategy selection.
• Provision of a process to support the creation of a risk aware culture throughout the organization. Shown in Figure 1, this approach has six steps, each cascading from the outside-in to develop a risk management process fit-for-purpose for achieving an organization’s strategic objectives. It provides management with guidance for strategy selection to remain within the risk profile of the organization. By providing this explicit guidance on acceptable risk limits, it is also an effective way for the board to mitigate moral hazard (Rowell et al., 2012). The following paragraphs describe each cascading step by stating its objective, activities involved, the tools that are of use, and its link to strategy selection.
RISK CONTEXT ANALYSIS
The objective of this step is to look outside the business to identify any future trends that may impact the achievement of organizational objectives. The changes in trends should be monitored and reported by the Executive team to the board after collaborating on four activities:
1. Scanning the external environment to identify future trends and industry shifts on a quarterly basis.
2. Reviewing any emerging trends and assessing their implications for achieving organizational vision, mission, and objectives.
3. Determining if changes are necessary to the organizational vision, mission, and objectives; Reviewing any recommended additions to the register of key strategic risks (external uncertainties that impact an organization’s ability to achieve its goals).
4. Approving strategic risk indicators. If this happens the board wants to know about it, and management must monitor and report any significant changes.
Any external environmental scanning tool can be used to identify industry shifts and emerging trends, then validating those trends with adaptive action questions like “What? So What? Now What?”
Risk context analysis hence reveals adjustments to goals or strategies needed to ensure the organization adapts early to emerging threats and opportunities.
RISK
TOLERANCE ESTABLISHMENT
The objective of this step is to define the tolerance of the organization to overall risk in pursuit of its objectives. Figure 2 illustrates the notional “sweet spot” for the trade-off between optimal strategic risk-taking in return for maximizing organizational value (by either mitigating loss or creating gain). Establishing risk tolerance involves three activities conducted by the board:
1. Identify the key strategic, operating, and corporate risk areas for each strategic objective.
2. Estimate the limits of acceptance to judge whether chosen strategies expose the organization to either “insufficient” and/or “excessive” risktaking in pursuit of these goals.
RISK CONTEXT ANALYSIS
RISKTOLERANCE ESTABLISHMENT
RISKPROFILE DETERMINATION
OUTSIDE-IN
RISK APPET I T E SETTING
ANALYSIS
OUTSIDE-IN
FIGURE 1:
FIGURE 2: THE “SWEET SPOT” IS WHERE SUFFICIENT
3. Review the combined risk limits across all objectives to ensure that the overall risk to the organization is acceptable.
The SMART tool can be used for setting measurable goals. In turn, a grid can be used to visualize the interrelationships between goals, vision, and mission (Haines, 2007). Finally, to decide how much risk to assume in pursuit of each goal, use a combination of force field analysis and triple loop learning by asking “What is right for us?” (Atkinson et al., 2023).
In establishing these risk tolerances, the board explicitly defines the acceptable amount of organizational value it is willing to put at risk in pursuit of goal achievement, such that management can calibrate its strategy selection to fall within the range deemed acceptable.
RISK PROFILE DETERMINATION
The objective of this step is to establish clearly defined risk assessment parameters such as key risk criteria (standards or benchmarks that define the acceptable level of risk) for each key operational and corporate risk area (key organizational risks). It involves four activities conducted by the board:
1. Define a risk consequence table by describing the potential impact that results from a materialized risk.
2. Define a risk likelihood table by estimating occurrence – unlikely, moderate, likely, and almost certain.
3. Combine consequence and likelihood to create a risk matrix (visual representation of risk profile) to give clear meanings for what constitutes “low,” “medium,” “high”, and “extreme” risk.
4. For each key risk area, assess if the risk level is ‘high’ or ‘extreme’ or outside the organization’s risk appetite such that it requires board review and on-going monitoring by management.
A set of common risk management tools can be customized to set the risk profile of the organization: Risk Consequence Rating Table, Risk Likelihood Rating Table,
Risk Matrix Heat Maps, and Risk Matrix Rating Table.
Determining the risk profile provides a shared understanding of risk parameters and allows management to meaningfully assess strategy selection in the context of risk appetite statements and key risk indicators to judge if it is acceptable or requires changes to fit within risk profile.
RISK APPETITE SETTING
The objective of this step is to set parameters around the level of organizational risks that can be assumed in pursuit of objectives. This step involves four activities conducted by management:
1. Identify the key organizational risk areas.
2. Establish a risk appetite statement for each area by considering “How much risk are we willing to assume in this area?” Articulate this using the risk profile established by the board.
3. Identify critical events or indicators (key organizational risk indicators) to be monitored to ensure the organization remains within the limits of its risk appetite in each risk area.
4. Seek board approval for the appetite statements and indicators. It is good to use simple statements without weasel words (open to interpretation). They clearly define the willingness to assume risk and support consistency in risk management across the organization. For example, for the statement “In key organizational risk area X, the organization has a (low, medium, high) risk appetite in…” and for matching indicator “Any strategy that puts the organization X% (above or below)… (a particular risk threshold limit).”
When a risk appetite statement is meaningful and clear, management can determine with relative certainty whether the strategy chosen or under consideration falls within the organization’s risk profile.
STRATEGY RISK ANALYSIS
The objective of this step is to ensure that the strategies selected in pursuit of organizational objectives fit within the risk appetite and risk tolerance of the organization. It involves four activities done at a business-unit level:
1. Identify potential strategies to achieve for each objective.
2. Highlight the major threats and benefits of each strategy and mitigating factors.
3. Find a balance between potential threats and benefits to select the most appropriate strategies.
4. For each objective, assess whether the combined impact of all the strategies selected fall within the risk appetite and risk tolerance of the organization.
Customized Ansoff’s and MacMillian’s matrices, along with SWOT analysis, are appropriate tools to use during these activities.
With clearly defined risk appetite and risk tolerance, business units can consciously consider how the strategies they choose link to the type of risks relevant to the goal they are contributing to and manage their consequences.
OPERATIONAL RISK MANAGEMENT
The objective of this step is to integrate risk management processes into strategy implementation. This step requires four activities to be conducted by management:
1. Negotiate risk management KPIs to cascade down all levels of the organization.
2. Monitor and report key risk areas and associated indicators to adapt operations or strategies as required.
3. Update the key risk indicator report (to monitor key indicators of emerging risks) and risk status report (to report current level of risks against risk appetite and risk tolerance) to highlight any potential or actual variations outside the limits for any particular objectives.
“ WHEN A RISK APPETITE STATEMENT IS MEANINGFUL AND CLEAR, MANAGEMENT CAN DETERMINE WITH RELATIVE CERTAINTY WHETHER THE STRATEGY CHOSEN OR UNDER CONSIDERATION FALLS WITHIN THE ORGANIZATION’S RISK PROFILE.
4. Seek board approval of these reports and for any recommended changes to objectives and/or to pursue strategies outside the parameters set by the board. These activities can be supported by corporate governance templates and tools that are customized to generate a risk management policy and procedure for the organization. These documents make reference to a set of common risk management tools (see listed above) that are critical and intrinsic to the full implementation of the policy buttressed by risk appetite statements and key risk indicators. The outside-in cascading risk management approach was successfully implemented by Micah Projects Limited (MPL), a non-profit, non-faith-based, specialist homelessness services provider working under contract to government. While preparing its 2020 strategic plan, the board identified a need to review and consider the organization’s
Risk Context Analysis
Rist Tolerance Establishment
Risk Profile Determination
Risk Appetite Setting
“ NEW DEFINITIONS OF RISK FOCUS ON UNCERTAINTIES AND THEIR IMPACT ON AN ORGANIZATION’S ABILITY TO ACHIEVE ITS OBJECTIVES.
risk management framework, and its risk appetite. The board lead the development of a risk management policy and procedure which allowed management to choose strategies that fell within its risk profile (Table 1).
CONCLUSION
We have demonstrated an outside-in cascading approach that integrates risk considerations into strategy selection and implementation. In the future, we hope to investigate how AI can complement external environmental scanning tools to help make early identification of unanticipated risk interdependencies and model how strategy selection can amplify their impact on goals – for good or bad.
An emerging future trend in the political/regulatory area was identified as a key strategic risk: New and emerging areas of new services away from government restraints and the need for responding evidence-based practice.
The board asked management to monitor key strategic risk indicators:
• New sources of funding becoming available for technology capacity building.
• Number of opportunities for funding/participate in research, data collection and analytics.
• Changes to contract obligations requiring upgrades in technology, data collection, or analysis.
The board decided to take on a higher level of risk to achieve an increase in the percentage of people presenting as homeless becoming permanently housed and/or when at-risk, sustaining their housing. It did this because achieving this goal is core to its purpose and is also important to government funding stakeholders.
“Loss of data on servers – irretrievable” was seen as an extraordinary consequence whereas “Tech systems inadequate to support high demand and risk services” was seen as high.
The board composed the following statement: “MPL recognises the ability of technology to have a positive impact on its ability to provide better services, improve efficiency, increase safety, increase collaboration, and enable innovation. MPL has a high-risk appetite for adopting new technology to achieve these goals provided it is within budget constraints.”
Strategy Risk Analysis Government contracts only fund operating expenses and typically exclude claims for any capital costs associated with service delivery. In view of this, the board committed to prioritise funding of IT upgrades and maintenance from untied donations and other sources of income if notified of substantial change in the operational indicator it asked to be monitored below.
Operational Risk Management The board requested management to monitor this key operational risk indicator: “Reduction in funding that seriously impacts on IT infrastructure or functionality.”
TABLE 1: THE OUTSIDE-IN CASCADING RISK MANAGEMENT APPROACH AS IMPLEMENTED BY
PROJECTS LIMITED.
REFERENCES
Atkinson, L., and Collins, B. (2023) Is This Strategy Working?: The Essential Guide to Strategy Development, Evaluation, and Goal Achievement. Systems Thinking Press.
Deloitte Research (2012) The Value Killers Revisited: A Risk Management Study.
Deloitte Research (2005) Disarming the Value Killers: A Risk Management Study.
Deloitte (2015) The Risk Intelligent Enterprise™: ERM Done Right.
Hadaya, P., Stockmal, J., et. al. (2023) IASPBOK 3.0: Guide to Strategy Management Body of Knowledge International Association for Strategy Professionals.
Haines, S. G. (2007) Strategic Planning Simplified: The Systems Thinking Approach to Building High Performance Teams and Organizations. Systems Thinking Press.
Kaplan, R. S., and Mikes, A. (2012) Managing Risks: A New Framework. Harvard Business Review, 90(6).
Orellano, M., and Gourc, D. (2025) What Typology of Risks and Methods for Risk Management in Innovation Projects? A Systematic Literature Review. International Journal of Innovation Studies, 9(1). Rowell, D. and Connelly, L. B. (2012) A History of the Term “Moral Hazard.” Journal of Risk and Insurance, 79(4).
ABOUT THE AUTHORS
Kerrin Anderson, Dr. Lewis Atkinson, and Valerie MacLeod are Global Directors at The Haines Centre for Strategic Management trading as The Systems Thinking Approach®.
E: kerrin.anderson@tstapproach.com
E: lewe.atkinson@tstapproach.com
E: valerie.macleod@tstapproach.com
MICAH
INTEGRATING ESG INTO YOUR STRATEGY FORMULATION
BY YULIYA ZHEVNO
The integration of Environmental, Social, and Governance (ESG) principles into organizational strategies has become a trend – and is becoming a requirement – in the recent years due to increasing regulatory requirements, investor, and stakeholder demands, risk management considerations, and the need for competitive advantages. Unfortunately, many organizations struggle to understand the ESG concepts and how to effectively incorporate ESG and sustainability into their strategy formulation
process. The objective of this article is to propose a structured approach to help organizations integrate ESG principles and related activities into their strategy formulation processes for sustainable success.
THE WHY AND WHAT OF ESG
The roots of ESG principles trace back to the socially responsible investing (SRI) movement of the 1960s, when investors began excluding organizations involved in controversial industries such as tobacco, weapons, and apartheid-era South Africa (Eccles
et al., 2012). Over the decades, the focus expanded beyond exclusionary practices. By the 2000s, frameworks like the UN’s Principles for Responsible Investment and the Triple Bottom Line (Table 1) pushed businesses to consider ethics alongside profits. In the 2010s, ESG became central to governance and investment, responding to climate change, inequality, and corporate misconduct. Today, ESG is no longer optional; it’s part of regulation, investor expectations, and strategy. Organizations integrating ESG into operations benefit from enhanced reputation, reduced
E Environmental Businesses being held accountable for their impact on the planet. Organizations must adopt sustainable practices to mitigate climate change, protect ecosystems, and reduce resource depletion.
S Social Focuses on an organization’s relationships with employees, customers, suppliers, and the wider community. Businesses that prioritise social responsibility build stronger stakeholder trust, enhance employee satisfaction, and improve brand loyalty.
G Governance
Refers to the ethical and structural aspects of organization leadership and decision-making. Strong governance ensures transparency, reduces fraud, and enhances investor confidence.
risks, improved financial performance, and access to sustainable investment opportunities.
Currently, there are several established ESG frameworks that help organizations align with sustainability goals and improve reporting transparency. The most popular among them include the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB). GRI focuses on comprehensive sustainability reporting, covering economic, environmental, and social impacts (GRI, 2021). It promotes transparency and accountability by encouraging organizations to disclose their ESG performance based on universal, sector-specific, and topic-specific standards. GRI key concepts are stakeholder inclusiveness and materiality assessment, as well as balanced and accurate sustainability disclosures. Common GRI tools include specific reporting guidelines, materiality assessment tools, and sustainability disclosure databases.
SASB provides industry-specific sustainability disclosure standards tailored to financial materiality (SASB, 2020). The framework focuses on providing investors with decision-useful ESG information by identifying financially relevant sustainability issues across industries. SASB concepts include financial materiality and sector-specific disclosures, integration with financial reporting standards, and industry-specific sustainability impact assessment. SASB tools include the materiality finder for industry-specific ESG factors and investor-focused disclosure templates.
• Carbon footprint reduction, energy efficiency, waste management, and pollution control
• Circular economy principles, sustainable resource use, and biodiversity conservation
• Employee well-being, fair wages, labor rights, diversity, equity, inclusion (DEI) initiatives, and workplace safety
• Ethical supply chain management, human rights, and responsible sourcing
• Community engagement
• Board independence and diversity, executive compensation, and ethical leadership
• Corporate transparence and anti-corruption measures
• Risk management and regulatory compliance
Despite the growing recognition of ESG’s importance, many organizations encounter challenges in its integration. Common pitfalls include:
• Greenwashing – Some organizations misrepresent their sustainability efforts to appear ESG-compliant (Pabon, 2014)
• Lack of standardization – With multiple frameworks and differing regulations, organizations struggle with consistent ESG reporting (Damodaran, 2023).
• Data and measurement gaps –Many businesses lack the tools or expertise to track ESG metrics effectively, leading to unreliable data.
• Short-term focus – ESG efforts can be driven by regulatory compliance rather than long-term strategic planning.
• Cost and resource constraints –Implementing ESG initiatives requires financial and human capital being a barrier for smaller organizations.
• Difficulty in integrating ESG into corporate strategy – Many organizations treat ESG as a separate compliance function rather than part of their strategic decision-making processes. This leads to missed opportunities and a lack of measurable impact.
HOW TO INTEGRATE ESG IN THE STRATEGY FORMULATION PROCESS
The aim of the strategy formulation process is to develop a sound strategy. A sound strategy formulation process encompasses five key activities: conduct external environmental scan, conduct
internal environmental scan, establish strategic direction, establish strategy, and complete strategic plan (Hadaya, Stockmal et al., 2024). ESG provides valuable insights to the strategy formulation process by aligning business objectives with sustainability principles, helping organizations mitigate risks and enhance long-term value creation. To understand how ESG actions and tools can be embedded into each of the five strategy formulation activities, see Table 2.
The first activity of the strategy formulation process, Conduct External Environmental Scan, assesses the external factors that may impact an organization’s strategic direction (market trends, competition, and regulatory changes). Integrating ESG into this analysis ensures businesses proactively address risks and capitalize on sustainability opportunities.
One of the recommended ESG actions is Identify industry-specific ESG risks and opportunities. Identifying ESG risks, such as climate change exposure or social impact concerns, enables organizations to mitigate threats while leveraging new opportunities. This action can be effectively implemented using the PESTLE Analysis tool. Adding ESG factors to the PESTLE analysis aids in the evaluation of macroeconomic factors influencing an organization, categorizing them into Political (e.g., climate change policies, government ESG incentives), Economic (e.g., ESG investment trends, sustainability-linked financing), Social (e.g., consumer behavior changing to preferring sustainable products, workforce diversity), Technological
TABLE 1: EXPLAINING ESG
STRATEGY FORMULATION ACTIVITY KEY ESG ACTIONS
Conduct External Environmental Scan
Conduct Internal Environmental Scan
Establish the Strategic Direction
Establish the Strategy
Complete the Strategic Plan
Identify industry-specific ESG risks and opportunities
Assess competitor ESG performance to understand benchmarks
Assess internal capabilities to implement ESG initiatives
Map current ESG initiatives and their performance
Define ESG vision and mission aligned with business goals
Set long-term ESG priorities
Align ESG objectives with organizational strategy
Develop specific ESG objectives and KPIs
Finalize ESG-related policies and initiatives
Communicate the ESG aspects of the strategic plan to key stakeholders
(e.g., green technologies, artificial intelligence), Legal (e.g., ESG disclosure regulations, anti-corruption laws), and Environmental factors.
For example, Unilever uses PESTLE analysis to monitor factors such as evolving environmental legislation and increasing consumer demand for ethical products. This process in action led to initiatives like reducing plastic use and committing to net-zero emissions by 2039.
Another ESG action to be used is Assess competitor ESG performance to understand benchmarks Benchmarking helps organizations gauge industry best practices, regulatory expectations, and investor preferences in ESG. This action can be done by deploying tools such as ESG Benchmarking Reports
ESG benchmarking reports compare organizations’ ESG performance based on key indicators such as environmental impact, social responsibility, and governance effectiveness. Devising ESG benchmarking reports entails five steps (Dimapilis, 2024):
• Identify Relevant ESG Metrics for Benchmarking
• Gather ESG Benchmarking Reports.
• Compare Competitor and Industry ESG Performance
• Identify Emerging ESG Trends and Regulations
• Define ESG Priorities Based on Insights For instance, Nestlé uses ESG
benchmarking reports to assess its standing on issues like water usage and responsible sourcing compared to global food industry peers. This has driven actions such as enhancing supply chain transparency and committing to regenerative agriculture practices.
The second activity of the strategy formulation process, Conduct Internal Environmental Scan, involves assessing an organization’s current state in its core competencies, work environment, processes, location, and resources. Incorporating ESG into this activity would include evaluating internal ESG performance, identifying gaps, and determining the organization’s readiness to implement sustainability initiatives.
One of the key ESG actions here is Assess internal capabilities to implement ESG initiatives. This action ensures that organizations can set realistic ESG goals and invest in the necessary resources. To implement this action, organizations might use ESG Internal Audit as a tool. The ESG Internal Audit is a structured evaluation of an organization’s sustainability policies, processes, and performance to identify compliance gaps, risks, and areas for improvement.
For example, Siemens regularly conducts internal ESG audits to evaluate compliance with its own sustainability policies and identify risks in areas like energy efficiency and human rights practices.
TOOLS
PESTLE analysis (including ESG aspects)
ESG benchmarking reports
ESG audit
ESG capability assessment
Visioning workshops, strategy alignment frameworks to include ESG-related goals
Strategic roadmap including ESG initiatives
Strategic goal-setting templates, Balanced Scorecard
Strategy documentation templates
Stakeholder communication tools
The second action to support the process of conducting internal environmental scan is Map current ESG initiatives and their performance. ESG audits and surveys provide insights into an organization’s current sustainability initiatives and areas for improvement.
The tool commonly used for this action is the ESG Capability Assessments The ESG Capability Assessment is the evaluation of an organization’s ability to implement ESG strategies by assessing its existing resources, skills, and infrastructure. It ensures that ESG initiatives are realistic and aligned with capabilities. The Capability Assessment framework includes defining key ESG capabilities to assess, identifying assessment criteria, gathering data through stakeholder engagement such as internal interviews and employee surveys, scoring ESG capabilities, and developing an ESG capability improvement plan (Institutional Limited Partners Association, 2021).
A good example is BP (British Petroleum), which uses ESG capability assessments to evaluate internal readiness for achieving sustainability goals, such as transitioning to low-carbon energy. The past results helped them identify skill gaps which led to upskilling programs in renewable technologies.
The third activity of the strategy formulation process, Establish the Strategic Direction, envisages setting up company mission, vision, values, strategic goals and objectives, and
TABLE 2: RECOMMENDED ACTIONS AND TOOLS TO INTEGRATE EGS INTO THE STRATEGY FORMULATION PROCESS
overarching long-term goals. At this stage, organizations define their ESG vision, mission, and long-term priorities aligned with business objectives.
Within the activity, one of the recommended ESG actions is Define ESG vision and mission aligned with business goals. A clear ESG vision guides decision-making and ensures stakeholder alignment. The second action is Set long-term ESG priorities for the company: establishing clear priorities ensures focus and resources for impactful ESG efforts.
The recommended tools to support the actions are Visioning Workshops, which are structured, collaborative sessions where leaders and key stakeholders define the company’s long-term ESG vision, mission, and goals; and Strategic Roadmaps, which are visual step-by-step plans to achieve ESG goals. The ESG visioning workshops are usually part of general strategic visioning workshops and are followed by developing a Strategic Roadmap sequencing the ESG initiatives.
A famous leader in ESG, IKEA, conducts visioning workshops with key stakeholders to align on long-term ESG ambitions and builds strategic roadmaps to guide implementation. This collaborative approach results in clear milestones for circular product design, renewable energy use, and supply chain transformation.
The fourth activity of the strategy formulation process, Establish the Strategy, includes selecting the company strategy based on its competitive positioning, core customer value proposition, and key drivers of success. When it comes to ESG implementation, this activity transforms the ESG vision and priorities into concrete objectives and performance indicators.
To execute ESG principles as part of this activity, organizations are recommended to Align ESG objectives with organizational strategy and Develop specific ESG objectives and KPIs A tool to ensure these two actions are done efficiently is Balanced Scorecard. The Balanced Scorecard aligns business goals with key performance indicators (KPIs) across four perspectives: financial, customer/stakeholder, operational efficiency, and learning and growth. For example, SAP regularly uses balanced scorecards to integrate ESG objectives into its corporate strategy.
“ WITH THE RIGHT APPROACH, BUSINESSES CAN ALIGN WITH STAKEHOLDER AND REGULATORY EXPECTATIONS AND FINALLY ATTRACT INVESTMENT INTO STRATEGIC PROJECTS.
The fifth activity, Complete the Strategic Plan, is the final step in the strategy formulation process formalizing ESG strategies into policies. One of the key ESG actions in this step is Finalize ESG-related policies and initiatives Clear ESG policies and initiatives are easier to pursue by company employees further responsible for such complex strategic initiatives. Some of the tools to support the action are Strategy Documentation Templates. Commonly used templates include strategic planning documents, policy frameworks, and sustainability reporting guidelines (e.g., GRI standards).
The second recommended ESG action is Communicate the strategic plan as relates to ESG to key stakeholders Transparent communication builds trust and ensures stakeholder engagement in ESG efforts. This action can be done using Stakeholder Communication Tools. These tools include presentations, interactive dashboards, ESG newsletters, media campaigns, and stakeholder engagement platforms.
One of the outstanding examples here is Schneider Electric’s use of strategy documentation templates to standardize how ESG goals are embedded across business units. They pair this with stakeholder communication tools (like ESG dashboards and sustainability reports) to transparently share progress with stakeholders.
CONCLUSION
Integrating ESG into strategy formulation process is complex. It demands clear objectives, effective tools, and strong change management. With the right approach, businesses can align with stakeholder and regulatory expectations and finally attract investment into strategic projects. However, further research is needed to address ESG integration into other strategy management activities of organizations (Transform organisation, Execute strategy, Engage stakeholders, and Govern strategy), to finally ensure such transformations sustainability and efficiency.
REFERENCES
AlphaSense (2023) How to Use Alphasense for ESG Benchmarking: A Step-By-Step Guide.
Dimapilis, M. (2024) What is ESG Benchmarking: Your Comprehensive Guide. Convene ESG. www.azeus convene.com/esg/articles/ esg-benchmarking.
Damodaran, A. (2023) ESG is Beyond Redemption: May It RIP, Financial Times, 22 October.
Eccles, R. G., Ioannou, I. and Serafeim, G. (2012) The Impact of Corporate Sustainability on Organizational Processes and Performance. Management Science, 60(11).
GRI (2021) Consolidated GRI Standards 2021 www.globalreporting.org.
Hadaya, P., Stockmal, J., et. al. (2023) IASPBOK 3.0: Guide to Strategy Management Body of Knowledge. International Association of Strategy Professionals.
Institutional Limited Partners Association (2021) ESG Assessment Framework. https://ilpa.org/ wp-content/uploads/2021/07/ILPAESG-Assessment-Framework.pdf.
Pabon, J. (2024) The Great Greenwashing: How Brands, Governments, and Influencers Are Lying to You. Anansi International. SASB (2020) Sustainability Accounting Standards Board Conceptual Framework.
ABOUT THE AUTHOR
Yuliya Zhevno, PgMP®, PMP®, PMI-ACP®, PMI-OT®, ССMP™, Prosci CCP, MSc, is a strategy and organizational change management consultant based in Kazakhstan. She supports businesses of any scale and industry in their strategic transformations and is actively involved in promoting strategy management profession in the Central Asia region. E: yuliya.zhevno@gmail.com
INTEGRATING ACCOUNTABILITY
IN STRATEGY TO
DRIVE EXCELLENCE
IN MUNICIPALITIES
BY MIA GEORGE
In today’s rapidly evolving world, municipalities face the critical task of developing, implementing, and executing sound strategies so they can thrive. This process however, is inherently complex due to the many services governments are required to provide, the various key documents and policies to be considered, and the variety of partners involved in achieving positive community outcomes. Managing accountability is thus difficult yet essential for navigating these complexities and achieving the best possible results. The objective of this article is to identify the key stakeholders and strategic components involved in municipal strategy as well as describe how integrating strong accountability can drive excellence in municipal service delivery for communities. While this article focuses on municipal governance and strategy in Canada, the theme of accountability can be applied to any municipality.
KEY AGENTS AND DOCUMENTS OF STRATEGY IN MUNICIPAL GOVERNMENT
Canadian municipalities, whether they are cities, towns, townships, or villages, are created by the provinces in which they reside and are responsible for providing a wide range of services to residents, from waste disposal to public transit. These municipalities are overseen by a council of locally elected officials, and the revenue to provide services primarily comes from property taxes and provincial grants. Understanding the structure and roles within municipal government is crucial for effective strategy formulation, implementation, and execution.
There are four key “agents” –individuals or groups with distinct roles and responsibilities – as they relate to municipal strategy formulation, implementation, and execution.
1. The Council, composed of elected officials, represents the interests and needs of their residents. It is responsible for developing and delivering a long-term vision that reflects their communities’ aspirations.
2. The Chief Administrative Officer (CAO), who is the highest-ranking administrative official in a municipal organization, is hired directly by Council and is tasked with delivering the municipality’s legislated services and executing Council directives through the development and execution of a strategic plan.
3. Commissioners or Department Heads provide overall leadership for the various departments within the municipal organization. They devise and implement departmental plans that align with the strategic plan.
4. Staff members, as employees of the municipal organization, are responsible for providing services to residents through the execution of their individual performance plans. Each of these agents plays a vital role in strategy formulation, implementation, and execution ensuring the municipality functions effectively and efficiently. The execution of each agents’ strategic responsibilities is guided and aligned by several key documents. The Council’s vision for the community’s well-being is a high-level document outlining areas of focus. It is evergreen, adaptable and fluid yet anchored in resident feedback on key concerns. It sets the direction for the municipality and serves as a foundation for all subsequent planning.
The strategic plan duration aligns with the current term of Council, which are typically three to four years in length depending on the municipality.
It outlines objectives and priorities focusing on legislated core services, giving the municipality flexibility and adaptability in times of crisis. The CAO keeps the plan focused on legislated services, rather than discretionary services or directives. This ensures that the municipality remains compliant with its legal responsibilities, which must be fulfilled regardless of regular or emergent operating environments. In this way, the plan guides the organization’s efforts, while aligning with the Council’s vision.
Departmental plans, a subset of the larger strategic plan, outline the objectives, priorities and actions of each department. These plans align with the term of Council yet are revisited annually. Departmental plans include both core legislated services and additional projects as directed by Council. This ensures that all departmental activities align with the strategic plan and contribute to the overall vision of the municipality.
Finally, individual performance plans detail the specific activities of individual employees to deliver services to residents. These plans include performance objectives, individual actions, and competencies. By aligning individual performance with departmental plans, the cascade from vision to each individual staff member continues, ensuring municipalities work towards Council’s commitments to its communities.
An example of this in action can be found in The Regional Municipality of York (York Region), winner of the
International Association for Strategy Professionals 2023 Goodman Award for Excellence in Strategy for its Accountability Framework. York Region is a regional government in Ontario, Canada, with nine local municipalities. York Regional Council’s vision statement of “Strong, Caring, Safe Communities” is divided into four areas of focus: economic vitality, healthy communities, sustainable environment, and good government.
The Council’s vision guides the current four-year corporate strategic plan, which aligns with the Council’s term. The plan includes four priorities, and 10 objectives aligned around the four areas of focus. Each of York Region’s six departments develops a departmental plan in alignment with the strategic plan and Council’s term, with annual reviews and updates conducted with the CAO. Additionally, all staff members undergo an annual performance process where their performance objectives and associated activities are aligned with their respective departmental plans, ensuring a cohesive and integrated approach from the overarching vision to individual actions.
Table 1 summarizes the key documents guiding municipal strategy, including their key components and responsible agents.
By understanding the roles and responsibilities of municipal key agents and the documents that guide their actions, municipalities can ensure effective execution of their strategies. This alignment leads to improved
Vision Council
Strategic Plan CAO
Departmental Plans Commissioners/ Department Heads
High-level document anchored in resident feedback that sets the direction for the municipality
Plan developed in alignment with Council’s term and focused on legislated core services
Plans outlining each department’s efforts in alignment with the strategic plan and Council term, including both core legislated services and additional projects as directed by Council
Areas of focus, which are anchored in resident feedback yet adaptable
Objectives and priorities
Departmental objectives, priorities, and activities
Council’s vision: “Strong, Caring, Safe Communities” with four areas of focus
Current four-year corporate strategic plan includes four priorities and 10 objectives
Aligned with the municipal strategic plan and reviewed annually
Individual Performance Plans Employees
TABLE 1: KEY
Performance plans that detail each employee’s individual responsibility to deliver services to residents
Performance objectives, actions and competencies
Annual performance process aligned with departmental plans
service delivery and better community outcomes, driving excellence in municipal governance.
While developing and executing these plans is essential for municipal success, it is not an easy task. The sheer scope of services that municipalities provide requires careful coordination and resource allocation, while the alignment of multiple plans demands meticulous planning and constant communication among all agents. The dynamic nature of community needs and external factors, such as economic shifts or emergencies, adds further complexity, requiring flexibility and adaptability in planning. At the same time, everyone, from elected officials to each individual staff member of the municipal organization, must be both committed to and understanding of their role in strategy formulation, implementation, and execution to be successful. Failing to establish clear responsibilities, set measurable objectives, and regularly review progress can lead to ineffective strategy execution, poor service delivery, and negative community outcomes.
WHAT IS ACCOUNTABILITY?
Accountability is a fundamental organizational concept that explores how individuals and organizations are held responsible for their actions and outcomes. One of the most recognized theories in the literature of accountability is the Agency Theory, developed by Michael C. Jensen and William H. Meckling in 1976 (Jensen and Meckling, 1976). This theory explores the relationship between principals, such as shareholders, and agents, such as company executives, emphasizing the expectation that agents act in the best interest of principals. In the context of municipal governance, this theory explains the dynamics amongst the key agents. Elected officials, for example, act as agents to the communities (the principals) that elected them to office, while also serving as principals for the CAO, whom they hire. Ultimately, agents and principals in municipal governance play a crucial role in realizing the best interests of the community. Alternatively, the IASPBOK3.0 defines strategic accountability as “individual and/or shared responsibility for results in alignment with identified goals and objectives” (Hadaya et al., 2023, p. 96). This definition highlights the importance
of aligning individual and collective efforts with the overarching vision for the organization. In municipal governance, accountability ensures that all agents, from Council members to staff, are working towards a common purpose and are responsible for their contributions to the community’s well-being.
To effectively implement accountability, several factors must be considered. First, it is essential to identify who is being held to account (the agent) and what that person is being held accountable for. This requires determining both roles (the positions individuals hold) and their responsibilities (the tasks they must perform) as well as setting clear expectations of what must be delivered. Second, it is crucial to determine who is holding that person to account (the principal). This clear understanding of the roles and responsibilities of each agent and principal within the municipal organization is critical to establishing accountability. Third and last, it is necessary to establish how accountability is measured. This involves identifying clear performance metrics and developing robust evaluation and reporting mechanisms to track progress to ensure agents are meeting their responsibilities. For example, in York Region, Regional Council is held accountable by residents for progress towards their vision of “Strong, Caring, Safe Communities” with performance measured through community indicators.
TYING THIS ALL TOGETHER WITH AN ACCOUNTABILITY FRAMEWORK
An Accountability Framework is essential to tie all these elements presented above together and ensure every level of the municipal organization is aligned and working towards the same vision (Table 2). The framework begins with Council, which is accountable to the public for achieving or working towards the promised vision. To hold it accountable, its progress is measured through community indicators, which quantify the achievement of the vision’s areas of focus, and performance measures, which quantify the organization’s achievement at the corporate and departmental levels.
To be most effective, the community indicators of the vision should be aligned with broader national or global initiatives, such as environmental, social, and governance principles, and the United Nations Sustainable Development Goals. York Region uses 20 community indicators to track progress in its four areas of focus. It is important to note that, while collaboratively developed by Council and the various municipalities, community indicators are ultimately determined by Council and are applied at the Regional level.
At the organizational level, the CAO is accountable to the Council for delivering legislated services and supporting Council through the development and implementation
“ BY UNDERSTANDING AND IMPLEMENTING EACH ONE OF THESE CONSIDERATIONS OF ACCOUNTABILITY AT EVERY LEVEL OF THE MUNICIPAL ORGANIZATION, MUNICIPALITIES CAN CREATE A CULTURE OF RESPONSIBILITY AND TRANSPARENCY.
By understanding and implementing each one of these considerations of accountability at every level of the municipal organization, municipalities can create a culture of responsibility and transparency. This not only enhances the effectiveness of their strategies but builds trust with residents, ensuring the community’s needs and expectations are met. Accountability is therefore critical to driving strategy excellence in municipal governance.
of the organization’s strategic plan. Strategic plan progress is captured by performance measures that assess how well municipal services and programs are functioning. Measurement at this level is focused entirely on services and outcomes that are within the organization’s scope of control. For example, York Region tracks 48 performance measures tied to its core service delivery to monitor the progress of its strategic plan.
WHO IS HELD TO ACCOUNT? (AGENTS)
WHAT ARE THEY ACCOUNTABLE FOR?
Council Achieving/Working towards vision (commitment/promise to its community)
CAO Delivering legislated services and supporting Council through the development and implementation of the organization’s strategic plan
Commissioners/ Department Heads Delivering legislated and discretionary services through the development and implementation of departmental plans
Employees Delivering services of the municipal organization to the community and fulfilling individual development plan
Commissioners and Department Heads are responsible for delivering both legislated and discretionary services through the development and execution of departmental plans. They are accountable to the CAO and their performance is also measured by performance measures. York Region uses 99 performance measures to track the progress of its six departments, which include the 48 measures from the strategic plan and additional measures for departmental projects. Finally, employees are accountable to their Commissioners or direct supervisors for delivering municipal services to the community. They are held accountable through a performance process tied to compensation, which assesses how well they achieve their performance objectives. Each staff member in York Region has performance objectives and is assessed on four core competencies relating to customer focus, communication, accountability and collaboration.
By implementing this Accountability Framework, municipalities can create a culture of responsibility and transparency, enhancing the
WHO ARE THEY ACCOUNTABLE TO? (PRINCIPALS)
Public (Residents)
Council
CAO
Commissioners/ Direct Supervisors
HOW ARE THEY HELD ACCOUNTABLE?
Community indicators: Community-level measures that help quantify the achievement of an area of focus. These are outside of the municipal organization’s scope of control. Multiple partners are involved in influencing the results of community indicators.
Performance measures: Measures of how well a municipal service and/or program is working. Results of performance measures are entirely within the municipal organization’s scope of control.
Performance measures: Measures of how well a municipal service and/or program is working. Results of performance measures are entirely within the municipal organization’s scope of control.
Performance process (tied to compensation) relating to how well an employee achieved their identified performance objectives and competencies
effectiveness of their strategies and building trust with residents. This ensures that the community’s needs and expectations are met, driving excellence in municipal governance.
CONCLUSION
Understanding how accountability operates in municipal organizations is critical for effective municipal strategy formulation, implementation, and execution. An Accountability Framework can drive excellence in municipal service delivery through the identification of key stakeholders and plans, and an understanding of roles, measurable objectives, and evaluation mechanisms. These efforts are necessary to align individual and collective efforts with an overarching community vision. With rapid digitization and advances in technology, future research could explore the impact of emerging technologies on accountability practices in municipal governance. By implementing and continuously improving upon an Accountability Framework within municipal organizations, municipalities can better meet the evolving needs of
YORK REGION EXAMPLE
York Region has five community indicators per each area of focus (20 community indicators in total). Many of these indicators also serve as measures related to broader national or global initiatives such as environmental, social and governance principles and the United Nations Sustainable Development Goals.
York Region has 48 performance measures tied to its legislated core service delivery to track the progress of its current strategic plan
York Region has 99 performance measures in total to track the progress of its six departments using departmental plans. These 99 measures include the 48 measures mentioned in the strategic plan above as departmental plans encompass both the Region’s legislated services delivery and additional projects as identified by Council.
Each staff member has performance objectives they must deliver upon each year. Staff members are also assessed in their display of four core competencies all staff are expected to demonstrate.
their communities and ensure sustainable, high-quality service delivery.
REFERENCES
Hadaya, P., Stockmal, J., et. al. (2023) IASPBOK 3.0: Guide to Strategy Management Body of Knowledge. International Association for Strategy Professionals.
Jensen, M. and Meckling, W. (1976) Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics. 3(4).
The Regional Municipality of York. (2022) York Region. www.york.ca
ABOUT THE AUTHOR
Mia George is a strategist with over a decade of public sector experience in project management, communications, and strategic planning. Mia has a master’s degree in strategic foresight and innovation from OCAD University, where she researched bridging personal and community flourishing to improve community outcomes.
E: mia.george@york.ca
TABLE 2: MUNICIPAL ACCOUNTABILITY FRAMEWORK
EVOLVING OKR PRACTICES
IN STRATEGIC MANAGEMENT FOR THE AGE OF UNCERTAINTY
BY ALEX MILOVANOVICH
In today’s rapidly evolving business landscape, organizations face unprecedented levels of uncertainty and disruption. To thrive, they must possess the agility and adaptability to effectively translate their long-term strategic ambitions into actionable, measurable objectives. Despite the widespread adoption of Objectives and Key Results (OKRs) as a governance tool within the strategy management framework, many organizations struggle to harness their full potential. This article examines the evolution of the OKR framework, addressing its key vulnerabilities and introducing contemporary best practices to enhance its effectiveness. It provides actionable insights to help organizations achieve sustainable success in today’s dynamic and uncertain environment.
THE EVOLUTION OF THE OKR FRAMEWORK
The Objectives and Key Results (OKR) framework has undergone significant transformation since its inception, adapting to meet the evolving needs of
organizations striving for strategic clarity and measurable success. The journey of the OKR framework began with Peter Drucker (1954) who introduced Management by Objectives (MBO) to align individual and organizational goals with clear, measurable outcomes. This foundational concept laid the groundwork for future developments in strategic management. In the 1970s, Andy Grove at Intel transformed MBO into Objectives and Key Results (OKRs). Grove’s innovation was to add measurable “Key Results” to each objective, driving focus and accountability throughout the organization (Grove, 1999). This approach ensured that objectives were not only ambitious but also quantifiable, making it easier to track progress and achieve results.
John Doerr, a venture capitalist and former Intel employee, played a pivotal role in scaling OKRs at Google in the late 1990s. Doerr (2018) emphasized ambitious, transparent goals, alignment, and agility, as outlined in his book, Measure What Matters. His efforts popularized OKRs in the tech industry and beyond, demonstrating their potential to foster innovation and growth.
In her book, Radical Focus, Christina Wodtke (2016) further evolved OKRs, advocating for their use in driving growth, innovation, and adaptability. She highlighted the importance of flexibility, team alignment, and a learning-oriented culture, ensuring OKRs remained relevant in dynamic environments. Today, OKRs are a widely adopted and proven framework for strategy management. By balancing top-down alignment with bottom-up collaboration, they enable organizations to set ambitious goals while fostering engagement and innovation, making OKRs a cornerstone of modern strategic management. The framework consists of three main elements: Objectives, Key Results, and Key Performance Indicators (KPIs). Objectives are qualitative statements, derived from strategic goals to drive change. They outline what individuals, teams, or organizations strive to accomplish. Objectives should be aspirational, motivating, and set within a specific timeframe. Key Results are specific, measurable, and quantitative outcomes that indicate the achievement of objectives. They provide concrete evidence of success and serve as milestones for tracking progress.
Finally, KPIs are quantifiable measures used for precise progress tracking, enabling informed decision-making and actionable insights.
The implementation process for OKRs follows a structured seven-step method to ensure effective strategy execution within organizations (Figure 1). A notable example of this approach in action is Google’s use of OKRs to enhance Chrome’s speed and performance.
1. Define Strategic Goals
Establish high-level, longterm goals that align with the organization’s mission and vision. For instance, Google aimed to make Chrome the fastest and most user-friendly web browser, supporting its broader mission of organizing the world’s information.
2. Break Down into Objectives
Translate goals into qualitative, ambitious, and time-bound objectives that resonate with teams. Google’s objective was to “Enhance Chrome’s speed and performance to deliver the best browsing experience.”
3. Identify Key Results
Determine specific, measurable, and quantitative outcomes for each objective to assess progress and success. For Chrome, this included reducing page load time by 20% within six months and achieving a 95% user satisfaction rating.
4. Select KPIs
Choose quantifiable measures for precise progress tracking, enabling informed decision-making and actionable insights. Google tracked page load time, user engagement metrics, and bug reports related to speed issues.
5. Implement Regular Tracking and Management
Leverage dashboards and realtime monitoring tools to track progress, address challenges, and make timely adjustments. Google engineers used real-time dashboards to identify bottlenecks and optimize performance.
6. Assign Ownership and Accountability
Delegate objectives and key results to individuals or teams, clearly defining responsibilities to drive focus and accountability. Specific teams owned different Chrome components, such as the rendering engine and JavaScript execution, with clear accountability for key results.
7. Iterate and Adjust Objectives
Use feedback and performance insights to refine objectives and key results as needed. Encourage continuous learning and flexibility in goal-setting. As performance data was analysed, Google refined its objectives, setting new stretch goals and iterating on features to maintain Chrome’s competitive edge. Despite many strengths, the OKR Method has several vulnerabilities that organizations must address to ensure successful implementation. One such vulnerability is progress tracking, which can be hindered without accurate and timely data, leading to delays in decision-making. Additionally, lack of clear ownership and accountability, makes it difficult to drive progress and hold individuals responsible for their performance. The infrequency of reviews and adjustments also poses a problem, making it harder to identify bottlenecks,
address issues, or refine objectives in response to feedback. Furthermore, without a culture of learning and adaptation, OKRs may become rigid and outdated, leading to resistance to innovation, lack of collaboration, and limited stakeholder engagement. By recognizing and addressing these vulnerabilities, organizations can enhance their OKR implementation and achieve better alignment, accountability, and adaptability in their strategic management efforts.
CONTEMPORARY BEST
PRACTICES FOR OKR SUCCESS
To address the aforementioned vulnerabilities, I propose a set of six contemporary best practices that offer a comprehensive roadmap for organizations. These practices are designed to drive strategic alignment, foster innovation, and achieve sustainable success in today’s dynamic business environment. As summarized in Table 1, each best practice is introduced with its name, objective, relevant OKR Method steps, the vulnerabilities it addresses, a description, and a supporting example. The first best practice, Real-Time Technology Integration, not only improves progress tracking but also enables swift, data-driven decision making. This practice primarily impacts Step 5 of the OKR Method, Implementing Regular Tracking and Management. It alleviates the problem of delayed decision-making due to inaccurate and untimely data. Indeed, robust information systems that collect, process, and visualize data enable organizations to track progress dynamically and forecast future
Real-Time Technology Integration
Integration with AI and Data Analytics
CrossFunctional Collaboration
Empowerment and Accountability
To improve progress tracking and enable data-driven decision making
To enhance data-driven decision-making and enable proactive OKR adjustments
To break down departmental silos and foster alignment across teams
To foster a culture of ownership, transparency, and accountability within the organization
Agile Strategic Management To enable real-time adaptability of the OKR process
Engagement through Innovation and Rewards
To foster a culture of innovation, risktaking, and long-term employee engagement
performance with greater accuracy. By deploying dashboards and mobile tools for on-the-go OKR monitoring, organizations can ensure real-time visibility of their performance. Automated alerts can be used for instant deviation tracking, allowing for swift corrective actions. Salesforce, for instance, leverages a sophisticated platform that provides real-time dashboards, enabling teams to visualize key performance indicators (KPIs) as they evolve. Automated alerts flag deviations from expected outcomes, prompting proactive interventions.
The second-best practice, Integration with AI and Data Analytics, enhances data-driven decision-making and enables proactive OKR adjustments. AI integration primarily impacts Step 5 of the OKR Method, Implementing Regular Tracking and Management by addressing delays caused by slow data interpretation. By leveraging AI for realtime insights, predictive trends, and process automation, organizations can make faster, more informed decisions and adapt their OKRs dynamically. Netflix, for example, employs AI and data analytics to monitor and adjust its OKRs in real-time. Machine learning
Step 5: Implementing Regular Tracking and Management
Step 5: Implementing Regular Tracking and Management
Step 6: Assigning Ownership and Accountability, but also other steps
Step 6: Assigning Ownership and Accountability
Step 7: Iterating and Adjusting Objectives
Entire OKR management process
Delayed decisionmaking due to inaccurate and untimely data
Delays caused by slow data interpretation
Lost ownership and accountability when objectives are neglected due to misaligned teams
Unclear responsibilities and a lack of accountability
Infrequent reviews and adjustments lead to rigid and outdated OKRs
Resistance to innovation, lack of collaboration, and disengagement
Enables real-time, enterprise-wide OKR monitoring, deviation tracking, and performance forecasting
Develops real-time insights, forecasts predictive trends, and automates processes
Breaks down silos with vertically and horizontally unified, cross-departmental OKRs
Fosters a culture of ownership, transparency, and accountability by empowering employees
Creates a dynamic objective setting with continuous feedback loops
Promotes innovation and risk-taking by linking OKRs to rewards and promotions
algorithms are used to analyse viewer behavior, predict trends, and automate content recommendations. This realtime tracking allows Netflix to make data-driven decisions and adjust its objectives dynamically, ensuring alignment not only with strategic goals but also current market demands.
The third best practice, CrossFunctional Collaboration, breaks down departmental silos and fosters seamless alignment across teams. This practice primarily impacts Step 6 of the OKR Method, Assign Ownership and Accountability, though it also influences other steps. It addresses the risk of lost ownership and accountability when objectives fall through the cracks due to misaligned teams. By having unified, cross-departmental OKRs, organizations can align their objectives both vertically (top-to-bottom) and horizontally (across functions). The OKR framework played a crucial role in Cisco’s Architecture Center of Excellence (ACoE) initiative. By setting unified OKRs, Cisco aligned product development, IT, sales, and customer success teams to ensure consistency in technology architecture and execution. This alignment helped
Salesforce leverages a sophisticated platform that provides real-time dashboards
Netflix employs AI and data analytics to monitor and adjust its OKRs in real-time
Cisco’s Architecture Center of Excellence (ACoE)
Microsoft assigns ownership of OKRs at every level of the organization and tracks progress using Viva Goals
Barclays Bank use Disciplined Agile Delivery (DAD) and Agile coaching
HubSpot has mastered the art of fostering engagement through its OKR practices
break down silos and foster collaboration across different departments. The transparency and clarity provided by OKRs have enabled Cisco’s cross-functional teams to understand interdependencies, coordinate efforts efficiently, and drive faster innovation while maintaining architectural consistency across Cisco’s global operations.
The fourth best practice, Empowerment and Accountability, fosters a culture of ownership, transparency, and accountability within the organization. This practice primarily impacts Step 6 of the OKR Method, Assign Ownership and Accountability, by mitigating the risk of unclear responsibilities and a lack of accountability. By empowering employees with meaningful objectives and clear communication, this practice ensures that goals are pursued with commitment and focus. To achieve this, organizations must create detailed execution plans with clearly assigned objectives. Microsoft provides a strong example, employing a structured process for assigning ownership of OKRs at every level of the organization. Each objective is assigned a specific owner responsible for its delivery, with progress
TABLE 1: BEST PRACTICES FOR OKR MANAGEMENT
transparently tracked using tools like Viva Goals. This approach empowers employees with clear, meaningful objectives, ensures accountability cascades throughout the organization, and ultimately fosters alignment with Microsoft’s broader strategic initiatives.
The fifth best practice, Agile Strategic Management, enables realtime adaptability of the OKR process through continuous feedback loops and dynamic objective setting. This practice primarily impacts the seventh step of the OKR Method, Iterating and Adjusting Objectives, while also fostering a culture of continuous improvement across the entire process. It addresses the challenge of infrequent reviews and adjustments. By implementing continuous feedback loops, such as sprint reviews and retrospectives, and treating OKRs as evolving, flexible statements, organizations can maintain both focus and adaptability. Establishing structured review cadences, including daily standups, weekly KPI reviews, and quarterly evaluations, ensures that organizations stay aligned while remaining agile in today’s fast-paced environment. Barclays Bank, for example, has successfully implemented Agile Strategic Management by using Disciplined Agile Delivery (DAD) and Agile coaching. This approach has enabled them to deliver people-first coaching, simplify process decisions, and improve productivity. With continuous feedback loops and dynamic objective setting, Barclays has achieved greater levels of happiness, speed in launching new products, and adaptability.
The sixth and last best practice, Engagement through Innovation and Rewards, aims to foster a culture of innovation, risk-taking, and long-term
employee engagement. This practice impacts the entire OKR Method by preventing resistance to innovation, lack of collaboration, and disengagement. Organizations that adopt this approach create an environment where employees are motivated to push boundaries and contribute meaningfully to strategic goals. Linking OKRs to rewards, professional development, and career progression sustains motivation and ensures individual efforts align with broader organizational objectives. HubSpot has mastered the art of fostering engagement through its OKR practices. The company encourages experimentation and risk-taking, viewing failures as learning opportunities rather than setbacks. By linking OKRs to professional development and recognizing employee contributions, the company has built a culture of innovation and ambition. This approach ensures that employees remain invested in their objectives while driving the company’s strategic success. By embracing these six contemporary best practices, organizations can tackle the common challenges in OKR management head-on. They will be better positioned to enhance the effectiveness and efficiency of their goal-setting processes, driving success in today’s fast-paced and ever-evolving business landscape. The integration of these strategies will not only improve alignment and accountability but also cultivate a culture of innovation, agility, adaptability, and continuous improvement.
CONCLUSION
This article proposes a set of six best practices that enhance the implementation of OKRs by addressing its vulnerabilities, providing a roadmap for organizations to drive strategic alignment,
adaptability, and execution excellence. As businesses face rapid change, integrating AI-driven insights while maintaining human-centric decisionmaking will be essential to balancing efficiency with engagement. Future research should explore the evolving role of AI in OKRs, the psychological impact of automation, and best practices for sustaining long-term organizational agility. By continuously refining OKR methodologies, organizations can build resilience and position themselves for sustainable success in an era of uncertainty.
REFERENCES
Doerr, J. (2018) Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs. Portfolio.
Drucker, P. (1954) The Practice of Management. Harper & Brothers. Grove, A. S. (1999) Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company. Crown Currency. Wodtke, C. (2016) Radical Focus: Achieving Your Most Important Goals with Objectives and Key Results. Cucina Media, LLC.
ABOUT THE AUTHOR
Alex Milovanovich is a management practitioner, strategy advisor, and author of Strategic Management in the 21st Century He has extensive experience in South Africa, where he spent most of his career, as well as in Kenya, Nigeria, and the Western Balkans. E: alex@poslovnastrategija.rs
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