Top-down or Bottom-up in Strategy Development

Balancing the interplay between periphery and center

Find the right balance between centralized and decentralized strategy development, planning and the management of the business. (Image: Yakusheva)

Top-down, or rather Bottom-up? Larger organizations with complex structures ask themselves this question with regularity in their strategy and planning work. Always in search of the ideal mix, as long as no hard transformations are required – then, of course, completely different rules of the game have to apply.

Is it an advantage to specify goals and activities for the "planning children" in as much detail as possible? Or is it better if the planning units develop them independently within a very rough framework and then check them for plausibility at a higher level and align them with higher-level goals? The two scenarios sound simple, but they are not. In practice, 3 segmentation dimensions are often crossed for strategy work (e.g. business unit with market segments and regions). In addition, within these planning units, sub-segmentations according to countries and/or product groups often play a role.

Figure 1: Example of a 3-dimensional planning structure

Thus, numerous strategy processes run on several levels, which require content coordination and handovers at several points. It is a crucial task to actively organize these points at the various points in the strategy process. Unfortunately, there is no patent remedy for this – too many different factors are relevant, e.g., industry, market dynamics, existing structures, the strategic maturity level, but also cultural aspects.

It never works completely without boundaries, but a few essentials

With these 3 steering elements, the group level creates a framework for the strategy process of the planning units at the next level (eg. Divisions or Business Units):

  • Sales, profit and/or cost targets
  • boundaries with regard to markets, products, technology, customers, etc.
  • cross-divisional or cross-BU initiatives that have been decided for implementation and for which the subsidiaries have to make corresponding contributions (e.g. sustainability, digitization, etc.)

In addition, there are often specific strategic directions or programs that relate to individual markets or regions and set a framework for the strategic work of individual units.

Targets of this kind are not only legitimate but necessary and provide orientation for the strategic work of the units below. These targets and boundaries can still be comprehensibly transmitted to the units applying 2 segmentation dimensions. The real problem and complexity lies somewhere else. It lies in the choice of intensity, number and frequency of vertical and horizontal alignment and decision rounds within the strategy and the planning process.

Decision criteria for more centralized or decentralized planning, management, and development of the business

To find the right balance between centralized and decentralized strategy development, planning and the management of the business, it is advisable to use more than just market-related criteria as a basis for decision-making.

Figure 2: Potentially relevant decision criteria (exemplary)

Even if the diversity of markets and their dynamics must carry high importance in the decision, the existing structures and processes, culture and value structures as well as implementation power should also be included. In this context, the impact of different cultural zones in larger organizations is often underestimated when it comes to the question of the right degree of collaboration, participation and existing mindsets in strategy work.

Along the defined criteria, many different "varieties" and characteristics are conceivable, each of which must be examined for the specific case, supplemented, and adapted if necessary.

Figure 3: Different values for each decision criterion (symbolic)

The question of the right mix of Top-down and Bottom-up has far-reaching consequences. Among other things, it influences the design of the strategy architecture and the respective methodology, existing planning and decision-making processes at different levels, the necessary committee structures, collective learning processes and the emergence of cultural behavior and value patterns.

Too much Top-down direction, control and reporting incapacitates managers in one of their core tasks – contributing to strategy. It prevents strategic thinking on a broad basis and the all-important intra-year dialogue on strategy assumptions. Those responsible for individual planning units then see strategy work as a template-filling exercise with no real impact, and input to planning therefore often comes from extrapolating past data.

If there is little input, this leads to isolated strategies that do not ultimately produce a coherent overall picture and do not form a robust basis for medium-term planning. The danger of contradictions and redundancies across units increases. A lack of networking and alignment within the organization means that they do not form a sustainable foundation for successful implementation.

The question of centralized or decentralized strategy development has only one answer: both. Networking and alignment in the right dosage are needed as prerequisites for agile and adaptive strategy work. This right balancing is an ongoing process. It succeeds when the strategic maturity, the current situation of the company and the market dynamics are considered, critically scrutinized on a regular basis and continuously adjusted.

In this articles series have been published so far:

Article 1: Revolutionize your Strategy Development

Article 2: Agility and speed – key success factors in Strategy Development

Article 3: Top-down or Bottom-up in Strategy Development

Artikel 4: The hidden strategy treasure – If the company knew what the company all knows

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