Strategic Management
DECISION-MAKING
BY ESTABLISHING
CAUSE-EFFECT RELATIONSHIPS
Finance management in public sector is very often criticized for non-transparency and inefficiency. Increased people’s awareness and concern about political governance raise steady public disputes regarding where, how much and why money is spent. Thus, strategic plans and their implementation reports are the main politicians’ communication device about their intentions and work results. However, evolution of state, region or city is not kept within certain term of political office and representatives of community carry more responsibility than just solving current issues. Their main duty is to develop a long term vision and leading towards it.
Hence, let me introduce the major challenges those Kaunas city municipality has experienced during the introduction and improvement of its strategic management system and suggest further development trends.
A START UP OF KAUNAS CITY STRATEGY
A Strategic Planning Division was established at Administration of Kaunas City Municipality in 2003 in order to coordinate preparation of the municipality‘s strategic plans and monitor their implementation. Shortly after that, a ten year Kaunas city development strategic planning was launched considering recommendations set in the “Methodology for preparation and renewal of regional development plans” approved by the decree of Minister of the Interior of the Republic of Lithuania (4th of October, 2002) and according to the “Long-term development strategy of the State” (Þin., 2002, No 113-5029) , “Long-term economic development strategy of Lithuania until 2015” (Þin., 2002, No 60-2424) and “Sustainable development strategy” (Þin., 2003, No 89-4029) .
The Strategic Planning Division formed a Strategic Planning Work Group composed from specialists of the Administration’s divisions, invited representatives of different public interest groups and external experts to participate in the preparation of the long term city development plan. After the presentation of Kaunas PEST, internal resources’ analyse and SWOT analyse, that inspired discussions among different interest groups and specialists about the potential of the city, a unique and ambitious Kaunas city vision was generated. Later, fundamental sustainable city development directions, objectives, targets, means and financial resources were projected by logically composed relationships and a monitoring system of the strategic plan was designed. Consequently, after extended considerations Kaunas city strategic plan for 2005-2015 was approved by the city council in 2005.
STRATEGY IMPLEMENTATION PROBLEMS
An important decision was made regarding the sustainable city development. A consensus of different opinions was laid down in the strategic plan which should stimulate everyone to work in the same direction. However, unexpected obstacles emerged. The methodology, that suggested the logical structure of the strategic plan and general recommendations for monitoring its implementation, did not work. The problem could lie in a wrong task. An objective to create a strategic plan rather than employ a plan for the purpose of the efficient resource management sent “wrong signals to managers” . Every effort in the strategic planning process was focused on the preparation of the plan while the importance of its implementation was kept as a trivial action. At first glance the task was accomplished and the goal was reached. Kaunas city had got a strategic plan. However, a plan as a document does not lead anywhere if questions such as “what value am I trying to add” and what actions may “help me achieve that goal” are not raised. Without strategy alignment to the prevailing municipality’s processes, its activities were exercised in the previous way and Kaunas city strategy became worthless.
It appears that organization “can have the best strategy in the world, but it will get nowhere if managers cannot translate that strategy into operational plans and then execute the plans and achieve the performance targets” . “The problem may be the very tenancy to benchmark. Taking ideas ... can be valuable, but it can also mislead and distract. It can prevent managers from focusing on what is unique to their situation. The result? Managers design a planning process that is a model of professional planning techniques but that fails to add value” .
SYSTEMS THINKING AND CAUSE-EFFECT RELATIONDHIPS
Solving strategy implementation problem encouraged reconsider why “in today’s competitive environment, every company has an action plan. Yet for most managers, the processes used to create those plans don’t work” . The answer lies in the systems thinking that “requires us to acknowledge the systematic nature of every aspect of any organization” and enables us to concentrate our “attention on how all the elements of the system fit into the working whole” . This approach acknowledges the inherent cause-effect relationships among different elements of the system and may be explained as following: “Causal objectives drive effectual objectives and consequently offer the opportunity to observe and capture predictive data. Effectual objectives are driven by causal objectives and thus are outcomes that produce measurable historical data” . Moreover, “any system can be modelled, parameters can be developed and measured, and action can be taken to improve the system’s performance” and the most important is “that priority actions should be focused on the causal systems within the overall business” .
MANAGEMENT OF STRATEGIC PLANNING PROCESS
In order to make the strategic plan functional, activities from the long term plan should be involved to the annual municipality’s budget. Thus, the “Methodology of Strategic Planning” (Þin., 2002, Nr. 57-2312) was used as guidelines to link the municipality’s strategy to budget through a three year activities’ planning system. At that point, the procedures for preparing a three year Kaunas City Municipality’s activities strategic plan were considered first of all. Despite a fact that all local government institutions implemented common functions delegated by the central government and similar autonomous activities, all of them were managed differently. So, general recommendations for organizing a middle term strategic plan under the Methodology of Strategic Planning were not available to implement successfully.
Determined structure of a three year strategic plan in the methodology was related to an annual budget which was organized according to the “Law on the Budget Structure” of the Republic of Lithuania (Þin., 1990, No. 24-596; Þin., 2000, No. 61-1826) and operated under the principle of a programme budgeting. The main purpose of this finance management system was to compose proceeds and expenditures considering the political goals so that it let to direct finance for obtaining particular results. Thus, programmes were not just a framework of the budget. Objectives and targets of the programme were the systematic background of processes that should be established in order to reach the purpose of the programme. So, that is a reason why “budgets do more than carry weight in many, if not most, important decisions. Budget planning is an enormous task, taking lots of management time and analytic resources” .
Programme budgeting had been established in Kaunas city municipality before the Strategic Planning Division started operating. Thus, approved Kaunas city municipality strategic plan for 2005-2015 was incompatible with the programmes of the annual budget. The biggest part of the programmes was designed by the principle which helped to manage accountancy or to report to the Ministry of Finance, for example: the Procurement of Tangible Assets Programme, the Property Maintenance Programme, the Publicly Funded Organizations Programme or the State Subsidies Programme. This system allowed analysing allocation of funds and budget implementation, but nobody could clearly define the progress of the municipality’s activities. So, if there is no possibility to “measure progress toward an objective, you cannot manage and improve it” .
It was obvious, that the annual budget programmes should be replaced according to the city long term developing trends such as the Social Programme, the Education Programme, the Sports Programme, the Environment Protection Programme and etc. However, logical reasoning encountered internal resistance. Necessary changes in the planning system, that should affect better finance management, raised questions: “Do we think this is true? Or do we know?” . Smooth budget preparation and implementation according to the state regulations was understood as one of the most important Administration’s functions. Without the timely approved municipality’s budget and submitting it to the central authority, city would have had restrictions to implement its autonomous functions. However, strategic planning was treated as a less significant internal management system.
Unsolved disputes between the Finance and Strategic Planning divisions led to the double workload for the Administration’s employees. The annual budget for 2006 and the Municipality’s activities strategic plan for 2006-2008 were prepared under the different programmes. So, at that time, an alignment between the municipality’s annual activities and strategy was not reached again.
Reports about the implementation of the strategic plans showed that Kaunas city vision was “lost in daily pressures of business operations” and insufficient results reduced motivation. However, “creating alignment between individuals, organization, and the strategy” was particularly important, because Lithuania was granted more than LTL 23 billion according to the EU structural assistance for 2007–2013 . Financial support had to impact on the city development considerably, so Kaunas city municipality council and the Administration turned back to the questions regarding the strategic planning system: “What has changed? Why? and What we are going to do about it?” .
Clear understanding, what causal actions should lead to the efficient strategic management, resulted in the reconciliation of the internal regulations. The strategic planning and monitoring processes were optimized and the coordination strengthened. These changes enabled to organize the renewal of Kaunas city strategic plan for 2008-2015 and the preparation of Kaunas city municipality’s activities strategic plan for 2008-2010 along with Kaunas city municipality’s budget for 2008 simultaneously. The focus on Kaunas city vision, development trends, goals, targets and essential activities at different planning extends should have led to successful strategy implementation. Moreover, innovative key performance indicators’ system should have helped to manage progress as it was designed to measure created product, reached effect and achieved impact regarding financed activities. “However, since change is constant ... strategies and their implementation must steadily evolve” .
DEVELOPMENT OF THE STRATEGIC MANAGEMENT SYSTEM
It took more than five years to build the strategic finance management system in Kaunas city municipality. However, there is one more meaningful factor that should be considered. ”To successfully apply a systematic approach for strategic planning, it is important to recognize that you can be simultaneously creating a learning organization. A learning organization responds to outside stimuli/changed conditions without being “told” what to do. The collective consciousness of the organic entity creates a highly productive and effective organization that will adapt quickly to changes … and focus the necessary internal corporate resources to respond. Another way of thinking of it is that a learning organization is an organization wherein activities freely produce the desired outcomes without being stymied by roadblocks. However, if a roadblock is encountered it is recognized as such through learning, and the organization adapts to eliminate, or resolve, the roadblock. The five disciplines necessary to create a learning organization are: (1) shared vision, (2) systems thinking, (3) mental models, (4) personal mastery, and (5) team learning” .
Presentation of the problems that Kaunas city municipality encountered with the introduction and improvement of its strategic management system shows that systems do not work and estimations fail if we are lack of knowledge and experience to identify essential cause-effect relationships in decision-making. Moreover, it reveals that productivity can be maximized by permanent “learning that enhances … capacity to CREATE” and enables to use analytical tools “for making the best decisions – big and small, every day”.
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