The Office of Strategy Management
The Idea in Brief
Most large organizations fail to achieve profitable growth—despite ambitious plans. Why the gap between intended and actual performance? There’s an alarming disconnect between the parts of the organization that formulate corporate strategy and the functions, processes, and people required to execute it.
67% of HR and IT departments’ strategies don’t reflect corporate strategy. 60% of organizations don’t link their financial budgets to strategic priorities. Compensation packages of 90% of frontline employees show no connection to the success or failure of strategy execution. 95% of the typical company’s workers are unaware of, or don’t understand, its strategy.
How to close the breach between strategy formulation and execution? Create an office of strategy management (OSM). Your OSM couples the units responsible for strategic planning with those performing the activities required to implement strategy—such as establishing budgets, communicating strategy to the workforce, and designing compensation systems that reward strategic performance.
The payoff for designing an effective OSM? A corporate strategy that delivers on its promises. Thanks in part to its OSM, the Chrysler Group generated 800.2 billion in earnings and launched a series of exciting new cars in 2004—while the rest of the U.S. domestic auto market languished.
Create and oversee your strategy management system. Help the executive team select performance targets and identify required strategic initiatives. Initiate and administer your company’s strategic performance reporting system. To maintain integrity of performance data, create and enforce uniform organization-wide metrics.
Align the organization. Actively manage organizational alignment with corporate strategy. Institutionalize the use of a common strategic performance reporting system by all units. Ensure that business unit and support unit strategies are linked to one another and to the company’s strategy.
Communicate strategy. Through newsletters, CEO speeches, and other channels, communicate corporate strategy, targets, and initiatives to the workforce. Coordinate with HR to ensure that education about the strategy management process is included in training programs.
Review strategy. Organize and lead monthly strategy-review meetings, briefing the CEO about strategic concerns in advance. Document needed adjustments to strategy and execution identified during meetings and follow up to ensure that changes are implemented. Help the chief financial officer prepare strategy updates for board meetings.
Manage strategic initiatives. Manage strategy-related initiatives that cross unit and functional lines, to ensure they receive sufficient resources and attention. Monitor progress of all strategic initiatives and report on them to top management.
- Planning and budgeting. Work with the finance department to ensure that corporate and unit budgets reflect those established during the strategic planning process and that each unit’s budget includes resources needed for the unit’s contribution to cross-functional strategic initiatives.
- Human resource alignment. See that the HR function manages employee incentives, competency development programs, and annual performance reviews in a manner consistent with corporate and business unit strategic objectives.
- Knowledge management. Coordinate with the chief learning officer to ensure that the best practices and ideas most critical to the corporate strategy are shared throughout the organization.
Most companies have ambitious plans for growth. Few ever realize them. In their book Profit from the Core, Chris Zook and James Allen report that between 1988 and 1998, seven out of eight companies in a global sample of 1,854 large corporations failed to achieve profitable growth. That is, these companies were unable to deliver 5.5% annual real growth in revenues and earnings while earning their cost of capital (a rather modest hurdle). Yet 90% of the companies in the study had developed detailed strategic plans with much higher targets.
Why is there such a persistent gap between ambition and performance? The gap arises, we believe, from a disconnect in most companies between strategy formulation and strategy execution. Our research reveals that, on average, 95% of a company’s employees are unaware of, or do not understand, its strategy. If the employees who are closest to customers and who operate processes that create value are unaware of the strategy, they surely cannot help the organization implement it effectively.
It doesn’t have to be like this. For the past 15 years, we have studied companies that have achieved performance breakthroughs by adopting the Balanced Scorecard and its associated tools to help them better communicate strategy to their employees and to guide and monitor the execution of that strategy. (For background on the Balanced Scorecard, see our book The Strategy-Focused Organization, Harvard Business School Press, 2000.)
Business strategy development process
“Strategic development” or “business as usual”. Which do you want in a market in constant flux under the pressures of technology, geopolitics and changing expectations from customers? We thought so. But too often general management strategies are created without substance. They look good on paper or projected on the boardroom screen, but don’t yield tangible results. Some of the reasons strategy development fails are:
Strategy, according to the Oxford English dictionary, is: “A plan of action designed to achieve a long-term or overall aim.” For the actions that make up a strategic plan to have any relevance, you need to know the goal and its capacity to contribute to your overall business objectives. Strategy development starts with clearly defining a specific goal, making decisions from among options for getting there, and fully scoping out the potential results of selecting a particular option.
“The first critical element of any strategic choice is to think through potential options that could be pursued,” says Professor Albrecht Enders of IMD Business School in Lausanne, Switzerland. “To actually choose which option to pursue, you must have clarity around your objectives, or criteria. Criteria give you a sense of what qualities to look for in a specific strategic option.”
What makes a decision strategic is not only that the decision is important for you and/or your environment, but also that there is no silver bullet solution that ticks all the boxes.
Your strategic destination must be coherent with your overall business objectives. It is important to define how you will achieve this at the outset of your strategy development. “What makes a decision strategic is not only that the decision is important for you and/or your environment, but also that there is no silver bullet solution that ticks all the boxes,” says Professor Enders, who leads programs in Strategy and Innovation. “Instead, different options will score high on some criteria and low on others. When making strategic decisions, it is critical to be clear about options and the trade-offs they entail. On the one hand, we need to ask and challenge ourselves if we have thought broadly enough about potential options.”
And here’s a little action-plan for getting the strategy team working on the right direction, from IMD Business School Professor Bettina Büchel (What? Did you think there’d be no infographics in this article?)
“Strategy design workshops should lead to a concrete strategic agenda that can be executed,” says Professor Büchel. “If you cannot demonstrate the path to deliver on the strategy and you do not have clear outcomes for the rest of the organization, then you don’t have a strategy that can deliver the expected financial outcomes.”
Professor Büchel regularly leads custom strategy development programs for leadership teams at high-profile international organizations such as Nestlé, Commerzbank and Tetra Pak. Leading companies create and implement complex strategies by putting in the time at the beginning, bringing top people together to assess the starting conditions and make explicit choices about the trade-offs that will need to be made to make it happen.
Professor Büchel says it is important to know who will be involved, and then to what degree. On top of that, those involved need to be clear on their roles not only for the development but also throughout the implementation. She says that in speaking with top leaders, “implementation of strategic change is rarely straightforward, and despite years of experience, we often heard that involvement and communication have repeatedly been underestimated.”
Denise Beachy, President of Hemlock Semiconductor Group (a subsidiary owned in majority by U.S.-based Dow Corning Corporation), says that ensuring a variety of perspectives are brought to the table is critical for a strategy development team. “The awareness level is critical,” she says. “You don’t want to have meetings related to strategy and everyone shares the same opinions and thinks the same. You want to drive discussions that force people to think outside of the box and see things from others’ perspective. I was able to bring in this mentality during our strategy creation process.”
8. Be inclusive.
To be nimble, companies are including different people in their strategy than in the past. At a time when companies are hiring more millennial employees, there is greater transparency. While I am never one to advocate that companies open their books (as that is a personal decision for the entrepreneur), there is certainly movement toward more inclusion and transparency.
- Have a strategic action plan that they track often (usually monthly).
- Promote common ownership of the plan across executives and departments.
- Utilize key performance indicators (KPIs) that are predictive and align directly with the strategic plan.
- Have cascading goals that reach every department and resonate with employees so they understand how their role contributes to the greater good.
- Set up their corporate calendar to promote productive meetings, and establish a performance management cycle that supports cascading goals and objectives to every employee.
- Rinse and repeat their strategy cycle every year.