Implementing Strategy
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The Office of Strategy Management
by Robert S. Kaplan and David P. Norton
Included with this full-text
Harvard Business Review
article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
1
Article Summary
2
The Office of Strategy Management
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
11
Further Reading
Strategy at many companies is
almost completely
disconnected from execution.
Establishing a dedicated unit
to orchestrate both will help to
bridge the divide.
Reprint R0510D This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.
The Office of Strategy Management
page 1
The Idea in Brief The Idea in Practice
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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 orga- nization 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 or- ganizations don’t link their financial bud- gets to strategic priorities. Compensation packages of 90% of frontline employees show no connection to the success or fail- ure 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 activi- ties required to implement strategy—such as establishing budgets, communicating strategy to the workforce, and designing compensation systems that reward strate- gic 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 $1.2 billion in earnings and launched a series of exciting new cars in 2004—while the rest of the U.S. domestic auto market languished.
Design your office of strategy management to perform these functions:
CREATE AND OVERSEE YOUR STRATEGY MANAGEMENT SYSTEM
Help the executive team select performance targets and identify required strategic initia- tives. Initiate and administer your company’s strategic performance reporting system. To maintain integrity of performance data, create and enforce uniform organization-wide metrics.
Incorporate changes in corporate strategy into all documents and tools that the com- pany uses to track strategic performance— such as strategy maps and the Balanced Scorecard.
ALIGN THE ORGANIZATION
Actively manage organizational alignment with corporate strategy. Institutionalize the use of a common strategic performance re- porting system by all units. Ensure that busi- ness 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 strat- egy, targets, and initiatives to the workforce. Coordinate with HR to ensure that education about the strategy management process is in- cluded in training programs.
REVIEW STRATEGY
Organize and lead monthly strategy-review meetings, briefing the CEO about strategic concerns in advance. Document needed ad- justments to strategy and execution identified during meetings and follow up to ensure that changes are implemented. Help the chief fi- nancial officer prepare strategy updates for board meetings.
REFINE STRATEGY
Evaluate new strategic ideas coming from within the organization and convey promising ones to senior management.
MANAGE STRATEGIC INITIATIVES
Manage strategy-related initiatives that cross unit and functional lines, to ensure they re- ceive sufficient resources and attention. Moni- tor progress of all strategic initiatives and re- port on them to top management.
CONSULT WITH KEY STRATEGY SUPPORT FUNCTIONS
•
Planning and budgeting.
Work with the fi- nance 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 incen- tives, competency development programs, and annual performance reviews in a man- ner 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 through- out the organization.
This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.
The Office of Strategy Management
by Robert S. Kaplan and David P. Norton
harvard business review • october 2005 page 2
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Strategy at many companies is almost completely disconnected from
execution. Establishing a dedicated unit to orchestrate both will help to
bridge the divide.
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 sam- ple of 1,854 large corporations failed to achieve profitable growth. That is, these com- panies were unable to deliver 5.5% annual real growth in revenues and earnings while earn- ing their cost of capital (a rather modest hur- dle). 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 exe- cution. Our research reveals that, on average, 95% of a company’s employees are unaware of, or do not understand, its strategy. If the em- ployees who are closest to customers and who operate processes that create value are un- aware 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 associ- ated 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.) Some companies, of course, have achieved
better and longer-lasting improvements than others. The organizations that have managed to sustain their strategy focus have typically es- tablished a new unit at the corporate level to oversee all strategy related activities, an
office of strategy management
(OSM), as we call it. This might appear to be nothing more than
a new name for the familiar strategic planning unit. But the two are quite different. The typi- cal planning function facilitates the annual strategic planning process but takes little or no leadership role in seeing that the strategy gets executed. The companies we studied, however,
This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.
The Office of Strategy Management
harvard business review • october 2005 page 3
recognize that effective strategy execution re- quires communicating corporate strategy; en- suring that enterprise-level plans are translated into the plans of the various units and depart- ments; executing strategic initiatives to deliver on the grand plan; and aligning employees’ competency development plans, and their per- sonal goals and incentives, with strategic objec- tives. What’s more, they recognize that the company’s strategy must be tested and adapted to stay abreast of the changing compe- tition. The OSM becomes the central point for coordinating all these tasks. It does not do all the work, but it facilitates the processes so that strategy execution gets accomplished in an in- tegrated fashion across the enterprise.
In the following pages, we will describe how the concept of the office of strategy manage- ment came into being and how it has helped companies align key management processes to strategy. Although the companies we have studied use the Balanced Scorecard as the framework for their strategy management sys- tems, we believe that the lessons we draw are also applicable to companies that do not use the Balanced Scorecard.
Strategy Management: The New Support Function
The exhibit “The Old Strategy Calendar” de- picts the strategy management schedule at a typical large company. The process starts about midway through the fiscal year, when the CEO and the executive team get together to clarify their strategic vision and update the strategy. Sometime afterward, similar pro- cesses take place at the business and func- tional units, led by unit heads and other senior executives. Toward the end of the third quar- ter, the finance function takes the baton, final- izing corporate and unit budgets. At the end of the year, the HR function conducts employ- ees’ annual performance reviews and orches- trates the setting of professional goals and de- velopment programs. Throughout the year, meanwhile, different teams and units have en- gaged in performance reviews, corporate com- munication, and knowledge sharing.
The problem with this approach is that the activities are carried out largely in isolation and without guidance from the enterprise strategy. This partition of responsibilities cre- ates the gulf between an organization’s strat- egy and its processes, systems, and people. Sur-
veys that we conducted of HR and IT managers reveal that the strategies of fully 67% of those organizations are not aligned with business unit and corporate strategies; nor do HR and IT departmental plans support corpo- rate or business-unit strategic initiatives. Bud- geting is similarly disconnected: Some 60% of organizations do not link their financial bud- gets to strategic priorities. Incentives aren’t aligned, either: The compensation packages of 70% of middle managers and more than 90% of frontline employees have no link to the suc- cess or failure of strategy implementation. Pe- riodic management meetings, corporate com- munication, and knowledge management are similarly not focused on strategy execution.
What can companies do to change this state of affairs? The experience of the Chrysler Group first suggested to us that the answer lies in bringing all strategy-related activities into a sin- gle functional unit. After a string of innovative successes in the early 1990s, Chrysler had hit a dry spell. Performance problems were exacer- bated by an economic downturn, rising costs, and encroaching imports, and by 2000, the company was staring at a projected deficit of more than $5 billion for the coming year. At this point, the parent company, DaimlerChrysler, appointed a new CEO, Dieter Zetsche, who in- troduced the Balanced Scorecard as part of a major change in strategy. The project was spear- headed by Bill Russo, vice president of business strategy, whose unit worked with Chrysler’s ex- ecutive team to translate the company’s new strategy into a Balanced Scorecard. Russo’s unit also served as trainer and consultant to help Chrysler’s business and support units create local scorecards that were aligned with corpo- rate objectives and customized to local opera- tions. Once the design phase had been com- pleted and scorecards had been cascaded throughout the company, the strategy group maintained responsibility for the data collection and reporting processes for the scorecards.
Up to this point, Chrysler’s Balanced Score- card project had followed a traditional course. Where Chrysler broke new ground was in the roles assumed by the strategy group. The group took the lead in preparing scorecard- related materials to communicate the strat- egy to the more than 90,000 employees. Russo began to brief Zetsche before each management meeting about issues that had been revealed through the scorecard report-
Robert S. Kaplan
([email protected]) is the Baker Foundation Professor at Harvard Business School in Boston.
David P. Norton
([email protected]) is the founder and president of the Balanced Scorecard Collaborative (www.bscol.com), based in Lincoln, Massachusetts.
This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.
The Office of Strategy Management
harvard business review • october 2005 page 4
ing and that required management attention and action. In his capacity as a member of the executive team, Russo followed up after each meeting to make sure that the required items were communicated and acted upon. As a re- sult of this proactive involvement in agenda setting and follow-up, the responsibilities of the business strategy function expanded to in- corporate many new cross-enterprise strategy execution processes. Thus was born Chrysler’s Office of Strategy Management—a unit cur- rently employing some 13 full-time people who not only manage the company’s strategy but also assist the business units in developing new products. Chrysler’s new approach to strategy execution appears to have paid off handsomely. In 2004, despite a weak domes- tic automobile market, Chrysler successfully launched a series of exciting new cars and generated $1.2 billion in earnings.
The U.S. Army’s Balanced Scorecard project produced an office of strategy management in
much the same way. A central project team at the Pentagon headquarters, under the leader- ship of the Army chief of staff, developed the initial scorecard, which the Army called the Strategic Readiness System (SRS). The project team also selected the software to be used for scorecard reporting and established systems and processes so that the scorecard would be regu- larly populated with valid, timely data. In the next phase, the team helped to cascade score- cards to 13 major subcommands and subse- quently to more than 300 subsidiary commands throughout the world. The centralized project team provided training, consulting, software, and online support for the dispersed project teams. The central team also reviewed the score- cards produced by local project teams to ensure that their goals were aligned with those articu- lated on the chief of staff’s scorecard.
The Army’s project team, like its counter- part at Chrysler, soon took on more than the traditional roles of scorecard custodian and
The Old Strategy Calendar Strategy management at most companies consists of processes carried out in
isolation by different groups with different reporting lines. That’s why strategy
becomes disconnected from the units responsible for executing it.
Top executives conduct monthly management reviews.
Corporate communications unit disseminates information.
Chief knowledge officer oversees knowledge sharing.
Q1 Q2 Q3 Q4
HR coordinates personal goal setting, incentives, and personal development.
The vast majority of executive teams spend less than one hour per
month discussing strategy.
= deficiencies in old management process
Strategy update: CEO and executive team clarify vision.
Senior executives have no consistent way
to describe strategy.
Line-of-business and support-unit leaders conduct strategic planning.Two-thirds of HR and IT
organizations are not aligned with strategy.
CFO oversees budgeting.60% of companies do not link
budgets to strategy.
70% of middle managers do
not have strategy-linked incentive pay.
95% of the workforce does not
understand the strategy.
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The Office of Strategy Management
harvard business review • october 2005 page 5
The Processes of Strategy The Canadian Blood Services’ Office of Strategy Management has direct or indirect
(shaded items) responsibility for strategic processes, which fall into three categories.
STRATEGY LEARNING
Benchmarking
Best-practice sharing
Internal coaching and change management
STRATEGY EXECUTION
Balanced Scorecard performance reporting
Initiative management
Communicating strategy
Personal scorecards
STRATEGY FORMULATION
Environmental assessments
Strategic planning
Budgeting
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How to Wield Influence and Stay Informed
by Graham Sher
As the chief executive of the nonprofit that manages the supply of blood products for all of Canada except the province of Que- bec, I instituted an office of strategy man- agement to help me cope with three big challenges in implementing a strategic agenda. First, I spend a great deal of time dealing with external demands and constit- uents. In addition to reporting to the board of directors of my organization, Canadian Blood Services (CBS), I must also focus on the 12 Canadian provincial and territorial governments that provide its funding. So I have limited time and information with which to manage internal issues.
Also, while many people believe that chief executives wield direct and easy influence, the reality is that any CEO has a difficult time influencing his or her organization. A CEO’s attempts to command and control un- dermine the authority of senior executives. I want to exert my influence indirectly and in a way that empowers my executives and cre- ates an environment in which they can lead and manage their parts of the organization. I set the tone, and I define the strategic agenda, communicate it, and ensure that it gets undertaken, but I don’t command any parts of the organization.
My third challenge is staying informed. Information, particularly bad news, is fil- tered before it gets to me. I typically do not see the most timely, valid information about CBS’s current performance. Before our OSM was implemented, we were spending way too much time debating the quality of our information—obviously an unwieldy way of executing strategy and a very time-intensive way of conducting management meetings.
I see the Balanced Scorecard, managed by an office of strategy management, as a way of overcoming these three barriers to success. The Balanced Scorecard empowers execu- tives, as opposed to invading their territory and undermining their authority. It gives me performance management information that is aligned at all executive levels and appropri- ately validated before it comes to my atten- tion. Much of management is a search for the truth. The Balanced Scorecard provides me
with easy access to timely, unfiltered informa- tion about our strategy implementation.
Because of my urgent need to accomplish change, I followed the unconventional route of establishing an office of strategy manage- ment at the outset of our Balanced Score- card project. I also wanted the OSM to re- port directly to me—that was a way to highlight the importance of this office to my strategic agenda. But the OSM needed other clearly defined linkages or relationships, too; I want change at CBS to come from within, not to be imposed from above. To that end, I created a dotted-line reporting relationship between the OSM and two other key execu- tives at CBS, the CFO and the COO, who ulti- mately are going to help execute the change agenda. I did not create the new corporate- level OSM unit lightly. Its positioning in the organization enables me to fulfill my inter- nal duties as a change leader but doesn’t af- fect my ability to meet the many external obligations I have as the CEO of a rapidly evolving public-sector organization emerg- ing from crisis—Canada’s blood-supply sys- tem was completely revamped after thou- sands of people received contaminated blood in the 1980s and 1990s.
As for the OSM’s responsibilities, I see strategy management as being made up of three high-level processes:
strategy formula-
tion,
leading to
strategy execution,
leading in turn to
strategy learning,
which then cycles back to strategy formulation. The exhibit “The Processes of Strategy” shows the activi- ties within the categories. The OSM has pri-
mary responsibility for most of these pro- cesses, but not all. For example, in 2004, the OSM led the project team that developed the strategy maps and scorecards for the en- terprise, our three operating divisions, and two support units—human resources and information technology. For some pro- cesses, however, the OSM’s role is more inte- grative and facilitative than direct. For ex- ample, the chief financial officer has primary responsibility for budgeting, with the OSM playing a coordinating role.
We launched the OSM with three full- time individuals. The OSM leader is a vice president and a member of the executive management team; her position in the orga- nization is consistent with the importance we give this function. She leads and facili- tates the integration of strategy into all our core processes. In addition, we have two in- dividuals reporting to the OSM leader to provide day-to-day management of the of- fice; to manage the multiple work streams and cross-functional teams; to lead and facil- itate meetings; to educate people on the Bal- anced Scorecard and other strategy-focused practices and tools; and to perform analyses of problems, performance, and metrics. This should be the right complement of individu- als to help support the leader of the OSM, and ultimately the rest of the executive team, in undertaking our ambitious change agenda for this year.
Graham Sher
is the CEO of Canadian Blood
Services, based in Ottawa.
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The Office of Strategy Management
harvard business review • october 2005 page 6
consultant. It established and took ownership of a strategy communication program. The Army team created a Web site that was acces- sible from around the world in both classified and unclassified versions, developed an online portal and library containing information about the SRS, wrote articles about the initia- tive, published a bimonthly newsletter, con- ducted an annual conference, led periodic conference calls with SRS leaders at each com- mand level, and conducted scorecard training, both in person and on the Web. This extensive communication process was critical for edu- cating soldiers and civilian employees and gaining their support for the new strategy. And the Army project team, much as Chrysler’s did, began to facilitate the monthly discussions at headquarters about the readi- ness status of units around the world. Once again, an ad hoc project team had turned into a sustainable part of the organization’s struc- ture (the team and the SRS survived the ap- pointment of a new chief of staff in June 2004).
The creation of a central office for strategy execution may appear to risk reinforcing top- down decision making and inhibiting local ini- tiative, but it does just the opposite. A unit with responsibility for the implementation of strategy becomes a convenient focal point for ideas that percolate up through the organiza- tion. These emerging ideas can then be put on the agendas of quarterly and annual strategy reviews, with the best concepts being adopted and embedded in enterprise and business unit strategies. The OSM is a facilitating organiza- tion, not a dictating one.
What Good OSMs Do
Most of the organizations we have studied fol- low the path Chrysler and the Army took: The Balanced Scorecard project team incremen- tally and organically assumes more and more responsibilities on its own initiative. But that’s not the only way to institute an OSM. From these cases, we have learned what functions an effective OSM must perform and how an OSM must relate to other functions within the organization. As a consequence, a few organi- zations we advise have recently opted to make the creation of an OSM an early and integral part of their scorecard initiatives. Canadian Blood Services, the main provider of blood services in Canada with an annual budget of
Can$900 million, more than 4,000 employees, and 17,000 volunteers, is an excellent example of an organization that created an OSM at the
beginning
of its journey to becoming more strategy focused. (See the sidebar “How to Wield Influence and Stay Informed,” by CEO Graham Sher.)
What should people designing an OSM bear in mind as they embark on the project? Through research into Balanced Scorecard best practices, we’ve identified the activities that should be directly managed by or coordi- nated with an OSM. Some of these activities— specifically those involved in creating and managing the scorecard, aligning the organiza- tion, and setting the agenda for monthly strat- egy reviews—are the natural turf of an OSM. They did not exist prior to the introduction of the Balanced Scorecard, so they can be given to a new unit without infringing on the cur- rent responsibilities of any other department. But many other activities—strategic planning, budget supervision, or HR training, for in- stance—are already the territory of other units. In these cases, the company needs to be explicit about the allocation of responsibilities between the OSM and other functional units. We have identified the following basic OSM tasks:
Create and manage the scorecard.
As the owner of the scorecard process, the OSM must ensure that any changes made at the annual strategy-planning meeting get translated into the company’s strategy map and Balanced Scorecard. Once the executive team has ap- proved the objectives and measures for the subsequent year, the OSM coaches the team in selecting performance targets on the score- card measures and identifying the strategic in- itiatives required to achieve them. As guardian of the scorecard, the OSM also standardizes the terminology and measurement definitions across the organization, selects and manages the scorecard reporting system, and ensures the integrity of the scorecard data. The OSM need not be the primary data collector for the scorecard, but it should oversee the processes by which data are collected, reported, and val- idated. Finally, the OSM serves as the central scorecard resource, consulting with units on their scorecard development projects and con- ducting training and education.
Align the organization.
A company can ex- ecute its strategy well only if it aligns the strat-
A unit with responsibility
for the implementation
of strategy becomes a
convenient focal point
for ideas that percolate
up through the
organization.
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harvard business review • october 2005 page 7
egies of its business units, support functions, and external partners with its broad enterprise strategy. Alignment creates focus and coordi- nation across even the most complex organiza- tions, making it easier to identify and realize synergies. At present, few companies actively manage the process of alignment; in many cases, unit strategies have only rhetorical links with corporate strategy. The OSMs we’ve stud- ied help the entire enterprise to have a consis- tent view of strategy and to systematically manage organizational alignment. The OSM oversees the process of developing scorecards and cascading them through the levels of the organization. It defines the synergies to be cre- ated through cross-business behavior at lower organization levels and ensures that individ- ual business unit and support unit strategies and scorecards are linked to each other and to the corporate strategy.
Review strategy.
For all their professed commitment to strategy, senior managers spend remarkably little time reviewing it. Our research suggests that 85% of executive leader- ship teams spend less than one hour per month discussing their unit’s strategy, with 50% spending no time at all. Companies that manage strategy well behave differently. Top managers usually meet once a month for four to eight hours. This meeting provides the op- portunity to review performance and to make adjustments to the strategy and its execution. The underlying hypotheses of the company’s strategy can be tested and new actions initi- ated. Managing this meeting is a core function of the OSM. It briefs the CEO in advance about the strategic issues identified in the most recent scorecard so that the agenda can focus on strategy review and learning, rather than just a short-term financial performance review and crisis management. The OSM then monitors the meeting to determine action plans and follows up to ensure that the plans are carried out. Since the board of directors also plays an important role in reviewing and guiding strategy, the OSM helps the chief fi- nancial officer prepare the board packet and agenda for board meetings.
Develop strategy.
Typically, strategy formu- lation is the responsibility of the existing stra- tegic planning unit. The unit performs exter- nal and internal competitive analysis, conducts scenario planning, organizes and runs an annual strategy meeting, and coaches
the executive team on strategic options. But developing strategy should not be a onetime annual event. After all, performance mea- sures, such as those supplied by the Balanced Scorecard, provide continual evidence about the validity of the assumptions underlying a company’s strategy. Those assumptions can be discussed periodically by the executive team, which can update the strategy if appropriate. And strategy development should not be done only by senior managers. The OSM or strategic planning unit can act as a filter for new ideas that come from within the organization. We’ve found that most planning units adapt fairly quickly to the continual strategy devel- opment process we observe at scorecard- driven companies. The additional processes represent a natural extension of, and comple- ment to, their traditional work. Problems arise when a scorecard project is managed by a group from outside planning (such as HR, quality, or an ad hoc team). As the scorecard acquires strategic importance, conflicts over strategy development can arise between the planning unit and the scorecard team. If this occurs, top management should quickly merge the two groups.
Communicate strategy.
Effective commu- nication to employees about strategy, targets, and initiatives is vital if employees are to con- tribute to the strategy. Canon U.S.A., a score- card user, describes its internal communica- tion process as “democratizing strategy,” and it actively promotes understanding of the com- pany’s strategy and the scorecard in all busi- ness units and support functions. Strategy communication, therefore, is a natural turf for an OSM. But as with strategy planning, inter- nal communication is sometimes another unit’s existing responsibility. In these situa- tions, the OSM has tended to take an editorial role, reviewing the messages to see that they communicate the strategy correctly. In cases where the corporate communications group has little knowledge of or focus on strategy, such as at Chrysler and the U.S. Army, the OSM takes on primary responsibility for com- municating both the scorecard and strategy to employees. In either situation, the OSM should always take the lead in crafting strat- egy messages delivered by the CEO, because one of the most effective communication channels is having each employee hear about strategy directly from the CEO. Finally, as part
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harvard business review • october 2005 page 8
of its communication responsibilities, the OSM must cooperate with HR to ensure that education about the scorecard and its role is included in employee training programs.
Manage strategic initiatives.
Strategic ini- tiatives—such as a TQM program or the im- plementation of CRM software—are discre- tionary programs that help companies accomplish strategic objectives. The executive team typically identifies these initiatives as part of its annual planning process, although new initiatives may arise throughout the year. Ideally, the entire portfolio of such initiatives should be assessed and reprioritized several times annually. The screening, selection, and management of strategic initiatives are what drive change in the company and produce re- sults. Our experience suggests that such initia- tives should be managed separately from rou- tine operations. Typically, they are managed by the units most closely associated with them (a CRM project, for instance, is best managed
by customer service) or by an ad hoc team drawn from the functions or units affected. Responsibility for managing initiatives that al- ready have a natural home should remain with the associated unit or function. The OSM intervenes only when an initiative falls behind schedule, is over budget, or is not delivering expected results. But the OSM should manage initiatives that cross unit and functional lines—it can thus make sure that they get the resources and attention they need. In all cases, the OSM retains responsibility for monitoring the progress of strategic initiatives and report- ing on them to top management.
Integrate strategic priorities with other support functions.
Existing functional depart- ments retain prime responsibility for three other key processes necessary for successful strategy implementation: planning and bud- geting, human resource alignment, and knowledge management. These processes are critical for effective strategy execution, and
The New Strategy Calendar At scorecard-driven companies, the strategic processes are carried out or super-
vised by the office of strategy management in coordination with the appropriate
management teams or executives. This ensures that the strategy is fully reflected
in all strategy-related activities at all levels of the company.
Top executives conduct monthly management reviews.
Corporate communications unit disseminates information.
Chief knowledge officer oversees knowledge sharing.
Q1 Q2 Q3 Q4
Strategy update: CEO and executive team clarify vision. Balanced Scorecard team facilitates development of corporate scorecard and strategy map.
Line-of-business and support-unit leaders align their units with strategy. Board of directors becomes aligned. Balanced Scorecard team facilitates development of unit scorecards.
CFO, HR head, CIO, and COO conduct planning and budgeting.
HR oversees alignment of personal goal setting, incentives, and personal development with strategy.
Office of strategy management oversees alignment
of all management processes with strategy.
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the OSM should play a consultative and inte- grative role with the respective functional de- partments.
Planning and Budgeting.
At most corpora- tions, the various functional departments are responsible for planning how the corporation will allocate resources over the year. The fi- nance department oversees budgeting and the allocation of cash to the units and cross-func- tional initiatives; IT makes recommendations about investments in databases, infrastruc- ture, and application programs; and HR makes plans for hiring, training, and leadership de- velopment. For a strategy to be effective, all the functional plans must be aligned with the strategy. The budgets prepared by the finance department, for example, should reflect those established in the strategic planning process and should incorporate funding and person- nel resources for cross-functional strategic ini- tiatives. To ensure this alignment, the OSM must work closely with all these functional units.
Human Resource Alignment.
No strategy can be effective unless the people who have to carry it out are motivated and trained to do so. Motivation and training is, of course, the natu- ral domain of HR, which typically carries out annual performance reviews and personal goal setting and manages employee incentive and competency development programs. It is the responsibility of the OSM to ensure that
HR performs these activities in a manner con- sistent with corporate and business unit strate- gic objectives. The goal is to make strategy ev- eryone’s job.
Knowledge Management.
Finally, the OSM needs to ensure that knowledge management focuses on sharing the best practices most criti- cal for the strategy. If managers use the wrong benchmarks, the company’s strategy will fall short of its potential. At some companies, learning and knowledge sharing are already the responsibility of a chief knowledge or learn- ing officer; in those cases, the OSM needs to co- ordinate with that person’s office. But if such a function does not already exist, the OSM must take the lead in transferring ideas and best prac- tices throughout the organization.
The exhibit “The New Strategy Calendar” illustrates the activities that a properly consti- tuted OSM will be engaged in during the year. The strategy cycle launches at the beginning of the second quarter, when the OSM starts to plan strategy and update the enterprise score- card. After the enterprise strategy meeting, the OSM starts the process of aligning the organi- zation with the enterprise goals. Before the end of the third quarter, it will be coordinating with finance to bring unit-level plans and bud- gets in line with strategy, and by the beginning of the fourth quarter, it will be working with HR on aligning the competency development and incentives of employees with scorecard ob- jectives. While these calendar-driven processes are going on, the unit continually engages in control and learning: reviewing and communi- cating strategy, managing initiatives, and shar- ing best practices.
Positioning and Staffing the OSM
Executing strategy usually involves making changes that only a CEO can empower, and the OSM will be most effective when it has direct access to the CEO. Barbara Possin, the director of strategic alignment at St. Mary’s Duluth Clinic, told us she was able to overcome resis- tance to her initiatives because managers knew she had a direct reporting line to the company’s chief operating and chief executive officers. An OSM buried deep in the finance or planning de- partment may find it difficult to command sim- ilar respect and attention from senior execu- tives for strategy management priorities.
The simplest solution, therefore, is to place the OSM on a par with major functions, such
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STRATEGY MANAGEMENT PROCESS
Scorecard management
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Strategy communication
Initiative management
Planning and budgeting
Workforce alignment
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This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.
The Office of Strategy Management
harvard business review • october 2005 page 10
as finance and marketing, that report directly to the CEO. The OSM serves, in effect, as the CEO’s chief of staff. But if the OSM has origi- nated within a powerful function, such a posi- tioning may not be feasible. In that case, the OSM will usually report to the chief of the function in which it is nested—such as the CFO or vice president of strategic planning— but with occasional direct access to the CEO. At the Mexican insurance company Grupo Na- cional Provincial (GNP), for example, the OSM reports both to the chief executive and to the chief financial officer. The OSM sets the agenda for a weekly meeting with the CEO and CFO and for a broader weekly meeting with the six top company executives. The office of strategy management at GNP also has a ma- trixed relationship with 20 Balanced Score- card managers in the two major business units and nine support units and with the owners of the major strategic initiatives. The relationship enables the OSM to coordinate the strategic planning done in the business and support units.
The OSM may be an important functional unit, but it doesn’t have to be large; it is cer- tainly not our goal to encourage companies to build a new bureaucracy. Although Chrysler employs 13 full-time people in its OSM, re- flecting the unit’s involvement in product de- velopment, our experience suggests that firms with sales of $500 million to $5 billion and 1,000 to 10,000 employees can get by with fewer than ten people. In principle, as the ex- hibit on the previous page shows, a fully func- tioning OSM should not need more than six to eight full-time-equivalent positions to cope with its activities.
We have observed that establishing an OSM
does not usually involve hiring expensive new talent. The OSM is typically staffed with peo- ple who led the Balanced Scorecard project— they often come from the planning and fi- nance functions, but some come from other staff groups such as quality, HR, and IT. Several organizations we studied have reported that the people assigned to their OSMs do not con- stitute a net increase in the organization’s head count. In many cases, the evolution of a well- functioning OSM actually helps reduce overall head count, thanks to the OSM’s role in streamlining and focusing management pro- cesses and helping managers eliminate layers of staff engaged in data gathering and report- ing. The OSM, however, should be assessed by the value it creates through successful strategy execution, not by whether it can reduce head count.
• • •
Many organizations have achieved dramatic performance improvements by sustaining a focus on implementation of strategy. We have captured and codified a body of knowledge from these successful organizations that pro- vides the foundation for an emerging profes- sional function focusing on the management of strategy. An office of strategy management that is positioned at the level of other senior corporate staff offices and has responsibility for managing and coordinating all the key strategy management processes can help com- panies realize the benefits from this body of knowledge.
Reprint R0510D
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It’s simplest to place the
office of strategy
management on a par
with functions that
report directly to the
CEO. The office serves, in
effect, as the CEO’s chief
of staff.
This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.
The Office of Strategy Management
To Order
For
Harvard Business Review
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Further Reading
A R T I C L E S
Turning Great Strategy into Great Performance
by Michael C. Mankins and Richard Steele
Harvard Business Review
July 2005 Product no. R0507E
The authors provide additional guidelines for
coupling strategy formulation with execu- tion:
1) Articulate your company’s strategy in clear, simple terms describing what your com- pany will and won’t do. 2) Challenge the as- sumptions underlying your strategic plans to ensure that they reflect real market econom- ics and your organization’s capacities. 3) Use common, agreed-on approaches—such as benchmarking—to assess strategic perfor- mance. 4) Discuss resource deployments among business units early to create feasible forecasts. 5) Identify key actions that must be taken to deliver planned performance, and determine when they must be taken. 6) Track real-time results against your strategic plan, revising assumptions and reallocating re- sources where needed. 7) Strengthen execu- tion ability, by making selection and develop- ment of managers a top priority.
Transforming Corner-Office Strategy into Frontline Action
by Orit Gadiesh and James L. Gilbert
Harvard Business Review
May 2001 Product no. R0105D
Gadiesh and Gilbert argue that managers can improve strategy execution by clarifying and communicating strategy. To that end, they recommend crafting a
strategic principle
—a pithy, memorable, action-oriented phrase that distills your company’s strategy and commu- nicates it throughout the workforce. Examples include AOL’s “Consumer connectivity—any- time, anywhere,” The Vanguard Group’s “Creat- ing unmatchable value for investors/owners,” and Southwest’s “Meet customers’ short-haul travel needs at fares competitive with the cost of automobile travel.”
An effective strategic principle helps people make trade-offs between competing re- sources, links leaders’ strategic insights with line operators’ pragmatic sense, and sets clear boundaries within which employees operate and experiment. Communicate your strategic principle consistently, simply, and repeatedly.
This document is authorized for use only by Familia Herring in Strategy at Strayer University, 2018.
